Analysis of International Company

How does an international company, such as Coca-

Cola, manage to consolidate and strengthen its position in a
complex and dynamic environment?

Authors:
Leyre Fernandez 479889
Rose Adu 483632
Sofiia Hotovska 483417
Vani Fadhila 482578
 How does an international company manage to consolidate and
strengthen its position in a complex and dynamic environment?
A study of The Coca-Cola Company

By
Leyre Fernandez 479889
Rose Adu 483632
Sofiia Hotovska 483417
Vani Fadhila 482578

Saxion University of Applied Science

Enschede, Netherlands
October 8, 2019

1
PREFACE
As part of our business programme we were asked to conduct an analysis about how
an international company, such as Coca Cola, could strongly position itself after entering
the Dutch volatile and complex environment.
Throughout this essay, financial and marketing aspect are explained in order to provide
a deeper understanding of the company and its practices to achieve its strategy.
Thanks to this report we were able to see the great importance of producing a market
research before entering a new market as well as spot the opportunities and risks that
could bring to the company.

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Table of Contents
SUMMARY .................................................................................................................... 5
THE EXPLANATION OF TERMS & SYMBOLS .................................................................. 7
INTRODUCTION ............................................................................................................ 8
CHAPTER 1: LIQUIDITY RATIOS ..................................................................................... 9
1.1 CURRENT RATIO ............................................................................................................. 9
1.2 QUICK RATIO.................................................................................................................. 9
1.3 DEBTORS COLLECTION PERIOD .....................................................................................10
1.4 CREDITOR PAYMENT PERIOD ........................................................................................10
CHAPTER 2: FINANCIAL LEVERAGE MANAGEMENT RATIOS ....................................... 11
2.1 DEBT RATIO...................................................................................................................11
2.2 INTEREST COVERAGE RATIO .........................................................................................11
CHAPTER 3: RESEARCH ON A MARKET OF THE NETHERLANDS AND WORLDWIDE ..... 12
3.1 MARKET STRUCTURE ....................................................................................................12
3.2 MARKET DEVELOPMENT ...............................................................................................12
3.3 INTENSITY OF COMPETITION ........................................................................................13
3.4 PRODUCT INNOVATION ................................................................................................13
3.5 MARKET SEGMENTATION .............................................................................................14
3.5.1 COCA-COLA......................................................................................................................... 14
3.5.2 PEPSI .................................................................................................................................. 14
3.6 PRODUCT MARKET COMBINATIONS: ............................................................................14
3.6.1 COCA-COLA......................................................................................................................... 14
3.6.2 PEPSI .................................................................................................................................. 15
3.7 COCA-COLA AND PEPSI POLICIES: .................................................................................15
3.8 STRATEGY: ....................................................................................................................15
3.9 POSITION TO MAIN COMPETITORS:..............................................................................16
CHAPTER 4: PROFITABILITY AND EFFCIENCY RATIOS .................................................. 16
4.1 PROFITABILITY RATIOS..................................................................................................16
4.1.1 GROSS PROFIT MARGIN ...................................................................................................... 16
4.1.2 RETURN ON TOTAL CAPITAL ................................................................................................ 16
4.1.3 INTEREST PERCENTAGE ....................................................................................................... 17
4.1.4 RETURN ON OWNER´S EQUITY RATIO .................................................................................. 17
4.2 EFFICIENY RATIOS .........................................................................................................18
4.2.1 INVENTORY TURNOVER....................................................................................................... 18
4.2.2 TOTAL ASSET TURNOVER..................................................................................................... 18

CHAPTER 5: DEPEST ANALYSIS.................................................................................... 19

5.1 DEMOGRAPHIC FACTORS..............................................................................................19

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 5.2 ECONOMIC FACTORS ....................................................................................................19
5.3 POLITICAL FACTORS ......................................................................................................19
5.4 ECOLOGICAL FACTORS ..................................................................................................20
5.5 SOCIAL FACTORS ...........................................................................................................20
5.6 TECHNOLOGICAL FACTORS ...........................................................................................20
CHAPTER 6: INVESTOR RATIOS ................................................................................... 21
6.1 EARNING PER SHARE ....................................................................................................21
6.2 PRICE/EARNING RATIO .................................................................................................21
6.4 DIVIDEND COVER ..........................................................................................................22
CHAPTER 7: SWOT ...................................................................................................... 23
7.1.1 STRENGHT: ......................................................................................................................... 23
7.1.2 WEAKNESS: ......................................................................................................................... 23
7.1.3 OPPORTINITIES ................................................................................................................... 23
7.1.4 THREATS ............................................................................................................................. 24

7.3 SWOT MATRIX EXPLANATION.......................................................................................25

CONCLUSION .............................................................................................................. 27
BIBLIOGRAPHY ........................................................................................................... 27
APPENDIX ................................................................................................................... 31

