LINK TO TEXT LINK TO TEXT The Coca-Cola Company and PepsiCo, Inc. provide refres
ID: 2597437 • Letter: L
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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
Explanation / Answer
Liquidity ratios
Coca-Cola
PepsiCo
Formula
(1)
Current ratio
1.28
: 1
1.44
: 1
Total Current Assets / Total Current Liabilities
(2)
Accounts receivable turnover
9.1
times
9.3
times
Net (Credit) Sales / Average accounts receivable
(3)
Average collection period
40.3
days
39.3
days
365 (days in a year) / Accounts receivable turnover ratio
(4)
Inventory turnover
13.6
times
16.8
times
Net (Credit) Sales / Average inventories for the year
(5)
Days in inventory
26.7
days
21.7
days
365 (days in a year) / Inventory turnover ratio
PepsiCo is more liquid than Coca-Cola. PepsiCo betters Coca-Cola in all of the ratios except receivables and inventory turnover.
Solvency ratios
Coca-Cola
PepsiCo
(1)
Debt to assets ratio
49%
%
58%
%
Total Liabilities / Total Assets
(2)
Times interest earned
26.0
times
21.3
times
EBIT ( Net Income + Income Taxes + Interest) / Interest expense
(3)
Free cash flow
6,193
$
4,668
$
Operating Cash flow - Capital Expenditure
Coca-Cola is slightly more solvent than PepsiCo. It has better debt to total assets ratio. Coca-Cola has more free cash flow and a higher times interest earned ratio.
Profitability ratios
Coca-Cola
PepsiCo
(1.0)
Profit margin
22.0%
%
13.8%
%
Net Income / Net Sales
(2.0)
Asset turnover
0.69
times
1.14
times
Net Sales / Average Total Assets
(3.0)
Return on assets
15.3%
%
15.7%
%
Net Income / Average Total Assets
(4.0)
Return on common stockholders’ equity
0.30
%
0.41
%
Net Income / Total Equity
PepsiCo is more profitable than the Coca-Cola Company. PepsiCo has a higher asset turnover, return on assets, and return on common stockholders’ equity.
Liquidity ratios
Coca-Cola
PepsiCo
Formula
(1)
Current ratio
1.28
: 1
1.44
: 1
Total Current Assets / Total Current Liabilities
(2)
Accounts receivable turnover
9.1
times
9.3
times
Net (Credit) Sales / Average accounts receivable
(3)
Average collection period
40.3
days
39.3
days
365 (days in a year) / Accounts receivable turnover ratio
(4)
Inventory turnover
13.6
times
16.8
times
Net (Credit) Sales / Average inventories for the year
(5)
Days in inventory
26.7
days
21.7
days
365 (days in a year) / Inventory turnover ratio
PepsiCo is more liquid than Coca-Cola. PepsiCo betters Coca-Cola in all of the ratios except receivables and inventory turnover.
Solvency ratios
Coca-Cola
PepsiCo
(1)
Debt to assets ratio
49%
%
58%
%
Total Liabilities / Total Assets
(2)
Times interest earned
26.0
times
21.3
times
EBIT ( Net Income + Income Taxes + Interest) / Interest expense
(3)
Free cash flow
6,193
$
4,668
$
Operating Cash flow - Capital Expenditure
Coca-Cola is slightly more solvent than PepsiCo. It has better debt to total assets ratio. Coca-Cola has more free cash flow and a higher times interest earned ratio.
Profitability ratios
Coca-Cola
PepsiCo
(1.0)
Profit margin
22.0%
%
13.8%
%
Net Income / Net Sales
(2.0)
Asset turnover
0.69
times
1.14
times
Net Sales / Average Total Assets
(3.0)
Return on assets
15.3%
%
15.7%
%
Net Income / Average Total Assets
(4.0)
Return on common stockholders’ equity
0.30
%
0.41
%
Net Income / Total Equity
PepsiCo is more profitable than the Coca-Cola Company. PepsiCo has a higher asset turnover, return on assets, and return on common stockholders’ equity.
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