Financial Analysis (Comparative Analysis Of Coca-Cola And Pepsi)

7/22/2019 Financial Analysis (Comparative Analysis Of Coca-Cola And Pepsi)

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ACKNOWLEDGEMENT

The world of Professional industry was completely far away from me, but I got an

opportunity to know about an organizations various working aspects at WAVE

BEVERAGES, COCA COLA Pvt. Ltd. I am indebted to my teachers and gurus who

molded at this junction of my career from where I could take off better in the

competitive scenario of todays world.

First of all, I would like to thank ALMIGHTY for his gracious blessing without

whom I would not be able to complete my project work. I would like to thank Ms.

VANIKA (Charted Accountant) WAVE BEVERAGES, COCA COLA Pvt. Ltd, Amritsar

for giving me an opportunity to do my summer training in this esteemedorganization.

I have taken efforts in this project. However, it would not have been possible

without the kind support and help ofMR. ASHISH ARORA. I would like to extend

my sincere thanks to them. I would like to express my gratitude towards my

parents & member of our college for their kind co-operation and encouragement

which helped me in completion of this project.

Neetika Sharma

MBA (TYC) 3RD Sem.

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TABLE OF CONTENTS

S. NO. PARTICULARS PAGE NO.

1. Beverage Industry - Overview 3

2. SWOT Analysis of Coca Cola 4

3. Company Profile

3.1 About Coca Cola Company

3.2 Vision of the Company

5-6

4. Introduction to the Concept

4.1 Ratio Analysis

4.2 Importance of Ratio Analysis

7-8

5. Classification of Ratios 9-24

6. Research Methodology

6.1 Objective of the study

6.2 Need for the study6.3 Research Design

6.4 Sources of data collection

6.5 Limitations

25-27

7. Data Analysis & Observation 28-38

8. Suggestions & Conclusions 39

9. Bibliography 40

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BEVERAGE INDUSTRY- OVERVIEW

The beverage industry refers to the industry that produces drinks. Beverage

production can vary greatly depending on which beverage is being made. Thewebsite ManufacturingDrinks.com explains that, "bottling facilities differ in the

types of bottling lines they operate and the types of products they can run".

Other bits of required information include the knowledge of if said beverage is

canned or bottled, hot-fill or cold-fill, and natural or conventional. Innovations in

the beverage industry, catalyzed by requests for non-alcoholic beverages, include

beverage plants, beverage processing, and beverage packing.

The beverage industry is a major driver of economic growth. A National Council

of Applied Economic Research (NCAER) study on the carbonated soft-drink

industry indicates that this industry has an output multiplier effect of 2.1.

This means that if one unit of output of beverage is increased, the direct and

indirect effect on the economy will be twice of that. In terms of employment, theNCAER study notes that "an extra production of 1000 cases generates an extra

employment of 410 man days."

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SWOT ANALYSIS OF COCA COLA

Strengths Weaknesses

1. The best global brand in the world in

terms of value ($77,839 billion)

1. Significant focus on carbonated drinks

2. Worlds largest market share in

beverage

2. Undiversified product portfolio

3. Strong marketing and advertising 3. High debt level due to acquisitions

4. Most extensive beverage distribution

channel

4. Negative publicity

5. Corporate social responsibility

Opportunities Threats

1. Bottled water consumption growth 1. Changes in consumer preferences

2. Increasing demand for healthy food

and beverage

2. Water scarcity

3. Growing beverages consumption in

emerging markets (especially BRIC)

3. Strong dollar

4. Growth through acquisitions 4. Legal requirements to disclose

negative information on product labels

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COMPANY PROFILE

WAVE BEVERAGES --- COCA COLA

In India, the Coca-Cola system comprises of a wholly owned subsidiary of The

Coca-Cola Company namely Coca-Cola India Pvt Ltd which manufactures and sells

concentrate and beverage bases and powdered beverage mixes, a Company-

owned bottling entity, namely, Hindustan Coca-Cola Beverages Pvt Ltd; thirteen

authorized bottling partners of The Coca-Cola Company, who are authorized to

prepare, package, sell and distribute beverages under certain specified

trademarks of the Coca-Cola Company; and an extensive distribution system

comprising of our customers, distributors and retailers.

These authorized bottlers independently develop local markets and distribute

beverages to grocers, small retailers, supermarkets, restaurants and numerous

other businesses. In turn, these customers make our beverages available to

consumers across India.

The Coca-Cola Company's brands in India include Coca-Cola, Fanta Orange,

Limca, Sprite, Thumps Up, Burn, Kinley, Maaza, Minute Maid Pulpy Orange,

Minute Maid Nimbu Fresh and the Georgia Gold range of teas and coffees and

Vitingo (a beverage fortified with micro-nutrients).

VISION OF THE COMPANYThe vision of the company serves as the framework for Road map and guides

every aspect of the business by describing what we need to accomplish in order

to continue achieving sustainable, quality growth.

People: Be a great place to work where people are inspired to be the bestthey can be.

Portfolio:Bring to the world a portfolio of quality beverage brands thatanticipate and satisfy peoples desires and needs.

