Making Business Decisions: Loaning Money to The Coca-Cola Company

As chief lending officer for a bank, you need to decide whether to make a loan to The Coca-Cola Company. The current items, listed in alphabetical order, are taken from the consolidated balance sheets of The Coca-Cola Company and its competitor PepsiCo at the end of 2015 and 2014 (included in the companies Form 10-Ks for the year ended December 31, 2015 for Coca-Cola and December 26, 2015 for PepsiCo; all amounts are in millions of dollars):

The Coca-Cola Company	12/31/15	12/31/14
Accounts payable and accrued expenses	$9,660	$9,234
Accrued income taxes	331	400
Assets held for sale	3,900	679
Cash and cash equivalents	7,309	8,958
Current maturities of long-term debt	2,677	3,552
Inventories	2,902	3,100
Loans and notes payable	19,100	19,130
Liabilities held for sale	1,133	58
Marketable securities	4,269	3,665
Prepaid expenses and other assets	2,752	3,066
Short-term investments	8,322	9,052
Trade accounts receivable, less allowances of $352 and $331, respectively	3,941	4,466

PepsiCo	12/26/15	12/27/14
Accounts and notes receivable, net	$6,437	$6,651
Accounts payable and other current liabilities	13,507	13,016
Cash and cash equivalents	9,096	6,134
Inventories	2,720	3,143
Prepaid expenses and other current assets	1,865	2,143
Short-term investments	2,913	2,592
Short-term obligations	4,071	5,076

Required:

1. Compute working capital and the current ratio for both companies for 2015. Enter working capital amounts in millions of dollars. Round current ratio to two decimal places. If required, use the minus sign to indicate negative working capital.

Item	Coca-Cola		PepsiCo
Working capital	$		$
Current ratio		:1		:1

2. On the basis of your answers to (1), which company appears to be more liquid?

• Both are equally liquid
• PepsiCo
• Neither are liquid
• Coca-Cola

3. Which of these are measures of liquidity?

• Current ratio and Debt equity ratio
• Current ratio and Profitability ratio
• Current ratio and Working capital
• Debt equity ratio and Working cap