Chapter 11, Problem 11.16C

To determine

Concept Introduction:

Profitability Measures:

The set of ratios that determines the ability of the company to create earnings or profits with respect to its sales or investments refers to profitability measures or profitability ratios.

Requirement a:

To calculate:

The return on investment and return on equity of the company from the given annual reports of Coco-Cola and Pepsi to measure the profitability of an investment.

To determine

Concept Introduction:

Profitability Measures:

The set of ratios that determines the ability of the company to create earnings or profits with respect to its sales or investments refers to profitability measures or profitability ratios.

Requirement b:

To state:

The firms uses the financial leverage more effectively than the other by comparing its percentage of return on investments and return on equity.

To determine

Concept Introduction:

Financial Leverage Measures:

The set of ratios that measures the ability of the company to meet its long-term financial obligations such as interest payments on debts, fixed lease payments refers to financial leverage measurement ratios. Financial leverage ratios are also called as debt ratio or equity ratio.

Requirement c:

To calculate:

The debt ratio and debt to equity ratio for Coco-Cola and Pepsi to measure the financial leverage of the company.

To determine

Concept Introduction:

Financial Leverage Measures:

The set of ratios that measures the ability of the company to meet its long-term financial obligations such as interest payments on debts, fixed lease payments refers to financial leverage measurement ratios. Financial leverage ratios are also called as debt ratio or equity ratio.

Requirement d:

To state:

The debt and debt/equity ratios calculated make sense relative to the expectations by comparing the results of analysis with return on investment and return on equity.