Partners: Nurture a winning network of customers and suppliers, togetherwe create mutual, enduring value.

Planet:Be a responsible citizen that makes a difference by helping buildand support sustainable communities

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Profit: Maximize long-term return to share owners while being mindful ofour overall responsibilities

Productivity: Be a highly effective, lean and fast-moving organization.

CORPORATE GOVERNANCE AT COCA COLA

Coca-Cola India operations are fully integrated into the governance structure of

The Coca-Cola Company, including two important codes:

(a) The Code of Business Conduct outlines expectations for employees tocomply with the law and act ethically in all matters. The Code remains

applicable to all employees of The Coca-Cola Company and its majority-

owned subsidiaries.

Anti-Bribery Policy: The Coca-Cola Company and its subsidiaries are committed to

doing business with integrity. This means avoiding corruption of all kinds,

including bribery of government officials. We will abide by all applicable anti-

bribery laws, including the U.S. Foreign Corrupt Practices Act, and local laws in

every country in which it does business. The Company is a signatory to the United

Nations Global Compact, by which it is committed to work against corruption and

bribery around the world. The Company also has incorporated a prohibition

against bribery into its Code of Business Conduct. This anti-bribery policy providescompliance requirements to prevent improper payments and to ensure accurate

reporting of permissible payments under all applicable anti-bribery laws.

(b) The Code of Business Conduct for Suppliers seeks to extend and clarify similar

ethical expectations to our suppliers. The Supplier Code became effective in

February 2008. Both the Code of Business Conduct and the Supplier Code

highlight the Ethics Line reporting service, through which individuals can

confidentially ask questions or report concerns to an independent administering

party.

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INTRODUCTION TO THE CONCEPT

Meaning of Ratio: -A ratio is simple arithmetical expression of the relationship ofone number to another. It may be defined as the indicated quotient of two

mathematical expressions. According to Accountants Handbook by Wixon, Kell

and Bedford, a ratio is an expression of the quantitative relationship between

two numbers.

Ratio Analysis: -Ratio analysis is the process of determining and presenting therelationship of items and group of items in the statements. According to Batty J.

Management Accounting Ratio can assist management in its basic functions of

forecasting, planning coordination, control and communication.

It is helpful to know about the liquidity, solvency, capital structure and

profitability of an organization. It is helpful tool to aid in applying judgment,

otherwise complex situations.

Ratio analysis can represent following three methods.

1. Pure Ratio or Simple Ratio: -It is expressed by the simple division of onenumber by another. For example, if the current assets of a business are Rs.

200000 and its current liabilities are Rs. 100000, the ratio of Current assets to

current liabilities will be 2:1.

2. Rate or so Many Times: -In this type, it is calculated how many times afigure is, in comparison to another figure. For example , if a firms credit sales

during the year are Rs. 200000 and its debtors at the end of the year are Rs.

40000 , its Debtors Turnover Ratio is 200000/40000 = 5 times. It shows that the

credit sales are 5 times in comparison to debtors.

3. Percentage: -In this type, the relation between two figures is expressed inhundredth. For example, if a firms capital is Rs.1000000 and its profit is Rs.

200000 the ratio of profit capital, in term of percentage, is 200000/1000000*100

= 20%.

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IMPORTANCE OF RATIO ANALYSIS

Ratios are useful for the following reasons:

1) Helpful in Forecasting: - The ratio can be used by financial managers for futurefinancial planning. Ratio calculated for a number of years work as a guide for

the future.

2) Useful in Co-ordination:- Ratios are useful in co-ordination, which is very muchneeded in business. The efficiency and weakness of an enterprise if

communicated properly will establish a better co-ordination among areas of

appreciation and control.

3) Helpful in Control: - the most important aspect of ration analysis is that it isvery useful in controlling the areas of inefficiencies and weakness. It can be

done by the management as a technique of correction.

4) Helpful in Efficiency Appraisal: - ratios are the scale of comparison; here thevariations in financial statement, if they need appreciation, are brought to

limelight.

5) Helpful in Evaluation of Financial Position: - The ratio analysis is useful forfinancial diagnosis of an enterprise. The under mentioned ratios will make theabove clear:

Current Ratio: - It speaks about the working capital the company is having and

the funds to pay off its short term commitments.

Solvency Ratio: - Profitability ratio, Capital gearing ratio are all such ratio that

can evaluate the financial soundless or weakness of the company.

6) Helpful to investors, Financial Institutions and Employees: - the ratios areeconomic barometer useful to the investors, financial institutions and

employees as they can know the good and bad position of the company by

making a comparative study of financial statement.

