Coca-Cola and Pepsi Differences in Working Capital Structure and Components

Working Capital Analysis of Pepsi and Coca-Cola
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Assignment 2: Working Capital
Introduction
The paper analyzes the differences in working capital structure and components of two chosen businesses, Pepsi and Coca-Cola. It explores the significant reasons for differences and how both companies can improve their working capital positions in the future. The investment decision is based on the suggestions posed by the Wall Street Analyst, and the analysis and recommendations are based on the 2020 annual reports of both businesses. The analysis is solely based on the working capital; hence, the recommendations would also be provided to improve the working capital.
Differences of Working Capital Structures and Components of Pepsi and Coca-Cola
The working capital management ensures that a business has sufficient cash flow available to meet its current obligations and running expenses. The working capital is a difference between the current assets and liabilities (Hrishikes, 1). Here is the formula:
Working Capital= Current Assets- Current Liabilities
The components of the current assets are usually the cash, inventories, current investments, receivables, and receivables. On the other hand, the current liabilities are expenses, payables, and deferrals (Hrishikes, 1). The components are almost similar in Pepsi and Coca-Cola because both operate in a similar industry and require almost similar products and operations. Hence, the working capital is used as a standard measure of liquidity, efficiency, and overall financial health.
Working Capital of Pepsi 2020= 23,001- 23,372 = -$371 million (PepsiCo, 2, p. 62)
Working Capital of Coca-Cola 2020= 19,240-14,601= $4639 million (CocaCola, 3, p. 66)
Both companies' total current assets and current liabilities are found in the annual statement 2020. The review shows that the working capital of Pepsi is -$371 million, whereas the working capital of Coca-Cola is $4639 million. It shows that Pepsi is highly dependent on its current liabilities to meet daily expenses, whereas Coca-Cola has sufficient working capital available to meet its current obligations and operating expenses. The negative working capital shows that Pepsi has incurred a significant cash outgoing, which increased its accounts payables (Richard, Clark, and Cathey, 4). It resulted in the large purchase of products and services.
To further strengthen the analysis, the emphasis is made on the current ratio. The current ratio describes how many times the company has current assets available to pay its short-term obligations (Richard, Clark, and Cathey, 4). The ratio should be above 1 to meet its current obligations. The current ratio is calculated as:
Current Ratio= Current Assets/ Current Liabilities
Current Ratio of Pepsi 2020=23,001/23,372 = 0.98 times
Current Ratio of Coca-Cola 2020 = 19,240/14,601 = 1.32 times
The current ratio of Pepsi is 0.98 times which is slightly less than 1. It means that the company has to struggle to repay its short-term obligations by using current assets. On the other hand, the current ratio of Coca-Cola is 1.32 times which is ideal for businesses and investors. It means that the company's liquidity position is ...