Accounting Research Paper Dr. Pepper Snapple Group vs. The Coca Cola Company Amanda Herring Tarleton State University Declaration Statement I hereby certify that this paper constitutes my own product, that where the language of others is set forth, quotation marks so indicate, and that appropriate credit is given where I have used the language, ideas, expressions or writings of others. Amanda Herring ID #000078948Zip Code 76707 Table of Contents Title Page1 Declaration Statement2 Table of Contents3
Abstract4 Purpose & Objective5 Introduction6 Statement of Problem7 Financial Analysis8 SWOT Analysis13 Decision16 Implementation & Monitoring17 Conclusion18 Bibliography19 Appendix21 Abstract This paper will discuss the financial differences between the Dr. Pepper Snapple Group and the Coca Cola Company, two drink manufacturing companies. It will take into account all of the financial information for 2010 and 2011 for each company, as well as current trends found for both of the companies.
Financial statements for both companies will be included, as well as analysis of both companies’ financial situations. A decision will be made at the end to determine which company is best suited to add to an investment portfolio and an explanation will be given as to why this company has been chosen. Purpose & Objective Dr. Pepper Snapple Group and The Coca Cola Company were chosen because of their sizes and product lines are relatively similar. They are both drink manufacturers with a wide array of different drink products under their label.
There is also always a need to compare one’s company to that of similar companies who are competitors in the industry. The purpose of this paper is to compare and contrast Dr. Pepper Snapple Group and The Coca Cola Company, both drink manufacturing companies, so that a decision can be made about which one to invest in. “The Coca Cola Company (NYSE: KO) is an American multinational beverage corporation and manufacturer, retailer and marketer of non-alcoholic beverage concentrates and syrups” (Wikipedia. org) and was “founded and headquartered in Atlanta, Georgia” (Cooper, Ford, & Stephens, 2007). In 1886, pharmacist John Pemberton created the soft drink Coca-Cola by combining soda water, lime, cinnamon, coca leaves, and Brazilian shrub weeds. The drink was originally sold in Atlanta in Jacob’s Pharmacy for five cents a glass as a soda fountain drink” (Cooper, Ford, & Stephens, 2007). “Today Coca-Cola’s reach spreads far beyond Georgia and even the United States; the company has become one of the world’s most recognizable corporations” and “the Coca-Cola brand is one of the five most recognized symbols” while the company “has early 400 brands in over 200 countries” (Cooper, Ford, & Stephens, 2007). The Dr. Pepper Snapple Group (NYSE: DPS) is “an American soft drink company, based in Plano, Texas” that was “spun off from Britain’s Cadbury Schweppes” who “in 2006 and 2007…purchased the Dr Pepper/Seven Up Bottling Group” (Wikipedia. org). They are “the leading producer of flavored beverages in North America and the Caribbean” with their success being “fueled by more than 50 brands that are synonymous with refreshment, fun and flavor” having “6 of the top 10 non-cola soft drinks, and 11 of 14 leading brands are No. in their flavor categories” (investor. drpeppersnapple. com). Along with their “flagship Dr Pepper and Snapple brands”, their “portfolio includes Sunkist soda, 7Up, A&W, Canada Dry, Crush, Mott’s, Squirt, Hawaiian Punch, Penafiel, Clamato, Schweppes, Rose’s and Mr & Mrs T mixers” (investor. drpeppersnapple. com). Problem Statement The problem is deciding which of the two companies to invest money in their stock. With so many different stocks to choose from, there is a need to get the most out of investments these days.
