Benchmarking cost structure is central to understanding competitive durability. When capital becomes expensive, the relationship between gross margin, operating margin, leverage, and working capital efficiency determines whether a business can sustain returns or buckles under rising input costs. Instead of treating these metrics in isolation, analysts need a framework for comparing margin architecture, operational leverage, and capital velocity across peers.

In this article, we use Financial Modeling Prep (FMP) fundamentals APIs to benchmark two consumer staples leaders—Coca-Cola (KO) and PepsiCo (PEP)—and illustrate how differences in business model design translate into Return on Invested Capital (ROIC) and free cash flow durability. The goal is to demonstrate a rigorous, API-driven analytical framework that reveals structural cost strengths and hidden weaknesses, not to analyze the companies themselves.

Deconstructing Gross Margin and Cost Logic

Gross margin is the first signal of whether a company can absorb inflation. For benchmarking, the question isn't whether the number is high or low—it's whether the margin structure reflects structural pricing power or cost vulnerability.

• Coca-Cola (The IP Model): Operates an asset-light concentrate model that consistently produces According to FMP Income Statement API 60-61% gross margins. This structure is largely insulated from logistics inflation as the cost of goods sold (COGS) is predominantly ingredient and manufacturing rather than extensive physical distribution.
• PepsiCo (The Logistics Model): Manages a massive, vertically integrated distribution model, resulting in gross margins closer to 54-55%. This lower margin reflects a larger physical footprint and higher operating intensity.

Using the FMP Income Statement API, analysts can track COGS trends and gross margin stability over multi-year windows. This separates commodity volatility from structural pricing power. If a company maintains gross margins during periods of rising input costs, it signals stronger competitive positioning and, often, a lower implied cost of equity. Learning to deconstruct the income statement to reveal hidden risks is critical for assessing if these margin buffers are sustainable.

Operating Leverage and SG&A Efficiency

Operating leverage determines how effectively a company converts gross profit into operating income. These differences highlight how Selling, General, and Administrative (SG&A) structure shapes operating resilience.

• Coca-Cola's Leanness: The company's low capital intensity produces EBIT margins near 31%.
• PepsiCo's Operational Burden: PepsiCo's distribution-heavy model yields EBIT margins closer to 14%.

The FMP Key Metrics API allows analysts to track the OpEx-to-Revenue ratio quarterly, providing a direct measure of SG&A discipline. Rising SG&A without associated revenue or market share gains often signals deteriorating leverage. In benchmarking exercises, analysts compare these ratios across a peer set to assess whether a company is scaling efficiently or accumulating fixed-cost drag that will compress future margins.

Working Capital Cycles and Asset Velocity

Working capital efficiency often determines whether a company can compensate for lower margins through higher asset velocity.

Using the FMP Cash Flow Statement API and the Metrics Ratios API, analysts can calculate inventory turnover, receivables turnover, payables cycles, and the overall Cash Conversion Cycle (CCC) across a peer group.

• Velocity Benchmarking: PepsiCo typically demonstrates higher inventory turnover due to its perishable product mix and distribution cadence, while Coca-Cola collects receivables faster due to its concentrate model.
• Working Capital Position: PepsiCo's negative working capital reflects supplier-financed operations, whereas Coca-Cola maintains a positive working capital position.

These structural differences illustrate why benchmarking asset velocity is essential. A lower-margin business with fast capital turnover can generate ROIC comparable to a high-margin business with slower cycles. Conversely, deteriorating turnover metrics—especially sudden increases in Days Payable Outstanding (DPO) monitored via the Metrics Ratios API—may indicate short-term cash preservation rather than sustainable efficiency.

Solvency Profiles and ROIC

Cost-structure benchmarking requires integrating balance-sheet strength and return generation. Using the Key Metrics API and Metrics Ratios API, analysts can compute Net Debt to EBITDA, ROE, ROIC, and asset-turnover ratios for any peer group.

• Return Composition: Some companies generate higher returns through margin width (e.g., KO), while others rely on asset velocity and financial leverage (e.g., PEP).
• Benchmarking ROIC Drivers: Comparing ROIC across peers—decomposed into margin contribution and turnover contribution—clarifies whether a company's valuation premium is supported by structural advantage or masked by short-term financial engineering.

Benchmarking these components helps analysts distinguish between durable returns and returns driven by cyclical or operationally intensive structures. To contextualize these returns against sector movements, analysts can look to understanding valuation drift and tracking real-time sector rerating.

Synthesizing the Quality of Earnings

Evaluating cost structure quality requires analyzing where returns originate—margin strength, operating efficiency, or capital velocity. A company with high margins but slowing capital turnover may be losing competitive edge, while a lower-margin company with rapidly improving working capital efficiency may be structurally strengthening.

Using FMP fundamentals APIs, analysts can monitor gross margin trends, SG&A efficiency, inventory and receivables velocity, and ROIC drivers over time. Shifts in any of these components may indicate emerging risks or improving durability. The objective is to benchmark not just earnings levels but the mechanisms that produce those earnings.

Frequently Asked Questions

What is the best metric for comparing companies with different business models?

Return on Invested Capital (ROIC) is generally the superior metric because it accounts for both profitability (margins) and capital efficiency (turnover). This allows for a fair comparison between asset-heavy models like PepsiCo and asset-light models like Coca-Cola, neutralizing the impact of leverage differences.

How does negative working capital affect valuation?

Negative working capital creates a source of interest-free funding, which directly increases Free Cash Flow (FCF). In Discounted Cash Flow (DCF) models, this reduces the net investment required for growth, typically resulting in a higher valuation premium for companies that can sustain it without straining supplier relationships.

Why is inventory turnover critical for low-margin businesses?

For low-margin companies, profitability is strictly a function of volume and velocity. High inventory turnover ensures that capital is not trapped in depreciating assets and improves cash flow generation. If turnover slows while margins remain low, the company faces an immediate liquidity crunch.

How do I access standardized financial data for benchmarking?

Analysts use APIs like the FMP Income Statement and Metrics Ratios endpoints to pull standardized data programmatically. This removes the need for manual adjustments and ensures that comparisons between peers like KO and PEP are based on identical accounting treatments regarding D&A and one-time items.

What signals a deterioration in cost structure quality?

A divergence where revenue grows but operating margins compress—or where inventory turnover slows while sales remain flat—indicates that the cost structure is becoming less efficient. This "hollow growth" often precedes a significant revision in earnings guidance and a compression in the trading multiple.