Solutions Guide: Please do not present as your own.

This is only meant as a solutions guide for you to answer the problem on your own. I recommend doing this with any content you buy online whether from me or from someone else. BYP13-4 The Coca-Cola Company and PepsiCo, Inc. provide refreshments to every corner of the world. Selected data from the 2004 consolidated financial statements for The Coca-Cola Company and for PepsiCo, Inc., are presented here (in millions).<br /><br />Coca-Cola PepsiCo<br /><br />Total current assets $ 12,094 $ 8,639<br />Total current liabilities 10,971 6,752<br />Net sales 21,962 29,261<br />Cost of goods sold 7,638 13,406<br />Net income 4,847 4,212<br />Average (net) receivables for the year 2,131 2,915<br />Average inventories for the year 1,336 1,477<br />Average total assets 29,335 26,657<br />Average common stockholders equity 15,013 12,734<br />Average current liabilities 9,429 6,584<br />Average total liabilities 14,322 27,917<br />Total assets 31,327 27,987<br />Total liabilities 15,392 14,464<br />Income taxes 1,375 1,372<br />Interest expense 196 167<br />Cash provided by operating activities 5,968 5,054<br />Capital expenditures 755 1,387<br />Cash dividends 2,429 1,329<br />Instructions<br />(a) Compute the following liquidity ratios for 2004 for Coca-Cola and for PepsiCo and comment on the relative liquidity of the two competitors.<br />(1) Current ratio. (4) Inventory turnover.<br />(2) Receivables turnover. (5) Days in inventory.<br />(3) Average collection period. (6) Current cash debt coverage.<br />(b) Compute the following solvency ratios for the two companies and comment on the relative solvency of the two competitors.<br />(1) Debt to total assets ratio.<br />(2) Times interest earned.<br />(3) Cash debt coverage ratio.<br />(4) Free cash flow.<br />(c) Compute the following profitability ratios for the two companies and comment on the relative profitability of the two competitors.<br />(1) Profit margin.<br />(2) Asset turnover.<br />(3) Return on assets.<br />(4) Return on common stockholders equity.</strong></p>

(a)

Liquidity Ratios (1) Current ratio (2) Receivables turnover (3) Average collection period (4) Inventory turnover (5) Days in inventory

Coca-Cola .92:1 ($12,105 $13,225) 9.8 times ($28,857 $2,952) 37.2 days (365 9.8) 5.4 times ($10,406 $1,931) 67.6

PepsiCo 1.31:1 ($10,151 $7,753) 9.7 times ($39,474 $4,057) 37.6 days (365 9.7) 8.6 times ($18,038 $2,108) 42.4

(365 5.4) (6) Current cash debt coverage ratio .65 ($7,150 $11,058)

(365 8.6) .95 ($6,934 $7,307)

PepsiCo is more liquid than Coca-Cola. PepsiCo betters Coca-Cola in all of the ratios except receivables turnover. (b)
Solvency Ratios (1) Debt to total assets $21,525 $43,269 Coca-Cola = 50% $17,394 $32,279 PepsiCo = 54%

$5,981+ $1,892 + $456 (2) Times interest earned $456 = 18.3 times $7,150 $17,284 (4) Free cash flow

$5,658 + $1,973 + $224 $224 = 35.1 times $6,934 $15,978

(3) Cash debt coverage

= .41 times

= .43 times

$7,150 $1,648 $3,149 = $2,353

$6,934 $2,430 $2,204 = $2,300

Coca-Cola is slightly more solvent than PepsiCo. Both companies have similar debt to total assets and cash debt coverage ratios. Coca-Cola has more free cash flow but a much lower times interest earned ratio. (c) Profitability Ratios (1) Profit margin (2) Asset turnover (3) Return on assets (4) Return on common stockholders equity Coca-Cola 20.7% ($5,981 $28,857) .79 times ($28,857 $36,616) 16.3% ($5,981 $36,616) 30.9% ($5,981 $19,332) PepsiCo 14.3% ($5,658 $39,474) 1.22 times ($39,474 $32,279) 17.5% ($5,658 $32,279) 34.5% ($5,658 $16,386)

PepsiCo, Inc. is more profitable than the Coca-Cola Company. PepsiCo, Inc. has a higher asset turnover, return on assets, and return on common stockholders equity.