In order to come up with this decision, research is pertinent. Extensive research must be done by looking at both companies’ financial information in the form of statement analysis, ratio analysis, financial leverage, and comparative analysis, along with a SWOT analysis of both companies and comparing their strategies. The problem is having two very similar companies to choose from, and deciding which is going to be worth investing in the short and long term. Financial Analysis
Common Size Income Statements & Horizontal and Vertical Analysis Table [ 1 ]: Coca Cola Company Income Statement Analysis (dollars in millions except for per share data) Year Ended Dec 31,| 2011| Vertical Analysis| 2010| VerticalAnalysis| 2009| % Change 11/10| % Change 10/09| Net Operating Revenues| $46,542| 100%| $35,119| 100%| $30,990| 33| 13| Cost of goods sold| 18,216| 39. 1| 12,693| 36. 1| 11,088| 44| 14| Gross Profit| 28,326| 60. 9| 22,426| 63. 9| 19,902| 26| 13| Gross Profit Margin| 60. 9%| | 63. 9%| | 64. 2%| | |
Selling, general and administrative expenses| 17,440| 37. 5| 13,158| 37. 5| 11,358| 33| 16| Other operating charges| 732| 1. 6| 819| 2. 3| 313| | | Operating Income| 10,154| 21. 8| 8,449| 24. 1| 8,231| 20| 3| Operating Margin| 21. 8%| | 24. 1%| | 26. 6%| | | Interest Income| 483| 1| 317| 0. 9| 249| 52| 27| Interest Expense| 417| 0. 9| 733| 2. 1| 355| (43)| 106| Equity income (loss) – net| 690| 1. 5| 1,025| 2. 9| 781| (33)| 31| Other income (loss) – net| 529| 1. 1| 5,185| 14. 8| 40| | | Income Before Income Taxes| 11,439| 24. | 14,243| 40. 6| 8,946| (20)| 59| Income taxes| 2,805| 6| 2,384| 6. 8| 2,040| 18| 17| Effective tax rate| 24. 5%| | 16. 7%| | 22. 8%| | | Consolidated Net Income| 8,634| 18. 6| 11,859| 33. 8| 6,906| (27)| 72| Less: Net income attributable to noncontrolling interest| 62| 0. 01| 50| . 001| 82| 24| (39)| Net Income Attributable to shareowners| 8,572| 18. 4| 11,809| 33. 6| | (27)| 73| Net Income per share| | | | | | | | Basic net income per share| $3. 75| | $5. 12| | | (27)| 74| Diluted net income per share| $3. 69| | $5. 6| | | (27)| 73| Retrieved from The Coca Cola Company’s 2010 and 2011 10k Reports The Coca Cola Company has seen an increase in revenues since 2009, though they seem to have higher prices when it comes to selling, administrative, and general expenses during the 2011 accounting period. This seems to be the trend throughout the world, though, as the economic situation has become sour again and prices seem to be rising on all products and services. The cost of goods sold is also higher in the year that has the highest revenues, though this can be attributed to the economic situation once again.
The problem with the cost of goods, selling, administrative, and general expenses being so high is that net income has turned out lower, for the 2011 year thus causing the per share income to be significantly lower than that of 2010. Table [ 2 ]: Dr Pepper Snapple Group Income Statement Analysis (dollars in millions except for per share data) Year Ended Dec 31,| 2011| VerticalAnalysis| 2010| VerticalAnalysis| 2009| % Change 11/10| % Change 10/09| Net Sales| $5,903| 100%| $5,636| 100%| $5,531| 5%| 2%| Cost of goods sold| 2,485| 42. 1| 2,243| 39. 8| 2,234| 10| 0. 5| Gross Profit| 3,418| 57. 9| 3,393| 60. | 3,297| 1%| 3| Gross Profit Margin| 57. 9%| | 60. 2%| | | | | Selling, general and administrative expenses| 2,257| 38. 3| 2,233| 39. 6| 2,135| 1. 1| 4. 4| Depreciation and amortization| 126| 2. 1| 127| 2. 3| 117| (0. 1)| 8| Other operating charges| 11| 0. 2| 8| 0. 1| (40)| 27| 84| Operating Income| 1,024| 17. 3| 1,025| 18. 2| 1,085| (0. 1)| (6)| Operating Margin| 17. 3%| | 18. 2%| | | | | Interest Expense| 114| 1. 9| 128| 2. 3| 243| (12)| (89)| Interest Income| (3)| (0. 1)| (3)| (0. 1)| (4)| | | Loss on early extinguishment of debt| -| -| 100| 1. 8| -| | | Other income (loss) – net| (12)| (0. )| (21)| (. 04)| (22)| | | Income Before Income Taxes & Equity| 925| 15. 7| 821| 14. 6| 868| 13| (5)| Income taxes| 320| 5. 5| 294| 5. 3| 315| 8| (7)| Income before Equity| 605| 10. 2| 527| 9. 4| 553| 13| (5)| Equity in earnings of unconsolidated subsidiaries| 1| -| 1| -| 2| | | Net Income| 606| 10. 3| 528| 9. 4| 555| 13| (5)| Net Income per share| | | | | | | | Basic net income per share| 2. 77| | 2. 19| | 2. 18| 26| (. 01)| Diluted net income per share| 2. 74| | 2. 17| | 2. 17| 26| (. 01)| Retrieved from Dr Pepper Snapple Group 2010 and 2011 10k Reports
