The purpose of this report is to compare the financial reports of the two largest soft drink manufacturers in the world. Pepsi Co. and Coca Cola have been industry leaders in their market since the early 1900s. I will use relevant numbers to determine profitability and break down the key ratios when it comes to profitability, liquidity, and solvency. By breaking down financial statements and converting them into percentages and ratios, comparisons can be made between competitors, regardless of size. First, let's take a look at Pepsi Co. To determine profitability, several ratios are used. Profit margin is probably the most popular. This ratio is net income divided by net sales. This helps identify the amount of net income generated by each dollar of sales. For the year 2005, Pepsi's profit margin was 12 1/2 percent. In 2004, the profit margin was 14.4 percent and in 2003, 13.3 percent. Coca Cola's profit margin, using the same ratio, was about 17 percent for 2005, down from the previous two years, which were about 18 percent. The average industry profit margin was approximately 11.3 percent (Biz Miner 2005). This means that Pepsi Co was average and maintained a solid profit. Even though Coca Cola's profits fell slightly, they remained above the industry average. Another look at profitability can be determined by analyzing the efficiency of each business. To do this, a ratio would assess how effectively assets are used to generate sales (Weygandt 2008). This ratio would be asset turnover. It uses net sales divided by average assets. In 2005, the asset turnover of Pepsi Co was 1.02 while that of Coca Cola was 1.06. These are well below the industry average of around 3.5 (Biz Miner 2005)....... middle of paper ...... steady increase of up to 19% while the rate Coca Cola's dividend growth has increased, but only at an average of around 11%. Another factor I would consider, as an investor, would be ROE or return on equity. This is determined by the net income dividend per average common shareholders' equity. In 2005, Coca Colas' ROE was 28%, while Pepsi Co's was also 28%. But a review over a 10-year period (dividendgrowthinvestors.com) reveals that Pepsi Co. has been solid between 28 and 34 percent, while Coca Cola has been around 25 to 33 percent. The fact that Pepsi Co. has consistently outperformed Coca Cola in terms of rate of return for its investors confirms my decision to go with Pepsi Co. Make no mistake, both companies are very successful and dominate their industries in almost every category . I recommend any potential investor to do the math and research on their own.