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No. of Recommendations: 0
Here's the Rule Maker analysis for Coke vs Pepsi using FY1994 numbers:

Coca-Cola Pepsi
Current Period Year-ago PeriodYear-over-Year Current Period
FY 1993 FY 1992 Growth FY 1993
Income Statement . . .
Sales 13,957 13,074 6.8% 25,021
Cost of Goods S 5,160 5,055 2.1% 11,946
Net Income 2,176 1,664 30.8% 1,588
Shares Outstand 1,302 1,317 -1.1%

Balance Sheet . . .
Cash & Equivale 1,078 1,063 1.4% 1,801
Current Assets 4,434 4,248 4.4% 5,109
Short-term Debt 1,672 2,087 -19.9% 824
Current Liabili 5,171 5,303 -2.5% 6,575
Long-term Debt 1,428 1,120 27.5% 7,443

Margins & Ratios . . .
Gross Margins 63.0% 61.3% 1.7 52.3%
Net Margins 15.6% 12.7% 2.9 6.3%
Cash-to-Debt 0.35 0.33 4.9% 0.22
Net Cash -2022.0 -2144.0 N/A -6465.6
Fool Flow Ratio 0.96 0.99 -3.2% 0.58



Ranking Rule Makers

1) Brand Points (0-1) 3) Financial Dire Points (0-3)
Familiarity 1 Sales Growth 1
Openness 1 Gross Margins 3
Optimism 1 Net Margins 3
Legitimacy 1 Shares Outstandin 3
Inevitability 1 Cash-to-Debt 2
Solitariness 1 Fool Flow Ratio 1
Humor 1 Expansion Potenti 3
Subtotal 7 Subtotal 16

2) Financial Loca Points (0-2) 4) Monopoly Statu Points (0-4)
Mass Market Habit 2 Gross Margins 4
Gross Margins 2 Net Margins 4
Net Margins 2 Net Cash 4
Cash-to-Debt 0 Fool Flow Ratio 0
Fool Flow Ratio 2 Convenience 4
Your Interest 2 Subtotal 16
Subtotal 10
5) Your Enjoyment 1

Total Score = 50 Top Tier!

Unfortunately, Pepsi's 1994 10-K isn't available online (so far as I can tell), so I wasn't able to access the 1992 numbers necessary for running the Ranker on PEP vs KO. But, judging by the numbers above, I think it's safe to say that Pepsi would've probably ranked in the third tier.

How did Coca-Cola perform vs Pepsi over the past 5 years?

From 1/3/94 thru 1/4/99, here are the returns including reinvested dividends:

KO PEP
Total Return 220.4% 135.3%
Annualized 26.2% 18.7%

So, in this case, the Rule Maker rankings certainly would've identified the better company. However, backtesting such as this is really of limited usefulness. I think it's clear that the RM rankings do a good job of identifying high-quality businesses that stack up well against the competition. But, it would be wrong to conclude that companies scoring > 50 can be expected to always generate 20%+ returns over every 5 year period.

All we know is that by buying the best-quality companies, we can reasonably expect to outperform the market indices (primarily the S&P 500) over long periods of time, especially periods of a decade or longer.

Best,
Matt
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