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SUMMARY
This report is focusing on how effective Coca-Cola is in entering new market in the
chosen country, in this case The Netherlands. It will suggest what steps should be taken
by Coca-Cola in order to achieve successful performance within the Dutch market. For
this, the report would look into Coca-Cola’s financial information as well as PepsiCo´s
and a comparison would be produced in terms of performance. In addition to the financial
analysis, this report will include a market research analysis of the Dutch market. For this
we will make use of SWOT analysis to understand the possible changes that the
company might be faced with as well as a DEPEST analysis to identify external factors.
In the first chapter, this report will mainly discuss about the financial perspective of both
Coca-Cola and Pepsi. There will be calculations of liquidity ratios, financial leverage
management ratios, profitability and efficiency ratios, and investors ratios. From the
liquidity ratios calculations, there could be foreseen that Coca-Cola was able to pay off
their short-term debt while its competitor, PepsiCo was having trouble in the year 2018.
As from the financial leverage management ratios, it could be said that Pepsi had more
control of the overall debt than Coca-Cola even though Coca-Cola has higher amount of
assets. This is due to the fact that Coca-Cola has higher debt than Pepsi. Thanks to
profitability and efficiency ratios, it can be shown that Coca-Cola has a higher gross profit
margin, however Pepsi has a better return on total capital in the years 2017 and 2018.
The efficiency ratio shows that PepsiCo is able to sell their inventories much quicker than
Coca-Cola. The last part of the financial is the investor ratios, one of them is EPS, from
the result it can be concluded that Pepsi has higher value because they have higher
EPS.
The next part is the research market. Coca-Cola and Pepsi are oligopolistic companies
that compete globally in different markets. Both companies are dominant brands in the
cola drinks industry. Coca Cola makes use of certain segments to help the company
categorized its customers and in turn companies to expand their markets. Because of
the same domination of both brands, the competition between Coca-Cola and Pepsi is
unbearable. They are constantly finding creative ways to advertise their products due to
the rapid change of customer’s preferences.
The 21st century is moving towards a healthier lifestyle and that is what Coca-Cola and
Pepsi is trying to adapt to this new trend by producing a healthier products line to impress
customers. The similarity of their products forces them to have competitive strategy, from
having agreements with several food chains to the design of their packaging. It is all
important to keep their value proposition.
As a support tool we will make use of DEPEST, a tool used to analyse macro factors
such as demographics, economic, political, environmental, socio-culture, and
technological. This tool would be useful for companies such as Coca Cola in the
decision-making process for locating available resources and impacts later in the long-
run.
As the final part of our report, we will produce a SWOT to help Coca Cola to strengthen
their position in the market by analysing its strengths, weaknesses, opportunities, and
threats. The company is no doubt one of the strongest brands in cola industry, however
it still has some weaknesses. One of them is having the lack of variety in products. Their
biggest competitor, Pepsi, is one of the threats that would jeopardize Coca-Cola position
in the market. With these analyses, it all concluded into confrontation matrix and came
up with four strategies to help Coca-Cola strengthen its position in the market.

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Coca-Cola has proved to be a company with strong brand image competing in the
oligopoly market. They are permanently innovating new products in order for them to
develop their market. However, it might be considered that the company might need to
penetrate into another industry due to the massive completion within the beverages
market.

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THE EXPLANATION OF TERMS & SYMBOLS

CHAPTER 3
Oligopoly - is a market structure in which a few firms dominate, and where it is possible
that many small firms may also operate in the same market as well.
Duopoly - is a kind of oligopoly: a market or industry is dominated by just two firms.
Market development - is a strategic step taken by a company to develop the existing
market rather than looking for a new market.
Rivalry - a situation in which businesses compete with each other for the same thing.
Market segmentation - is the process of dividing a market of potential customers into
groups, or segments, based on different characteristics.
Product market combinations (Marketing Mix; 4Ps) - set of marketing tools that is divided
into four groups, such as: Product, Price, Place, Promotion.

CHAPTER 5
CBS – Statistics Netherlands
CPS - The Netherlands Bureau for Economy Policy Analysis
DEPEST - DESTEP is an acronym that stands for: Demographic, Economic, Social,
Technological, Ecological and Political factors. It provides more information about these
Macro-economic factors.
FWS - Nederlands vereniging Frisdranken, Waters, Sappen

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INTRODUCTION

This report will focus on how effective Coca Cola in is entering and consolidating itself to
the chosen country (The Netherlands) and what aspects must be taken into
consideration in order to achieve a successful performance within the new environment.
Coca Cola Company, founded in 1920, is the biggest beverages producer and distributor
in the world with a global network of 200 countries and offering nearly 2800 available
products. By producing in a global basis, Coca-Cola needs to constantly battle with its
competitors such as Pepsi and generate new strategies that would put the red beverages
giant on the lead in the market.
For Coca Cola to have a strong positioning in the volatile Dutch market, a prior
investigation must be done. In the first instance, the report would look into the financial
information of Coca Cola of the recent years and a financial analysis would be done to
show some insights regarding profitability, efficiency, liquidity, equity and how the
company deals with debt in the long term. Consequently, this would help us later to
compare Coca Cola financial performance with PepsiCo within the last recent years.
Moreover, throughout this report a market analysis would be conducted concerning
aspects such as the size of the industry, market structure or the level of competition in
order to make well informed decisions, based on the exiting needs of customers and
therefore develop effective strategies.
Additionally, to provide a better awareness and understanding of the possible changes
that the company might face we will make use of SWOT analysis (to spot Coca Cola´s
internal strengths and weaknesses) and DEPEST analysis to identify external factors
that might affects the company´s activity.

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CHAPTER 1: LIQUIDITY RATIOS
Liquidity Ratios is the resulting number of dividing liquid assets and the liabilities of a
company. This ratio measures the ability for the company to pay its short-term debt.
There are various examples of measuring this, however this report will look into four
ratios.
1.1 CURRENT RATIO
Current ratio measures the ability for the firm to meet its short-term obligation and it does
this by dividing the firm’s current assets to its current liabilities.

Current Assets
Current Ratio =
Current Liabilities

• Generally speaking, if a company’s current ratio is equal to 1, it means that the

business is able to pay off their current liabilities but then the firm wouldn’t have any
assets left.
• On the other hand, if the current ratio is more or less between 1 and 2 then the
business is financially well in terms of paying its short term debt because after the
debt is cleared off, the firm still has additional assets which will be beneficial for the
continuation of operations in the short run.
• If the current ratio is more than 2 then it suggests the business is holding too much
cash in the firm which could be invested in continuous growth.

TABLE 1: Current ratios for Coca Cola and PepsiCo for the years 2017 and 2018
Current Ratios Coca Cola PepsiCo
2018 1.05 0.98
2017 1.34 1.51

In Table 1, it is visible that in both years, Coca Cola was able to pay off their short-term
debt without any problems. In contrast, PepsiCo had troubles in the year 2018. Their
total current liabilities exceed their total current assets by $245 (in millions) and this
caused their current ratio to be low in that year but on the flip side, in the year 2017,
PepsiCo had the highest current ratio in comparison to Coca Cola’s figures.

