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Financial_management assignment 5

Financial_management assignment 5 - Running head FINANCIAL...

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Running head: FINANCIAL MANAGEMENT 1 Financial Management Steven Lubawski Dr. Pogue The Business Enterprise 12 June, 2011 This report will focus on the comparison of financial conditions, especially their profits statements between Coca-Cola and Pepsi Co. for their stakeholders, like consumers, shareholders, managers, investors, and employees, creditors and lenders. The two soft-drink giants have been battling for bigger shares of the globe's thirst for more than a century. "Coke or Pepsi" has been debated endlessly, with ads such as the Pepsi Challenge campaign in the 1970s fueling the rivalry. And both sides in this epic consumer battle have had hits (Diet Coke and Pepsi One) and misses (New Coke and Crystal Pepsi) The Coca-Cola Company is the largest manufacturer, distributor and marketer of nonalcoholic beverage concentrates and syrups in the world. It is assessed as the most valuable brand in the world that owns or licenses more than 400 brands, and its products are sold in more
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FINANCIAL MANAGEMENT 2 than 200 countries. However, PepsiCo, as one of Coca-Cola’s toughest competitors, is also very competitive in the nonalcoholic beverage market. It is the second-largest food and beverage company in the world. This is quite evident of PepsiCo’s gross profit margin of 57.5% and sales for 2010 of $43.23 billion in 2010, compared to Coco-cola’s gross profit margin of 68.4%.and sales of $30.99 billion. (Investing in Coco-cola or Pepsi for Stock Gains) Based on your analysis, determine which company is better able to pay current liabilities (debt). Explain your rationale. The current ratio measures the company’s ability to pay its short term obligations with its short term assets. Between Coca Cola and PepsiCo, Coco-Cola has a slightly higher current ratio implying that is also slightly more capable of paying its obligations. One of the most common metrics that investors use to judge the safety of a dividend is the payout ratios. This actually tells us what percentage of net income is paid out to investors in the form of dividends. (Coco-Cola’s Dividends May Not Last Forever) Normally anything above 50% is cause to look further. As stated in the data provided, Coco-cola’s payout is 53%. While this is not a reason to pull the switch on the alarms, it does need to be looked into a bit further. At this point, it would be necessary to look at cash flow, which is the cash left over after subtracting out capital expenditures, to see if there is enough to support its 53% payout ratio. Therefore, it can be said that Coca Cola has a slight edge and is more liquid than PepsiCo based on its current ratio. Coco- cola’s current ratio is 1.1 and Pepsi-Co’s current ratio is 1.0 based on financial ratios quarter ending March, 2011. (Pepsi-Co Inc and Coco-Cola Co financial ratios- Forbes.com) Determine what profitability ratios can tell you about a company’s performance and how that information would influence investing decisions.
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