Coca Cola Financial Analysis Essay
The information presented below is a financial analysis of Coca-Cola, Keurig Dr Pepper, and PepsiCo companies, three of the largest beverage companies in the world. The analysis begins with details of each company’s overview, a ratio analysis, overview of accounting methods, and other key factors of operation.
The information obtained in this financial statement analysis is gathered from actual financial data with the objective to show the similarities and differences in the financial accounting methods of the three giant monopolies and determine their strengths and weaknesses as compared to the other. The way these business entities operate greatly depend on how efficient their financial accounts are managed. Examining each beverage company’s overview and financial analysis will maintain that the methods used may harness differences in the financial statements due to their operational standards, accounting methods, and new ideas and innovations.
Analyzing alternatives to the current way these companies operate may bring better solutions that introduce new opportunities for growth recommendations. The Coca-Cola Company The Coca-Cola Company began operation 115 years ago in the small town of Greensboro, North Carolina. Other brands consistently study how this vision created by pharmacist, Dr. John S. Pemberton and partner bookkeeper, Frank M. Robinson in 1886 with carbonated water, some flavoring, and a few great trademarks today reaches nearly 2 billion people daily who are drinking Coca-Cola beverages all over the world (Coca-Cola, “n.d”). The company has always been a business built on innovation.
In fact, one of the first marketing opportunities was executed using coupons almost a century ago. The way the brand markets itself and how it operates serves as reason why it is one of the top beverage companies in the world. Coca-Cola continues to raise the bar for other beverage competitors by diversifying the brands options with drinks like Minute Maid, Sprite, Tab, Fresca, Glaceau Vitaminwater, Smartwater, Gold Peak Tea, Hi-C, Powerade, and Dasani (Coca Cola, “n.d”). They also hold exclusive distribution licenses with brands like Dunkin Donuts, Dr. Pepper Snapple, and Monster Energy, while also holding long-term distribution contracts with huge brands like Subway. The company sells products to retailers, stores, and customers globally.
Analyzing the details of the company’s accounting methods gives consumers and interested investors more insight as to how the business truly operates as a leader amongst other giant conglomerates. Based on the Coca-Cola’s financial history, the FIFO (first in, first out) and straight-line method of accounting are the preferred methods for accounting used to manage the companies sells, expenses, assets, and liabilities. This way the company keeps track of their oldest inventory while also increasing their net income. They are a credit-based company that negotiates 30-day payments against their accounts receivable.
The company also allows for doubtful accounts in accounts receivable to reduce the real value of the uncollectible debt. The amount of allowances is based on their financial history and trends. This allows room to adjust uncollectible expense accounts to reduce the realized value or estimated settlement. This is done by dividing the allowance debit by the accounts receivable. The Coca-Cola Company is a conservative business that uses aggressive methods to keep their expenses lower while also increasing the chances of having a higher net income year-over-year. It is no wonder they have continued to beat out other brands as the top beverage business in the market today. Since Keurig came onto the scene in 1990, the company has completely flipped the coffee industry upside down by introducing a new convenient way to brew one gourmet cup of coffee at a time.
Owners Peter Dragone and John Sylvan came up with the idea to make brewing coffee more convenient while also tasting better with their idea of a single serve coffee maker. Today, the company has expanded their idea to include cappuccinos, teas, lattes, and even vitamin beverages. Keurig’s innovations keep them as a front runner in the coffee industry. Like other competitors, Keurig has built smart business relationships with other brands like Folgers, Dunkin Donuts, Snapple, Starbucks, and Tazo to increase consumer choices in flavors and beverage options used in a Keurig Brewer. Keurig also uses a different inventory method to track their quarterly results keeping a better detail of their inventory sold and available. PepsiCo is known as one of the top snacks and beverage companies in the world today. Like its competitor the Coca Cola Company, the company was also created by pharmacist more than 15 years after and in North Carolina as well. Since the companies start, PepsiCo continues to broaden its beverage and food platforms by heightening consumer approvals beyond its core products like Pepsi, Frito-Lay, and Quaker Oats. The company has also built a huge international footprint with household favorites like Doritos, Tropicana, Gatorade, Naked Juice, and KeVita.
The strategic goals that keep this company thriving is key to why PepsiCo stands out amongst their competitors. The company uses lots of complimentary strategies in the way they market their business. They use influencer partnerships. The company sponsors huge events like the Superbowl. They even cross-promote their brand with megastars to advertise to the star’s fanbase.
Other strategic moves that the brand has taken are partnering with brands like YUM Brands, the mega restaurant conglomerate that operates more than 45,000 of the favorite restaurants like KFC, Taco Bell, Pizza Hut, and others (Yum, “n.d”). Pepsico is an ethical brand that strives to reduce its negative impact on the environment while also being able to lower the cost of expenses. One of the biggest ways the company does this is with their healthy snack options from Gatorade, Kevita, Off the Eaten Path, Sunbites, LifeWtr (200 million in sales alone 2017), Naked, and Quaker.
Health and wellness are one of the biggest trends that drive the way people eat (‘Pepsico Annual Report.’ 2017). PepsiCo is a company that has built a strong presence by making the necessary financial changes needed to operate in growing snack and beverage industry whenever new trends arise. The company uses both the FIFO (First in, First out) and LIFO (Last in, First Out) accounting methods to keep up with their inventory (‘Pepsico Annual Report.’ 2017). Switching between accounting methods has allowed the company to even be more profitable than Coca Cola.
From 2016, PepsiCo has increased their inventories and overall profits proving they are the beverage and snack company to watch. All three beverage giants must maintain a healthy financial business method in order to compete in the saturated food and beverage markets. After examining the strengths and weaknesses of the all three companies, we are left to believe that using both FIFO, LIFO, and weighted-average methods are all good methods to use for accounting inventory in different scenarios. One of the main reasons PepsiCo continues to dominate in net income and growth is because they are not afraid to change their operations when trends require change. Coca-Cola should take a closer look at the methods they use to track inventory to determine if implementing change would help profitability. On the other hand, Keurig Dr Pepper needs to focus on new technologies and innovations like their hot medicine options like their new partnership with GSK’s new Theraflu pods. Staying innovative and changing as trends require are the key factors helping these companies continue to expand in the already overly saturated beverage industry.
Identifying new trends and innovations while maintaining smart financial operations have proven to be the best strategy for growth in the snack and beverage market. While Coca-Cola has dominated the beverage industry for years, Pepsico and Keurig Dr Pepper have figured out their niche in the global beverage industry as top contenders. With consumer trends and technology continuously change, companies must also be willing to change their financial methods to help them better operate, provide better quality products, provide faster service, invest in new technologies and innovations, and increase revenues to maintain their positions in this overly saturated beverage industry.