1.2 QUICK RATIO

Another common measure is the quick ratio. This ratio is calculated by deducting
inventories from current assets and then dividing both variables by current liabilities.

CurrentAssets - Inventories
Quick Ratio =
Current Liabilities
It measures the ability for a firm to make use of its most liquid assets such as cash or
current account receivables to get rid of current liabilities immediately.
Inventory is usually considered to be less liquid because it can lose its worth
(depreciation) so this ratio really allows us to find out if the firm is capable of paying its
short-term debts or not.
TABLE 2: Quick ratio for Coca Cola and PepsiCo for the years 2017 and 2018

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 Quick Ratio Coca Cola PepsiCo
2018 0.95 0.84
2017 1.24 1.36

In Table 2, both companies in the year 2018 had a quick ratio of less than 1 which shows
the effect inventories had on them. According to Figure 1, in 2018 PepsiCo had the
highest inventories and this explains further the drop in the value from the current ratio
to the quick ratio.
Nonetheless, in 2017, both companies evidentially didn’t have any issues paying off their
short-term debts. According to Figure 1 and 2, these companies had a higher total
current asset as well as a low total current liabilities compared to 2018. Therefore,
despite the value of inventories which were excluded from the equation, it didn’t affect
the overall ratio.
Firms must always realize that the higher the quick ratio the more secure a company is
over a short period. Nevertheless, having an extremely high figure could also mean that
there is frozen money in the business. As previously mentioned, the quick ratio excludes
inventories which suggest having a high quick ratio means there are other current assets
which are relatively high and in turn investors will question the idea of having an
extremely high quick ratio.
1.3 DEBTORS COLLECTION PERIOD
Debtor’s collection period is the average day period needed for companies to receive
money owed by the customers

Average accounts receivable

Debtors Collection Period = * 365 days
Annual credit sales

TABLE 3: Debtor´s collection period for Coca Cola and PepsiCo for 2018 and 2017

Debtor´s collection period Coca Cola PepsiCo

2018 39 40
2017 38 40

By the explanation above, all companies would want to have a low figure as possible
because the lower the number, the faster the debtors are going to pay back their debt.
In this case, Coca-Cola's debtor’s collection period is slightly better than PepsiCo’s. The
average amount of days needed for the debtors to pay their debt is shorter than Pepsi.

1.4 CREDITOR PAYMENT PERIOD

Creditor Days is a financial ratio which calculates the average time taken for a business
to pay its suppliers. The resulting number gives some insight in whether a company is
taking full advantage of the trade credit available,
In addition, it is an effective method to identify any potential cash flow problems.
Investors might look into this ratio to have an indication of a company’s commercial
power and how fast a company pays its customers and suppliers.

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 Average trade creditors
Creditor Payment Period = * 365 days
Annual credit purchases

TABLE 4: Creditor´s payment period for Coca Cola and PepsiCo for the years 2018
and 2017

Creditors payment Coca Cola PepsiCo

period
2018 77 225
2017 43 190

According to the explanation above, it is best for companies to have low credit payment
period, as investors can see that the company is able to pay off their debt as quick as
possible. From the calculation, it shows that for both years, Coca-Cola is able to pay their
debt in less than three months, whilst PepsiCo took more than seven months.

CHAPTER 2: FINANCIAL LEVERAGE MANAGEMENT RATIOS

Financial leverage management ratios also known as debt ratio “measures the overall
debt load of a company and compares it with the assets or equity.” (My accounting
course, 2019). The ratios which will be covered are debt ratio and interest coverage ratio.
2.1 DEBT RATIO
In this report we calculated the total debt as the short and long term debt of the company
together.

Total debt
Debt Ratio =
Total assets

TABLE 5: Debt ratio for Coca Cola and PepsiCo for the years 2018 and 2017
Coca Cola 2018 2017 PepsiCo 2018 2017
Debt Ratio 0.46 0.50 Debt Ratio 0.42 0.49

Table 5 shows that both companies are fairly protected as their debt ratio is below and
up to 0.5 or 50%. The lower the debt ratio, the more appealing the firm is to stakeholders
because it clearly shows that the business has more total assets than it has debts hence
the firm will always be able to clear those debts off.
It is fair to say that according to these figures, PepsiCo is more under control with its
overall debt than Coca-Cola. Coca-Cola has a higher Total Assets in both years, but we
must point out that it possesses a higher Total Debts compared with PepsiCo.
2.2 INTEREST COVERAGE RATIO

The next ratio we will analyse is the interest coverage ratio which “is a measure of a
company’s ability to meet its interest payment.” (ReadyRatios, 2019). In Figure 3, it
indicates that PepsiCo’s interest expenses are negative values therefore the interest
coverage ratio will also be negative. “A negative net interest means that you paid more

11
interest on your loans than you received in interest on your investments” (Ray, 2019)
and this is a ratio investors are usually interested in.

Earnings before Interest and Tax (= Operating income)

Interest Coverage ratio =
Interest Charges

TABLE 6: Interest coverage ratio for Coca Cola and PepsiCo for the years 2018 and
2017

Coca Cola 2018 2017 PepsiCo 2018 2017

Interest 9.45 9.04 Interest (6.63) (8.93)
Coverage ratio Coverage ratio

In essence, PepsiCo is unable to pay off its interest payment after borrowing resources
which is reflected in Table 6 with the values they show. When the coverage ratio is low,
the company´s ability to cover interest expenses might be questionable and might end
up borrowing in order to pay off their previous debt which could bring fatal financial
problems to the company.

