Expand Your Critical Thinking 13-4 LINK TO TEXT LINK TO TEXT Expand Your Critica
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Expand Your Critical Thinking 13-4
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Expand Your Critical Thinking 13-4
The Coca-Cola Company and PepsiCo, Inc. provide refreshments to every corner of the world. Suppose selected data from recent consolidated financial statements for The Coca-Cola Company and for PepsiCo, Inc. are presented here (in millions).Coca-Cola PepsiCo Total current assets $17,551 $12,571 Total current liabilities 13,721 8,756 Net sales 30,990 43,232 Cost of goods sold 11,088 20,099 Net income 6,824 5,946 Average (net) accounts receivable for the year 3,424 4,654 Average inventories for the year 2,271 2,570 Average total assets 44,595 37,921 Average common stockholders’ equity 22,636 14,556 Average current liabilities 13,355 8,772 Average total liabilities 21,960 23,466 Total assets 48,671 39,848 Total liabilities 23,872 23,044 Income taxes 2,040 2,100 Interest expense 355 397 Net cash provided by operating activities 8,186 6,796 Capital expenditures 1,993 2,128 Cash dividends 3,800 2,732 Compute the following liquidity ratios for Coca-Cola and for PepsiCo. (Round current ratio and current cash debt coverage ratio to 2 decimal places, e.g. 6.25 and all other answers to 1 decimal place, e.g. 15.1.)
Coca-Cola PepsiCo (1) Current ratio : 1 : 1 (2) Accounts receivable turnover times times (3) Average collection period days days (4) Inventory turnover times times (5) Days in inventory days days
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Compute the following solvency ratios for the two companies. (Round times interest earned to 1 decimal place, e.g. 15.2, cash debt coverage to 2 decimal places, e.g. 15.25 and percentages to 0 decimal places, e.g. 15%.)Coca-Cola PepsiCo (1) Debt to assets ratio % % (2) Times interest earned times times (3) Free cash flow $ $
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Compute the following profitability ratios for the two companies. (Round percentages to 1 decimal place, e.g. 15.2% and all other answers to 2 decimal places, e.g. 15.25.)Coca-Cola PepsiCo (1) Profit margin % % (2) Asset turnover times times (3) Return on assets % % (4) Return on common stockholders’ equity % %
Explanation / Answer
Solution:
LIQUIDITY RATIO:
(1) Current ratio = current assets/Current liabilities
Coca-Cola = 17551/13721 = 1.28:1
PepsiCo = 12571/8756 = 1.43:1
(2) Accounts Receivable Turnover = Net credit sales/Average Accounts Receivable
Coca-Cola = 30990/3424 = 9.05 times
PepsiCo = 43232/4654 = 9.28 times
(3) Average collection period = 365/Accounts Receivable Turnover
Coca-Cola = 365/9.05 = 40 days
PepsiCo = 365/9.28 = 39 days
(4) Inventory Turnover = COGS/Average inventory
Coca-Cola = 11088/2271 = 4.8 times
PepsiCo = 20099/2570 = 7.8 times
(5) Days in inventory = 365/inventory turnover
Coca-Cola = 365/4.8 = 76 days
PepsiCo = 365/7.8 = 47 days
SOLVENCY RATIO:
(1) Debt to assets ratio = total liabilities/total assets
Coca-Cola = 23872/48671 = 0.4904 or 49.04%
PepsiCo = 23044/39848 = 0.5783 or 57.83%
(2) Times interest earned = EBIT/interest expense
Coca-Cola = (6824+2040+355)/355 = 25.97%
PepsiCo = (5946+2100+397)/397 = 21.26 times
(3) Free cash flow = Net cash provided by operating activities - capital expenditures
Coca-Cola = 8186-1993 = $6,193
PepsiCo = 6796-2128 = $4,668
PROFITABILITY RATIO:
(1) Profit Margin = Net Income/Net sales
Coca-Cola = 6824/30990 = 22.02%
PepsiCo = 5946/43232 = 13.75%
(2) Asset Turnover = Net sales/Average total assets
Coca-Cola = 30990/44595 = 0.69 times
PepsiCo = 43232/37921 = 1.14 times
(3) Return on Assets = Net Income/Total assets
Coca-Cola =6824/48671 = 14.02%
PepsiCo =5946/39848 = 14.92%
(4) Return on common stockholders Equity = Net Income/Average common shareholder's Equity
Coca-Cola = 6824/22636 = 30.14%
PepsiCo = 5946/14556 = 40.85%
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