Connect 1 Semester Access Card for Fundamentals of Financial Accounting
5th Edition
ISBN: 9781259128547
Author: Fred Phillips Associate Professor, Robert Libby, Patricia Libby
Publisher: McGraw-Hill Education
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Textbook Question
Chapter 13, Problem 13.5PA
Interpreting Profitability, Liquidity, Solvency, and P/E Ratios
Coke and Pepsi are well-known international brands. Coca-Cola sells more than $46 billion worth of beverages each year while annual sales of Pepsi products exceed $66 billion. Compare the two companies as a potential investment based on the following ratios:
| Ratio | Coca-Cola | PepsiCo | |
| Gross profit percentage | 60.7% | 53.2% | |
| Net profit margin | 18.4% | 10.2% | |
| EPS | $1.90 | $4.32 | |
| Inventory turnover ratio | 5.3 | 8.2 | |
| 1.13 | 1.24 | ||
| Debt-to-assets | 0.41 | 0.38 | |
| P/E ratio | 20.4 | 19.3 | |
Required:
- 1. Which company appears more profitable? Describe the ratio(s) that you used to reach this decision.
- 2. Which company appears more liquid? Describe the ratio(s) that you used to reach this decision.
- 3. Which company appears more solvent? Describe the ratio(s) that you used to reach this decision.
- 4. Are the conclusions from your analyses in requirements 1–3 consistent with the value of the two companies, as suggested by their P/E ratios? If not, offer one explanation for any apparent inconsistency.
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Coke and Pepsi are well-known international brands. Coca-Cola Co. sells more than $34.5 billion each year while annual sales of
PepsiCo products exceed $66 billion. Compare the two companies as a potential investment based on the following ratios as reported
by csimarket.com for the twelve months ended September 27, 2019:
Ratio
a. Gross profit percentage
b. Net profit margin
c. EPS
d. Inventory turnover ratio
e. Current ratio.
f. Debt-to-assets
g. P/E ratio
a. Gross profit percentage
b. Net profit margin
c. EPS
Coca-Cola
61.30%
22.70%
$ 1.66
4.20
0.62
0.76
32.50
d. Inventory turnover ratio
e. Current ratio
f. Debt-to-assets
g. P/E ratio
PepsiCo
55.00%
18.80%
$ 8.82
8.30
Required:
1. For each ratio listed, indicate whether it would be used to compare profitability, liquidity, or solvency, or whether it is not applicable
(NA) to comparing companies.
0.95
0.82
15.50
THE COCA-COLA COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In millions except per share data)
Year Ended December 31,
Net Operating Revenues
Cost of goods sold
Gross Profit
Selling, general and administrative expenses
2019
2018
2017
37,266 S
34,300 S
36,212
14,619
13,067
13,721
22,647
21,233
22,491
12,103
11,002
12,834
458
1,079
1,902
Other operating charges
10,086
9,152
7,755
Operating Income
Interest income
563
689
679
946
950
853
Interest expense
Equity income (loss)-net
1,049
1,008
1,072
34
(1,674)
(1,763)
Other income (loss)- net
10,786
8,225
6,890
Income Before Income Taxes
1,801
1,749
5,607
Income taxes
8,985
6,476
1,283
Consolidated Net Income
42
35
Less: Net income (loss) attributable to noncontrolling interests
Net Income Attributable to Shareowners of The Coca-Cola Company
65
8,920 S
6,434 S
1,248
2.09 S
1.51 $
0.29
Basic Net Income Per Share
2.07 S
1.50 $
0.29
Diluted Net Income Per Shard
4,276
4,259
4,272
Average Shares Outstanding- Basic
38
40
52
Effect of…
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Chapter 13 Solutions
Connect 1 Semester Access Card for Fundamentals of Financial Accounting
Ch. 13 - What is the general goal of trend analysis?Ch. 13 - Prob. 2QCh. 13 - What is ratio analysis? Why is it useful?Ch. 13 - What benchmarks are commonly used for interpreting...Ch. 13 - Prob. 5QCh. 13 - Prob. 6QCh. 13 - Slow Cellars current ratio increased from 1.2 to...Ch. 13 - From last year to this year, Colossal Companys...Ch. 13 - From last year to this year, Berry Bam reported...Ch. 13 - Explain whether the following situations, taken...