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CLASSIFICATION OF RATIOS

Fig: 5.1

Ratio may be classified into the four categories as follows:

A. Liquidity Ratio

a. Current Ratio

b. Quick Ratio or Acid Test Ratio

B. Leverage or Capital Structure Ratio

a. Debt Equity Ratio

b. Debt to Total Fund Ratio

c. Proprietary Ratio

d. Fixed Assets to Proprietors Fund Ratio

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e. Capital Gearing Ratio

f. Interest Coverage Ratio

C. Activity Ratio or Turnover Ratio

a. Stock Turnover Ratio

b. Debtors or Receivables Turnover Ratioc. Average Collection Period

d. Creditors or Payables Turnover Ratio

e. Average Payment Period

f. Fixed Assets Turnover Ratio

g. Working Capital Turnover Ratio

D. Profitability Ratio or Income Ratio

I. Profitability Ratio based on Sales

a. Gross Profit Ratiob. Net Profit Ratio

c. Operating Ratio

d. Expenses Ratio

II. Profitability Ratio Based on Investment

I. Return on Capital EmployedII. Return on Shareholders Funds

a. Return on Total Shareholders Funds

b. Return on Equity Shareholders Fundsc. Earning Per Share

d. Dividend per Share

e. Dividend Payout Ratio

f. Earnings and Dividend Yield

g. Price Earning Ratio

(A) Liquidity Ratio:-It refers to the ability of the firm to meet its current liabilities.

The liquidity ratio, therefore, are also called Short-term Solvency Ratio. These

ratio are used to assess the short-term financial position of the concern. Theyindicate the firms ability to meet its current obligation out of current resources.

Liquidity ratio include two ratio:

a. Current Ratio

b. Quick Ratio or Acid Test Ratio

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a. Current Ratio: - This ratio explains the relationship between current assets and

current liabilities of a business.

Current Assets: - Current assets includes those assets which can be converted

into cash with in a years time.

Current Liabilities: -Current liabilities include those liabilities which arerepayable in a years time.

Significance: -According to accounting principles, a current ratio of 2:1 issupposed to be an ideal ratio. It means that current assets of a business should, at

least, be twice of its current liabilities. The higher ratio indicates the better

liquidity position, the firm will be able to pay its current liabilities more easily. If

the ratio is less than 2:1, it indicate lack of liquidity and shortage of working

capital.

The biggest drawback of the current ratio is that it is susceptible to window

dressing. This ratio can be improved by an equal decrease in both current assets

and current liabilities.

b. Quick Ratio: -Quick ratio indicates whether the firm is in a position to pay itscurrent liabilities within a month or immediately.

Liquid Assets means those assets, which will yield cash very shortly.

Liquid Assets = Current Assets Stock Prepaid Expenses

Current Assets = Cash in Hand + Cash at Bank + B/R + Short Term Investment +

Debtors (Debtors Provision) + Stock (Stock of Finished Goods + Stock of Raw

Material + Work in Progress) + Prepaid Expenses

Current Liabilities = Bank Overdraft + B/P + Creditors + Provision for Taxation +

Proposed Dividend + Unclaimed Dividends + Outstanding Expenses + Loans

Payable within a Year

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Significance: - An ideal quick ratio is said to be 1:1. If it is more, it is considered to

be better. This ratio is a better test of short-term financial position of the

company.

(B) Leverage or Capital Structure Ratio: -This ratio disclose the firms ability tomeet the interest costs regularly and Long term indebtedness at maturity. Theseratio include the following ratios:

a. Debt Equity Ratio: -This ratio can be expressed in two ways:First Approach: According to this approach, this ratio expresses the relationship

between long term debts and shareholders fund.

Long Term Loans:-These refer to long term liabilities which mature after oneyear. These include Debentures, Mortgage Loan, Bank Loan, and Loan from

Financial institutions and Public Deposits etc.

Shareholders Funds: -These include Equity Share Capital, Preference ShareCapital, Share Premium, General Reserve, Capital Reserve, Other Reserve and

Credit Balance of Profit & Loss Account.

Second Approach: -According to this approach the ratio is calculated as follows:-

Significance: -This Ratio is calculated to assess the ability of the firm to meet itslong term liabilities. Generally, debt equity ratio of is considered safe.

If the debt equity ratio is more than that, it shows a rather risky financial position

from the long-term point of view, as it indicates that more and more funds

invested in the business are provided by long-term lenders.

Debt Equity Ratio=External Equities/internal Equities

Debt Equity Ratio = Long term Loans / Shareholders Funds or Net Worth

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The lower this ratio, the better it is for long-term lenders because they are more

secure in that case. Lower than 2:1 debt equity ratio provides sufficient protection

to long-term lenders.

b. Debt to Total Funds Ratio: - This Ratio is a variation of the debt equity ratioand gives the same indication as the debt equity ratio. In the ratio, debt is

expressed in relation to total funds, i.e. both equity and debt.

Significance: -Generally, debt to total funds ratio of 0.67:1 (or 67%) is consideredsatisfactory. In other words, the proportion of long term loans should not bemore than 67% of total funds.

A higher ratio indicates a burden of payment of large amount of interest charges

periodically and the repayment of large amount of loans at maturity. Payment of

interest may become difficult if profit is reduced. Hence, good concerns keep the

debt to total funds ratio below 67%. The lower ratio is better from the long term

solvency point of view.

c. Proprietary Ratio: -This ratio indicates the proportion of total funds provide byowners or shareholders.

