Question

Current ratio Return on assets Return on equity Inventory turnover AR turnover Debt to equity Profit margin Gross profit 2012 RATIOS Coke Dr. Pepper 1.33 1.11 3.9% 7.9% 15.3% 27.6% 14.8 12.7 12.3 8.5 11 1.7% 10.6% 40.5% 58.3%

The ratios for Coke and Dr. Pepper for 2012 are shown above. Which ratio shows COKE as STRONGER than DR PEPPER?

gross profit, return on asset ,return of equity or debt of equity

Answer 1

Solution :- Ratio Analysis

1. Gross Profit :-

Gross Profit Ratio = Gross profit / Total Sales *100

Gross profit ratio shows how much gross profit company earns on total sales ,Therefore Higher this ratio is , Better it is. Gross Profit Ratio of DR. Pepper (58.3%) is more than gross Profit Ratio of Coke (40.5%) , Therefore , Gross Profit Ratio shows DR PEPPER as stronger than COKE.

2. Return on Assets :-

Return on Asset = Net Income / Average Total Assets

Return on Asset shows net income earned by a company during a period from its assets ,Therefore Higher this ratio is , Better it is. Return on Asset Ratio of DR. Pepper (7.9%) is more than Return on Asset Ratio of Coke (3.9%) , Therefore , Return on Asset Ratio shows DR PEPPER as stronger than COKE.

3. Return on Equity :-

Return on Equity = Net Income / Shareholders Equity

Return on Equity shows the ability of a company to earn net income from its Shareholders funds , Therefore Higher this ratio is , Better it is. Return on Equity Ratio of DR. Pepper (27.6%) is more than Return on Equity Ratio of Coke (15.3%) , Therefore , Return on Equity Ratio shows DR PEPPER as stronger than COKE.

4. Debt to Equity :-

Debt to Equity = Total Liabilities /Total Shareholders Equity

A lower debt to equity ratio shows a more financially stable business. Therefore LOWER this ratio is , Better it is.Debt to Equity Ratio of DR. Pepper (11) is more than Debt to Equity Ratio of Coke (8.5) , Therefore ,Debt to Equity Ratio shows  COKE as stronger than DR PEPPER because COKE has lower debt equity ratio which shows it is more financially stable than DR. Pepper.