Need help with the following exercise 13-3: Accounts Receivable and Inventory An

Question

Need help with the following exercise 13-3:

Accounts Receivable and Inventory Analyses for Coca-Cola and PepsiCo

The following information was obtained from teh 2008 and 2007 financial stattements of Coca-Cola Company and Subsidiaries and PepsiCo Inc. and Subsidiaries. (Year-ends for PepsiCo are December 27, 2008, and Decembe 29, 2007.) Assume all sales are on credit for both companies.

(in millions)                                                Coca-Cola            PepsiCo

Accounts and notes          12/31/08              $3,090                $4,683

receivable, net*

                                    12/31/07                3,317                 4,389

Inventories                     12/31/08                2,187                 2,522

                                    12/31/07                2,220                 2,290

Net revenue**                 2008                    31,944               43,251

                                     2007                    28,857               39,474

Cost of goods sold***       2008                    11,374               20,351

                                     2007                    10,406               18,038

*Described as "trade accounts receivable, less allowances" by Coca-Cola.

**Described as "net operating revenues" by Coca-Cola.

***Described as "cost of sales" by PepsiCo.

REQUIRED

1. Using the information provided, compute the following for each company for 2008:

a. Accounts receivable turnover ratio

b. Number of days' sales in receivables

c. Inventory turnover ratio

d. Number of days' sales in inventory

e. Cash-to-cash operating cycle

2. Comment briefly on the liquidity of each of these two companies.

Explanation / Answer

Hi.

Please find the answer as follows:

The liquidity position of Pepsi Co is better than Coco Cola as it has a lesser cash to cash operating cycle, indicating that it is able to liquidate its inventory and collect its receivables faster than Coca Cola.

Thanks.

Formula Coca Cola Pepsi Co Accounts receivable turnover ratio Net Sales/Average Accounts Receivables 9.97 9.54 Number of days' sales in receivables 365 Days/Accounts Receivables Turnover Ratio 36.61 38.26 Inventory Turnover Ratio Cost of Goods Sold/Average Inventory 5.16 8.46 Number of days' sales in inventory 365 Days/Inventory Turnover Ratio 70.74 43.14 Cash to Cash Operating Cycle Number of days' sales in receivables +
Number of days' sales in inventory 107.35 81.40

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