Finance Essay Example | Topics and Well Written Essays - 750 words - 13

Finance - Essay Example In addition, a low current assets ratio could be an indicator towards efforts for additional resources that can empower an organization towards greater plowed back profits and the decreasing trend in the ratio for Coca-Cola, contrary to that of Pepsi, could therefore indicate the company’s focus on expanding its equity base. Similarly, it could be an indicator of other parties’ confidence in the organization’s short-term stability, which can be inferenced on stability in the end to induce confidence in investing in the company (Debarshi, 2011). Comparative analysis of the two companies’ profitability ratios is another basis of my decision to prefer Coca-Cola to Pepsi for investment. Coca-Cola posted higher return on assets ratio and this is an indicator of better management potentials to utilize assets effectively for profit generation. Re-investing the generated profit then promises better equity and assets position for Coca Cola than for Pepsi. Higher return on asset for Coca-Cola also supports the position that the company is making good use of its liabilities to empower itself and therefore undermines potential risks in the observed low current ratio. Another reason, based on return on asset ratio, is the ratio’s trend for Coca-Cola and Pepsi over the past three consecutive accounting periods. While the ratio for Pepsi has been reducing and therefore indicating gradual loss of efficiency in asset management towards profitability, Coca Cola’s ratio has an increasing trend over the period. This means that the Coca-Cola promises better assets management in its future accounting periods towards sustainability. Consequently, Coca-Cola offers less risk on investment, in the end, compared to Pepsi. Even though return on equity has been decreasing for Coca-Cola and was lower than the corresponding ratio for Pepsi in 2012, this could be because of retained income that