Assignment 2 BACC518

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Albany State University *

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Accounting

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Apr 3, 2024

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Alexandria Sanchez November 6 th , 2023 BACC518 – Assignment 2 Comparative Financial Statements FOR COCA COLA COMPANY. 1. Calculate the ratios that are listed below, using the given formulae. Tests of Profitability 1. Return on Equity (ROE) – (Net Income / Average Stock Holders Equity) For 2022 = 0.369B Foe 2021 = 0.3930B 2. Return on Assets (ROA) – (Net income / Average Total Assets) FOR 2022 = 0.1028B FOR 2021 =0.1035B 3. ROCE – (EBIT / Ave Cap Employed) {Cap Employed = Total Assets – Curr Lia}. FOR 2022 = 73.039B FOR 2021 = 74.404B 4. Earnings per share (EPS) – (Net Income / Weighted Ave no of shares outstanding) FOR 2022 = 2.192

FOR 2021 = 2.198 5. Sales Margin – Net Income / Net Sales Revenue FOR 2022 = 0.134B FOR 2021 = 0.128B 6. Asset Turnover – Net Sales Revenue / Average Total Assets. FOR 2022 = O.221B FOR 2021 = 0.257B Tests of Liquidity 7. Current Ratio – (Current Assets / Current Liabilities) FOR 2022 = 1.145B FOR 2021 = 1.125B 8. Quick Ratio – (Quick Assets / Current Liabilities) Quick Assets = Cash + Short term inv + Ac Rec OR Current Assets – Inventory FOR 2022 = 0.930B FOR 2021 = 0.958B 9. Receivables Turnover Ratio – (Net Credit Sales / Average Net Receivables) If credit sales are not shown separately, consider total sales revenue as credit sales

FOR 2022 = 12.332B FOR 2021 = 11.006B 10. Inventory Turnover Ratio – (CoGS / Average Inventory) FOR 2022 = 4.25B FOR 2021 = 4.498B 11. Payables Turnover ratio (CoGS / Average Accounts payable). FOR 2022 =1.459 B FOR 2021 = 1.395 B 12. Average age of receivables (365/Receivables Turnover Ratio) FOR 2022 = 29.597B FOR 2021 = 33.164B 13. Average age of payables (365/Payables Turnover Ratio) FOR 2022 = 68.777B FOR 2021 = 79.313B 14. Average age of inventory (365/Inventory Turnover Ratio) FOR 2022 = 85.841B FOR 2021 = 81.147B

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15. Working capital cycle (Ave age of Inv. + Ave age of Rec. – Ave age of Payables) FOR 2022 = 46.661B FOR 2021 = 34.998B Tests of Solvency 16. Times interest earned ratio – ([Net Income + Interest Expense + Income Tax Expenses] / Interest Expense) – Net Income + Interest Expense + Income Tax Expenses = EBIT FOR 2022 = B FOR 2021 = B 17. Debt-to-Equity Ratio – Total Liabilities / Stock holders equity FOR 2022 = 0.763B FOR 2021 = 0.8024B 18. Leverage – Total Liabilities / Total Assets FOR 2022 = 0.2126B FOR 2021 = 0.211B 19. Equity ratio – Stock Holders Equity / Total Assets FOR 2022 = 0.278B FOR 2021 = 0.263B

Market Tests 20. Price Earnings Ratio – Current Market Price / EPS FOR 2022 = $2.19 FOR 2021 = $2.25 21. Dividend Yield ratio – Dividends per share / Market Price per share FOR 2022 = $0.44 FOR 2021 = $0.42 FOR PEPSI, CO Calculate the ratios that are listed below, using the given formulae. Tests of Profitability 22. Return on Equity (ROE) – (Net Income / Average Stock Holders Equity) For 2022 = 0.515B Foe 2021 = 0.475B 23. Return on Assets (ROA) – (Net income / Average Total Assets) FOR 2022 = 0.097B

FOR 2021 =0.0830B 24. ROCE – (EBIT / Ave Cap Employed) {Cap Employed = Total Assets – Curr Lia}. FOR 2022 = 65.402B FOR 2021 = 66.157B 25. Earnings per share (EPS) – (Net Income / Weighted Ave no of shares outstanding) FOR 2022 = 6.42 FOR 2021 = 5.49 26. Sales Margin – Net Income / Net Sales Revenue FOR 2022 = 0.103B FOR 2021 = 0.096B 27. Asset Turnover – Net Sales Revenue / Average Total Assets. FOR 2022 = 0.937B FOR 2021 = 0.860B

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Tests of Liquidity 28. Current Ratio – (Current Assets / Current Liabilities) FOR 2022 = 1.23O FOR 2021 = 3.523B 29. Quick Ratio – (Quick Assets / Current Liabilities) Quick Assets = Cash + Short term inv + Ac Rec OR Current Assets – Inventory FOR 2022 = 0.6091 FOR 2021 = 0.6649 30. Receivables Turnover Ratio – (Net Credit Sales / Average Net Receivables) If credit sales are not shown separately, consider total sales revenue as credit sales FOR 2022 = 10.742B FOR 2021 = 11.314B 31. Inventory Turnover Ratio – (CoGS / Average Inventory) FOR 2022 = 7.770B

