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This post examines financial ratios for Coca-Cola and Pepsi.

The following information was summarized from the 2006 annual report of the Coca-Cola Company:

(in millions)
____________________________________________________________________________
Trade accounts receivable, less allowances of $63 and $72, respectively
December 31, 2006 $2,587
December 31, 2005 $2,281

Net operating revenues for the year ended December 31:
2006 $24,088
2005 $23,104

The following information was summarized from the fiscal year 2006 annual report of PepsiCo:
(in millions)
____________________________________________________________________________
Accounts and notes, receivable, net
December 30, 2006 $3,725
December 31, 2005 $3,261
Net revenue for the year ended:
December 30, 2006 $35,137
December 31, 2005 $32,562

Required:
1. Calculate the accounts receivable turnover ratios for Coca-Cola and PepsiCo for 2008.
2. Calculate the average collective period, in days, for both companies for 2006. Comment on the reasonableness of the collection periods for these companies considering the nature of their business.
3. Which company appears to be performing better? What other information should you consider in determining how these companies are performing?

Solution Preview

1. Calculate the accounts receivable turnover ratios for Coca-Cola and PepsiCo for 2008.

(net revenue / average inventory)

a.) Coke:

2006

24088 / (2587 + 2281 / 2)

= 24088 / 2434

= 9.8 times

b.) Pepsi:

2006

35137 / (3725 + 3261 / 2)

= 35137 / 3493

= 10.0 times

2. Calculate the average collective period, in days, for both companies for 2006.

(days in the year / AR turnover ratio)

a.) Coke:

365 / ...

Solution Summary

The solution provides the calculations and financial ratios for Coca-Cola and for Pepsi. Accounts receivable turnover, average collection period, and an analysis of which company is performing better are thoroughly discussed. This solution is written based on 25+ years of professional experience as an accountant.

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