Coca Cola and Pepsi

Abstract

This assignment is the second part to the investment analysis and recommendation paper that is due in week 7. This document provides the Dipont identity for the Coca Cola Company and Pepsi Co. In addition to this, the differenced and trends between the two companies is discussed.

Week 2: The DuPont Analysis serves as a way to gain deeper information about different companies. It allows for the comparisons of similaries and differences between the two companies. The DuPont Analysis takes the Return On Equity (ROE) using profit margin, asset turnover and the equity multiplier. These three items make up the formula ROE= Profit Margin (Profit/Sales) * Total Asset Turnover (Sales/Assets) * Equity Multiplier (Asset/Stakeholders' Equity). So by looking at this formula there are three major things that can be made clear by using a DuPont Analysis. These three items include: operating efficiency, financial leverage and asset use efficiency. More generally, the formula breaks down into net income being divided by the average shareholders' equity.

Table 1

ROE for KO and PEP

KO PEP

Year 9/2011 9/2012 9/2013 9/2011 9/2012 9/2013

Net Profit Margin 18.16% 18.73% 20.43% 11.38% 11.42% 11.31%

Asset Turnover .61 .57 .5 .94 .89 .87

Equity Multiplier 2.23 2.63 2.17 3.52 3.33 3.42

ROE 24.7% 28.1% 22.06% 37.65% 33.85% 33.65%