Interpretation Financial Statements

Chapter 13: Problem BYP 13-4
INTERPRETING FINANCIAL STATEMENTS

BYP13-4 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).

Coca-Cola 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
Problem (a)
Compute the following liquidity ratios for 2004 for Coca-Cola and for PepsiCo and comment on the relative liquidity of the two competitors.

Answer
Current ratio = Current assets
Current liabilities

Coca- Cola PepsiCo Year

21,094 = 1.10:1 8,639 =1.28:1 2004 10,971 6,752

(1) Receivables turnover = Net Credit Sales Average Account Receivables

Coca- Cola PepsiCo Year
21,962 =10.31 29,261=10.04 2004 2,131 2,915

(2) Average collection period = 365 Receivable turnover

Coca- Cola PepsiCo Year
365 = 35.4 Days 365 = 36.4 Days 2004 10.31 10.04

(3) Inventory