Pepsi vs. Coke
By: Jared Madison

The Coca Cola Company was founded in 1892, after the formulation of the carbonated soft drink by John Pemberton in response to an increased demand for non-alcoholic drinks after prohibition took effect in his hometown and made sale of alcohol illegal. Since then, the company has grown into a giant of the soft drink market, with more than 35 billion dollars in revenue and 73 billion dollars in total assets. Their remarkable growth has been due in part to their ability to manage their assets. A vertical analysis of the company indicates that Coca Cola has their valuable assets spread widely throughout the company’s different bases. The firm has 4.7 million dollars in cash and cash equivalent assets, which makes up 11.4 percent of their total current assets. This is a good indicator of their financial stability; a firm that can afford to keep that much cash has a lot more flexibility than non-liquid competitors. In comparison, Pepsi has only 2 million dollars in cash and cash equivalents, making up only 5.7 percent of their total current assets. Pepsi does not have as much freedom to pursue new projects, or recover from a surprising devaluation of their company should that occurred. Coca Cola also has more money tied up in long-term investments, a total of 5.8 million dollars, or 14.3 percent of their total assets. In comparison, Pepsi only invests 11.1 percent of their total assets in long term projects, or 4 million dollars. (Vertical analysis, 2010) While Pepsi may have an advantage by having more capital available to them in the short term, Coca Cola’s long term profitability will most likely be higher because of their commitment to long term investment. By comparing the different capital assets of the two companies, one can make a much better decisions about which firm is a better fit for his or her investment goals.
But a vertical analysis is a mere snapshot of the direction in which the two companies are moving. To fully understand a company’s financial health, it is necessary to evaluate them based on performance over time. This is the utility of horizontal analysis. Coca Cola increased their yearly current assets by a meager .59% and actually decreased their total investments to 74 percent of what they had been one year prior. Their total assets are down almost 7 percent. Despite this, their cash and cash equivalency assets rose from 4093 thousand dollars to 4701 thousand dollars. (Coca Cola balance, 2010) PepsiCo has a much stronger year to year performance than Coca Cola. Despite having less total capital assets than Coca Cola, they rose 2 percent over the year, from 1.7 million to 2 million dollars. And PepsiCo’s cash and cash equivalent assets have risen 3 percent to 2 million dollars from the previous year, which again allows them more flexibility. Comparing the two company’s performances over time, as well as a vertical analysis of what they have done compared to one another, is a very valuable metric in assessing the companies’ actual value and determining which investment would be wisest for any particular investment strategy.
These general, sweeping aspects of a company’s financial health are not all matters to an investor. A company’s liquidity, that is, how able the company is to pay off short term debts, is also a major factor. If a company is not able to raise the necessary funds to pay off a debt, that company could conceivably have to take out exorbitant loans or in the worst case scenario have to file for bankruptcy, which would cripple the value of the stock. Liquidity ratios are a measure of a company’s ability to pay these debts compared to their total assets. PepsiCo’s current liquidity ratio is 0.40, which although that is a solid place to be, is not ideal given the size of PepsiCo and its volatility in the soft drink market, especially with so much competition. Because of Coca Cola’s higher market value and larger cash