The Dr Pepper Snapple Group definitely sees a significantly lower revenue standard than The Coca Cola Company, which can be seen as a bad thing because it means their market share isn’t near what Coca Cola Company’s market share is. Even though these companies are in the same industry, it seems that Dr Pepper Snapple Group just isn’t being able to keep up with the larger company that the Coca Cola Company is. Yes, Dr Pepper Snapple Group is also seeing the same added expenses in the cost of goods sold, selling, administrative, and general expenses, but nearly at the percentage rate that he Coca Cola Company is. This means that their net income and their per share net income has grown considerably from 2010 to 2011, but remained around the same the year before that. Comprehensive Financial Ratio Analysis Valuation Ratios| DPS| KO| Industry| Earnings per share| 2. 79| 3. 78| | P/E Ratio| 16. 37| 21. 17| 20. 9| P/E High| NA| NA| 2. 6| P/E Low| NA| NA| 0. 8| Price to Book| 4. 27| 5. 72| 5. 51| Price to Sales| 1. 63| 3. 87| 2. 93| Price to Cash Flow| 11. 3| 16. 8| 15. 4| Market Cap| 9. 60B| 180. 10B| | Dividends| 1. 21| 1. 88| |
Dividend Yield| 2. 98| 2. 55| | Financial Ratios| | | | Current Ratio| 0. 92| 1. 05| 1. 2| Quick Ratio| 0. 7| 1| 0. 8| Leverage Ratio| 3. 9| 2. 6| 2. 9| Book Value per share| 10. 9| 14. 34| 13. 53| | 24. 3| 17. 08| | Total debt to asset| 29. 17| 35. 72| | Lt debt to equity| 99. 69| 43. 17| | Total debt to equity| 119. 66| 90. 31| 108| Operating Metrics| | | | Return on avg assets| 6. 67| 11. 29| 8. 9| Return on avg equity| 25. 67| 27. 37| 25. 74| Return on investment| 8. 13| 15. 77| 13. 7| Margins| | | | Net profit margin| 10. 25| 18. 55| 14. 16|
Gross margin| 57. 9| 60. 86| 55. 48| EBITD margin| 20. 85| 27. 06| | Operating margin| 17. 35| 23. 06| | Retrieved from www. google. com/finance & www. investing. money. msn. com The Coca Cola Company has a higher return on investment percentage than Dr Pepper Snapple Group, which means that Coca Cola Company is generating more wealth out of the investments they are making. Both companies’ revenues are growing, though it seems that Coca Cola Company is again winning out in the growth category because they are growing at a larger percentage.
Within the past two years Coca Cola Company’s revenue growth has been 13% and then 33%, which seems to mean that even through economically tough times, Coca Cola Company is still able to see larger revenue than the year before. The Coca Cola Company is trading at approximately four times their price/earnings ratio, which shows that it is a strong company which shareholders expect the price to go up. Although Dr Pepper Snapple Group is trading for around three times their price/earnings ratio, shareholders also agree that they have a strong company.
If you look at all of the analysis ratios, The Coca Cola Company is outperforming the industry in a number of different ratios. These include, but not limited to, the average return on equity, average return on assets, book value per share, the quick ratio, the leverage ratio, net profit margin, and gross margin, just to name a few. It seems that because of this, barring something unforeseen, The Coca Cola Company will remain the leader in their industry, and a good solid investment for any investor. If you are just looking at these ratios, The Coca Cola Company would definitely be the investment choice you would want to go with.