Significance: -This ratio should be 33% or more than that. In other words, theproportion of shareholders funds to total funds should be 33% or more.

A higher proprietary ratio is generally treated an indicator of sound financialposition from long-term point of view, because it means that the firm is less

dependent on external sources of finance. If the ratio is low it indicates that long-

term loans are less secured and they face the risk of losing their money.

Debt to Total Funds Ratio = Long-term Loans / Shareholders funds + Long term

Loans

Proprietary Ratio = Shareholders Funds/Shareholders Funds + Long term

loans

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d. Fixed Assets to Proprietors Fund Ratio: - This ratio is also known as fixed

assets to net worth ratio.

Significance: -The ratio indicates the extent to which proprietors (Shareholders)funds are sunk into fixed assets. Normally, the purchase of fixed assets should be

financed by proprietors funds. If this ratio is less than 100%, it would mean that

proprietors fund are more than fixed assets and a part of working capital is

provided by the proprietors. This will indicate the long-term financial soundness

of business.

e. Capital Gearing Ratio: -This ratio establishes a relationship between equitycapital (including all reserves and undistributed profits) and fixed cost bearing

capital.

Whereas, Fixed Cost Bearing Capital = Preference Share Capital + Debentures +Long Term Loan

Significance:-If the amount of fixed cost bearing capital is more than the equityshare capital (including reserves an undistributed profits), it will be called high

capital gearing and if it is less, it will be called low capital gearing

The high gearing will be beneficial to equity shareholders when the rate of

interest/dividend payable on fixed cost bearing capital is lower than the rate of

return on investment in business.

Thus, the main objective of using fixed cost bearing capital is to maximize the

profits available to equity shareholders.

Fixed Asset to Proprietors Fund Ratio = Fixed Assets

Proprietors Fund

Capital Gearing Ratio = Equity Share Capital+ Reserves + P&L Balance / Fixed

cost Bearing Capital

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f. Interest Coverage Ratio:-This ratio is also termed as Debt Service Ratio. Thisratio is calculated as follows:

Significance: -This ratio indicates how many times the interest charges arecovered by the profits available to pay interest charges. This ratio measures the

margin of safety for long-term lenders.

This higher the ratio, more secure the lenders is in respect of payment of interest

regularly. If profit just equals interest, it is an unsafe position for the lender as

well as for the company also, as nothing will be left for shareholders. An interestcoverage ratio of 6 or 7 times is considered appropriate.

(C) Activity Ratio or Turnover Ratio: -These ratio are calculated on the bases ofcost of sales or sales, therefore, these ratio are also called as Turnover Ratio.

Turnover indicates the speed or number of times the capital employed has been

rotated in the process of doing business.

Higher turnover ratio indicates the better use of capital or resources and in turn

lead to higher profitability.

a. Stock Turnover Ratio: -This ratio indicates the relationship between the costof goods during the year and average stock kept during that year.

Here, Cost of goods sold = Net Sales Gross Profit

Average Stock = Opening Stock + Closing Stock/2

Significance: -This ratio indicates whether stock has been used or not. It showsthe speed with which the stock is rotated into sales or the number of times the

stock is turned into sales during the year.

Interest Coverage Ratio = Net Profit before charging interest and tax / Fixed

Interest Charges

Stock Turnover Ratio = Cost of Goods Sold / Average Stock

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Average collection period can also be calculated on the bases of Debtors

Turnover Ratio.

Average Collection Period = 12 months or 365 days / Debtors Turnover Ratio

Significance: -This ratio shows the time in which the customers are paying forcredit sales. A higher debt collection period is thus, an indicator of the inefficiency

and negligence on the part of management. On the other hand, if there is

decrease in debt collection period, it indicates prompt payment by debtors which

reduces the chance of bad debts.

d. Creditors Turnover Ratio: -This ratio indicates the relationship between creditpurchases and average creditors during the year.

Significance: -This ratio indicates the speed with which the amount is being paidto creditors. The higher the ratio, the better it is, since it will indicate that the

creditors are being paid more quickly which increases the credit worthiness of the

firm.

e. Average Payment Period: - This ratio indicates the period which is normally

taken by the firm to make payment to its creditors.

Average Payment Period = Creditors + B/P/ Credit Purchase per day

Significance: -The lower the ratio, the better it is, because a shorter paymentperiod implies that the creditors are being paid rapidly.

f. Fixed Assets Turnover Ratio: -This ratio reveals how efficiently the fixed assetsare being utilized.

Creditors Turnover Ratio = Net credit Purchases / Average Creditors +

Average B/P

Average Payment Period = 12 months or 365 days / Creditors Turnover Ratio

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Here, Net Fixed Assets = Fixed Assets Depreciation

Significance: -This ratio is particular importance in manufacturing concernswhere the investment in fixed asset is quit high. Compared with the previous

year, if there is increase in this ratio, it will indicate that there is better utilization

of fixed assets. If there is a fall in this ratio, it will show that fixed assets have not

been used as efficiently, as they had been used in the previous year.

g. Working Capital Turnover Ratio: -This ratio reveals how efficiently workingcapital has been utilized in making sales.

