In the income statement, Pepsi’s cost of sales in 2013 is 31,243, a percentage of47% of the base amount, while the cost of sales in the year of review (2014) is $30,884, a percentage of 46% of the base amount. Coca Cola’s cost of sales in 2013 is $18,421, a percentage of 39% of the base amount while the cost of sales in the year of review (2014) is $17,889, a percentage of 39% of the base amount. From the above we can deduce that Pepsi co slightly improved its production process while Coca Cola kept its constant on a y/y analysis.
Another important factor in the income statement is the net income. In 2013, Pepsi co.’s net income was $6,740, 10% of the base amount; in 2014, its net income was $6,514, 10% of the base amount. In 2013, Coca Cola’s net income was $8,584, 18% of the base amount; in 2014, its net income was $7,098, 15% of the base amount. Coca Cola’s decreased net income was partly due to an increase in its SGA from 39% in 2013 to 40% in 2014. Also, total Other Income/Expenses net went from a positive 2% of the base amount to a negative 1.45% of the base amount.
Although Pepsi Co managed to maintain a net income of 10% of the base amount, performance was not satisfactory as they fell below Coca Cola which had a lesser Total revenue and a higher net income than Pepsi co. The lesser net income compared to Coca Cola’s net income in year 2013 and 2014 is caused by a substantially higher cost of sales which is 8% higher than Coca Cola’s in 2013 and 7% higher in 2014.
In the statement of financial position, current assets for Pepsi co remained constant at 29% of the base amount, but current liabilities increased from 23% in 2013 to 26% in 2014. This doesn’t pose any major threat since the current assets are still more than enough to settle its current liabilities. For coca cola, there was an improvement in current assets from 35% in 2013 to 36% in 2014, although current liabilities worsened from 31% in 2013 to 34% in 2014. Coca Cola needs to look into this because its current asset is just enough to cover the current liabilities.
In an analysis of the valuation ratios, Pepsi Co’s P/E ratio was $17.66 in 2013 with an increase to $22.86 in 2014. This is not a good sign for Pepsi co as it is getting over valued based on an historical analysis. The annual EPS growth rate is 14.72%, and the PEG (Price/earnings to growth ratio) is 1.55. The market is saturated with limited opportunity for growth. Coca Cola’s P/E ratio was $19.54 in 2013 with an increase to $25.87 in 2014. Compared to Pepsi co, the stock is overvalued and also based on an historical analysis, the same conclusion is derived. The annual Eps growth rate for Coca Cola is 11.49%, and the PEG is 2.25. The PEG ratio shows us that, when compared to Pepsi Co, Coca Cola doesn’t have the growth rate to justify its higher P/E, and its stock price appears overvalued.
Going forward, we look at their price to sales ratio (P/S). It is derived by dividing the company’s market capitalization by the revenue in the most recent year. The P/s ratio in the year ended 2013 for Pepsi co is 1.79, and there is a decline to 2.23 in the year ended 2014 (The smaller this ratio is usually thought to be a better investment since the investor is paying less for each unit of sales). The P/s ratio in the year ended 2013 for Coca Cola is 3.58, and there is a decline to 3.99 in the year ended 2014. The P/s ratio shows us that, when compared to Pepsi co, Coca Cola made lower revenue per share in both years.
Nb: Amounts from the income statement and the statement of financial position are in $’millions