Slide 1

Which company performs better ?

Coca-Colais acarbonatedsoft drinksold in stores, restaurants, andvending machinesthroughout the world.It is produced by The Coca-Cola CompanyofAtlanta,Georgia, and is often referred to simply asCoke

The Brands in COCA-COLA Company

The Brands in PEPSI Company

Liquidity AnalysisCurrent Ratio & Quick Ratio Coke has weaker liquidity position compare to Pepsi But it has a positive trend compare past 3 yearsHowever, only slight different in Quick Ratio = Pepsi has very high inventories201320122011PepsiCurrent Ratio1.131.091.051.24Quick Ratio1.010.970.921.05C. Asset/C. Liability(C. Asset-Inventories)/C LiabilitiesHigher BetterAsset ManagementAnalysisInventory Turnover201320122011PepsiInventory T/O14.3014.7115.0519.48Sales/ Inventory Inventory t/o is much higher than Pepsi = Pepsi is more efficient in making sales and stock forecast However, Coke ratio is still consider very high But the trend of Coke Inventory t/o is getting worst year by year

Reason: Cokes inventory has +6% increase in year 2012 while sales is constant Cokes sales -2% in year 2013 while inventory is constantHigher BetterDay Sales Outstanding (DSO) Coke and Pepsi almost has the same DSO in 2013 and both have very impressive DSO Very high bargaining power vs. customersCoke has made good improvement in DSO in 2012 but it become worse in 2013

Reason+2% in receivable and -2% sales in 2013201320122011PepsiDSO37.9636.1838.5838.22Receivables/Avg. Sales per dayLower BetterFixed Asset Turnover & Total Asset Turnover201320122011PepsiFATO3.133.323.123.58TATO0.520.560.580.86 Coke has weaker asset utilization to generate sales compare to Pepsi (both FATO and TATO) In addition, Coke show no significant improvement in past 3 years Coke has -12.5% less FATO but -39% less TATO Reason: Coke has -29% lower sales But Coke only -19% lower in fixed asset But Coke has -16% more in Total AssetSales/Net Fixed AssetSales/Total AssetHigher BetterDebt ManagementDebt Ratio and TIE Coke has better position in dealing with debt compare with Pepsi And much more ability to pay its debt compare to Pepsi

However, Cokes Debt management ratios is getting worst in the past 3 years

Coke has create more debt and lower ability to pay them! Reason : Significant increase in Long Term and Other Asset and might not be able to generate sales now 201320122011PepsiDebt Ratio63.16%61.95%60.44%68.50%TIE25.7930.7528.4810.76Total Debt/Total AssetEBIT/Interest Expense

Lower BetterHigher BetterDebt RatioTIEProfitability AnalysisOperating Margin & Profit Margin & Basic Earning Power

201320122011PepsiOperating Margin25.48%25.42%25.51%14.76%Profit Margin18.32%18.78%18.44%10.15%Basic Earning Power13.26%14.16%14.85%12.65%EBIT/SalesNet Income/SalesEBIT/Total Asset

Higher Better Coke has much better position in making profit compare to Pepsi (Operating & Profit margin) Coke Operating margin and Profit margin are constant in past 3 years Coke and Pepsi has similar Basic Earning Power Increase in asset didnt generate much more sales !

ROA and ROE

201320122011PepsiROA9.53%10.47%10.73%8.70%ROE25.88%27.51%27.13%27.61%Net Income/Total AssetNet Income/Total common equity

Higher Better Coca-Cola Company is more efficient in terms of its return on assets. It can be said that the Coca-Cola Company can control its costs and utilization of its resources better than the Pepsi Company in the year of 2013.

Pepsi Company is more efficient in terms of its return on equity. This is better for the investors.

Coke ROE drop a lot in 2013 as Net Income decrease by -5% while total equity didnt change much 201320122011PepsiROE(%)25.8827.5127.1327.61PM(%)18.3218.7818.4410.15TA/TO0.520.560.580.86EM2.712.632.533.17

The DuPont System

TA/TOProfit Margin(%)Equity MultiplierProfit Margin: The ratio was slightly dropped in Y2013 comparing to previous year because of the decreasing in sale. However, it was higher than the competitor.