However, there are other factors to be considered still. The Coca Cola Company 5 year Stock Valuation Chart Retrieved from www. thecoca-colcompany. com Dr Pepper Snapple Group 5 year Stock Valuation Chart Retrieved from www. nasdaq. com In analyzing the two stock charts above, both are showing results for the past five years, it seems that the trends in both stocks are about the same. There is a drop in October of 2009, which was the financial crisis that made all stocks drop, though both have bounced back up. Dr Pepper Snapple Group has seen an extremely higher stock price since before the crisis, though it s still not valued at what The Coca Cola Company’s stock price is valued. The Coca Cola Company’s stocks have bounced back up, as previously stated, though not at the expansive amount Dr Pepper Snapple Group has since the devastating financial crisis. The Coca Cola Company is valued more than the Dr Pepper Snapple Group because “although we think there may be a better time to dabble in the firm’s shares based on our DCF process, the firm’s stock has outperformed the market benchmark during the past quarter, indicating increased investor interest in the company” (Why Coca-Cola is worth, 2012).
However, there is some estimation that “if recent commodity price trends hold over the next quarter, Dr. Pepper Snapple (ticker: DPS) should demonstrate significant earnings leverage in 2013 – well in excess of current Wall Street estimates” (Gerberi, Herzog, & Metrano, 2012). SWOT Analysis Strengths “Coca-Cola’s key strategy is its excellence in emerging markets. It has secured strong anchorage in emerging markets and in the event that the American market plummets, it will have a good fallback position” (Bazil, 2012).
This is a great thing, along with the fact that they are a global company. This gives them a position to be at the forefront of the beverage industry and allows them to see better revenues than others in the beverage industry. Dr Pepper Snapple Group, on the other hand, has a strength in the fact that they have seen a smaller increase in the cost of goods sold and other expenses than The Coca Cola Company. This is a strength because it means that the company has been able to control costs, yet they still have the same quality of beverages they always have. Weaknesses
Dr Pepper Snapple Group has continued to be an American-centric beverage company and could use a more global outlook to add to profits and up their stock performance. This is a weakness because The Coca Cola Company is already out in the global market and has become the face of the beverage industry from the United States. They are well known, and if Dr Pepper Snapple Group can’t keep up with this, they will never be able to achieve the same financial situation that The Coca Cola Company has. The Coca Cola Company has seen a weakness in the fact that they haven’t been able to control costs throughout the economic down recently.
They are seeing more revenues, but revenues are not all that matter in the business world. The Coca Cola Company should try to maintain a lower cost structure so that they have a better advantage, and a larger net income. Opportunities Dr Pepper Snapple Group has a huge opportunity to go global with their beverages. They are currently thinking relatively small in the grand scheme of things and could use a global perspective to raise revenues and become a more comparative competitor to The Coca Cola Company. The Coca Cola Company has the opportunity to try to control costs.
They need to be able to do this so they can see a larger net income and save money during these economically hard times. Companies that are not able to control costs will eventually not be able to make it in the business world because they will be paying prices that they sales cannot keep up with. Threats The Coca Cola Company has a big threat that could potentially affect them in the long run. If more of their competitors enter the global market, they could see huge competition in this market than ever before.
They are the main beverage company that has a large global presence, but other beverage companies will be looking, if they already aren’t, into getting into the global market so that they compete with The Coca Cola Company revenue wise, and see the same larger revenue that global companies start see when they branch out to different areas of the world. Dr Pepper Snapple Group could see a threat of all others within the beverage industry catching on to their cost controlling methods. These methods would help other companies be able to compete better because they will be saving money and hopefully seeing higher revenues as well.
This cost controlling, though now a competitive advantage, could very well become an industry norm in the future. Decision I feel that both companies should be invested in. There seems to be a relatively good stock market valuation for The Coca Cola Company and Dr Pepper Snapple Group, as well as good return on investment percentages relative to the beverage industry average. I think that half should be invested in The Coca Cola Company because it has a global presence and sees higher revenue and has a larger stock valuation, as well as a larger per share net income because of the larger revenues than that of Dr Pepper Snapple Group.
