Coca-Cola vs. Pepsi Cola

ACT- Final- Assignment -3 Name Course Instructor Date  Option Choice #2: Coca-Cola vs. PepsiCo The Coca-Cola Company and PepsiCo, Inc., provide refreshments to every corner of the world. Selected data from the 2014 consolidated financial statements for the Coca-Cola Company and for PepsiCo, Inc., are presented here (in millions).  Coca-ColaPepsiCoTotal current assets$12,551$12,571Total current liabilities  13,721    8,756Net Sales  30,990  43,332Cost of Goods Sold  11,088  20,099Net income     6,824    5,946Average (net) accounts receivable for the year     3,424    4,654Average inventories for the year     2,271    2,570Average total assets   44,595 37,921Average common stockholders’ equity  22,636 14,556Average current liabilities  13,335    8,772Average total liabilities  21,960 23,466Total assets  48,671 39,848Total liabilities  23,872 23,044Income taxes    2,040   2,100Interest expense       355       397Net cash provided by operating activities   8,186   6,796Capital expenditures   1,993   2,128Cash dividends   3,800   2,732Instructions: Compute the following liquidity ratios for 2014 for Coca-Cola and PepsiCo and comment on the relative liquidity of the two competitors. Current ratio Current ratio = current assets/ current liabilities Coca-Cola= $12,551/ 13,721= 0.91 PepsiCo = $12,571 / 8,756 = 1.44              Accounts receivable turnover       Accounts receivable turnover    =Annual credit sales/ Average receivables balance Coca-Cola= 30,990/3,424= 9.05 times PepsiCo= 43,332/ 4,654 = 9.31 times    Average collection period    Coca-Cola= 365//9.05= 40.3 PepsiCo= 365/9.31=39.2      Inventory turnover Inventory turnover= cost of goods sold/ average inventory Coca-Cola= 11,088/      2,271= 4. 88 times PepsiCo= 20,099/    2,570= 7.82 times Days in inventory Days in inventory= Days in year/ Inventory turnover ratio Coca-Cola= 365/4.88= 74.76 days PepsiCo= 365/7.82= 46.67 days     Current cash debt coverage. Net cash provided by operating activities/ Average current liabilities Coca-Cola= 8,186/13,335= 0.62 PepsiCo=    6,796/ 8,772= 0.77 The current ratio indicates the ability of a reporting entity to meet its short-term obligations and the current assets in Pepsi were more than the current liabilities unlike Coca-Cola. Additionally, the liquidity position of PepsiCo is better compared to Coca-Cola except the average collection period where there were 40.3 days in Coca-Cola compared to 39.2 days for PepsiCo. Compute the following solvency ratios for the two companies and comment on the relative solvency of the two competitors. Debt to asset ratio Debt assets ratio= Total liabilities/ Total assets Coca-Cola= 23,872/ 48,671= 49% PepsiCo= 23,044/ 39,848=58% (2) Times interest earned Income before Interest and Taxes or EBIT/ Interest expense Coca-Cola (6,824+2,040+ 355) /355 =25.97 times PepsiCo (5,946+2,100+397) /397= 21.27 times (3)Cash debt coverage Operating cash flow/ Average total liabilities Coca-Cola= 8,186/21,960= 0.37 PepsiCo=    6,796/ 23,466=0.29   (4)Free cash flow Operating cash flow- cash dividend Coca-Cola=8,186- 3,800= $4,386 PepsiCo=6,796-2,732= $4,064 Coca-Cola has better solvency than PepsiCo, higher interest coverage indicates that Coca-Cola is better placed to deal with debt, but even the PepsiCo interest coverage shows that the company can pay the debt interest. The solvency rations indicate that Coca-Cola is in better financial strength that the rival. Even though, the Cash debt coverage ratio is 0.37 and that of PepsiCo is 0.27, both companies have ...