Compute the following financial ratios for Pepsico. Show your calculations on a

Question

Compute the following financial ratios for Pepsico. Show your calculations on a separate sheet of paper and turn in your work. You may have to go to Pepsi's web page (http://www.pepsico.com/Investors/Annual-Reports-and-Proxy-Information )and get more information for your calculations.

A. Current ratio: 2015_________, 2016____________   

B. Quick Ratio(acid-test ratio)2015__________,2016___________

C. Inventory Turnover: 2015_________, 2016____________

D. Working Capital: 2015________,2016__________

E.Accounts Receivable turnover: 2015________, 2016_________

F. Provide a brief analysis of this firms ability to pay short-term debt, ability to collect receivables and the liquidity of its inventory. What group might be interested in these ratios?

Explanation / Answer

Current ratio = current assets / current liabilities

2015 = 23031/17578 = 1.31

2016 = 27089/21135 = 1.28

Quick ratio = (current assets – inventories-prepaid expense)/current liabilities

2015 = (23031-2720-1865)/17578 = 1.05

2016 = (27089-2723-1547)/21135 = 1.08

Inventory Turnover = cost of goods sold / average inventory

2015 = 28731/((2720+3143)/2)=9.80 times

2016 = 28209/((2723+2720)/2) = 10.37 times

Working capital = current assets-current liabilities

2015 = 23031-17578 = 5453

2016 = 27089-21135 = 5954

Accounts Receivable turnover= sales /average accounts receivable

2015 = 63056/((6437+6651)/2) =9.64 times

2016 =62799/((6694+6437)/2) = 9.56 times

Company’s current ratio has decreased compared to previous year but quick ratio has increased this indicates the liquidity has improved to clear short term debts as quick assets are more liquid compare to current assets. Inventory turnover ratio has improved in 2016 compared to 2015. Accounts receivable turnover ratio has decreased because of decrease in sales and increase in average accounts receivable. The working capital of the company has increased this states that company has sufficient amount available with it to pay current obligations.

The information related to these ratios would be useful to external stakeholders like investors and suppliers who thinking to invest and supply services to the company.

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