Total Asset: Turnover : The ratio was decreased gradually every years. This means that the efficiency of using asset to generate income was lower. while the direct competitor can utilize asset better than the company.

Equity Multiplier: The competitor has more liabilities proportion then the company.

Conclusion:Drop in ROE of the company was from the decreasing of profit margin and the lower efficiency of using asset. Moreover, the proportion of liabilities was increasing .The competitor was showing higher in ROE than the company. Even if the debt proportion was high but they had more efficiency to generate sales from asset.So next we will compare company performance by analyzing using Dupont system.The dupont system will explain the combination of ROE ratio The first one is profit margin from the above table The ratio was slightly dropped in Y2013 comparing to previous year because of the decreasing in sale. However, it was higher than the competitorTotal Asset: Turnover : The ratio was decreased gradually every years. This means that the efficiency of using asset to generate income was lower. while the direct competitor can utilize asset better than the company.Equity Multiplier: The competitor has more liabilities proportion then the company.

Conclusion:Drop in ROE of the company was from the decreasing of profit margin and the lower efficiency of using asset. Moreover, the proportion of liabilities was increasing .The competitor was showing higher in ROE than the company. Even if the debt proportion was high but they had more efficiency to generate sales from asset.17Market Value Analysis201320122011PepsiP/E21.7418.4038.0319.20M/B ratio5.484.9410.015.19 Coke has slightly more P/E and M/B ratio than Pepsi as investor has more confidence in the company even Coke has lower ROE However, both company has high P/E ratio as investor has high confidence in both companyIn year 2012, price per share of Coca-Cola was decreased, therefore P/E ratio reduced as well. P/EPrice/ Earnings Ratio Price/Earning per ShareMarket Price/Book Value per Share

Higher BetterM/B19201320122011PepsiBook value per share$7.54$7.34$6.99$15.96 Book value per share of Pepsi was much higher than Coca-Cola because of common equity of Pepsi was higher than Coca-Coal but shares outstanding was lower than Coca-Cola Market/ Book RatioBook Value per ShareConclusionCokes StrengthOverall financial position is goodLow risk of bankruptcyHigh LiquidityHigh ability to pay debt (higher than Pepsi)Can keep money from customer less than 60 daysInvestor has high confidence in the companyHigh profitability (higher than Pepsi) And Coke only concentrate on Beverage business!

Cokes WeaknessLower ability to utilize asset to generate sales compare to PepsiDebt and asset increase year by year and it didnt generate much more salesA lot of increase in long term and other asset Investment for future growth ?

Key ImprovementImprove on asset utilization in the future as Coke already have made a lot of investment110.148309869818.320741025318.782931045318.4435563577

Profit Margin (%)

Sheet1Column1Profit Margin (%)Quick RatioPepsi10.151.05201318.320.96201218.780.92201118.441.24To resize chart data range, drag lower right corner of range.COCA-COLAPEPSIFY 2011FY 2012FY 2013FY 2013ROE (%)27.1327.5125.8827.61Profit Margin (%)18.4418.7818.3210.15Total Asset Turnover0.580.560.520.86Equity Multiplier2.532.632.713.17

10.860.520.560.58

TA/TO

Sheet1Column1TA/TOQuick RatioPepsi0.861.0520130.520.9620120.560.9220110.581.24To resize chart data range, drag lower right corner of range.COCA-COLAPEPSIFY 2011FY 2012FY 2013FY 2013ROE (%)27.1327.5125.8827.61Profit Margin (%)18.4418.7818.3210.15Total Asset Turnover0.580.560.520.86Equity Multiplier2.532.632.713.17

13.172.712.632.53

EM

Sheet1Column1EMQuick RatioPepsi3.171.0520132.710.9620122.630.9220112.531.24To resize chart data range, drag lower right corner of range.COCA-COLAPEPSIFY 2011FY 2012FY 2013FY 2013ROE (%)27.1327.5125.8827.61Profit Margin (%)18.4418.7818.3210.15Total Asset Turnover0.580.560.520.86Equity Multiplier2.532.632.713.17