Here, Cost of Goods Sold = Opening Stock + Purchases + Carriage + Wages + Other

Direct Expenses - Closing Stock

Significance: -This ratio is of particular importance in non- manufacturingconcerns where current assets play a major role in generating sales. It shows the

number of times working capital has been rotated in producing sales. A high

working capital turnover ratio shows efficient use of working capital and quick

turnover of current assets like stock and debtors. A low working capital turnover

ratio indicates underutilization of working capital.

(D) Profitability Ratio or Income Ratio: -The main object of every businessconcern is to earn profits. A business must be able to earn adequate profits inrelation to the risk and capital invested in it. The efficiency and the success of a

business can be measured with the help of profitability ratio. Profitability ratio

can be determined on the basis of either sales or investment into business.

1) Profitability Ratio Based on Sales

Fixed Assets Turnover Ratio = Cost of Goods Sold/ Net Fixed Assets

Working Capital Turnover Ratio = Cost of Goods Sold / Working Capital

Working Capital = Current Assets Current Liabilities

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a. Gross Profit Ratio: -This ratio shows the relationship between gross profitand sales.

Here, Net Sales = Sales Sales Return

Significance:-This ratio measures the margin of profit available on sales. Thehigher the gross profit ratio, the better it is. No ideal standard is fixed for this

ratio, but the gross profit ratio should be adequate enough not only to cover theoperating expenses but also to provide for depreciation, interest on loans,

dividends and creation of reserves.

b. Net Profit Ratio:-This ratio shows the relationship between net profit andsales. It may be calculated by two methods:

Operating Net Profit = Operating Net Profit / Net Sales *100

Here, Operating Net Profit = Gross Profit Operating Expenses

Operating Expenses such as Office and Administrative Expenses, Selling and

Distribution Expenses, Discount, Bad Debts, Interest on short term debts etc.

Significance: -This ratio measures the rate of net profit earned on sales. It helpsin determining the overall efficiency of the business operations. An increase in the

ratio over the previous year shows improvement in the overall efficiency and

profitability of the business.

Gross Profit Ratio = Gross Profit *100

Net Sales

Net Profit Ratio = Net Profit / Net sales *100

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c. Operating Ratio:- This ratio measures the proportion of an enterprise cost ofsales and operating expenses in comparison to its sales.

Where, Cost of Goods Sold = Opening Stock + Purchases + Carriage + Wages +

Other Direct Expenses - Closing Stock

Operating Expenses = Office and Administration Exp. + Selling and Distribution

Exp. + Discount + Bad Debts + Interest on Short- term loans.

Operating Ratio and Operating Net Profit Ratio are interrelated. Total of both

these ratios will be 100.

Significance:-Operating Ratio is a measurement of the efficiency and profitabilityof the business enterprise. The ratio indicates the extent of sales that is absorbed

by the cost of goods sold and operating expenses. Lower the operating ratio is

better, because it will leave higher margin of profit on sales.

d. Expenses Ratio:-These ratio indicate the relationship between expenses andsales. Although the operating ratio reveals the ratio of total operatingexpenses in relation to sales but some of the expenses include in operating

ratio may be increasing while some may be decreasing. Hence, specific

expenses ratio are computed by dividing each type of expense with the net

sales to analyze the causes of variation in each type of expense.

The ratio may be calculated as :

(a) Material Consumed Ratio = Material Consumed/Net Sales*100

(b) Direct Labour cost Ratio = Direct labour cost / Net sales*100(c) Factory Expenses Ratio = Factory Expenses / Net Sales *100

(a), (b) and (c) mentioned above will be jointly called cost of goods sold ratio.

Operating Ratio = Cost of Goods Sold + Operating Expenses *100

Net Sales

Cost of Goods Sold Ratio = Cost of Goods Sold / Net Sales*100

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(d) Office and Administrative Expenses Ratio = Office and Administrative Exp./

Sales*100

(e) Selling Expenses Ratio = Selling Expenses / Net Sales *100

(f) Non- Operating Expenses Ratio = Non-Operating Exp./Net sales*100

Significance:-Various expenses ratio when compared with the same ratios of theprevious year give a very important indication whether these expenses in relation

to sales are increasing, decreasing or remain stationary. If the expenses ratio is

lower, the profitability will be greater and if the expenses ratio is higher, the

profitability will be lower.

2) Profitability Ratio Based on Investment in the Business

These ratio reflect the true capacity of the resources employed in the enterprise.

Sometimes the profitability ratio based on sales are high whereas profitabilityratio based on investment are low. Since the capital is employed to earn profit,

these ratios are the real measure of the success of the business and managerial

efficiency.

These ratio may be calculated into two categories:

I. Return on Capital Employed

II. Return on Shareholders funds

I. Return on Capital Employed: -This ratio reflects the overall profitability of thebusiness. It is calculated by comparing the profit earned and the capital employedto earn it. This ratio is usually in percentage and is also known as Rate of Return

or Yield on Capital.

