Coke or Pepsi? That is the question. OK, let me clarify here. When it comes to consumption, I'm a Coke guy, period. However, what about when it comes to money? Which is the better investment? Are you better off plunking down your hard-earned bucks on a few shares of Coca-Cola (NYSE: KO)? Or is PepsiCo (NYSE: PEP) the magic elixir for portfolio profits? By taking a look at a few common ratios over time, we can certainly get a better idea as to which company may be the better bet.

Return on equity
Warren Buffett likes looking at a company's return on equity because it is a key indicator as to not only how profitable the business is, but also how well the company's assets and leverage are being managed. Think about it this way: A company earning $1 million in a given year on $5 million in shareholder's equity is doing a better job than another company earning $1 million on $20 million in shareholder's equity. This is what return on equity tells us. So how do Coca-Cola and PepsiCo measure up here? Let's take a look:

 

TTM

2009

2008

2007

2006

5-Year Avg.

Coca-Cola

30.5%

30.1%

27.5%

30.9%

30.5%

29.9%

Pepsi

36.8%

41.1%

35.1%

34.7%

38.1%

37.2%

Source: Capital IQ, a division of Standard & Poor's. TTM = trailing 12 months.

Based on the five-year averages here, PepsiCo is looking a little sweeter right now. And they both leave Dr. Pepper Snapple Group's (NYSE: DPS) anemic-looking 11.9% ROE in the dust.

Operating margin
When we talk about margins, a good one to focus on is the operating margin, also known as the EBIT margin (earnings before interest and taxes). These are the earnings that take into account the company's operating expenses, and this can tell us how much the company is spending to operate the business. Let's face it, earning $1 million isn't going to mean much if it costs you $950,000 to do it. So how do these two compare? Here are the figures:

 

TTM

2009

2008

2007

2006

5-Year Avg.

Coca-Cola

29%

27.6%

27.5%

26.1%

27%

27.4%

Pepsi

17.3%

18.7%

17.3%

18.5%

18.5%

18.1%

Source: Capital IQ, a division of Standard & Poor's. TTM = trailing 12 months.

Coca-Cola clearly holds the edge over Pepsi here when it comes to operating margins.

Free cash flow margin
Finally, I like to take a look at the free cash flow margin. While slightly more involved, it can really shed light on what the company is actually making once it is all said and done. Free cash flow is one of our favorite numbers to look at. Simply defined as cash flow from operations less capital expenditures, free cash flow is the money that is left after all of the bills have been paid. It is the money that the company can return to shareholders in one fashion or another be it in the form of dividends, share buybacks or even reinvesting in the business. The free cash flow margin is a comparison of the free cash flow the company is generating to its revenues. Let's see how the two match up:

 

TTM

2009

2008

2007

2006

5-Year Avg.

Coca-Cola

21.8%

20%

17.5%

19.1%

18.9%

19.5%

Pepsi

11.1%

10.8%

10.5%

11.4%

11.4%

11.1%

Source: Capital IQ, a division of Standard & Poor's. TTM = trailing 12 months.

A pretty significant difference here. Coca-Cola wins this battle hands-down.

And the winner is...
All things being equal, when we consider these three metrics in assessing both businesses, I give Coca-Cola the edge here. Granted, it doesn't match PepsiCo's returns on equity. But Coke sure makes up for it with significantly better operating and free cash flow margins. While these aren't the only metrics to consider when assessing a business, they can provide a good starting point for further research. To be sure, both are quality businesses and worthy of consideration. But on this day, Coca-Cola is the Foolish winner.

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Inside Value analyst Jason Moser owns no shares of any companies mentioned in this article. Coca-Cola is a Motley Fool Inside Value recommendation. Coca-Cola and PepsiCo are Income Investor picks. Motley Fool Options has recommended a diagonal call position on PepsiCo. The Fool owns shares of Coca-Cola. Try any of our Foolish newsletter services free for 30 days. The Motley Fool has a disclosure policy.