Question

Coke

(data in millions) Pepsico Net Operating Revenue/Net Sales 2016 2017 Average 2018 $ 62,799 $ 34,577 $ 9,804 Net Profit (Consolidated Net Income) $ 6,329 $ 26,450 $ 73,490 $ 11,199 $ 63,662 55% $ 34,862 12% $ 10,063 19% $ 7,900 $ 26,457 $ 76,981 $ 12,261 63,525 64,661 Gross Profit 55% $ 55% $ 55% 34,729 35,280 Operating Income 16% $ 10% $ 16% $ 10,276 4,857 31,027 79,804 10,110 12,515 15% 8% $ 12% 21,893 77,648 14,602 Total Current Assets Total Assets Equity Return on Assets Return on Equity Total Current Liabilities 10,981 8.61% 6.09% 16.12% 10.27% 10% 44.23% 85.71% 62.15% 56.51% 62% $20,502 $68,823 $22,138 $63,046 $ 21,258 $ 64,720 $21,135 Total Liabilities $62,291 (data in millions) 2016 2017 2018 Average Coke Net Operating Revenue/Net Sales $ 41,863 $ 25,398 $ 8,657 Net Profit (Consolidated Net Income) $ 6,527 $ 34,010 $ 87,270 $ 23,220 7.48% $ 36,376 63% $ 22,546 27% $ 8,319 20% $ 4,736 $ 33,730 $ 86,127 $ 20,418 35,410 22,155 7,599 1,248 36,545 31,856 61% $ 21% $ 63% $ 21% $ Gross Profit 62% 20,086 8,700 Operating Income 23% 16% $ 4% $ 6,434 13% Total Current Assets Total Assets 30,634 87,896 83,216 Equity Return on Assets Return on Equity 18,977 19,058 1.42% 7.73% 5.54% 6% 6.58% 33.76% 22.82% 23% 28.11% $29,223 $64,158 $26,532 $64,050 $ 27,650 $ 65,709 Total Current Liabilities $27,194 $68,919 Total Liabilities %24

Pepsi

Evaluate the liquidity (ability to meet short-term obligations) of these companies by calculating the current and quick ratios, by averaging their rests over the past 3 years. Make your comments from the perspective of a supplier or banker.

Answer 1

Pepsi Co Current ratio = Current assets/ Current liabilities 2016 2017 2018 Current assets Current liabilities Current ratio Average ratio 26,450.00 21,135.00 1.25 1.25 31,027.00 20,502.00 1.51 21,893.00 22,138.00 0.99 Coke 2016 2017 2018 Current assets Current liabilities Current ratio Average ratio 34,010.00 26,532.00 1.28 1.22 36,545.00 27,194.00 1.34 30,634.00 29,223.00 1.05

Quick ratio = (Cash on hand + Notes and loan receivables/current liabilities Pepsi co. 2016 2017 2018 16,125.00 19,510.00 10,990.00 Cash on hand Notes & loan receivables Current liabilities Quick Ratio Average quick ratio 21,135.00 0.76 0.74 20,502.00 0.95 22,138.00 0.50 Coke 2016 2017 2018 22,201.00 20,675.00 15,964.00 Cash on hand Notes & loan receivables Current liabilities Quick Ratio Average quick ratio 26,532.00 0.84 0.71 27,194.00 0.76 29,223.00 0.55

The average current ratio for Pepsi for the three years is 1.25 and the average current ratio for the Coke for the three years is 1.22. Though the current ratio seems to be good and since in the beverage industry the two biggest players are Pepsi and Coke so the industry average for the current ratio would be around the same. Generally, an optimal current ratio is 2:1, that current assets should be two times the liability so the current ratio for the Pepsi and Coke is not very optimal but their current ratio seems to be stable except for 2018. The optimal quick ratio is 1:1. The average quick ratio for Pepsi is 0.74 and the average ratio for 0.71. The quick ratio focuses on very liquid assets. From the perspective of supplier and banks for short term lending the current ratio and quick ratio are not at the optimal point but they seem to be just sufficient. Although the supplier and banks can lend them credit but they would be cautious to provide large credits.