Return on Capital Employed = Profit before interest, tax and dividends / Capital

Employed *100

Where, Capital Employed = Equity Share Capital + Preference Share Capital + All

Reserves + P&L Balance +Long-Term Loans- Fictitious Assets Non-Operating

Assets like Investment made outside the business.

Capital Employed = Fixed Assets + Working Capital

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II. Return on Shareholders Funds:- Return on Capital Employed Shows the overall

profitability of the funds supplied by long term lenders and shareholders taken

together. Whereas, Return on shareholders funds measures only the profitability

of the funds invested by shareholders. These are several measures to calculate

the return on shareholders funds:

a. Return on total Shareholders Funds:- For calculating this ratio Net Profitafter Interest and Tax is divided by total shareholders funds.

Where, Total Shareholders Funds = Equity Share Capital + Preference ShareCapital + All Reserves + P&L A/c Balance Fictitious Assets

Significance: -This ratio reveals how profitably the proprietors funds have beenutilized by the firm. A comparison of this ratio with that of similar firms will throw

light on the relative profitability and strength of the firm.

b. Return on Equity Shareholders Funds: - Equity Shareholders of a company are

more interested in knowing the earning capacity of their funds in the business. As

such, this ratio measures the profitability of the funds belonging to the equityshareholders.

Shareholders funds are being used in the business. It is a true measure of the

efficiency of the management since it shows what the earning capacity of the

equity shareholders funds. If the ratio is high, it is better, because in such a caseequity shareholders may be given a higher dividend.

c. Earnings per Share (E.P.S):-This ratio measure the profit available to the equityshareholders on a per share basis. All profit left after payment of tax and

preference dividend are available to equity shareholders.

Return on Equity Shareholders Funds = Net Profit (after int., tax & preference

dividend) / Equity Shareholders Funds *100

Return on Total Shareholders Funds = Net Profit after Interest and Tax /

Total Shareholders Funds

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Significance: -This ratio helpful in the determining of the market price of theequity share of the company. The ratio is also helpful in estimating the capacity of

the company to declare dividends on equity shares.

d. Dividend per share (D.P.S.):- Profits remaining after payment of tax and

preference dividend are available to equity shareholders. But of these are not

distributed among them as dividend .Out of these profits is retained in the

business and the remaining is distributed among equity shareholders as dividend.D.P.S. is the dividend distributed to equity shareholders divided by the number of

equity shares.

e. Dividend Payout Ratio (D.P):-It measures the relationship between theearning available to equity shareholders and the dividend distributed among

them.

f. Earnings and Dividend Yield: -This ratio is closely related to E.P.S. and D.P.S.While the E.P.S. and D.P.S. are calculated on the basis of the book value of shares,

this ratio is calculated on the basis of the market value of share.

D.P.S. = Dividend paid to Equity Shareholders *100

No. of Equity Shares

D.P. = D.P.S. / E.P.S. *100

Earnings per Share = Net Profit Dividend on Preference Shares

No. of Equity Shares

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g. Price Earning (P.E.) Ratio: - Price earnings ratio is the ratio between market

price per equity share & earnings per share. The ratio is calculated to make an

estimate of appreciation in the value of a share of a company & is widely used by

investors to decide whether or not to buy shares in a particular company.

Significance: -This ratio shows how much is to be invested in the market in thiscompanys shares to get each rupee of earning on its shares. This ratio is used to

measure whether the market price of a share is high or low.

Fig: 5.2

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RESEARCH METHODOLOGY

Research Methodology is a way to systematically solve the problems. It may be

understood to study how research is done scientifically. In this, we study varioussteps that are generally adopted by the researcher in studying research problems

along with the logic behind them, to understand why we are using particular

method or technique so that the research results are capable of being evaluated.

During my project, I have used a lot of data to understand concept of Ratio

analysis. The data collected was interpreted and then used as information in

project.

OBJECTIVES OF THE STUDY

To identify the comparative financial strengths of Pepsi and Coca Cola IndiaLtd.

Through the Net Profit Ratio and other profitability ratio, understand thefinancial position of the company.

To know the liquidity position of the company, with the help of Current ratio. To find out the utility of financial ratio in credit analysis and determining the

financial capability of the firm.

NEED FOR THE STUDY

In the present scenario the competition between the soft drinks increased very

high. The companies are struggling a lot to keep up their market share in the

industry and to improve the sales of their products i.e. the turnover of the

company. For this the company has to know their position in the market and the

opinion and the loyalty of the customers and the retailers when compared to

their competitor. Because of this reason the comparative analysis is very

important and useful to the Company.

By the use of comparative analysis the companies can understand the position of

the company and the strength of the company in the market. Through the

comparative analysis we can understand that what strategies the competitors are

using for the increase their sales volume. From the study we can gather the

information regarding the opinion of the retailers on the companies

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comparatively and this will help to plans for the future to increase the

performance of the company and to gain the loyalty of the retailers when

compared to the competitors.

RESEARCH DESIGN

Research design is used to describe the state of affairs, as it exists at present. The

research design adopted for this study is exploratory research design. Descriptive

research includes fact finding enquiries of different kinds.