CHAPTER 3: RESEARCH ON A MARKET OF THE NETHERLANDS AND

WORLDWIDE

3.1 MARKET STRUCTURE

Coca-Cola and Pepsi are companies that operate in the same type of a market –
oligopoly. Although they have competitors, these two parties are dominating in the soft
drinks industry.
They have a control above most of the market share. That is why these two companies
are suitable example of a duopoly. They behave independently in the market and it is
possible for them to increase the price above the market price without losing customers.
They have the power to set a price that is favorable for them, but any price change should
be taken into consideration between both sides (Aysha, 2017).

3.2 MARKET DEVELOPMENT

Coca-Cola applies market development strategies when it develops the market through
new customers or new product ideas. Nowadays Coke customers can be found in new
different segments: geographic, demographic and psychographic. For example, when
Coca-Cola decided to bring their product into Russian territory, it developed its market
potential by adding a totally different customer base (Growing Sales, 2019). The
company developed its market when being focused on Australian market opportunities.
Coca-Cola Orange (No Sugar), newest limited-edition flavors, was launched in Australia
which will be available only till the winter. The idea was to make cooler months “fun and
sociable”. Moreover, another product launched in Australia – Coca-Cola Plus Coffee No
Sugar. Creators wanted to let the consumers enjoy two favorite drinks in one bottle.

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Another limited edition of Coca-Cola Ginger was found and greeted as a significant trend
and idea.
PepsiCo managed to grow the business by increasing internet commerce in the USA
and Chinese cities. It develops new market segments for already existing products. Pepsi
targets new customers in new segments which helps to expand its market.

3.3 INTENSITY OF COMPETITION

Coca-Cola has a stronger brand than Pepsi Cola. According to Forbes “The Most
Valuable Brands” ranking in 2019, Coca-Cola takes 6th place while Pepsi takes 29th place
(The World's Most Valuable Brands, 2019). What is important to highlight is that these
two companies are the best example to present and discuss the intensity of
competition. The Coca-Cola and Pepsi rivalry are one of the most well-known
competitions in the world. It has come to be termed Cola wars. They make use of vivid
and creative advertisements to attract more customers and compete.
When summer holidays arrive, it is visible how both companies use cut-throat price
competition in order to increase their revenue. They apply predatory pricing and heavy
promotions to remove their competitors.

3.4 PRODUCT INNOVATION

21th century is distinctive for major changes in consumer preferences such as healthy
lifestyle. Nowadays, consumers prefer healthy food and drinks. They follow the tendency
of nutritious lifestyle and choose to be health conscious. That is why the brands released
a variety of health friendly products.
Coca-Cola creates new products all the time, the brand tries to impress the customers
and the whole world to be recognizable and striking. The company created Organic Brew
Coffees which were launched by the makers of the nation’s top-selling organic bottled
tea – Honest. They were available in three flavors: Just a Tad Sweet, Unsweet Black
and Just a Tad Sweet Mocha – in recyclable glass bottles (Moye, Stories, 2019). The
brand follows all the world trends and attempts to offer the variety of products. A slushy
coke was a real innovation from Coca-Cola’s side. Every customer assessed it as a great
treat for a hot summer day (Leith, 2016).
Also, the company came up with an idea that their customers can create their own design
of the Coca-Cola bottle. Making every bottle unique attracts more customers and keeps
their loyalty (Moye, 2016).
PepsiCo expanded its selection by adding new products such as Aqua Minerale water +
juice and Kevita Master Brew Kambocha. These drinks contain low or zero calories
which can fully satisfy the customers. Pepsi Zero Sugar, Pepsi Max are products which
are demanded among people. In the food industry Pepsi presented Hummus, Sweet
Potato and Veggie Crisps.
The products are divided into three categories: Fun for You, Good for You, Better for You
(Pratap, 2018). PepsiCo tries to invade every customer segment and satisfy all the
needs.

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3.5 MARKET SEGMENTATION
3.5.1 COCA-COLA
Geographic segmentation: more in urban and suburban areas than in rural ones.
Demographic segmentation:
• Age: targets different age groups. For example, “OASIS” for 20-30-year-old people,
“Powerade” (sport drink) for 13-27-year-old athletes, “Minute Maide” for kids from
one-year-old to ten and for old people 40 plus.
• Gender: females and males: Diet Coke for females (bright white packaging, more
women drink it than men, that is why young males perceived this drink as a female
drink), Coca-Cola Zero for males (dark black packaging for “real men”) (Staples,
2019).
• Income: low level (returnable glass bottles), high level (coke in tins).
Psychographic segmentation: people who like to show their status by having a well-
known brand in their bag; the brand is health directed for health-conscious consumers
(Diet Coke or Coca-Cola Zero).
Behavioral segmentation: Coca-Cola during Christmas, Coca-Cola during summer
(depends on the occasion).
(Segmenting and Targeting Markets, 2011)

3.5.2 PEPSI
Geographic segmentation: urban, suburban and rural areas.
Demographic segmentation:
• Age: from 8 to 45 (the main target: student and young employees);
• Gender: males and females;
• Income: low level, middle level.
Psychographic segmentation: people who watch ads with different celebrities and want
to be like them; people with healthy lifestyle.
Behavioral segmentation: heavy TV users.
(Dudovskiy, 2016)

3.6 PRODUCT MARKET COMBINATIONS:

3.6.1 COCA-COLA
• Product: wide product range which are offered globally and sold in different types of
packaging and sizes.
• Price: different price policies in different market segments (depending on income
level, customer’s desires).
• Place: more than in 200 countries, according to Coca-Cola official website; various
hotels, restaurant chains, cafes.

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• Promotion: aggressive marketing through all campaigns using TV, print media, online
advertisements, sponsorship (NBA, Olympic Games, FIFA WorldCup, American
Idol) (Coca-Cola Marketing Mix Strategy, 2019).