I also think that the other half should be invested in Dr Pepper Snapple Group. I feel that this manufacturer only has greater heights to attain, seeing as they have yet to have a huge global presence since they are centered on their United States market. I feel that investing in their stock now, before they truly go global (which will happen because every company should start thinking on a global scale), would be the best case scenario because once they do start making a larger revenue due to global sales, they will probably see a higher return on investment, as well as a higher stock valuation.
Implementation & Monitoring To implement this, you should contact your financial advisor. Your financial advisor will able to help you further assess the situation which I have laid out in this report. They will also be able to connect you with a stock broker, if you already do not have one. The stock broker will then help you invest your money in the way I have explained above. Then it would be advisable, in order to monitor your investment, that you also use your financial advisor who can better monitor the progress of your stock investment.
If this is too expensive, then you could monitor the stock yourself through websites such as www. investing. money. msn. com, www. google. com/finance, or www. finance. yahoo. com. These, plus many more websites, are very helpful in monitoring your investment in the stock market. It is up to you whether you want to monitor it every day, once a week, twice a week, or once a month. Whichever you choose, make sure that you keep up with it and don’t fret when stock prices take a slight drop. Pulling money out too early, or when the stock is currently falling is never a good plan. Conclusions
With this paper, I have learned that, contrary to my belief, The Coca Cola Company are not comparative in size when it comes to revenue, or even the amount of different beverages they sell. They both, though, have comparative ratio analysis. They both are around the industry average, sometimes one is a little above and the other is a little below and vice versa, but for the most part they are relatively close to the industry average. It seems that Dr Pepper Snapple Group has been able to control costs a little more effectively than The Coca Cola Company, but The Coca Cola Company has seen better revenues than the Dr Pepper Snapple Group.
Both of these companies are on upwards trends in the stock market, even though they are not comparable by price. There is definitely a need to invest in both of these companies because each has their unique competitive advantage. The Coca Cola Company’s competitive advantage is the fact that they are the leaders in the global beverage market, while Dr Pepper Snapple Group’s competitive advantage is that is able to control costs more efficiently. They each have a large product line and could both benefit from learning from the other in different aspects of the business.
Bibliography Bazil, M. (2012). Coca-Cola’s secret weapon. Retrieved from http://www. gurufocus. com/news/183815/cocacolas-secret-weapon. Coca Cola Company Form 10k, 2010. (2011). Retrieved from www. sec. gov. Coca Cola Company Form 10k, 2011. (2012). Retrieved from www. sec. gov. Cooper, L. , Ford, W. , & Stephens, W. (2007). Coca-Cola case study: An ethics incident. The Archive of Marketing Education. Retrieved from www. marketingpower. com. Dr Pepper Snapple Group. (n. d. ). Retrieved from www. wikipedia. org.
Dr Pepper Snapple Group Form 10k, 2010. (2011). Retrieved from www. sec. gov. Dr Pepper Snapple Group Form 10k, 2011. (2012). Retrieved from www. sec. gov. Gerberi, J. , Herzog, B. , & Metrano, B. (2012). Beating the global heat with Dr. Pepper Snapple. Retrieved from http://online. barrons. com/article/SB50001424053111903857104577462982562697696. html Graph Data. (2012). Retrieved from www. google. com/finance. Graph Data. (2012). Retrieved from www. investing. money. msn. com. Graph Data. (2012). Retrieved from www. hecoca-colacompany. com. Graph Data. (2012). Retrieved from www. nasdaq. com. Graph Data. (2012). Retrieved from www. yahoo. com. Investors. (n. d. ). Retrieved from www. investor. drpeppersnapple. com. The Coca Cola Company. (n. d. ). Retrieved from www. wikipedia. org. Why Coca-Cola is worth $70 per share. (2012). Retrieved from http://seekingalpha. com/article/755581-why-coca-cola-is-worth-70-per-share? source=marketwatch Appendix A – Accounting Research Paper Supporting Files PDF Files Word/Rich Text Files