Research Project Part 3

Running head: COCA COLA AND PEPSI
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COCA COLA AND PEPSI
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An Analysis of Coca Cola and Pepsi

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An Analysis of Coca Cola and Pepsi

The History of Coca Cola

Coca Cola is considered one of the pioneers of the drinks and beverages industry in the US. The formula was first created in 1886 by John Pemberton, a pharmacist by profession. He invented the formula which was unique and with no competition in the whole country. In 1889, the unique formula was bought by Asa Candler, who went ahead and incorporated the company in the early 1890s (About us, 2019). Fast forward to 1916, the incorporated company was now able to manufacture a line of its famous bottle that has remained its signature bottle ever since. Robert Woodruff, the company’s CEO in 1920s, focused on the expansion of the company to the overseas and introduced the brand to the Olympics in 1928. It became known to many people and by 1950, the brand was popular not only in the US, but also other areas and regions such as South America (About us, 2019). Following the growing strength of the brand, the company decided to broaden the product portfolio and introduced new flavors in the 1960s such as Fanta, Fresca, and Sprite. The goal was to reach a bigger market and experience a higher level of customer satisfaction. This move was followed by the acquisition of Minute Maid which was entirely a new line of business.

The 1980s saw major changes at the company. Innovation was rapid and new products such as Diet Coke were introduced which became a popular low-calorie drink. The innovation also led to the establishment of the company in other areas such as Europe and Asia. Today, the company has grown and dominated the drinks and beverages industry and is estimated to sell over 1.5 billion servings every day (About us, 2019). Notably, the company focuses on all segments, especially due to its cost leadership and variety of product. However, its profitability levels are facing stiff competition from new entrants that are providing customers with unique flavors and tastes. Coca Cola still dominates due to the strength of the brand and reputation.

A brief History of Pepsi

Pepsico formula that was initially known as Pepsi Cola was first created in 1893 by a pharmacist, Caled Bradham. He used his store as the place for offering servings and could give it names like Brad’s drink. As it became locally popular, he gave it a name and called it Pepsi-Cola. In 1903, Caleb had patented the product and sold soda syrup across the state of North Carolina (About the Company, 2019). By 1910, there were franchisers who were selling the drink in over 20 states. Prior to 1920s, the company changed tactics and resulted in the use of celebrities such as Barney Oldfield to popularize the brand and compete with Coca Cola.

After World War 1, Caleb had forecasted that the sugar prices could continue rising, but fell, leaving him with a sugar inventory that was highly overpriced. The company became bankrupt in 1931 creating a trend where the company went through the hands of several investors. Charles Guth, an investor, bought the company and provided new initiatives that helped revive the brand. During World War 2, the brand was popular among US troops across the globe helping it revive the brand. By the 1960s, the management focused on the baby boomers, who were later called the Pepsi generation. By 1970s, it became a stiff competitor and was poised to replace Coke as the number of one brand in the US. Throughout the 1980s, Pepsi focused on rigorous advertising and diversifying mainly targeting Generation X (About the Company, 2019). Today, the company has diversified the product, hence customers can find a variety of products which promotes its profitability. However, similar to Coca Cola, it is still facing major competitions from new entrants.

A Comparison of Pepsico and Coca Cola

From the above sections, the two companies, compare and contrast. First, both have focused on campaigns that target specific markets such as generation X. This was done through advertising and product diversification in a bid to appeal to certain markets. The two have invested in rigorous advertising with the goal of reaching a wider market. Also, the two companies have created products that target all market segments through pricing. It is a major move for ensuring that a larger market share is attained to drive dominance and profitability. Further, the two companies have invested in expanding to overseas as a means of reaching a global market and help the companies grow.

The two companies contrast, when it comes to strategy and growth. Pepsi has experienced major challenges, including going bankrupt. This led to ownership by several investors who came with new ideas where some worked while others failed. Coca Cola has been consistent mainly due to the introduction of products that did well in the markets. Also, Pepsi has sought endorsements by various parties such as the American Troops and celebrities to promote the brand while Coca Cola mainly focused on dominating its already acquired markets through conventional advertising.

Purpose of Def 14A

Also known as the Definitive Proxy Statement, the form needs to be filed with the SEC and is usually filed by or on behalf of a registrant prior to making a shareholder vote. It is used together with annual meeting proxy and must offer enough information of the security holders to facilitate informed vote by the holders during a meeting or when authorizing a proxy to vote. A proxy must have information on the corporate governance practices.

Auditors of Pepsi and Coca Cola

Pepsico’s financial statements are audited by KPMG and the audit fee for the year 2015 was $22, 641, 000 which was about 0.04% of the total revenues and 0.03% of the total assets. On the other hand, Coca Cola was audited by PWC and the audit fee for 2015 was $38,460,000 which was about 0.03% of the total revenues and 0.044% total assets. The goal of the disclosure is to ensure that investors can evaluate whether the fees will make them question the independence of the auditor. The move promotes transparency.

