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