Explore BrainMass
Share

Explore BrainMass

    Comparative Analysis of Profitability and Financial Leverage

    This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

    See the attachment.

    The problem I am having trouble with is 11.11.

    The numbers in the columns are kind of hard to see on the attached file, they are:

    Coke Pepsi
    Net Revenues $31,994 $43,251
    Net Income 5,807 5,142
    Total Assets, 01/01/08 43,269 34,628
    Total Liabilities, 01/01/08 21,525 17,394
    Total Liabilities, 12/31/08 20,047 23,888
    Total Stockholders Equity,12/31/08 20,472 12,203.

    © BrainMass Inc. brainmass.com October 10, 2019, 2:38 am ad1c9bdddf
    https://brainmass.com/business/financial-ratios/comparative-analysis-profitability-financial-leverage-386357

    Attachments

    Solution Preview

    Part A

    The first step in calculating these ratios is making sure that you know the formulas. A trick I use to remember these is that ratios that have the word 'return' in their name have net income in the numerator. This makes sense because net income is an indicator of the return on an investment, assets, equity, etc.

    Return on equity (ROE) = Net income / Shareholders' equity

    Coke ROE = 5,807 / 20,472 = 0.284 or 28.4%

    Pepsi ROE = 5,142 / 12,203 = 0.421 or 42.1%

    Return on investment (ROI) = Net income / Average total assets

    Average total assets = (beginning of period total assets + end of period total assets) / 2

    With the data given, we must calculate ending total assets before we can calculate average total assets. We know that the balance sheet equation (assets = liabilities + shareholders' equity) must hold true, therefore we can use the ending total liabilities and ending shareholders' equity to calculate the ending total ...

    Solution Summary

    The solution provides a comparative analysis of profitability and financial leverage.

    $2.19