Please use the 2011 Financial Statements for Coca-Cola and Pepsi for this analys
ID: 2735760 • Letter: P
Question
Please use the 2011 Financial Statements for Coca-Cola and Pepsi for this analysis.
1. What are the primary lines of business of these two companies as shown in their notes to the financial statement?
2. Which company has the dominant position in beverage sales?
3. What are the gross profits, net income, EBIT, EBITDA and free cash flow (FCF) for these two companies?
Compute both companies'
current ratio
quick ratio
total debt ratio
debt-equity ratio
total asset turnover
inventory turnover
day’s sales in inventory
profit margin on sales
return on assets
return on equity Fully explain what each ratio is telling you.
4. What ratios do each of these companies use in the Management's Discussion and Analysis section of the annual report to explain their financial condition related to debt financing?
Explanation / Answer
1. The primary lines of business of these two companies as shown in their notes to the financial statement - Manufature and sale of Non-alcoholic beverage brands 2. Company that has the dominant position in beverage sales PepsiCo with net revenue of $ 66504 as against that of Coca-Cola- $ 46542 3. Gross profits, net income, EBIT, EBITDA and free cash flow (FCF) for these two companies Year ended Dec.2011 Coca-Cola PepsiCo Gross profits 28326 34911 Net Income 8634 6462 EBIT 11373 9633 EBITDA 13327 12370 FCF 9474 -1809 (From cash flow Statement) Coca-Cola PepsiCo Current ratio Current Asset/Current Liabilities 25497/24283 1.05 17441/18154 0.96 Normal ratio is 2:1-Capacity for meeting short-term obligations is better with Coca-cola Quick ratio Current Assets-Inventory& prepaid expenses/Current liabilities (25497-3092-3450)/24283 0.78 17441-3827-2277)/18154 0.62 Normal ratio is 1:1-Capacity for meeting immediate obligations is better with Coca-cola Total debt ratio Total liabilities/Total Assets 48053/79974 0.60 51983/72882 0.71 Debt funding is more in PepsiCo than in Cocacola Debt-equity ratio Debt/Equity (13656+5420)/31921 0.60 (20568+8266)/20899 1.38 Debt funding is more in PepsiCo than in Cocacola Total asset turnover Sales/Total Assets 46542/79974 0.58 66504/72882 0.91 More $ sales is generated per $ of assets in PepsiCo Inventory turnover COGS/((Op+Cl.Inv)/2) 18216/((2650+3092)/2) 6.34 31593/((3372+3827)/2) 8.78 Inventory is turned over more no.of times in PepsiCo Day’s sales in inventory365/Inv.T.O.Ratio 365/6.34 57.57 365/8.78 41.57 Inventory is turned over more in lesser no.of days in PepsiCo Profit margin on sale Net income/Sales 8572/46542 0.18 6443/66504 0.10 Net profit margin is more in Coca cola Return on assets Net Income/Total Assets 8572/79974 0.11 6443/72882 0.09 Coca-cola generates higher $ return per $ value of asset Return on equity Net Income/Total Equity 8572/31921 0.27 6443/20899 0.31 ROE is more in PepsiCo despite lower net profit margin,because of lower equity %(More of debt funding) 4. Both believe in their operating cash generating capabilities PepsiCo uses a mix of revolving credit and other modes of long-term debt financing to meet operating,investing and financing cash needs. Coca-cola's debt financing formula includes extensive issue of commercial paper- constantly reviewing short-term and long-term mix.It plans to replace all these with long-term debt in the future.