Question

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

(a1) Your answer is correct. Compute the following liquidity ratios for Coca-Cola and for PepsiCo. (Round current ratio to 2 decimal places, e.g. 6.25 and all other answers to 1 decimal place, e.g. 15.1.) Coca-Cola PepsiCo (1) Current ratio : 1 : 1 (2) Accounts receivable turnover times times (3) Average collection period days days (4) Inventory turnover times times (5) Days in inventory days days Click if you would like to Show Work for this question: Open Show Work SHOW SOLUTION LINK TO TEXT Attempts: 1 of 3 used

(b1) Compute the following solvency ratios for the two companies. (Round times interest earned to 1 decimal place, e.g. 15.2, cash debt coverage to 2 decimal places, e.g. 15.25 and percentages to 0 decimal places, e.g. 15%.) Coca-Cola PepsiCo (1) Debt to assets ratio % % (2) Times interest earned times times (3) Free cash flow $ $ Click if you would like to Show Work for this question:

Answer 1

a1) Calculation of Liquidity Ratios

		Coca-Cola		PepsiCo
(1)	Current ratio (Total Current Assets/Total Current Liabilities)	(17,551/13,721) = 1.28	: 1	(12,571/8,756) = 1.44	: 1
(2)	Accounts receivable turnover (Net Sales/Avg accounts receivable)	(30,990/3,424) = 9.1	times	(43,232/4,654) = 9.3	times
(3)	Average collection period (365 days/Accounts receivable turnover)	(365/9.1) = 40.1	days	(365/9.3) = 39.2	days
(4)	Inventory turnover (Cost of goods sold/Avg Inventory)	(11,088/2,271) = 4.9	times	(20,099/2,570) = 7.8	times
(5)	Days in inventory (365 days/Inventory turnover)	(365/4.9 times) = 74.5	days	(365/7.8 times) = 46.8	days

b1) Calculation of Solvency Ratios

		Coca-Cola		PepsiCo
(1)	Debt to assets ratio (total liabilities/total assets)	[(23,872/48,671)*100] = 49	%	[(23,044/39,848)*100] = 58	%
(2)	Times interest earned (Earning before interest and tax/Interest expense)	[(6,824+2,040+355)/355] = 26.0	times	[(5,946+2,100+397)/397] = 21.3	times
(3)	Free cash flow (Net cash provided by operating activities - Capital expenditures)	($8,186-$1,993) = $6,193		($6,796-$2,128) = $4,668

Notes:-

1) Earning before tax and interest = Net Income+Income taxes+interest expense