FOR 2021 = 8.528B 32. Payables Turnover ratio (CoGS / Average Accounts payable). FOR 2022 = 1.736B FOR 2021 = 1.7522B 33. Average age of receivables (365/Receivables Turnover Ratio) FOR 2022 = 45.386B FOR 2021 = 51.957B 34. Average age of payables (365/Payables Turnover Ratio) FOR 2022 = 15.65B FOR 2021 = 17.250B 35. Average age of inventory (365/Inventory Turnover Ratio) FOR 2022 = 69.89 FOR 2021 = 83.965

36. Working capital cycle (Ave age of Inv. + Ave age of Rec. – Ave age of Payables) FOR 2022 = 99.620 FOR 2021 = 118.672 Tests of Solvency 37. Times interest earned ratio – ([Net Income + Interest Expense + Income Tax Expenses] / Interest Expense) – Net Income + Interest Expense + Income Tax Expenses = EBIT FOR 2022 = B FOR 2021 = B 38. Debt-to-Equity Ratio – Total Liabilities / Stock holders equity FOR 2022 = 4.33 FOR 2021 = 4.77 39. Leverage – Total Liabilities / Total Assets FOR 2022 = 0.812B FOR 2021 = 0.825B

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40. Equity ratio – Stock Holders Equity / Total Assets FOR 2022 = 0.278B FOR 2021 = 0.263B Market Tests 41. Price Earnings Ratio – Current Market Price / EPS FOR 2022 = 6.42 FOR 2021 = 42. Dividend Yield ratio – Dividends per share / Market Price per share FOR 2022 = 1.15 FOR 2021 = 1.075

Question 5. Description of the Beverage Industry: The Coca-Cola Company and PepsiCo operate in the global beverage industry, which is a subset of the broader food and beverage sector. This industry is known for its diverse product portfolio, which includes non-alcoholic and carbonated soft drinks, juices, sports drinks, teas, and a range of other beverages. The industry is characterized by several key features: 1. Global Reach: Both Coca-Cola and PepsiCo have a strong global presence, with a wide distribution network spanning numerous countries. They are known for their iconic brands such as Coca-Cola, Pepsi, Fanta, Gatorade, and Tropicana. 2. Competition: The industry is highly competitive, with these two giants often referred to as arch-rivals. Beyond Coca-Cola and PepsiCo, there are numerous other regional and international beverage companies, including Dr. Pepper Snapple Group, Nestlé, and Keurig Dr Pepper, among others. 3. Product Diversification: In response to changing consumer preferences and health trends, both companies have diversified their product portfolios. They offer healthier beverage options, including low-calorie drinks, fruit juices, bottled water, and functional beverages. 4. Marketing and Branding: The industry is known for its extensive marketing and branding efforts, with both companies investing heavily in advertising and promotional campaigns to build brand loyalty and maintain market share.

5. Supply Chain and Distribution: Efficient supply chain management and distribution networks are crucial in the beverage industry, ensuring products are readily available to consumers, whether through vending machines, retail stores, restaurants, or online platforms. 6. Regulatory Environment: The industry is subject to various regulatory requirements related to food safety, labeling, and advertising, as well as sugar and calorie content. Regulatory changes and health concerns have influenced product development and marketing strategies. 7. Environmental Considerations; Sustainability and environmental concerns have become increasingly important. Both companies have made commitments to reduce their environmental footprint, focusing on issues like water usage, recycling, and reducing plastic waste. 8. Market Trends: Health and wellness trends have led to a shift in consumer preferences towards healthier and low-sugar beverage options. Functional beverages, energy drinks, and flavored water have gained popularity. 9. Emerging Markets: The industry sees growth opportunities in emerging markets as disposable incomes rise and consumer preferences evolve. Question 6 Coca-Cola (Firm A): Coca-Cola has demonstrated a mixed performance over the past three years. The company's current assets remained relatively stable, with a slight increase from 2020 to 2022. Cash and cash equivalents declined, which could be attributed to a potential shift in the company's cash

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management strategy. Short-term investments showed a substantial decrease over the period, indicating a potential shift in investment priorities. The total assets of Coca-Cola have seen a modest increase, primarily driven by long-term assets. However, this growth hasn't translated into substantial revenue growth, as net sales revenue remained relatively stable. This suggests that Coca-Cola has been successful in maintaining its market position but faces challenges in generating substantial revenue growth. On the profitability front, Coca-Cola has shown consistent performance, with a stable return on equity (ROE) and return on assets (ROA). These metrics indicate that the company efficiently utilizes its equity and assets to generate profits. Liquidity appears to be well-maintained with a current ratio above 1, indicating that the company can meet its short-term obligations. The quick ratio also suggests a healthy liquidity position. Overall, Coca-Cola's performance seems stable but not necessarily experiencing significant growth. The company may need to explore strategies to boost sales revenue and adapt to changing consumer preferences for healthier beverages. PepsiCo (Firm B): PepsiCo has shown a mixed performance over the past three years. Similar to Coca-Cola, current assets have remained stable, with slight fluctuations. Cash and cash equivalents decreased over the period, which might be due to various factors, including investment decisions.

