Purchase Solution

# Coke and Pepsi Ratio Analysis

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Coke's and Pepsi's ratio analysis in excel format is enclosed.

1. For each company, describe what the ratio results mean to management (e.g. a current ratio of 1.30 means the company's current assets are 1.3 times their current liabilities).

2. Compare the two years and discuss how these trends may impact the financial condition of each company.

3. Compare the two companies to one another. Based upon the analysis of the two companies, which, if either, of the two companies would you recommend investing in?

please don't make it too short - I am looking for at least 700 words for the whole thing

##### Solution Preview

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<br>What the ratio means to management/ compare the two years and what the trends mean
<br>Coke Current ratio 1.06 and 1.00 Pepsi 1.08 and1.06
<br>This means that the ratio is much lower than the industry norm of 2:1, which means that the current assets should be twice the current liabilities. However in this case the current ratio is low means that there will be problems in meeting the current liabilities. The current assets are not sufficient and as the ratio is decreasing from 1.06 to 1.00 and 1.08 to 1.06, this means that the situation is becoming worse. The current assets position is becoming worse for both Pepsi and Coke and the trend means that unless fresh capital is invested into current assets, there will be payment problems for both the companies and they may fail in meeting with their current liabilities
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<br>Quick Ratio Pepsi 0.86 and 0.84 and Coke 0.91 and 0.83
<br>This is the ratio of liquid assets to current liabilities. This ratio should be kept close to one so that there are sufficient liquid assets at least to meet the current liabilities. The quick ratio also known as the acid test ratio for both Coke and Pepsi mean that there is need for more liquid assets to make their quick ratio equal to one. The implication for the management is that they should get cash fast! Comparing the two year, the liquidity position is worsening for both the companies but it is worse for Coke and this would mean that very shortly the company may face a serious payment crisis or may have to take loans or overdrafts from the bank to meet with its current liabilities.
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<br>Inventory Turnover Ratio Pepsi 19.10 and 18.71 and Coke 16.81 and 15.12
<br>This ratio establishes the number of times finished stock is turned over during an accounting period. Higher the ratio the better it is because it shows that finished stock is rapidly turned over. In food industry the ratios shown by both Coke and Pepsi are not high. So the message to the management of both the companies is turn your stock over faster. Over two years, the inventory turnover ratio is reducing in case of both Coke and Pepsi which means that the rate at which ...

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