3.6.2 PEPSI
• Product: cold drink is the main product of the company, the majority is carbonated
beverages; also, fruit juices, snacks etc.; they are invading a wide variety of markets.
• Price: depends on the customer’s demand which are priced according to the quantity
supplied, income level and competition.
• Place: available in more than 200 countries, according to Pepsi official website. Their
products are easily available and there is a careful selection of the stores.
• Promotion: main targets – youth and family; promoted using celebrities through TV,
print, online ads, sponsorship (cricket, WorldCups of football) (Pratap, 2018).

3.7 COCA-COLA AND PEPSI POLICIES:

These two companies have same main policies:

• -Human Rights;
• -Privacy;
• -Social;
• -Environmental.
(Sustainability Report, 2018)
(Global Code of Conduct, 2019)

3.8 STRATEGY:
Coca-Cola is noticeable by its competitive strategy of a product differentiation. It is vital
for Coca Cola to be distinctive among its main competitors, especially Pepsi. This is
because the products of these two companies are almost the same. However, each of
them has created a high brand loyalty for each product. Coca-Cola aims at making their
products available around the world.
The company concludes agreements with different food chains in order to become the
only provider of soft drinks. For example, in McDonalds there will be availability to buy
only Coca-Cola, and not Pepsi (Lin, 2012).
People will not consider an idea of purchasing an alternative drink, they will likely buy
what is in front of them and think about their surroundings (work, families or duties). Coca
Cola maintains a dominant position among other companies. It acquires the exclusive
basis of distribution.
Another important feature of Coca-Cola’s strategy is its product packaging. Day-to-day
they are updating the product´s appearance order not to lose its value proposition and
customers interest. The most significant element of a Coca Cola’s marketing strategy is
the color of its packaging. It uses vivid red color which attracts customers and makes it
easy to distinguish the brand among others. Meanwhile, Pepsi uses another bright and
recognizable color – blue.

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Coca-Cola uses low-price strategy to maximize its profit, so does Pepsi.

3.9 POSITION TO MAIN COMPETITORS:

As previously mentioned, Coca-Cola and Pepsi are oligopolies where medium and
smaller companies operate as well. However, their market share is minor in comparison
to two giants of beverage industry. In every market there are threats of new entrants
bringing substitute products. Nevertheless, the barriers in order to enter the industry are
quite high because the production of such type of drinks requires a considerable
investment in equipment, brand material, and advertising.
Such a high cost of existence in the industry keeps a great amount of companies away
from entering this competitive area. Yet, their major competitors are Dr Pepper Snapple,
Red Bull and Nestle (Bhasin, 2019). Coca-Cola and Pepsi Cola have signed a cartel
contract (Aysha, economicsplanet.com, 2017). They aim to keep other entrants out of
the market to avoid the decrease of their profits.

CHAPTER 4: PROFITABILITY AND EFFCIENCY RATIOS

4.1 PROFITABILITY RATIOS
When it comes to analysing a company, it is important to look into its profitability as it
measures a company´s ability to generate profit by turning assets into profits. This also
shows how successful the business has been over a specific period of time. There are
a wide variety of ratios to calculate the profitability of a firm but this report will look into
four ratios: gross profit margin, return on total capital, interest percentage and return on
owner´s equity ratio.
4.1.1 GROSS PROFIT MARGIN

The first measure to cover is the gross profit margin which is the amount of money left
from sales after deducting the cost of goods sold.

Operating income
Gross profit margin =
Sales

TABLE 7: Gross Profit Margin for Coca Cola and PepsiCo in the years 2018

and 2017

Coca Cola 2018 2017 PepsiCo 2018 2017

Gross Profit Margin 63.1% 62.6% Gross Profit Margin 54.6% 54.7%

In Table 7, it can clearly be seen that Coca Cola has more money left after taking away
the direct costs form the production of the goods

4.1.2 RETURN ON TOTAL CAPITAL

Secondly, we have the return on total capital which its acquired by multiplying the gross
profit margin by the total asset turnover.

16
 Operating income
ROTC =
Average Total Capital

Firms should always strive to get a high return on total capital because it shows
stakeholders such as financial institutions or investors how efficient a business is using
its assets and the positive impact it has on the firm in terms of the money it gets back
from sales.

TABLE 8: Return on total capital for Coca Cola and PepsiCo in the years 2018
and 2017

Coca Cola 2018 2017 PepsiCo 2018 2017

Return on Total 23.9% 25.0% Return on Total 45.3% 43.8%
Capital Capital

Table 8 shows that PepsiCo has a much better return in both years than Coca Cola
due to the high total asset turnover ratio it got in both years as well.
4.1.3 INTEREST PERCENTAGE
This ratio reflects the rate of return on the liabilities.

TABLE 9: Interest percentage for Coca Cola and PepsiCo in the years 2018 and 2017

Interest percentage Coca Cola PepsiCo

2018 1.3% 2.4%
2017 1.2% 1.7%

Pepsi performed more dynamically than Coca-Cola because it remained stable

during these years.

4.1.4 RETURN ON OWNER´S EQUITY RATIO

The fourth ratio is the return on owner’s equity ratio and it “measures a corporation’s
profitability by revealing how much profit a company generates with the money
shareholders invested” (Burg, 2019).

Earnings after Interest and Tax

ROE =
Average Equity

TABLE 10: ROE for Coca Cola and PepsiCo for the years 2018 and 2017

Coca Cola 2018 2017 PepsiCo 2018 2017

Return on Owner’s 37.9% 7.3% Return on Owner’s 86.2% 44.0%
Equity Equity

There is no doubt that PepsiCo had a much higher percent of profit. In general, the higher
the ROE the better it is for the company. However, with most of these ratios, an extreme
high ratio can indicate a negative thing.

17
For example, a firm can increase its ROE by using financial leverage and the
disadvantage is that the total debts will boost up. As we discussed in Table 5 the debt
ratio for PepsiCo was much better than Coca so it is evident that PepsiCo has other
factors it uses to increase its ROE.

