Investment assessment
Introduction
According to the financial reports of 2004, the performance of the two companies is desirable to any investor interested in investing in any of them. However, there are certain ratios that attribute one company to be better than the other. The purpose of carrying of this report is to establish the favorable organization when it comes to investing.
Liquidity ratios
To start with, the current ratio for the Pepsi Company is favorable to the coca cola company. The meaning of this is that the Pepsi Company has a better operating capital and instances of having cash flow problems are minimal. However, the receivable turnover is more favorable to Coca Cola Company since the payments by the Accounts receivable are better than that of Pepsi Company. The resultant of this means that much of the sales made by Coca Cola Company are not tied with the accounts receivable. On collection of the company’s debts, Coca Cola Company takes lesser days than Pepsi; the implication of this is that they are able to recoup their money back in fewer days than Pepsi Company. The rate of inventory turnover is also favorable to Coca Cola Company since it is much lower as compared to Pepsi Company, which has a higher inventory turnover. The meaning of this is that Pepsi stock is either obsolescence or they are overstocking, which is not good for the company as they tend to incur more storage cost. The days on inventory is more favorable to the Pepsi Company since they are holding the stock for a short time before converting it to sales. On the other hand, Coca Cola Company is holding its stock more hence incurring a greater storage cost. The cash dept coverage ratio is also favorable to Pepsi company since they are able to repay there liabilities faster than Coca-Cola company. On liquidity, Pepsi Company has a better liquidity prospects than Coca Cola Company, and not only is it able to release its stock faster, they are also able to repay their liability in time and without much problems. Their problems in the inventory turnover may be due to lack of a well-established market.
Solvency ratios
The debt asset ratio is favorable more to the Coca-Cola company since it can borrow more money in case it need s to expand. On the other hand the times interest earned is favorable to Pepsi since it is much higher. This means that funds are available to repay any interest needed better than the case of Coca-Cola company. Coca-Cola cash dept. coverage is also better than the one in Pepsi, meaning that any cash depts. will be cleared faster as opposed to Pepsi. The free cash flow is got from payments of investment and cash; its implications are that coca cola company has more cash to pay its cash investments than Pepsi. On solvency ratio Coca-Cola is a much better company than Pepsi since it is able to meet its long-term obligations.
Profitability ratios
The assessment of the profitability of the institution is also dependent on several things, among them are hereby discussed. On the profit margin, Pepsi Company is less profitable as compared to Coca-Cola. However, when it comes to the return of the asset Pepsi has a higher rate. A high asset turnover means that the organizations assets are being conveniently used than in the Coca-Cola Company. On the return on the asset, Coca-Cola is much better on the efficiency of their management ensuring usage of the assets. However, on the return of the common stock holder equity is fair to Pepsi than for the case of Coca Cola Company. The meaning of this is that the shareholders are getting a better return on their money that those in Coca-Cola company.
Conclusion
Accounting ratios are the best way to go by when making critical decision about an organization. According to the assessment of the accounting ratio, Pepsi Company offers a better investment opportunity than investing in Coca-Cola Company. Its liquidity levels as well as the ways of clearing their depts. are favorable. Even better, the returns to the investor are also better in Pepsi Company; for investors the benefits they derive from their investment is the returns they get from their investment. Investing in Pepsi company gives the investor the satisfaction that there are no cash flow problems that exist in the organization as well as presence of the ability to pay back ashy debts in the organization. The fact that Coca Cola Company is more efficient than Pepsi in handling the assets may be because of its higher capital base it has.
Bibliography
Kimmel P D., J. J. (2008). Accounting. New jersey: John Wiley and Sons .
Weygandt J J., P. D. (2009). Financial Accounting. New Jersey: John Wiley and Sons .
Weygandt J J., P. D. (2009). Managerial Accounting: Tools for Business Decision Making. New Jersey: John Wiley and Sons.
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