ST23 Read the CocaCola Companys Annual Report most recent on

ST2.3 Read the Coca-Cola Company\'s Annual Report (most recent one) and calculate the various financial ratios defined in Figure 2.7. Then give your assessment of the company\'s general financial condi- tion compared with the one of Pepsi Company.

Solution

I am taking the data of December 2016: Coca Cola company\'s symbol is KO and Pepsico\'s symbol is PEP

Liqidity Ratio-

(1): Current Ratio = Current Assets / Current Liabilities

Current Ratio = 1.28

Pepsico\'s = 1.28

Comparison- Both company\'s current ratios are equal.

(2): Quick Ratio = (Cash + Marketable securities + Receivables) / Current Liabilities

Quick Ratio = 1.18

Pepsico\'s = 1.15

Comparison- It tells the iquidity position of the company. KO\' current assets are more liquid than PEP.

Turnover Ratio-

(1): Inventory turnover Ratio = Cost of Goods sold / Total Average Inventory

Inventory turnover ratio = 6.16

Pepsico\'s = 10.37

Comparison- This ratio tels how many times invesntory is sold during a year. PEP\'s ratio is higher than that of KO. It denotes that PEP efficiently manages its inventory.

(2): Total Asset Turnover Ratio = Sales / Average tota assets

Total Asset Turnover Ratio = .47

Pepsico\'s = .87

Comparison- This ratio tells how effectivey assets are managed by the company. PEP\'s ratio is higher than Ko\'s. It shows that PEP is able to generate sales from its assets rather than KO.

Profitability Ratio-

(1): Return on Total Assets = Net Income / Average total assets

Return on Total Assets = 7.36%

Pepsico\'s = 8.79%

Comparison- This ratio tells about the protiability of total assets. PEP\'s ratio is higher than KO\'s. It shows that PEP\'s assets are more profitable than KO.

(2): Return on Common Equity = Net Income / Shareholder\'s Equity

Return on Common Equity = 26.85%

Pepsico\'s = 54.68%

Comparison- This ratio tells the return that shareholders get on their equity. PEP\'s ROE is higher than KO\'s ROE.

Market trend ratio-

(1): P/E Ratio = Current price of stock/ Earning per share

P/E Ratio = 24.69

Pepsico\'s = 23.05

Comparison- This ratio tells how much investors pay and get on a single share of the company. We can very well see that KO\'s share price is higher than PEP\'s. KO\'s share is costlier than PEP\'s share price.

Debt Management-

(1): Debt to Equity Ratio = Tota liabiities / Total Equity

Debt to Equity Ratio = 1.98

Pepsico\'s = 3.29

Comparison- This ratio tells the equity and debt portion in the company. We can see that PEP\'s debt to equity ratio is higher than KO\'s. PEP has more debt in its capital structure.

(2): Times Interest Earned Ratio = EBIT / Total Interest Payable

Times Interest Earned Ratio = 12.10

Pepsico\'s = 7.37

Comparison- This ratio tells how frequently company is paying interest on its debt. KO\'s ratio is higher than PEP\'s that tells KO is more frequently paying its interest on debt rather tan PEP.