Ch. 13 - What are the two essential characteristics of...Ch. 13 - Prob. 12QCh. 13 - Prob. 13QCh. 13 - Prob. 14QCh. 13 - Prob. 15QCh. 13 - Prob. 16QCh. 13 - 1. Which of the following ratios is not used to...Ch. 13 - Prob. 2MCCh. 13 - Prob. 3MCCh. 13 - Analysts use ratios to a. Compare different...Ch. 13 - Which of the following ratios incorporates stock...Ch. 13 - Prob. 6MCCh. 13 - Prob. 7MCCh. 13 - A bank is least likely to use which of the...Ch. 13 - Prob. 9MCCh. 13 - (Supplement 13A) Which of the following items is...Ch. 13 - Calculations for Horizontal Analyses Using the...Ch. 13 - Calculations for Vertical Analyses Refer to M13-1....Ch. 13 - Interpreting Horizontal Analyses Refer to the...Ch. 13 - Interpreting Vertical Analyses Refer to the...Ch. 13 - Prob. 13.5MECh. 13 - Prob. 13.6MECh. 13 - Prob. 13.7MECh. 13 - Analyzing the Inventory Turnover Ratio A...Ch. 13 - Inferring Financial Information Using the Current...Ch. 13 - Prob. 13.10MECh. 13 - Identifying Relevant Ratios Identify the ratio...Ch. 13 - Prob. 13.12MECh. 13 - Analyzing the Impact of Accounting Alternatives...Ch. 13 - Describing the Effect of Accounting Decisions on...Ch. 13 - Prob. 13.1ECh. 13 - Prob. 13.2ECh. 13 - Prob. 13.3ECh. 13 - Computing Profitability Ratios Use the information...Ch. 13 - Prob. 13.5ECh. 13 - Matching Each Ratio with Its Computational Formula...Ch. 13 - Computing and Interpreting Selected Liquidity...Ch. 13 - Prob. 13.8ECh. 13 - Prob. 13.9ECh. 13 - Prob. 13.10ECh. 13 - Prob. 13.11ECh. 13 - Prob. 13.12ECh. 13 - Prob. 13.13ECh. 13 - Prob. 13.14ECh. 13 - Analyzing the Impact of Alternative Inventory...Ch. 13 - Prob. 13.1CPCh. 13 - Analyzing Comparative Financial Statements Using...Ch. 13 - Prob. 13.3CPCh. 13 - Prob. 13.4CPCh. 13 - Prob. 13.5CPCh. 13 - Prob. 13.6CPCh. 13 - Prob. 13.7CPCh. 13 - Prob. 13.1PACh. 13 - Analyzing Comparative Financial Statements Using...Ch. 13 - Prob. 13.3PACh. 13 - Prob. 13.4PACh. 13 - Interpreting Profitability, Liquidity, Solvency,...Ch. 13 - Using Ratios to Compare Loan Requests from Two...Ch. 13 - Prob. 13.7PACh. 13 - Prob. 13.1PBCh. 13 - Prob. 13.2PBCh. 13 - Prob. 13.3PBCh. 13 - Prob. 13.4PBCh. 13 - Interpreting Profitability, Liquidity, Solvency,...Ch. 13 - Using Ratios to Compare Loan Requests from Two...Ch. 13 - Prob. 13.7PBCh. 13 - Prob. 13.1SDCCh. 13 - Prob. 13.2SDCCh. 13 - Prob. 13.5SDCCh. 13 - Prob. 13.6SDCCh. 13 - Prob. 13.7SDCCh. 13 - Prob. 13.1CC
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