4.2 EFFICIENY RATIOS

Efficiency ratio is used to analyse how productive a company uses its assets and how it
manages its liabilities in the short term. The will be two ratios we will go in depth in which
are inventory turnover and total asset turnover.
4.2.1 INVENTORY TURNOVER
The first is the Inventory Turnover which is Cost of Goods Sold (COGS) divided by
Average Inventory.

Costs of goods sold

Inventory Turnover =
Average inventory
TABLE 11: Inventory turnover for Coca Cola and PepsiCo for the years 2018
and 2017

Coca Cola 2018 2017 PepsiCo 2018 2017

Inventory Turnover 4.26 4.99 Inventory Turnover 9.39 9.77

The data in Table 11 displays the ratio for both companies and there is no doubt that
PepsiCo had a higher ratio in both years than in Coca Cola. In this case, PepsiCo is able
to sell its inventories much quicker than Coca Cola. At the same time, if inventory
turnover is too high, there can be a sign on ineffective inventory management.

4.2.2 TOTAL ASSET TURNOVER

Another ratio to measure how well a company uses its asset is the total asset turnover
and it is calculated by divided the average total assets into net sales.

Net Sales
Total Asset Turnover =
Average total assets

TABLE 12: Total assets turnover for Coca Cola and PepsiCo for the years 2018 and
2017

Coca Cola 2018 2017 PepsiCo 2018 2017

Total Asset Turnover 0.38 0.40 Total Asset Turnover 0.83 0.80

In Table 12, we can see that in both years, PepsiCo had more turns than Coca Cola, in
other words, PepsiCo was more efficient in using its assets to generate sales.

18
CHAPTER 5: DEPEST ANALYSIS
Fast changing and competitive environment led companies to shape
their organization strategy by taking into account multiple external factors which are
deemed to have an influence on business activities (Müller & Judgev, 2009). So, there
must be a deep understanding of those macro-environmental factors in order to adopt
successful strategic decisions (Gupta, 2013).
DEPEST framework is a useful tool to trace and analyze in depth six realms
(demographics, economic, political, environmental, socio-cultural and technological) this
becomes crucial when deciding for example where to locate a company’s available
resources and understand its impact on the long run.

5.1 DEMOGRAPHIC FACTORS

They refer to the size and attractiveness of a potential market (De Vlieger, 2012). It also
looks at the developments as well as trends of the specific target group. Consumers are
the driving force for markets, therefore careful attention must be given to meet their
needs and preferences (Marketing-insider, 2019)

Coca Cola satisfies a wide and diverse group of customers; however, its key target is
young people between 13-24 years due to its heavy intake of soft drinks (FWS, 2013).
Nevertheless, according to Statistics Netherlands (CBS) it is estimated that by 2029 the
population in the Netherlands will reach 18 million of inhabitants and nearly one quarter
will be aged 65 (CBS, 2018). In addition, due to the aging population, it was also
forecasted that people over 65s will overtake young inhabitants by nearly half a million.
Bearing that in mind, Coca Cola might need to adapt its products and strategies to the
new upcoming customers in the near future.

5.2 ECONOMIC FACTORS

Economic factors such as interest rates, tax rate or governmental practices are likely to
affect businesses´ investment value in the future (Business Dictionary, 2019).

As for the Netherlands, an open economy highly dependent on foreign trade and
investment, as a result of UK exiting EU, customs controls for products would mean
higher public expenditure for the Dutch government as UK is one of the three most export
markets, after Germany and Belgium. (Netherlands, 2019)

On the other hand, this could impact on customer purchasing power, as well as raise
interest rates for companies. The Netherlands Bureau for Economy Policy Analysis,
CPA, has worked out a loss of 1.2% of GDP of the Dutch economy by 2030.
(Netherlands, 2019)

5.3 POLITICAL FACTORS

Political factors are related to government policies which may bring changes on the
economic life like Brexit as explained above.

Netherlands’ political system is stable (a parliamentary monarchy). Besides, Dutch trade

policies ‘openness (one of the most open in the world, (Lucintel, 2017) and existing
advantages to invest because of no favorable distinctions between international and
local companies are, among other factors, at the root of its advanced economy
(GlobalTrade, 2011)

19
5.4 ECOLOGICAL FACTORS

They focus on the impact of business activity with regards to the environment in order to
preserve it.

For many years, the Netherlands has positioned itself as one of the leading countries for
innovations to increase sustainability. Due to its eco-friendly infrastructures and state-of-
the-art use of renewable energy, the Netherlands is a usual destination for global
businesses willing to incorporate a green approach to its production system.

In addition, it holds a strong transportation system which is designed to be fuel free in a

near future. For example, the Dutch government has put into action a plan to provide
100% emissions-free by 2025 as well as to pull out all diesels and gas vehicles by 2030.

In fact, Coca Cola already entered the Dutch market aiming to develop sustainable
practices to reduce water consumption in their products (Coca-Cola, 2015).
This favorable environment could also involve a chance for the company to fulfil their
commitment in reducing carbon emissions by a third and, in turn, achieve energy
efficiency.

5.5 SOCIAL FACTORS

Social factors refer to the norms, values and culture of a certain area, country or region.
When it comes to purchasing a product, Dutch consumers value the quality of a product
so they are likely to pay more for this kind of products and would be willing to pay for a
product of this characteristics.

Also, they are heavily sensitive to sustainable advertisements, therefore a well-targeted

marketing strategy might suppose an increase in sales. Regarding Coca Cola, it could
obtain a higher part of the market if it succeeds with its sustainability campaigns within
the Dutch society (Santander, 2019)

5.6 TECHNOLOGICAL FACTORS

They have an impact on companies which is related to the equipment available and
dictates the way things are done within the businesses.

The Netherlands is known for its entrepreneurial, creative and innovative mentality, that´s
why is currently standing out within the high-tech systems area.

20
CHAPTER 6: INVESTOR RATIOS

Investor ratios are used to measure the ability of a company to earn an adequate rerun
after an investment as well as useful tool to assess whether the money was invested in
a correct way.

