A14-48 Using financial statement ratios to analyze Coca-Cola and PepsiCo

The Coca-Cola Company and PepsiCo, Inc., are fierce competitors in the beverage and snack markets. A perennial question among consumers is Coke or Pepsi? In this case, we will be looking at the financial positions of both companies to answer the question of which company is in a stronger financial position, Coke or Pepsi. Following is a table of various financial data and ratios for both Coca-Cola and PepsiCo. The data are arranged in alphabetic order.

A B C D E F G H The Coca-Cola Company PepsiCo, Inc. Selected Financial Data Selected Financial Data For years ended December 31 For years ended December 26, 27, and 28, respectively 2015 2014 2013 2015 2014 2013 Acid-test ratio 0.58 0.56 0.62 0.68 0.48 0.54 Current ratio 1.24 1.02 1.13 1.31 1.14 1.24 Debt ratio 0.71 0.67 0.63 0.83 0.75 0.69 Earnings per share $1.69 $1.62 $1.94 $3.71 $4.31 $4.37 Inventory turnover 5.83 5.61 5.63 9.68 9.43 8.94 Net income ($ in millions) $7,351 $7,098 $8,584 $5,452 $6,513 $6,740 Rate of return on sales 16.60% 15.43% 18.32% 8.65% 9.77% 10.15% Receivables turnover 10.54 9.85 9.73 9.64 9.8 9.49 Return on assets 9.01% 8.33% 10.27% 9.16% 10.03% 10.06% Operating income percentage 19.70% 21.11% 21.83% 13.25% 14.37% 14.61% Revenues ($ in millions) $44,294 $45,998 $46,854 $63,056 $66,683 $66,415 Times-interest-earned ratio 10.2 20.1 22.09 8.61 10.54 10.65 Working capital ($ in millions) $6,465 $612 $3,493 $5,453 $2,571 $4,364

1.Rearrange the data and ratios into a report format that groups similar data and ratios together, to make it easier to analyze the data.

2.Using the given financial data for The Coca-Cola Company, discuss the companys: a. Ability to pay current liabilities; b. Ability to sell inventory and collect receivables; c. Ability to pay long-term debt; and d. Profitability.

3.Using the given financial data for PepsiCo, Inc., discuss the companys: a. Ability to pay current liabilities; b. Ability to sell inventory and collect receivables; c. Ability to pay long-term debt; and d. Profitability.

4.Now compare Coca-Colas financial position to PepsiCos financial position. How do the two companies compare in the following areas? a. Ability to pay current liabilities b. Ability to sell inventory and collect receivables c. Ability to pay long-term debt d. Profitability

5. What conclusions can you draw from your analysis of the two companies? Which company do you think is in a stronger financial position?