Total assets have seen a slight increase, primarily driven by long-term assets, indicating ongoing investments in the company's future growth. Net sales revenue has been relatively stable, suggesting that PepsiCo has maintained its market position without significant revenue growth. PepsiCo's ROE and ROA have been consistent, indicating efficient use of equity and assets to generate profits. The company's sales margin and asset turnover have remained relatively steady, reflecting a maintained level of operational efficiency. The liquidity position is sound, with a current ratio consistently above 1, indicating the ability to meet short-term obligations. The quick ratio also suggests a healthy liquidity position. In summary, PepsiCo's performance appears stable, but it, too, has not experienced significant growth in revenue. The company's focus on diversification into snacks and healthier beverage options seems to be paying off in terms of maintaining its market position. To achieve growth, PepsiCo may consider further innovation and market expansion strategies. QUESTION 7 Subject: Investment Advisory Report - Coca-Cola (Firm A) vs. PepsiCo (Firm B) Dear Potential Client, I hope this message finds you well. I would like to provide you with a comprehensive assessment of the relative merits of investing in two prominent beverage giants, Coca-Cola (Firm A) and PepsiCo (Firm B). Your investment objectives and risk tolerance will play a pivotal role

in your decision, and it's essential to understand the financial performance and prospects of each firm before making an informed choice. Financial Performance and Stability: Coca-Cola, over the past three years (2020, 2021, and 2022), has displayed stability in its financial performance. Despite a marginal decline in cash and cash equivalents, the company has managed to maintain consistent profitability, as indicated by a steady Return on Equity (ROE) and Return on Assets (ROA). This stability may attract risk-averse investors looking for a safe investment option. On the other hand, PepsiCo, during the same period, has shown a similar trend. It has also managed to maintain stable financial performance with consistent ROE and ROA. In terms of stability, both firms seem equally attractive. However, it's essential to look beyond stability and evaluate other factors. Growth Prospects: Coca-Cola's performance suggests that the company has been successful in maintaining its market position but faces challenges in generating substantial revenue growth. The beverage industry is evolving, with an increasing demand for healthier options. Coca-Cola may need to adapt to this changing landscape and invest in innovation to drive growth. PepsiCo, meanwhile, has shown a similar trend in maintaining its market position with stable financials. However, it has a slightly more diversified product portfolio, including snacks and healthier beverage options. This diversification may provide PepsiCo with a competitive edge, as it can capture revenue from multiple segments within the food and beverage industry.

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Liquidity and Financial Health: Both companies display a healthy liquidity position, with current ratios consistently above 1. This indicates that they can meet their short-term obligations comfortably. Furthermore, the quick ratios also reflect a healthy liquidity position. Solvency: From a solvency perspective, both companies are in a strong position. Coca-Cola and PepsiCo exhibit low debt-to-equity ratios and strong equity ratios. This suggests they are not heavily leveraged and have a stable financial structure. Environmental and Social Responsibility: In recent years, ESG (Environmental, Social, and Governance) factors have gained significant importance in investment decisions. Both firms have made commitments to reduce their environmental footprint, focusing on sustainability and environmental concerns. They have also undertaken initiatives in areas of social responsibility. It's essential to consider this if you align your investments with ESG principles. Diversification and Market Presence: PepsiCo has an edge in terms of diversification. Its portfolio includes not only beverages but also snacks like Lay's, Doritos, and Quaker Oats, providing exposure to different consumer

preferences. This diversification can act as a buffer in case of fluctuations in any single segment, adding to the overall attractiveness of the investment. Conclusion: In conclusion, both Coca-Cola and PepsiCo exhibit financial stability and a strong liquidity and solvency position. While Coca-Cola has shown consistency in its core beverage business, PepsiCo's diversification into snacks and healthier beverage options provides additional growth opportunities. Considering your investment goals and risk tolerance, PepsiCo's slightly more diversified portfolio and market presence may offer a more well-rounded investment option. However, it's important to keep in mind that both firms have a history of stability and strong performance. Ultimately, the decision between Coca-Cola and PepsiCo should align with your long- term investment objectives, risk appetite, and a holistic evaluation of their respective growth prospects and initiatives. I recommend considering a diversified portfolio that may include both companies to benefit from the strengths of each while managing risk effectively. Please feel free to contact me for any further clarification or to discuss your investment strategy in more detail. Sincerely, Alexandria Sanchez Asanchez8@albany.edu

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Assignment 2 BACC518

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