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

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    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?

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    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.

    $2.19

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