PepsiCo and Coca-Cola are fierce competitors and according to their financial statements they are both healthy companies. Therefore, I would invest in Coca-Cola if I had to make the decision because it has higher income, a stronger long-term debt to networking capital ratio, steadily rising net income per common share, and a climbing and high solvency ratio. PepsiCo still shows healthy growth and outperforms Coca-Cola in many areas. I will conduct a financial analysis of Coca-Cola and PepsiCo to identify their strengths and weaknesses, ultimately deciding which one is worth the investment. .
With any financial statement it is important to note, when comparing and contrasting differences between the financial highlights page which is usually located among the first few pages. This statement when juxtaposed with the competitor will usually highlight areas in which both are strong which leaves plenty of leg work to be done with the rest of the un-flaunted information. In this case they are both quite healthy but the highlights are still indicative of certain information if one chooses to investigate further. When one wants only to highlight their strengths, it is obvious that certain information is omitted and other exaggerated. This is true with any company that wishes to gain shareholders and is common practice with organizations that after completing their financial calculations, turn the project over to human resources to enhance the beauty of the package. .
Coca-Cola's current ratio, which "is a widely used measure for evaluating a company's liquidity and short-term debt-paying ability", dropped from 1.1:1 in 2004 to 1.04:1 in 2005. (Wegandt, Kimmel, & Kieso, 2008 p 707) This indicates a slight drop in Coca-Cola's liquidity of .06. However, PepsiCo's current ratio dropped from 1.28:1 in 2004 to 1.11:1 in 2005. This drop in liquidity of .17 in one year indicates instability. Because the current ratio measures a company's ability to pay back short term loans I would be less uncomfortable with the slight drop in liquidity from Coca-Cola rather than the substantially larger drop from PepsiCo.