Internal Control of Financial Reporting

The process is established to ensure there is substantial certainty of the reliability of financial reporting mainly for external purposes. However, inherent weaknesses such as lack of understanding the processes, managerial override, collusion, and human error make the task unreliable (Tysiac, 2014). To address the material weakness, an external auditor can be asked to provide expert opinion.

Coca Cola’s Code of Business Conduct

The main theme is to call for integrity of all the staff working locally and overseas. They need to uphold the company’s core values when meeting performance goals and duties (Code of Business Conduct, 2019). The code is provided in multiple languages to ensure all the staff members are aware of what is expected from them. Any violations of the code will attract penalties in accordance with the company’s policies. However, the code should have entailed the staff members’ role in corporate social responsibility and impacting the lives of others positively.

References

About the Company. (2019, ,May 14). Retrieved from Pepsico: https://www.pepsico.com/about/about-the-company

About US. (2019, November 22). Retrieved from Coca Cola: https://www.worldofcoca-cola.com/about-us/coca-cola-history/

Code of Business Conduct. (2019, December 08). Retrieved from Coca Cola: https://investors.coca-colacompany.com/corporate-governance/code-of-business-conduct

Tysiac, K. (2014). What do public companies disclose about auditor relationships? Journal of Accountancy, 1-13.

 

Research Project and Presentation

PAPER INFORMATION:

You will be looking at Pepsico Inc and Coca Cola Co for the fiscal year ended 2015 and completing a variety of analysis on both of these companies.  You will specifically be using:
· Pepsico Inc 2015 annual report
· Pepsico Inc 2015 10-K
· Pepsico Inc 2015 Def 14A
· CocaCola Co 2015 annual report
· CocaCola Co 2015 2015 10-K
· CocaCola Co 2015 Def 14A

ANALYSIS REQUIREMENTS:

Part III (include parts I and II also in your final paper)

 

o.  What are the key acquisition and inventory cycle accounts for each company?  What are the critical accounting policies for these accounts?  What percent of current assets is tied up in inventory for each company?

 

p.  What are the key long-lived asset and related expenses accounts for each company? What are the critical accounting policies for these accounts?  Calculate and compare cycle-specific ratios (for example, property, plant, and equipment / total assets) that you deem relevant for each company.  What are the implications of these differences that you note?

 

q.  What type of audit report did each company have issued by their auditing firm?  Did you note anything unique about the auditor’s report?  As a reader of the financial statements, would you prefer that each company had the same audit firm?  Why or why not?

 

r.  A significant liability is most often found under pensions and other postretirement benefits.  What is the nature of estimates required to value these liabilities?  What risks do these estimates pose for the audit firm?

 

s.  Some common numerical thresholds and benchmarks for overall materiality judgments are 5% of net income and 1% of assets.  The materiality level at which items are considered clearly trivial-a materiality level where the auditor believes errors below that level would not, even when aggregated with all other misstatements, be material to the financial statements-is generally 5% to 10% of overall materiality.  Calculate these numerical thresholds for each company.  What is the SEC’s position on the use of   numerical thresholds?  What other characteristics of potential misstatements should auditors consider when evaluating their materiality?

The total writing requirement is a minimum 12 pages for week 7 (not including cover page, abstract, references, or exhibits) using APA 6th ed. formatting. You should have a minimum of 6 peer reviewed references and/or authoritative references (FASB Codification System, SOX, COSO, COBIT, etc.) in total.  Parts I and II should be a minimum of 4 pages not including the cover sheet or reference page

The last week you will create and upload a presentation comparing the two companies and in different areas chosen by you.  You will include at least 10 slides for your comparisons not including the cover slide and reference slide.  Post to at least 2 other students with questions or comments on their projects and be prepared to answer any questions from your classmates on your own project.

Running Head: PEPSICO INC. AND COCA COLA CO. 1

PEPSICO INC. AND COCA COLA CO. 5

PepsiCo Inc. and Coca Cola Co

PepsiCo Inc. and Coca Cola Co

Part II

g.

At PepsiCo Inc., getting amounts which have reduced costs of market as of the date of the balance sheet of inventories which have less valuations as well as allowances. This excludes inventory balances that are not in existent.  From 2014 to 2015, the inventories at PepsiCo reduced. On the other hand, at Coca Cola, the inventories comprise fundamentally of packaging as well as raw materials that comprise of both supplies and ingredients in addition to finished goods.  From both organisations, the inventory ratios reveal a trend that is fluctuating.

