We researched Coke and Pepsi as was requested to see which one would be a better
investment over the other. One of the ways to see how a company is doing is to look at
how much (EVA) Economic Value Added that company is producing. EVA is a way of
measuring an operation’s real profitability. EVA is better than conventional ways because
it takes into account the total cost of the operating capital. EVA is simply the after-tax
operating profit minus the total annual cost of capital. Using EVA has advantages as well
as disadvantages.
Advantages
· EVA sends the message than managers should invest only if the increase in
earnings is enough to cover cost of capital
· EVA allows a good way for companies to set a reward system that is not
overly expensive to implement because is not too difficult for top
management to monitor.
· EVA makes the cost of capital visible to operating managers
· Stock prices track EVA more closely than they track other popular measures.
· Ways to improve EVA
o Increase earnings
o Reduce capital employed
o Invest capital in high-return projects
Disadvantages
· EVA does not involve forecasts of future cash flows and does not measure
present value.
· EVA therefore rewards managers who take on projects with quick paybacks
and penalize those who invest in projects with long gestation period.
· Need to make changes in income statements and the balance sheet to measure
economic value.
Looking at the historical trends of Coke and Pepsi in terms of EVA we find Coca-Cola's
EVA has been slowly decreasing while PepsiCo's EVA has been increasing (see Exhibit
1.1). Coca-Cola's NOPAT has decreased in recent years as a result of slowing sales
growth and worsening profit margins. If it were not for Coca-Cola's decreasing WACC,
its EVA would decrease more rapidly. If Coca-Cola used a WACC of 12%, about the
average of the past seven years, its EVA would have been $445,000,000 in 2000.
PepsiCo was able to more than double their EVA in 2000 due to higher NOPAT and
lower WACC. The higher NOPAT, was mainly a result of improved margins which lead
to a higher ROI. The key to EVA is the spread between ROI and WACC. It is important
to invest capital at a higher rate than the capital is obtained at. In theory, as long as there
are enough projects that produce ROI > WACC and enough capital supplied, EVA can
grow indefinitely.
EVA ($MM)
($2,000)
($1,000)
$0
$1,000
$2,000
1994 1995 1996 1997 1998 1999 2000
Year
EVA
Coca-Cola
PepsiCo
WE mentioned above that the (WACC) Weighted Average Cost of Capital is important.
So now lets take a look at what WACC is and why it is important.
Coke continuously out-stands Pepsi, even though they share a very similar taste and colour, however Coke should not be the drink that receives all the love and attention for what it offers. Despite their similar soda colour, the drinks actually contain some different ingredients, which produce a different taste, and affect the body differently. Furthermore, the way the companies markets their drinks makes a huge contribution to how successful their products will become. The major element for success however stems from their impact on society and how the companies utilize their social power to evolve. The two major soda companies are constantly head to head with one another, yet it is what they do that sets them apart.
It measures past and not future performance. O’Hanlon and Peasnell (1998) highlights the ad hoc adjustments made in EVA as it decides what items to capitalize and what method is subjective. Lastly, it is a single measure of performance as it does not measure the means of achieving the objectives of the organization.
...and investors to invest. No shareholder or investor wants to see that the company they are putting their money into is not performing as they had hoped. Furthermore, by having more investors AdCom will be able to expand its product lines and grow their company.
Control of market share is the key issue in this case study. The situation is both Coke and Pepsi are trying to gain market share in this beverage market, which is valued at over $30 billion a year. Just how is this done in such a competitive market is the underlying issue. The facts are that each company is coming up with new products and ideas in order to increase their market share.
Explanations of EVA, MVA and NPV and their relationship with each other. The concept of EVA is a measure of economic profit and was popularised and originally trade-marked by Stern Stewart Consulting Company in the 1980’s. Economic Value Added (EVA) can be defined as the difference between net operating profit after taxes and the monetary value of a company’s total cost of capital. Should a company’s profit exceed the overall costs of funds they create EVA. It can be so important because EVA is the most efficient internal measure of the true economic profit of a company.
Pepsi Cola Marketing Strategy PEPSI COLA For Pepsi Cola Ltd, marketing opportunity analysis is a continual and ongoing process. Pepsi have used the new product strategy to realise their ambitions to both defend their current market position, and reinstate their position as a product innovator. Pepsi wishes to create a clear cola that is 100% natural, low in sodium, caffeine-free, and still maintains the flavour of its original cola. They will call it Pepsi Au Naturel.