SAMPLING METHOD

This refers to the technique or procedure the research would adopt in selectingthe sample. Convenience sampling method will be chosen to conduct the survey.

SOURCES OF DATACOLLECTION

Data for this project is collected through Secondary sources. Secondary data is

collected with the help of following

1. Annual reportMajority of information gathered from data exhibited in the annual reports

of the company. These include annual reports of the year 2009 to 2012.

2. Reference BooksTheory relating to the subject matter and various concepts taken from

various financial reference books.

The study contains secondary data i.e. data from books, authenticated websites

and journals for the latest updates just to gain an insight for the views of variousexperts.

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LIMITATIONS

Though the every researcher tries his / her best to fulfill the objectives of his / her

study but still there are some limitations.

The authority and genuinely of the data received cannot be tested as everycompany does not disclose all of its records on interest.

False resultAccounting ratio is based on data drawn from accounting records. In this case if

data is correct, then only the ratio will be correct. The data therefore must be

absolutely correct.

Effect of price level changesPrice level changes often make the comparison of figures difficult over a period oftime. Changes in price effect the cost of production, sales and also the value of

the assets.

The comparison is rendered difficult because of differences in situations of onecompany as compared to another.

Ratios are tool of quantitative analysis only. Normally qualitative factors areneeded to draw conclusions.

Ratio analysis is only the beginning as it gives only a little information for thepurpose of decision making.

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DATA ANALYSIS & OBSERVATION

COMPARATIVE ANALYSIS OF COCA-COLA AND PEPSI PVT. LTD.

LIQUIDITY RATIOS

1)CURRENT RATIO

Coca Cola, Co.

Years 2012 2011 2010 2009

Current Assets $6,620,000,000 $6,480,000,000 $6,280,000,000 $6,000,000,000

Current

Liabilities

$9,321,000,000 $9,623,000,000 $9,221,000,000 $9,121,000,000

Current

Ratio

Pepsi, Co.

Years 2012 2011 2010 2009

Current Assets $6,220,000,000 $6,000,000,000 $6,180,000,000 $6,220,000,000

Current

Liabilities

$9,000,000,000 $9,323,000,000 $9,211,000,000 $9,112,000,000

Current

Ratio

0.71 0.67 0.68 0.65

0.69 0.64 0.67 0.68

Current Ratio= Current Assets

Current Liabilities

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0.6

0.62

0.64

0.66

0.68

0.7

0.72

2012 2011 2010 2009

COCA COLA PEPSI

INTERPRETATION

The above chart shows that in Pepsi, Current ratio is decreasing in year 2010 as

compared to year 2009. In year 2011 also the Current ratio is decreasing as

compared to year 2010. In 2012 only the Current ratio is increased. This is due to

increase in current assets in year 2012 as compared to year 2011. In coca cola

India Ltd, current ratio is higher than Pepsi in 2012 due to the more current assets

than Pepsi.

2)QUICK RATIO

Quick Ratio= Current Assets- Investment

Current Liabilities

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Coca Cola, Co.

Years 2012 2011 2010 2009

Current Assets $6,620,000,000 $6,000,000,000 $6,180,000,000 $6,220,000,000

Investments $1,066,000,000 $1,076,000,000 $1,043,000,000 $1,055,000,000

Current

Liabilities

$9,000,000,000 $9,323,000,000 $9,211,000,000 $9,112,000,000

Quick Ratio

Pepsi, Co.

Years 2012 2011 2010 2009

Current Assets $6,220,000,000 $6,480,000,000 $6,280,000,000 $6,000,000,000

Investments $1,000,000,000 $1,056,000,000 $1,043,000,000 $1,045,000,000

Current

Liabilities

$9,321,000,000 $9,623,000,000 $9,221,000,000 $9,121,000,000

Quick

Ratio

0.617 0.528 0.557 0.566

0.56 0.56 0.57 0.54

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0.46

0.48

0.5

0.52

0.54

0.56

0.58

0.6

0.62

2012 2011 2010 2009

COCA COLA PEPSI

INTERPRETATION

The above chart shows that in Pepsi, Quick ratio is increasing in the year 2010

because of more current assets and investments but in year 2011 it again

decreases. In year 2012 it remains the same as that of 2011. In coca cola India Ltd,

quick ratio is higher than Pepsi in 2012 & 2009 due to the lesser liabilities than

Pepsi. In year 2010 & 2011 Pepsi has higher quick ratio than coca cola due to the

more current assets.

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ACTIVITY RATIOS

1)Account Receivable Turnover

Coca Cola, Co.

Years 2012 2011 2010 2009

Net Sales $30,990 $31,944 $28,857 $24,088

Account

Receivable

$3,758 $3,090 $3,317 $2,587

Account

Receivable

Turnover Ratio

Pepsi, Co.

