The following information was taken from the financial statements of Coca-Cola and PepsiCo (dollar amounts in millions). Tax rates for Coca-Cola and Pepsi were 23 percent and 27 percent, respectively.

a. Compute return on equity, return on assets, common equity leverage, capital structure leverage, profit margin, and asset turnover for each company for 2012. Discuss the comparison.

b. For each company, what number results from the following: return on assets × common equity leverage × capital structure leverage?

c. For each company, what number results from the following: profit margin × asset turnover?

d. Compare Coca-Cola to PepsiCo. Which company has the higher return on equity and why? Which company has the higher return on assets and why? Discuss whether the two companies are creating shareholder value.

Transcribed Image Text:

Coca-Cola 2012 2011 Income Statement $48,017 $46,542 Sales Interest expense 397 417 Net income 9,019 8,584 Balance Sheet $86,174 $79,974 Assets Shareholders' equity 33,168 31,921 Pepsico 2012 2011 Income Statement $65,492 $66,504 Sales Interest expense 899 856 6,178 Net income 6,443 Balance Sheet $74,638 $72,882 Assets Shareholders' equity 22,399 20,899