Financial Reporting, Financial Statement Analysis and Valuation
8th Edition
ISBN: 9781285190907
Author: James M. Wahlen, Stephen P. Baginski, Mark Bradshaw
Publisher: Cengage Learning
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Textbook Question
Chapter 5, Problem 15PC
Refer to the profitability ratios of Coca-Cola in Problem 4.26 in Chapter 4. Exhibit 5.17 presents risk ratios for Coca-Cola for 2006–2008. As we did within the chapter for PepsiCo, we utilize Coca-Cola’s footnote disclosures to extract the amount of trade accounts payable included within the line item accounts payable and accrued expenses.
Exhibit 5.17
REQUIRED
- a. Assess the changes in the short-term liquidity risk of Coca-Cola between 2006 and 2008.
- b. Assess the changes in the long-term solvency risk of Coca-Cola between 2006 and 2008.
- c. Compare the short-term liquidity ratios of Coca-Cola with those of PepsiCo discussed in the chapter. Which firm appears to have more short-term liquidity risk? Explain.
- d. Compare the long-term solvency ratios of Coca-Cola with those of PepsiCo discussed in the chapter. Which firm appears to have more long-term solvency risk? Explain.
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Upon further investigation, you hare found
that the amount of account payables for
Companies A and X at the start of the
year is 20,000 and 30,000, respectively.
Apart from that, the amount of credit
purchase for Companies A and Bis
250,000 and 280,000, respectively.
Based on all this information, recommend
on which company that gire lower risk to
your company. The recommendation must be
ustified by the following analysis:.
a) Liquidity analysis.
b) Solvency analysis.
c) Any other financial analysis that you.
think can help in making your decision.
Table: Balance Sheet for Company A and Company B
Assets
280,000
110,000
140,000
100,000
100,000
730,000
Fixed Assets
Other Non-Current Assets
250,000
80,000
120,000
80,000
120,000
650,000
Account Receivables
Inventory
Cash
ТОTAL
Liabilities
Capital
Long Term Debt
Account Payables
Other Current Liabilities
ТОTAL
250,000
120,000
160,000
120,000
650,000
280,000
140,000
180,000
130,000
730,00
Please answer
The following ratios were extracted from the books of Cartel limited.
Liquidity ratios (Current and Quick ratios)
Liquidity ratios
2002
2003
2004
Industry Average
Current Ratio
2.33
1.46
2.58
2.70
Quick Ratio
0.85
0.50
0.93
1.00
i) What can you say about the company's liquidity position in 2002, 2003, and as projected for 2004?
ii) How are these liquidity ratios useful to the managers of the company?
Chapter 5 Solutions
Financial Reporting, Financial Statement Analysis and Valuation
Ch. 5 - Prob. 1QECh. 5 - Prob. 2QECh. 5 - A firm has experienced an increasing current ratio...Ch. 5 - A firm has experienced a decrease in its current...Ch. 5 - Prob. 5QECh. 5 - A firm had the following values for the four debt...Ch. 5 - Prob. 7QECh. 5 - Prob. 8QECh. 5 - Prob. 9QECh. 5 - Prob. 10QE
Ch. 5 - Market equity beta measures the covariability of a...Ch. 5 - Altmans bankruptcy risk model utilizes the values...Ch. 5 - Calculating and Interpreting Risk Ratios. Refer to...Ch. 5 - Refer to the financial state-ment data for...Ch. 5 - Refer to the profitability ratios of Coca-Cola in...Ch. 5 - Delta Air Lines, Inc., is one of the largest...Ch. 5 - Prob. 17PCCh. 5 - Prob. 18PCCh. 5 - Prob. 19PCCh. 5 - Prob. 20PCCh. 5 - Prob. 21PCCh. 5 - Prob. 22PCCh. 5 - Compute the values of each of the ratios in...
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