Years 2012 2011 2010 2009

Net Sales $43,232 $43,251 $39,474 $35,137

Account

Receivable

$4,624 $4,683 $4,389 $3,725

Account

Receivable

Turnover Ratio

8.25 10.34 8.70 9.31

9.35 9.24 8.99 9.43

Account Receivable Turnover = Net Sales

Accounts Receivable

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0

2

4

6

8

10

12

2012 2011 2010 2009

COCA COLA PEPSI

INTERPRETATION

The above chart shows that in Pepsi, account receivable turnover ratio is steadily

increasing from the year 2009 till 2012. In case of coca cola India Ltd, account

receivable turnover ratio is higher than Pepsi in 2010 & 2011 only. In year 2009 &

2012 Pepsi has higher ratio than coca cola due to the more net sales.

2)Inventory Turnover Ratio

Coca Cola, Co.

Years 2012 2011 2010 2009

Cost of Goods

Sold

$2,545,715,000 $2,347,530,000 $2,447,890,000 $2,343,815,000

Inventory $1,066,000,000 $1,076,000,000 $1,505,000,000 $1,080,000,000

Inventory Turnover Ratio = Cost of Goods Sold

Inventory

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Inventory

Turnover

Ratio

Pepsi, Co.

Years 2012 2011 2010 2009

Cost of Goods

Sold

$2,445,615,000 $2,237,430,000 $2,427,890,000 $2,243,810,000

Inventory $1,066,000,000 $1,056,000,000 $1,405,000,000 $1,080,000,000

Inventory

Turnover

Ratio

0

0.5

1

1.5

2

2.5

2012 2011 2010 2009

COCA COLA PEPSI

INTERPRETATION

The above chart shows that in Pepsi, inventory turnover ratio is increasing in all

the succeeding years except the year 2010. In case of coca cola India Ltd, overall

2.38 2.18 1.62 2.17

2.29 2.12 1.72 2.08

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0

1

2

3

4

5

6

7

2012 2011 2010 2009

COCA COLA PEPSI

Norm: Higher the ratio shows higher efficiency and vice versa

INTERPRETATION

The above chart shows that in Pepsi Gross profit ratio is decreasing in year 2010

as compared to year 2009 but in year 2011 & 2012 gross profit ratio is gradually

increasing this is due to increase in cost of sales and in coca cola India Pvt. Ltd,

gross profit is increasing gradually in year 2012 as compared to previous years.

2)NET PROFIT RATIO

Coca Cola, Co.

Years 2012 2011 2010 2009

Net Profit after

Taxes

$151,997,100 $113,176,100 $91,857,490 $95,772,615

Net Profit Ratio = NPAT * 100

SALES

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Net Sales $2,545,715,000 $2,347,530,000 $2,505,000,000 $2,080,000,000

Net Profit

Ratio

Pepsi, Co.

Years 2012 2011 2010 2009

Net Profit after

Taxes

$110,935,315 $94,636,030 $92,937,490 $94,892,116

Net Sales $2,000,005,000 $2,076,097,000 $2,544,000,000 $2,444,000,000

Net ProfitRatio

0

1

2

3

4

5

6

7

2012 2011 2010 2009

COCA COLA PEPSI

Norm: Higher the ratio shows higher efficiency and vice versa

INTERPRETATION

The above chart shows that in Pepsi, Net profit is increasing year by year from

2010 to 2012 like in 2010, it was 3.65 and it moves up to 5.54 in 2012 whereas in

5.97 4.82 3.66 4.60

5.54 4.55 3.65 3.88

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coca cola India Pvt. Ltd, net profit ratio is increasing from 2010 to 2012 but the

increase in value is more than the Pepsi.

Return on Assets and Equity ---- comparison ofcoca cola and Pepsi with industry average

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SUGGESTIONS AND CONCLUSIONS

The in-depth analysis of key financial ratios in this project helps in measuringthe financial strength, liquidity conditions and operating efficiency of the

company. It also provides valuable interpretation separately for each ratio

that helps organization implementing the findings that would help the

organization to increase its efficiency.

Ratios are only post mortem analysis of what has happened between twobalance sheet dates. For one thing the position of the company in the interim

period not related by analysis, moreover they gain no clue about the future.

Ratio analysis in view of its several limitations should be considered only as a

toll for analysis rather than as an end itself.

From the analysis it is evident that the gross profit ratio is good, whereasoperating ratio is around optimum level to the industry standards. As a whole

the liquidity position of the company is good.

Thus finally the company must try to improve its profit margins as they arebelow industry levels. This improvement may also bring up its return on

investment and overall efficiency to the company.

The business environment of both the company is reasonably good. Thecompanys track record is always oriented towards profitable growth and with

strong fundamentals.

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BIBLIOGRAPHY

Following books are referred for carrying out the project:-

1. Financial management by N.M. Venchalekar2. Annual reports of Pepsi and Coca Cola

Following websites are referred:-

1.

www.money.rediff.com2. www.wikipedia.com3. www.cocacolaindia.com
http://www.money.rediff.com/http://www.money.rediff.com/http://www.wikipedia.com/http://www.wikipedia.com/http://www.cocacolaindia.com/http://www.cocacolaindia.com/http://www.cocacolaindia.com/http://www.wikipedia.com/http://www.money.rediff.com/

Financial Analysis (Comparative Analysis Of Coca-Cola And Pepsi)

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