The purpose of this report is to compare the financial ratios of the two largest soft drink manufacturers in the world. Pepsi Co. and Coca Cola have been the industry leaders in their market since the early 1900s. I will use relevant data to determine profitability and break down the key ratios into profitability, liquidity, and solvency. By breaking down financial statements and converting them into percentages and ratios, you can make comparisons between competitors regardless of size. First, let's 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 12.5%. In 2004 the profit margin was 14.4% and in 2003 it was 13.3%. Coca Cola's profit margin using the same ratio was about 17% for 2005, down from the previous two years of about 18%. The industry's average profit margin was approximately 11.3% (Biz Miner 2005). This means that Pepsi Co was average and maintained a solid profit. Although Coca Cola's profit fell slightly, it was still higher than the industry average. Another aspect of profitability can be determined by analyzing the efficiency of each company. To do this, a ratio would evaluate how efficiently assets are used to generate sales (Weygandt 2008). This ratio would be the turnover of the assets. Use net sales divided by average assets. In 2005, Pepsi Co's asset turnover was 1.02 while Coca Cola's asset turnover was 1.06. These are well below the industry average of around 3.5 (Biz Miner 2005)....... middle of the paper...... instant increase up to 19% while the dividend growth rate of Coca Cola increased, but only at an average level of about 11%. Another factor that I, as an investor, would consider would be ROE or return on equity. This is determined by the net income dividend based on the average capital of ordinary shareholders. In 2005, Coca Colas' ROE was at 28%, while Pepsi Co's was also at 28%. But an analysis of a 10-year period (dividendgrowthinvestors.com) reveals that Pepsi Co. has been strong between 28 and 34%, while Coca Cola has been about 25 and 33%. The fact that Pepsi Co. has consistently outperformed Coca Cola in its investor rate of return confirms my decision to lean towards Pepsi Co. Don't be misinformed, both companies are strong performers and lead their industry in nearly every category. I advise any potential investor to do the math and research on their own.