Question

Option #2: Red Soda Company vs. Blue Soda Company

The Red Soda Company (Red Soda) and The Blue Soda Company (Blue Soda) provide refreshments to every corner of the world. Selected data from the 20X6 consolidated financial statements for Red Soda and Blue Soda are presented here (in millions).

	Red Soda	Blue Soda
Total current assets	$12,551	$12,571
Total current liabilities	13,721	8,756
Net Sales	30,990	43,332
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	13,335	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

Instructions:

Compute the following liquidity ratios for 20X6 for Red Soda and Blue Soda, comment on the relative liquidity of two competitors.

Current ratio             

Accounts receivable turnover           

Average collection period   

Inventory turnover

Days in inventory

Current cash debt coverage

Compute the following solvency ratios for the two companies and comment on the relative solvency of the two competitors.

Debt to asset ratio

Times interest earned

Cash debt coverage

Free cash flow

Compute the following profitability ratios for the two companies and comment on the relative probability of the two competitors.

Profit margin

Asset turnover

Return on assets

Return on common stockholders’ equity.

Interpret your findings for the ratio comparatives analysis for Red Soda and Blue Soda.

Evaluate what, if any, options with regard to financial activities should Red Soda and Blue Soda consider (i.e., how can these companies improve financial performance)? What impact would each of these have on the above ratios?

Show your work and use Excel or Word for your submission. The written portion of your assignment should be four to six pages in length with document and citation formatting conformity with the CSU-Global Guide to Writing and APA Requirements.

Answer 1

Explanation Red Soda Blue Soda Current ratio of Blue soda is much higher than Red soda, that means Blue soda is more strong company when it Current Ass Current liabilities Current ratio 0.914729247 1.435701233 comes to pay its creditors and short term debt. -12551/13721 12571/8756 Red Soda Here again, Accounts receivable turnover ratio tells us that how quickly the payments are being collected from customers, hence the higher the ratio the quicker you are in collecting your dues from customers, and Blue soda Net Sales Blue Soda Accounts receivable turnover: Account Recievable 9.050817757 9.310700473 has edge here ober Red soda. 43332/4654 Blue Soda Account Recievable 365 Red Soda Sales revenue Blue soda collects its dues in 39 days as compare to 40.3 days of Red Soda, hence Blue soda is more effcient in Avg. collection period 40.32784769 39.20220622 collecting its due -(3424/30990) 365 14654/43332)*365 This ratio implies the liquidity of inventory. A higher inventory turnover ratio indicates brisk sales and the lower ratio says slow sales Lower ratio alo indcates over stocking of inventory or may be obscolense or some deficiency in the process. Here Red Soda has to look into this issue try to improve on this front. Blue side is Inventory turnover ratio =Cost of Goods sold - Red Soda Blue Soda Avg. Invento 4.9 7.8 enjoying higher inventory turnover, and thus will have brisk sales as compare to Red soda. -11088/2271 20099/2570