Analyzing Inventory Ratios: A Comparative Study of Coca-Cola and PepsiCo During the COVID-19 Pandemic
Overview
This paper analyzes inventory turnover and average days in inventory ratios for Coca-Cola and PepsiCo, two major beverage industry competitors. The analysis examines how the coronavirus pandemic impacted each company's inventory management and financial performance in 2019-2020, with particular focus on Coca-Cola's declining turnover ratio and extended inventory holding periods.
What this coursework covers
- Introduction to inventory ratios and formulas for calculating inventory turnover and average days in inventory
- Comparative financial analysis of Coca-Cola's inventory performance across 2019-2020
- Discussion of pandemic impacts on supply chain disruption and market demand for Coca-Cola products
Preview
Analyzing Inventory Ratios
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Analyzing Inventory Ratios
Inventory turnover is a financial ratio that demonstrates the number of times a firm has sold and replaced inventory during a particular period. The firm can then divide the number of days within the given period by the inventory turnover formula to compute the days it takes to sell the current inventory (Furhmann, 2021). The successful computation of inventory turnover is essential to assist businesses in making better decisions on aspects such as manufacturing, marketing, purchasing, and pricing. In order to calculate the inventory turnover, the formula is:
Inventory Turnover = COGS/Average Value of Inventory
Where,
COGS represents the Cost of Goods Sold, and
Average Inventory = (Beginning Inventory + Ending Inventory)/2
Similarly, firms can determine the inventory turnover by computing the average inventory and dividing the sales by average inventory. On the other hand, the average days in inventory is a ratio that shows the number of days that a firm can take to convert its inventory into sales. The ratio is usually interpreted in various ways. The ratio can estimate the number of days that the existing stock will take (Hayes, 2021). When the ratio is lower, it implies that the company can exhaust its stock within a shorter period and enhance its profit margins. The formula for calculating Average Days in Inventory is:
Average Days in Inventory = (Average Inventory/COGS) * 365 days
Coca-Cola and PepsiCo are two competing organizations in the beverage industry.