6.1 EARNING PER SHARE

PS is a part of company’s profit that is allocated for each share of common stock. It is
calculated by dividing net earnings available to common shareholders and the average
outstanding shares over a certain period of time. EPS used to determine the share’s
price.

Earnings after Interest and Tax and preference dividend

Earnings per share =
Number of ordinary shares

TABLE 13: Earnings per share for Coca Cola and PepsiCo for the years 2018 and 2017

Earnings per share Coca Cola PepsiCo

2018 1.5 8.78
2017 0.29 3.38

From Table 13, it shows that PepsiCo’s EPS is higher than Coca-Cola in both years.
Higher EPS means that the company has higher value as well.

6.2 PRICE/EARNING RATIO

The Price/Earning ratio helps to value a company that measures its current share price
relative to its per-share earnings. They are used by investors and analysts to figure the
relative value out of the shares of the company. It can also be used to compare a
company against its own record or to compare markets over time and against one
another.

Current market price per share

Price/earnings ratio =
Earnings per share

TABLE 14: Price earnings ratio for Coca Cola and PepsiCo for the years 2018 and 2017

Price/ earnings ratio Coca Cola PepsiCo

2018 32.8 12.55
2017 161.4 34.31

In Table 14, it is reflected that Pepsi had better P/E ratio because it is lower than Coca-
Cola’s. The lower the ratio, the more the investors are willing to invest in the
company. This is proven by the huge difference in net income in the year 2017 and 2018.
The year 2017 has the lowest income in comparison to PepsiCo figure.

21
6.3 DIVIDEND YIELD

This ratio helps to evaluate the firm’s strategy as to growth. The high Dividend Yield
considered as a desirable one among investors. Higher ratio can be considered as an
evidence of an underprices stock and low one as an overpriced stock.

Dividend per share(Gross of tax)

Dividend yield =
Current MPS

TABLE 15: Dividend yield for Coca Cola and PepsiCo for the years 2018 and 2017

Dividend yield Coca Cola PepsiCo

2018 0.8% 3.46%
2017 0.79% 3.6%
Since Coca-Cola’s dividend yield is extremely low, the investors see this as a negative
thing and this doesn’t make it appealing for investors to purchase stocks. As their
dividend return might be low.

6.4 DIVIDEND COVER

The ratio shows the ability of the company to meet its dividend out of current earnings.
It is financial metric which can ensure that a company can pay dividends to its
shareholders.
EPS
Dividend cover =
Dividend per share

TABLE 16: Dividend cover for Coca Cola and PepsiCo for the years 2018 and 2017

Dividend cover Coca Cola PepsiCo

2018 3.85 2.29
2017 0.78 0.81

In 2017 both companies’ dividend cover was relatively low which meant that they
distributed dividend to shareholders from the earnings they received. In 2018 they were
able to get control over their dividend cover due to the increase in earnings per share so
even after paying shareholders the percentage of dividend required, both companies still
had a lot of earnings left, but Coca-Cola had more than PepsiCo.

22
CHAPTER 7: SWOT
7.1 SWOT ANALYSIS
7.1.1 STRENGHT:
Strong brand image:
Coca-Cola is one of the most well-known soft drink brands. The company has been
participating in numerous big event such as Super Bowl and World Cup and their
customer have an instant recognition when they see the brand Coca-Cola. Everyone
knows it has good quality and is a trusted brand (Bhasin, 2019).

Worldwide market.
Almost every person in every part of the world knows Coca-Cola, from big cities to the
capital city of large countries. People can find Coca-Cola in every continent in any kind
of stores in over 100 countries (Bhasin, 2019).

Put customers first:

According to business and sustainability report of the Coca-Cola Company, Coca-Cola
provides an alternative for those who still want to enjoy their sparkling product but also
want less sugar and calories. Their famous product Coca-Cola zero, which has zero
sugar and zero calories in it. Not only they provide alternative products such as sparkling
products but also other kind of beverages, such as organic tea, coconut water, and
juices. Not only that, Coca-Cola has also released a more convenient packaging for their
products. They manufacture it smaller so it will aid people to control their sugar intake.
Based on the Coca-Cola report in 2018, 44% of their sparkling product comes in the
convenient packaging (Coca-cola Company, 2018).

7.1.2 WEAKNESS:
Lack of variety:
Coca-Cola has the need to create other variety of products involving in the beverage
market. Their biggest competitor, Pepsi, has created several snack products so they can
widen their market (Bhasin, 2019).

Aggressive competition with Pepsi:

Coca-Cola and Pepsi are both dominant brands within the soft drink industry. Both
companies have been participating in several sports events such as the Super Bowl and
FIFA World Cup (Bhasin, 2019).

Perceived as unhealthy:
Coca-Cola is mainly focused in carbonated drink products, as well as other types of
beverages such as organic tea, coconut water, and juices, which still unknown. A great
majority of governments around the world are fighting over obesity. The amount of sugar
and calories inside the product, Coca-Cola will not survive in the long run especially when
people are moving to the direction of healthy food and lifestyle (Bhasin, 2019).

7.1.3 OPPORTINITIES
Diversification in product:
Applying different kind of products will potentially improve the brand value and might give
more offerings to the customers. As mentioned before, Coca-Cola needs to step up in
their game by creating or having partnerships with the food industry, having snacks as
one of their products will attract more consumers and increase their revenue (Bhasin,
2019).

23
Setting climate change goal:
Based on Coca-Cola’s business and sustainability report in 2018, the company have set
the goal to reduce the use of carbon by 25% by the year 2020. Coca-Cola is designing
a new packaging using recycled material in order to reduce the carbon usage. With this
new design Coca-Cola will be able to reduce the carbon footprint by up to 60%. This
climate change goal will attract more people especially climate change activists who
wants to purchase environmentally products (Coca-cola Company, 2018).

