Comparative Financial Statement Analysis

Introduction

A variety of similar patterns can be observed across the large-scale companies in the modern business environment, particularly in the area of budgeting and organizational financing. Provided the companies are operating within the same economy and industry, they are subjected to an identical set of laws and regulations, as well as the demands of the free market. However, individual characteristics connected to their respective histories and managerial practices definitely impact the financial affairs of each firm separately.

A comparative analysis might be then carried out to compare and contrast the general information on the companies, and, more importantly, their accounting methods and existing ratios. This paper aims to carry out the aforementioned steps, as well as provide final budgeting recommendations for Coca-Cola, Dr Pepper, and Pepsi Co.

Company Overview

Coca-Cola is the leading manufacturer, marketer, and retailer of non-alcoholic beverages, and specializes on fizzy drinks. Headquartered in Atlanta, Georgia, the firm produces a wide range of drinks that are then distributed and sold in over 200 countries around the world. The key brands of the firm are well-established and internationally known, with the biggest names on brand portfolio including Coca-Cola itself, Fanta, and Sprite.

At the moment, the Coca-Cola company’s priority is to branch out into a healthier and wider range of available drinks, including sports beverages, vitaminized coffee and a recently purchased smart water formula.

Thus, their current strategy is largely focused on a disciplined portfolio growth that plays a key role in the company’s journey towards manufacturing beverages for life. Disciplined portfolio growth is maintained through an emphasis on innovation, revenue growth analysis and consistently perfected formulas, which together constitute the basis of the Coca-Cola branding. Following the emerging sustainability regulations, Coca-Cola is going through a transformation in their approach to bottling and distribution. The firm has partnered with an updated set of suppliers whose practices go hand in hand with the green supply chain management demands.

Dr Pepper is the oldest out of the currently operating soft drink manufacturing companies in America, being first established back in 1904 in Louisiana. At present, Dr Pepper Snapple Group is based in Plano, Texas, and as of July 2018 forms a part of a recently founded and publicly traded conglomerate Keurig Dr Pepper. As a non-alcoholic beverage industry is an exceptionally competitive environment for every firm, that is not a part of the Coca-Cola, Dr Pepper has put an emphasis on diversification (Heley at al., 2020).

Despite slow sales in the overall non-cola carbonated soft drink market, many top managers within the company believe that flavored soft drinks show room for growth. Dr Pepper managers believe, that as consumers grow tired of the cola taste, flavored soft drinks are the “sweet spot” in the industry. Recently, Dr Pepper has made a number of changes to its soft drink brands, such as the addition of a new Green Tea Ginger Ale, the introduction of an updated 7UP with added antioxidants, a recipe change for A&W Root Beer which now incudes vanilla, and the development of Dr Pepper Cherry.

PepsiCo is a multipurpose global conglomerate of companies, which includes such firms as Pepsi-Cola, Frito-Lay, Gatorade and Tropicana. Despite Pepsi-Cola being the most well known association with the conglomerate name, it overall presents a notably more diverse portfolio of brands and products (Rahimo et al., 2020). Consecutively, the PepsiCo holds the position of the global leader in the overlap between convenience foods and beverages, aiming for wide assortment rather then precision. It has frequently engaged in a competitive marketing with Coca-Cola, with each company aiming to openly outshine the other with advertising projects and slogans.

However, in the recent years the PepsiCo’s branding approach has changed, with the company instead attempting to benefit from a socially responsible perception. PepsiCo aims for its sustainable policies to enhance their brand growth, while benefiting the local communities and the planet. The biggest internal managerial challenges PepsiCo is currently facing concerns the need for a company to operate as a singular united body despite the multiple firms that form its parts. This challenge is addressed by enforcing an emphasis on the inventory optimization across factories, holding them to the same standard, and continuous development of the communication channels.

Comparison of Accounting Methods

As Coca-Colas official website suggests, at the moment the firm is focused on reinvesting their cash money back into corporate growth and production increase. Other budgeting aims include regular and consistent provision of return on investment to shareholders and commitment to the consumer-centric M&A. Coca-Cola’s accounting is therefore balancing between financial risks, strategic rationale and short-term returns (Rahimo et al., 2020). As the industry leader, the corporation has access to a large body of capital. However, as the cash assets are consistently being reinvested into further portfolio diversification and brand development, Coca-Cola’s liquidity remains comparatively low.

Dr Pepper is currently investing a large section of its profits into the advertising and other forms of promotion. The firm’s marketing expenses have risen consistently since the year 2007, which arguably correlates with Dr Pepper’s emphasis on updating the assortment of flavored soda drinks. Budgeting specialists in Dr Pepper are expected to work closely with the manufacturers and operate with data-driven insights in mind. Accounting department provides a decision-making support, drives cost efficiencies, and strategizes on process improvements.

