Coca-Cola and PepsiCo both produce and market beverages that are direct competit

Question

Coca-Cola and PepsiCo both produce and market beverages that are direct competitors. Key financial figures (in $ millions) for these businesses over the past year follow.
Key Figures ($ millions) Coca-Cola PepsiCo
Sales $30,990 $43,232
Net income 6,906 5,979
Average assets 44,595 37,921
Required:
1. Compute return on assets for (a) Coca-Cola and (b) PepsiCo.
2. Which company is more successful in its total amount of sales to consumers?
3. Which company is more successful in returning net income from its assests invested?
Analysis Component
4. Write a one-paragraph memorandum explaining which company you would invest your money in and why. (Limit your explanation to the information provided.)

Explanation / Answer

Return on total assets (ROA) = Net income/Total assets 1. Compute return on assets for (a) Coca-Cola and (b) PepsiCo RoA for Cocacola = 6906/44595 = 15.49% RoA for Pepsi = 5979/37921 = 15.77% 2. Which company is more successful in its total amount of sales to consumers? From the gven data, PepsiCo is more successful in its sale to customers 3. Which company is more successful in returning net income from its assests invested? Pepsico is more successful as it has a higher RoA as compared to Cocacola 4. Return on assets: Net Income / Total Assets—indicates how effectively the company is deploying its assets. A very low ROA usually indicates inefficient management, whereas a high ROA means efficient management. The ROA comparison works better over time so you can see a trend in how well management uses assets to the advantage of the company.The higher the ratio, the better and the continued high level over time is even better because it indicates management makes a habit of managing with efficiency.Poorly managed companies, will consistently fall before industry averages in this area, while better run companies stay out in front of the averages. Based on RoA info above, We will prefer to invest in Pepsi as it has a higher RoA

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