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BYP13-4 The Coca-Cola Company and PepsiCo, Inc. provide refreshments to every corner of the world. Selected data from the 2004 consolidated financial statements for The Coca-Cola Company and for PepsiCo, Inc., are presented here (in millions).<br /<br />Coca-Cola PepsiCo<br /<br />Total current assets $ 12,094 $ 8,639<br />Total current liabilities 10,971 6,752<br />Net sales 21,962 29,261<br />Cost of goods sold 7,638 13,406<br />Net income 4,847 4,212<br />Average (net) receivables for the year 2,131 2,915<br />Average inventories for the year 1,336 1,477<br />Average total assets 29,335 26,657<br />Average common stockholders’ equity 15,013 12,734<br />Average current liabilities 9,429 6,584<br />Average total liabilities 14,322 27,917<br />Total assets 31,327 27,987<br />Total liabilities 15,392 14,464<br />Income taxes 1,375 1,372<br />Interest expense 196 167<br />Cash provided by operating activities 5,968 5,054<br />Capital expenditures 755 1,387<br />Cash dividends 2,429 1,329<br />Instructions<br />(a) Compute the following liquidity ratios for 2004 for Coca-Cola and for PepsiCo and comment on the relative liquidity of the two competitors.<br />(1) Current ratio. (4) Inventory turnover.<br />(2) Receivables turnover. (5) Days in inventory.<br />(3) Average collection period. (6) Current cash debt coverage.<br />(b) Compute the following solvency ratios for the two companies and comment on the relative solvency of the two competitors.<br />(1) Debt to total assets ratio.<br />(2) Times interest earned.<br />(3) Cash debt coverage ratio.<br />(4) Free cash flow.<br />(c) Compute the following profitability ratios for the two companies and comment on the relative profitability of the two competitors.<br />(1) Profit margin.<br />(2) Asset turnover.<br />(3) Return on assets.<br />(4) Return on common stockholders’ equity.</strong</p>
(a) / Liquidity Ratios / Coca-Cola / PepsiCo(1) / Current ratio / .92:1
($12,105 ÷ $13,225) / 1.31:1
($10,151 ÷ $7,753)
(2) / Receivables turnover / 9.8 times
($28,857 ÷ $2,952) / 9.7 times
($39,474 ÷ $4,057)
(3) / Average collection
period / 37.2 days
(365 ÷ 9.8) / 37.6 days
(365 ÷ 9.7)
(4) / Inventory turnover / 5.4 times
($10,406 ÷ $1,931) / 8.6 times
($18,038 ÷ $2,108)
(5) / Days in inventory / 67.6
(365 ÷ 5.4) / 42.4
(365 ÷ 8.6)
(6) / Current cash debt
coverage ratio / .65
($7,150 ÷ $11,058) / .95
($6,934 ÷ $7,307)
PepsiCo is more liquid than Coca-Cola. PepsiCo betters Coca-Cola in all of the ratios except receivables turnover.
(b) / Solvency Ratios / Coca-Cola / PepsiCo(1) / Debt to total assets / = 50% / = 54%
(2) / Times interest earned /
= 18.3 times /
= 35.1 times
(3) / Cash debt coverage / = .41 times / = .43 times
(4) / Free cash flow / $7,150 – $1,648 – $3,149
= $2,353 / $6,934 – $2,430 – $2,204
= $2,300
Coca-Cola is slightly more solvent than PepsiCo. Both companies have similar debt to total assets and cash debt coverage ratios. Coca-Cola has more free cash flow but a much lower times interest earned ratio.
(c) / Profitability Ratios / Coca-Cola / PepsiCo(1) / Profit margin / 20.7%
($5,981 ÷ $28,857) / 14.3%
($5,658 ÷ $39,474)
(2) / Asset turnover / .79 times
($28,857 ÷ $36,616) / 1.22 times
($39,474 ÷ $32,279)
(3) / Return on assets / 16.3%
($5,981 ÷ $36,616) / 17.5%
($5,658 ÷ $32,279)
(4) / Return on common
stockholders’ equity / 30.9%
($5,981 ÷ $19,332) / 34.5%
($5,658 ÷ $16,386)
PepsiCo, Inc. is more profitable than the Coca-Cola Company. PepsiCo,Inc. has a higher asset turnover, return on assets, and return on common stockholders’ equity.