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INTERPRETING FINANCIAL STATEMENTS: Coca-Cola, PepsiCo

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The Coca-Cola Company and PepsiCo, Inc. provide refreshments to every corner
of the world. Selected data from the 2004 consolidated financial statements for The
Coca-Cola Company and for PepsiCo, Inc., are presented here (in millions).
CocaCola PepsiCo
Total current assets $ 12,094 $ 8,639
Total current liabilities 10,971 6,752
Net sales 21,962 29,261
Cost of goods sold 7,638 13,406
Net income 4,847 4,212
Average (net) receivables for the year 2,131 2,915
Average inventories for the year 1,336 1,477
Average total assets 29,335 26,657
Average common stockholders' equity 15,013 12,734
Average current liabilities 9,429 6,584
Average total liabilities 14,322 27,917
Total assets 31,327 27,987
Total liabilities 15,392 14,464
Income taxes 1,375 1,372
Interest expense 196 167
Cash provided by operating activities 5,968 5,054
Capital expenditures 755 1,387
Cash dividends 2,429 1,329

Instructions
(a) Compute the following liquidity ratios for 2004 for Coca-Cola and for PepsiCo and
comment on the relative liquidity of the two competitors.
(1) Current ratio. (4) Inventory turnover.
(2) Receivables turnover. (5) Days in inventory.
(3) Average collection period. (6) Current cash debt coverage.
(b) Compute the following solvency ratios for the two companies and comment on the
relative solvency of the two competitors.
(1) Debt to total assets ratio.
(2) Times interest earned.
(3) Cash debt coverage ratio.
(4) Free cash flow.
(c) Compute the following profitability ratios for the two companies and comment on
the relative profitability of the two competitors.
(1) Profit margin.
(2) Asset turnover.
(3) Return on assets.
(4) Return on common stockholders' equity.

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A description about each company

The Coca-Cola Company is a beverage manufacturer. Its beverages consist of energy drinks, juices, juice drinks, soft drinks, sports drinks, tea and coffee drinks, and water. (CocaCola.com) Dr. John Stith Pemberton invented Coca-Cola in 1886. Today, Coca-Cola is a worldwide brand and an instantly recognizable household name. Coke is it -- "it" being the world's #1 soft-drink company. The Coca-Cola Company owns four of the top five soft-drink brands (Coca-Cola, Diet Coke, Fanta, and Sprite). Its other brands include Barq's, Minute Maid, PowerAde, and Dasani water. Coca-Cola sells Crush, Dr Pepper, and Schweppes outside Australia, Europe, and North America. Its salient achievements are as follows:
Strong Brand

Coke is said to be the number one brand in world for years. It has become synonymous with the cold drink. This has been achieved by continuous innovation and keep customer delight is its main focus. Thus important strength of coca-cola is its globally recognized brands.

Vertical integration

In many parts of the world, it has purchased its bottlers leading to the better control on distribution and communication between departments within the companies. This has also reduced the cost and made high barriers to entry for competitors.

Hence Today, Coca-Cola is a worldwide brand and an instantly recognizable household name. Even though the company's original product is soda production, the company has updated its beliefs and product line to offer customized products and services within the communities in which it operates. For example, Coca-Cola now offers about 400 brands of products in over 200 countries, such as "...Inca Kola, a soft drink found in North and South America, and Samurai, an energy drink available in Asia; to Vita, an African juice drink, and BonAqua, a water found on 4 continents" (The Coca-Cola Company, 2007). In addition, in order to ...

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