Healthier product:
Relating to the product diversification, Coca-Cola could learn from its competitor Pepsi.
Pepsi has owned several companies, one of them is being Quaker Oats which has been
owned by Pepsi since 2001. Coca Cola might want to create new food products in order
to compete with Pepsi, since nowadays customers are going towards a healthy and
responsible lifestyle (Business Strategy Hub, 2019).

7.1.4 THREATS
Direct competitor:
Coca-Cola’s strongest competitor is Pepsi and is surely an important threat to consider.
Both giants have the same strong brand image and wide market spread all over the
world. Pepsi is already one step ahead from Coca-Cola by owning some of the well-
known snacks brands such as Lay’s, Cheetos, and Doritos. On the other hand, Pepsi
also has Quaker Oat, which is a healthier choice of food items (Business Strategy Hub,
2019).

Indirect competitor:
As for the indirect threat, healthy lifestyle has become a trend in recent years. A massive
segment of customers are trying different kind of diets and healthy products. With this
trend ruling, brands which commercialize healthy drinks such as the brand Tropicana is
on the rise (Bhasin, 2019).

Decreasing demand of carbonated drinks:

According to Business Insider, carbonated drinks consumptions are decreasing whilst
water consumption is increasing (Business Insider, 2019). This may be caused by the
healthy lifestyle that is trending nowadays which is leading people to switch to water over
soft drinks. The amount of sugar inside the carbonated drink should be controlled
because it might be a factor to consider when buying a carbonated drink due to its
possible consequences within the long run such as diabetes or obesity (Taylor, 2018).

24
 7.2 CONFRONTATION MATRIX FOR COCA COLA
STRENGHTS WEAKNESSES
Strong Worldwide Puts Lack of Aggressive Perceived
Brand Market Customer variety competition as
image First with Pepsi Unhealthy
Diversification Worldwide Market – Setting Lack of Variety – Setting Climate
in Product Climate Change Goal: Change Goal:
OPPORTUNITIES

With the climate change Coca-Cola should create or

Setting Climate movement that is happening improve the existing products with
Change Goal these days, Coca-Cola can take environmentally friendly materials.
Healthier advantage and promote their
Product environmentally friendly
products all over the world.

Direct Direct Competitor – Puts Decreasing Demand of

Competitor Customer First: Carbonated Drinks – Perceived as
(Pepsi) Coca-Cola should pay attention Unhealthy:
THREATS

Indirect more to the customers critics Coca-Cola should pay attention to

Competitor and feedbacks in order for the creating healthy products so the
(Starbucks) company to fulfill customers customers would be more
Decreasing wants and needs. stimulated to buy Coca-Cola
Demand of products.
Carbonated
Drinks

7.3 SWOT MATRIX EXPLANATION

After formulating each factor, the SWOT analysis comes up with four strategies that we
believe will strengthen Coca-Cola’s position in the market.

In the first quadrant, which is the combination of strengths and opportunities, Coca-Cola
should take advantage of the climate change movement and promote about their
sustainability goals.

With this trend, people all over the world who mostly focus on climate change would be
attracted and would potentially support Coca-Cola. Still relating to the subject of climate
change movement, the next quadrant is the combination between weaknesses and
opportunities. The strategy is that Coca-Cola should create or improve their existing
product with environmentally friendly materials.

Moving on to the next quadrant, the strengths and threats strategy is about critics and
feedbacks. Since Coca-Cola always try to put customers first, they should pay more
attention to customer’s critics and feedbacks, such as penetrating the food industry or
any other segments just like Pepsi did. With this strategy, Coca-Cola would be able to
understand and fulfil customers wants and needs.

25
 Finally, and the most important quadrant of them is all the combination between
weakness and threats. Coca-Cola should be able to fix their weaknesses and prevent
the threats, therefore this strategy is suitable for the company. Coca-Cola should create
and promote healthier products. Everyone is moving towards a healthier lifestyle and
carbonated drinks are not supporting this lifestyle.

26
CONCLUSION

Coca-Cola is an oligopolistic world-renowned company with loyal customers and a very

strong brand image which follows changing world trends day-to-day. It is constantly
developing its market environment by innovating and putting into market more
beverages. To achieve this, Coca Cola is constantly looking for new ways of attracting
more customers by fulfilling needs and requirements of the current demand.
This company fully satisfies customers and tries to focus on different factors such as
demographic, psychographic, geographic or behavioural. Although it is demanded
among a wide and diverse group of customers, the main target is set on young customers
However, Coca-Cola company might have to update its company profile. A practice to
achieve this might involve penetrating more segments, diversifying the production, and
invading more industries and markets that could evolve its company status.
On the other hand, Pepsi has a powerful strategy of being visible in every segment, that
is why it could take advantage over Coca-Cola company. A way to decrease Pepsi´s
power, Cola-Cola Company Board might want to consider the idea of creating and launch
a distinguishable environmentally friendly product that might target to the uprising sector
of customers focused on healthy lifestyle and sustainable practices.
Coca-Cola considers ecological factors and tries to reduce the negative impact of
production through sustainable and social programs which helps the company to be
positioned as one of the leading ones.
From the financial point of view Coca-Cola is successful but not without flaws. Just like
any company there are ups and downs. For example, when there was an increased
number of current liabilities the company was put into an unfavourable position and
was almost unable to pay its debts. Nevertheless, the company managed to keep its
position in the industry and be number one within the market.

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APPENDIX

Figure 1: PepsiCo’s Balance Sheet (Coca-Cola Company, 2019).

Figure 2: Coca-Cola’s Balance Sheet (PepsiCo, 2019)

31
FIGURE 3: PepsiCo’s Income Statement

FIGURE 4: Coca Cola’s Income Statement

32
FIGURE 5: Coca-Cola’s Cash Flow Statement

33
FIGURE 6: PepsiCo’s Cash Flow Statement

34