PepsiCo accounting relies on a detailed understanding of corporate legislation and ensuring the firm harnesses the benefits provided by the economies of scale and broad brand portfolio. The cross-budgeting confusions are avoided by the separation of responsibilities between the accounting specialists in each separate company division. Transparency and clear report mechanisms are established throughout the conglomerate to ensure effective financial management and accountability of incomes and expenses.

Ratio Analysis

Coca-Cola

Current Ratio 1.33
Quick Ratio 1.13
Gross Profit Percentage 21.62%
Inventory Turnover 3.92
Accounts Turnover, Receivable 8.16
Asset Turnover 0.36

Coca-Cola generates substantial profits, as indicated by the profitability ratios figures in the company ratio assessment. The profit figures of Coca-Cola are the highest among the three companies discussed in this paper, indirectly confirming its position as the industry leader. Overall the profitability remains consistently high without significant changes in the revenue despite the volatility of the market demand. This phenomenon might be explained with the large scale of production and diversified brand portfolio that Coca-Cola possesses, as well as their well-known formulaic signature taste. Inventory and asset turnovers is comparatively low, indicating efficient internal management of assets and successful maintenance of the equipment,

Dr Pepper

Current Ratio 0.37
Quick Ratio 0.25
Gross Profit Percentage 12.83%
Inventory Turnover 6.84
Accounts Turnover, Receivable 11.33
Asset Turnover 0.24

Dr Pepper generates substantial profits, as indicated by the profitability ratios figures in the company ratio assessment. The gross profit percentage of the firm has increased within the last three years, illustrating the positive impact of the chosen branding strategy. Overall Dr Pepper is a profitable company, but their current and quick rations are comparatively low. This indicates that the firm does not have a significantly larger amount of assets if compared to liabilities. Its inventory turnover is higher than Coca-Colas, potentially requiring a more efficient equipment management.

PepsiCo

Current Ratio 0.7
Quick Ratio 0.91
Gross Profit Percentage 11.08%
Inventory Turnover 7.32
Accounts Turnover, Receivable 8.06
Asset Turnover 0.82

PepsiCo generates substantial profits, as indicated by the profitability ratios figures in the company ratio assessment. However, their net profit is the lowest out of the three companies including in the comparison, indicating the potential need for financial restructuring. The company’s quick and current ratios exceed Dr Pepper, although remain lower than those of Coca-Cola. It might be assumed that PepsiCo has a comfortably greater amount of assets when compared to liabilities. However, inventory turnover ratio is somewhat concerning, as this number is not justified by a substantial revenue growth.

Final Recommendation and Conclusion

Basic ratio analysis indicates inventory management to be a somewhat overlooked area in the financial organization of the three firms. However, a researcher must remember, that as production-oriented companies, the non-alcoholic beverage manufacturers heavily rely on the capacity and state of their equipment. As a result, it requires frequent upgrades and provides maintenance costs, which understandably affect companies’ budget. Otherwise the chosen budgeting strategies of Coca-Cola, Dr Pepper and PepsiCo appear to be effective, adequately satisfying all of the firms’ relevant needs.

References

Heley, J., Welsh, M., & Saville, S. (2020). The fanta-sy of global products: fizzy-drinks, differentiated ubiquity and the placing of globalization. Globalizations, 17(4), 683-697. Web.

Raimo, N., de Nuccio, E., Giakoumelou, A., Petruzzella, F., & Vitolla, F. (2020). Non-financial information and cost of equity capital: An empirical analysis in the food and beverage industry. British Food Journal., 123 (1), pp. 49-65. Web.

Cite this paper

Select style

Reference

StudyCorgi. (2022, September 6). Comparative Financial Statement Analysis. https://studycorgi.com/comparative-financial-statement-analysis/

Work Cited

"Comparative Financial Statement Analysis." StudyCorgi, 6 Sept. 2022, studycorgi.com/comparative-financial-statement-analysis/.

* Hyperlink the URL after pasting it to your document

References

StudyCorgi. (2022) 'Comparative Financial Statement Analysis'. 6 September.

1. StudyCorgi. "Comparative Financial Statement Analysis." September 6, 2022. https://studycorgi.com/comparative-financial-statement-analysis/.


Bibliography


StudyCorgi. "Comparative Financial Statement Analysis." September 6, 2022. https://studycorgi.com/comparative-financial-statement-analysis/.

References

StudyCorgi. 2022. "Comparative Financial Statement Analysis." September 6, 2022. https://studycorgi.com/comparative-financial-statement-analysis/.

This paper, “Comparative Financial Statement Analysis”, was written and voluntary submitted to our free essay database by a straight-A student. Please ensure you properly reference the paper if you're using it to write your assignment.

Before publication, the StudyCorgi editorial team proofread and checked the paper to make sure it meets the highest standards in terms of grammar, punctuation, style, fact accuracy, copyright issues, and inclusive language. Last updated: .

If you are the author of this paper and no longer wish to have it published on StudyCorgi, request the removal. Please use the “Donate your paper” form to submit an essay.