PepsiCo, inc., the parent company of Frito-Lay snack foods and Pepsi beverages,

Question

PepsiCo, inc., the parent company of Frito-Lay snack foods and Pepsi beverages, had the following current assets and current liabilities at the end of two recent years.


December 31,2005 December 25,2004
(in millions) (in millions)
Cash and cash equivalents $1,716 $1,280
Short-term investments, at cost 3,166 2,165
Accounts and notes receivable (net) 3,261 2,999
Inventories 1,693 1,541
Prepaid exp. and other current assets 618 654
Short-term obligations 2,889 1,054
Acc. payable and other current liabilities5,971 5,999
Income taxes payable 546 99

a. Determine the (1) current ratio and (2) quick ratio for both years. Round to one decimal place.
b. What conclusions can you draw from this data?

Explanation / Answer

current ratio = current assets / current liabilities 2005 1.111418 2004 1.207914 quick ratio = current assets - inventory / current liabilities 2005 0.931427 2004 0.99245 b.) You can see that the firm can't pay off it's immediate debt if it were called without borrowing more (which just adds more current liabilities), or liquidating its inventory at a steep discount. Also, its current and quick ratio decreased from 2004 to 2005, indicating that PepsiCo is either borrowing more without earning more, or has recently paid out significant dividends.

Related Questions

Navigate

• Browse (All)
• Browse P
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.