Pepsi and Coca-Cola are both sodas, but they differ in terms of the satisfying flavors, the color and the graphic design that represents their two products, and then how Coke makes more money than Pepsi. With that said, you should have gotten the ideology of what we will go further in discussing about. Everybody loves these two very well-known sodas which can inject caffeine into you, which makes you all jittery in filling you up with an energetic energy. Alright, enough of this, let's go straight in-depth in talking about the two rivals throughout this paper of how Pepsi beats Coke in sales, but Coke is usually ahead when it comes to annual net income (Feigin) or how Pepsi is a sweeter brand compared to Coke, though Coke brand is more valuable
Well, to define the two terms, net income is essentially the difference between revenues and expenses. Estimated value added is all based on residual income. Both net income and EVA are ways that a company can showcase their value to investors. Net income is a strong indicator of financial success, but EVA seems to go more concrete into the idea that it is a more accurate measure of a company’s profitability. According to the article and investopedia, to calculate EVA, you need to find the difference between net operating profit after tax and cost of capital and multiply it by total investment capital. EVA essentially unearths the cost of capital that net income or other financial measures ignore. In this case, EVA is a better indicator of which investments work for the company and if you compare it with other companies’ EVA, you can see if your business is outperforming them.
During the 1990s, PepsiCo launched new products and engineered a global re-branding campaign in an effort to grow sales volume; reinvigorate their stagnant brand; and to close the increasingly large sales and market share gap between itself and its primary competitor, Coca-Cola. In 1993, Pepsi jump-started its marketing efforts by adding two brands to its portfolio: Crystal Pepsi and Pepsi Max. Crystal Pepsi, which was initially offered in the United States, failed to earn the company more than 2 percent volume share. Pepsi Max, which was launched in the United Kingdom, proved more successful, but because one of its primary ingredients was an artificial sweetener not yet approved by the Food and Drug Administration, it wasn't brought to market in the United States.
This is a great model for the company because they can keep their logistic costs down by helping other companies expand their distribution networks. Experimentation with the new market for carbonated beverages on the decline, Coke has done experiments in new flavors and healthier alternatives to try to stay competitive. As well as investing in “Keurig Green Mountain is a K-Cup maker but has a new Keurig Cold that can deliver Coca-Cola through the new system.” (Cooper, 2014) Learning from experience, Coca-Cola has had some fierce competition over the years but nothing in the form of an entire health market shift like now.
There are a variety of beverages available to us today with a wide range of differences, some are flavored, carbonated, low calorie, energy boosters, and just plain water. When it comes down to carbonated drinks there are two major rivalry soda companies dominating the market. Coca Cola and Pepsi are two well know cola distributors with very credible history, but the question still remains one is America’s favorite? With the ongoing competition between Coca-Cola and Pepsi, each company is incorporating new strategies for marketing and advertising there brands. When comparing an advertisement from each of the companies, we will review how they appeal to consumers.
In general 50% is considered to be the optimal ratio. An increase in the value of efficiency ratio is an indicator of either increasing expense or decreasing revenue.
The purpose of this report is to compare financial reports from the two largest soft drink manufacturers in the world. The Pepsi Co. and Coca Cola have been the industry's leaders in their market since the early 1900's. I will use relevant figures to determine profitability, and break down key ratios in profitability, liquidity, and solvency. By breaking down financial statements, and converting them to percentages and ratios, comparisons can be made between competitors regardless of size.
How has the competition between Coke and Pepsi affected the industry’s profits? Can Coke and Pepsi sustain their profits in the wake of flattening demand and the growing popularity of non-carbonated drinks? The soft drink industry is a highly profitable industry and its success is due to the large consumption of non-alcoholic beverages through which both concentrate producers and bottlers are profitable. Given the U.S. Industry Consumption Statistics, Exhibit 1, it is clear that, after deducting beer and wine, soft drinks account for about 90 % of the total liquid consumption, while Coke and Pepsi account for about 75 % of the soft drink industry. The high consumption of CSDs is related to the soft drink industry selling to consumers through five principal channels: food stores, convenience stores, vending, fountains and others.
Look SDmart, Retrieved 05/16/07, from http://findarticles.com/p/articles/mi_m1365/is_1_31/ai_63974359/print. Coca-Cola: A Technological View, retrieved 5/18/07, from http://projects.olin.edu/ahs/HOT2004/PolarBears/content.htm. Coca-Cola Our Company- Around The World, retrieved 5/18/07 from http://www.coca-cola http://www.thecoca-colacompany.com/ourcompany/aroundworld.html Nutrition Business Journal. Penton Publishing. October/November 2005.