• Find your company\'s financial statements and use 10 financial ration to evalu
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Question
•Find your company's financial statements and use 10 financial ration to evaluate the company performance. Choose the ratios, calculate the ratios and explain the results. If you can’t get your company's financial ratios you can use any companies ratio. Give a brief summary about the company and the industry. •Find your company's financial statements and use 10 financial ration to evaluate the company performance. Choose the ratios, calculate the ratios and explain the results. If you can’t get your company's financial ratios you can use any companies ratio. Give a brief summary about the company and the industry. •Find your company's financial statements and use 10 financial ration to evaluate the company performance. Choose the ratios, calculate the ratios and explain the results. If you can’t get your company's financial ratios you can use any companies ratio. Give a brief summary about the company and the industry.Explanation / Answer
The company that i am using (since the question says "use any companies ratio") is Pepsico. The data is used from Pepsi's 2015 annual report. The financial ratios that i have used are a mix of liquidity ratios, profitability ratios, leverage ratios.
1. Current ratio = current assets/current liabilities = 23,031/17,578 = 1.31. The current ratio shows a company's ability to meet its current liabilities. Pepsi's current ratio is 1.31, indicating a fair liquidity position i.e its current assets are more than the current liabilities that have to be serviced.
2. Quick ratio = (current assets - inventories)/current liabilities = (23031-2720)/17578 = 1.16. This is a more stringent measure of liquidity than current ratio. Here the ratio for Pepsi is more than 1, indicating a fairly comfortable liquidity position.
3. Debt equity ratio = debt/equity = 29213/12068 = 2.42. Pepsi is highly leveraged and the reason for this is that it has repurchased substantial amount of common stock, thus reducing its equity.
4. Interest coverage ratio = profit before interest and taxes/interest expense = 8353/970 = 8.61. This ratio shows a firm's ability to pay interest on its debt. Pepsi has a high interest coverage ratio and it means that it can service the interest portion of its debt easily.
5. Inventory turnover ratio = cost of goods sold/average inventory = 28384/(2720+3143)/2 = 9.68. This ratio indicates efficiency of inventory management. The ratio of Pepsi stands at a comfortable 9.68
6. Asset turnover = sales/average total asets = 63056/(69667+70509)/2 = 0.90. This ratio indicates the efficiency of asset employment. The ratio for Pepsi is 0.90, slightly below 1.
7. Gross profit margin = gross profit/revenue = 34672/63056 = 55%.
8. Net profit margin = net profit/revenue = 5452/63056 = 8.65%
9. Return on assets = net income/average total assets = 5452/(69667+70509)/2 =8%
10. Earning power = profit before interest and taxes/average total assets = 8353/(69667+70509)/2 = 11.9%
Brief summary about Pepsi and the industry - Pepsi operates in the food, snack and beverage industry. It is the largest food and beverage company (by virtue of revenue) in USA. Its brands includes Pepsi, Lays, Tropicana and Quaker. The beverages and food industry includes beverages like carbonated drinks, juices, ready to eat snacks. Pepsi and Coca Cola are the two main players in the global beverage industry.
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