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Liquidity analysis of coke and Pepsi

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Liquidity & Asset Utilization Ratios Coke Coke Pepsi
2004 2003 2004
Current Ratio
Current Assets 3,264 $3,000.00 $2,039.00 $3,039.00
Current Liabilities $3,431.00 0.95 $3,941.00 0.76 $1,581.00 1.29 $2,478.00

Quick (Acid-Test) Ratio
Current Assets-Inventory $2,501.00 $2,275.00 $1,612.00 $2,665.00
Current Liabilities $3,431.00 0.73 $3,941.00 0.58 $1,581.00 1.02 $2,478.00

Inventory Turnover
Cost of Goods Sold 10,771.00 10,165.00 5,656.00 5,215.00
Average Inventory 744 14.48 722 14.08 401 14.12 376

Average Collection Period
Accounts Receivable 1,927.00 1,787.00 1,115.00 1,066.00
Average Daily Sales 50.44 38 48.14 37 Days 30.29 37 28.51

Total Asset Turnover
Sales 18,158.00 17,330.00 10,906.00 10,265.00
Total Assets 26,354.00 0.69 25,700.00 0.67 10,793.00 1.01 11,544.00

Debt & Interest Coverage Ratios

Debt to Assets Ratio
Total Liabilities 20,882.00 21,335.00 8,844.00 9,663.00
Total Assets 26,354.00 79.2% 25,700.00 83.0% 10,793.00 81.9% 11,544.00

Debt to Equity Ratio
Total Debt 12,572.00 13,665.00 6,070.00 6,971.00
Total Equity 10,177.00 1.24 9,794.00 1.40 5,620.00 1.08 6,462.00

Interest Coverage Ratio
EBIT(Earnings Before Interest & Taxes) 1,436 1,577 976 956
Interest Expense 619 2.32 607 2.60 230 4.24 239

Profitability Ratios

Gross Margin on Sales
Sales-Cost of Sales 7,387.00 7,165.00 5,250.00 5,050.00
Sales 18,158.00 40.7% 17,330.00 41.3% 10,906.00 48.1% 10,265.00

Net Profit Margin
Net Profit after taxes 596.00 676.00 457.00 416.00
Sales 18,158.00 3.3% 17,330.00 3.9% 10,906.00 4.2% 10,265.00

Market Based Ratio

Price-Earnings Ratio
Current Market Value of Common Stock 18.94 29.09
Earnings Per Share (EPS) 1.28 14.80 1.48 - 1.79 16.25 1.54

Based on the attached financial and ratio, make recommendations to management regarding their cash management.

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Ratio Analysis

A shortnote on ratio analysis

Ratio analysis can also help us to check whether a business is doing better this year than it was last year; and it can tell us if our business is doing better or worse than other businesses doing and selling the same things. In other words it helps in inter firm and intra firm comparison.
We can use ratio analysis to try to tell us whether the business

1. is profitable
2. has enough money to pay its bills
3. could be paying its employees higher wages
4. is paying its share of tax
5. is using its assets efficiently
6. has a gearing problem
7. is a candidate for being bought by another company or investor

Though ratio has its advantage but it has following limitations:

1. Accounting Information
* Different Accounting Policies
The choices of accounting policies may distort inter company comparisons.

* Creative accounting
The businesses apply creative ...

Solution Summary

This explains the evaluation of the liquidity position of the company by taking examples of Pepsi and Coke.

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Review the 2005 and 2004 annual reports for PepsiCo Inc and The Coca-Cola Company. Compare the two companies and provide recommendations to improve their financial status.

Include an introduction, a vertical and horizontal analysis and classic ratios for liquidity, solvency, and profitability in your analysis for 2005 and 2004.

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