Analyzing the Reclassification of Debt (AP9-5)
Pepsi Co, Inc.. is a $25 billion company in the beverage, snack food, and restaurant businesses. Pepsi Co's annual report included the following note:
At year-end. $3.5 billion of short-term borrowings were reclassified as long-term, reflecting Pepsi Co's intent and ability to refinance these borrowings on a long-term basis, through either long-term debt issuances or rollover of existing short-term borrowings.
As a result of this reclassification. Pepsi Co's quick ratio improved from 0.21 to 0.59. Do you think the . reclassification was appropriate? Why do you think management made the reclassification? As a financial analyst, would you use the quick ratio before the reclassification or after the reclassification to evaluate Pepsi Co's liquidity?
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