In addition to the above, when compared to Coca Cola, it is clear that Pepsi Co has an inventory turnover that is higher and this shows that the stock has been selling faster. Also, it shows that efficient utilization of both resources as well as capita

l.

In return, Coca Cola has an inventory turnover that is low for three years consecutively thus affecting the liquidity by the Coca Cola enterprise.

h.

From the given documents, it is clear that PepsiCo Inc. in 2015 got into a credit agreement for five years resolving in security. At PepsiCo, different tangible assets get held by the usage, supply or production of services and goods. At Coca Cola, the concepts of amortization and depreciation get recognized on the basis of a straight line over the usefulness of asset estimation.

According to research, the management report that explains about internal control over any reporting of finances ought to get included in yearly reports on any form which a registrant can get or any of the forms listed as Form 10K. 

Internal control over any financial reporting could not detect or prevent misstatements as a result of inherent limitations. Also, in case the management comes up with any weaknesses on internal control over the financial situation,  it is expected to offer a rather extensive disclosure to describe fully the weaknesses and the remediation plan of the registrant.

i.

In addition to liabilities and assets which get a fair value on a basis that is recorded at a value that is fair. In general these assets get recorded at a value that is fair on a basis which is not recurring as a result of charges that are not impaired. In addition, the fair values of investments in trading tend to be available for diverse state securities.

These fair values when it comes to investments are available for sale and in trading by use of securities while using market prices that are not only quoted but also the trade markets on a daily exchange that gets based on the different closing prices as of the balance sheet as and get classified as Level I. also, these values of the future tend to be contracted and get determined primarily while basing on the contract price of the closing market.

j.

It is rather essential for diverse external users that the auditors in question maintain independency from the organizations which they are auditing for the reason that it needs the auditors to work not only in an objective manner but also freely so that any interest which the external users have in a particular business will result to have credible assurances that the statements of finance have reasonable assurance and are true from a source that is independent.

Other aspects are of 26th December in 2015 with an international debt being over $ 190 million that was related to the withdrawals and borrowings from parties which are external comprising of diverse credit lines. These lines of credit tend to be subject to normal terms and conditions of the banking field which get to be committed fully towards the extent of our borrowings.

k.

This 5 year credit agree tends to enable diverse companies as well as borrows subsidiaries that help borrowing up to around $3.7225 billion that is obviously subjected towards the customary and existing terms and conditions.  

In 2015, we also see that PepsiCo got into a novel unsecured revolving credit agreement that was seen to end in 2016. From this, the committee dealing with compensations and reviews help in the implementation as well as the assessment of different practices and policies. These officers, that is, the Chief Executive Officer and the Chairman regularly meets to not only address and prioritize but also assess and identify the companies’ top reputational, safety, compliance, business and operation risks.

l.

Looking at Coca Cola, the corporation retired over $3,500 million of debt that is long term upon its maturity. These charges were comprised of the differences between the net price as well as the requisition price on the amount carrying the extinguished debt consisting of the effects of the fair relations on value that hedged the relationship.

Also, an appreciation of the organizations’ policies in critical accounting proves to be rather essential to help in understanding the financial results.

m.

Both PepsiCo Inc. as well as coca cola have almost the same business when it comes to their industry, flagship products and consumers. Both of these companies are universal leaders in the beverage market which offer clients hundreds of beverage brands. As at 31st January, Pepsi Closed with $ 142.02 which was a drop of 1.26 %, equivalent to -1.81 This was following a previous close of $143.83 over the last 12 months (Crawford, 2017).

Besides, the Audit Committee of the Board should assess and review the policies as well as the guidelines that govern both companies’ oversight and risk management processes.  The different committees consist of senior management group that are geographically diverse and cross functional.

n.

Appreciating Key accounting policies is essential in understanding the financial analysis and results. These guidelines could need management to ensure that subjective and difficult judgements concerning uncertainties. According to reports   the code of business by Coca Cola serves as the basis of the approach to both compliance and ethics by the company. Clearly, it states the expectations concerning accountability regarding how the company ethically conducts itself.  As of 31st December 2014 and 2015, the company’s security in trading had a rather fair value of $ 409 million and $ 322 million respectively. The company has also established that numerous management and communication routines to ensure the essential network of compliance resources that are in existent.

References

Crawford, R. (2017). Marketing channels and logistics: A case study of Pepsi International. Ivory Resarch. com.

The Cocacola Company, Code of Business Conduct. Retrieved from:

http://www.coca-colacompany.com/content/dam/journey/us/en/private/fileassets/pdf/our-company/2016-COBC-US-Final

Coca-Cola Company 2015 Annual Report. Retrieved from:

http://www.coca-colacompany.com/content/dam/journey/us/en/private/fileassets/pdf/investors/2015-annual-report-on-form-10-k