Accounting

The basic role of this report is to analyze the financial statements of Coca-cola and PepsiCo, soft drink sector competing companies, this would at the end of the analysis be able to provide vital information on determining the denominator in the soft drinks industry. The two companies have a big slice of the global market in in the industry for over a century now. I will therefore engage comparison in the financial statements of the two companies considering the key ratios, a comparative statistics and figures significantly affecting probability the key methods of analysis are both horizontal and vertical analysis.
    All the major key ratios reference data from fiscal year 2003. PE (Priceearnings) are higher for companies having growth prospects, other things constant, but they are on the lower side for the risky ones.  PepsiCos PE ration is standing at 19.7 times, which is lower compared to the industry (21.1) and the average SP 500 (19.8). the Coca-cola company have the higher ratio here, 22.1 times, which is above the industry and the industry (21.1) and (19.8) respectively.
    The most significant accounting ration here is the net income to common equity. PepsiCo ROE (Return On Equity) is 34, the SP 500 ROE is (21.0). coca-colas ROE is standing at 27.0 beats both the industry (30.1) and the SP 500. this implies that coca-cola does not deliver to the customers higher value as the PepsiCo. The net income ration to total income measures ROA (Return on Total Assets). Coca-cola at (16.37) once again does better in ROA better than PepsiCo (15.89), coca-cola is even better than the industry ROA (14.70). This may be attributed to long term debt (24.3dependence on debt by PepsiCo to try and maintain continued growth. The coca-colas long term debt is 15.3 against all the liabilities. It further implies that coca-cola is less vulnerable to disasters like war, inflation and recession.
    The net profit margin shows us the amount of profit a firm gets for every 1 it makes from the revenues. The higher the firms net profit margin in comparison to its industry competitors, the better. The industry average margin of profit is 15.5 (drinks sector) and SP 500 11.6. coca-colas profit margin is 20.6 while PepsiCos is 14.1.
    All of the figures used in the WACC (Weighted Average Cost of Capital) were retrieved from the 10-K reports of the company and some from the Yahoo finance, unless otherwise stated.  Calculation Demonstration
10-Year T-bond3.87
SP 500 RETURN8.05
PepsiCo beta 0.33
Coca-Cola beta  0.6
CAPM Equation Rs  Rrf  (Rpm)b
PepsiCoRs  3.87  (8.08   3.87)0.335.25
Coca-Cola Rs  3.87  (8.05 -3.87)0.6  6.38
Long Term Debt
PepsiCo
Long Term Debt 4203000000 3.5
Common Stock 115360876600 96.5
119563876600100
Coca-Cola
Long term Debt 3277000000 2.4
Common Task 135513142200 97.6
138790142200100

PepsiCo WACC WdRd  WpsRps  WceRs0.035(5.0)  0.965(5.25) 5.24
Coca-Cola WACC WdRd  WpsRps  WceRs 0.024(5.1)  0.965(6.38) 6.35

    It is worth noting that neither Coca-Cola nor PepsiCo issue or give the preferred stock, this component was therefore not involved in the computation of WACC. One surprising factor is that both of the companies have low tax rates, 22 for coca-cola and 26 for PepsiCo, attributed to the oversees low tax rates signifying the size of the revenues.
    Considering Long term debts for PepsiCo and Coca-Cola bond maturing 15052012 Present Value was 100.63, 5.15 coupon , present yield  5.0 and YTM OF 5.0 for PepsiCo. For Coca-Cola, bond maturing 15052012 Present Value was 102..12, 5.75 coupon, present yield 5.63 and YTM of 5.0. All the bonds were rated AA and therefore not callable.
    PepsiCo had a lower WACC of 5.24 against Coca-Colas 6.35 giving it higher latitude in choosing investments projects. There will be greater stock valuation for PepsiCo because of its lower WACC. This have occurred for the past ten years in 1998PepsiCo stock have increased from 68.20, on the other hand Coca-Cola have suffered a fortune reversal in the same period. The Coca-cola prices declined to the current 58.72 from a whooping 78.38.
    The tables bellow are the financial statements for PepsiCo and Coca-cola companies, they are used to come up with the final analysis, both horizontal and vertical analysis.