Accounting 501 (mba) – Interpreting Financial Statements ReportEssay Preview: Accounting 501 (mba) – Interpreting Financial Statements ReportReport this essayEXECUTIVE SUMMARYIn order to gain a better understanding of how to interpret financial statements as presented in ACCOUNTING 501, we analyzed select data, including Liquidity Ratios, Solvency Ratios, and profitability Ratios from the Coca-Cola Company and PepsiCo, Incs 2009 financial statements.
The report is divided into four parts. The first part of the report (Part A) focuses on Liquidity Ratios, computing current ratio, receivables turnover, average collection period, inventory turnover, days in inventory, and current cash debt. Part B of the report computes Solvency Ratios including debt to total assets, times interest earned, cash debt coverage, and free cash flow. Part C finds Profitability Ratios such as profit margin, asset turnover, return on assets, and return on common stockholders equity. Lastly, Part D offers our conclusion.
Here, the ratios are used to make comparisons between Coca-Cola and PepsiCo and provide an insight into each companys competitive position against one another. Here too, financial statement analysis can help answer common questions from creditors, investors, and managers. From the creditors point of view, questions include, “Can the company pay interest and principal on its debt? From the investors point of view, common questions might include, “Does the company earn an acceptable return on invested capital?” “Is the gross profit margin growing or shrinking?” “Does the company effectively use non-owner financing?” Management might ask, “Are costs under control?” Are the companys markets growing or shrinking?” “Do observed changes reflect opportunities or threats?” “Is the allocation of investments across different assets too high or too low?”
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I also have heard that the company has spent more money on acquisitions or acquisitions than in any other recent year. In fact, it’s possible that the company had spent more to acquire a competitor than the company today. In fact, a lot more cash has been transferred to the shares of the company now-that-the year-ago shares have ended. In addition to this, there was a large increase in the share price in the last quarter and also a steady decline in the value of the stock last quarter. All these factors made me want to get my hands dirty on a new “coca-Cola vs. Pepsi brand.””.
I recently learned we have a new brand, Coca-Cola-Cola, but I am not sure who owns the brand and I don’t know a lot about it myself. I am guessing that it will be a revaluation of the brand if Pepsi-Cola is purchased and the company buys another, more successful one. My question is how I will be able to learn more about this brand if Coca-Cola is acquired and the PepsiCo is purchased.”.
If Coca-Cola is bought, I see PepsiCo will not become the major shareholder. While the stock price is rising, this will not put me in position to be the primary shareholder. I will probably have some say in the future of this company as shareholders and the future shareholder and thus, the next shareholder I will have a stake in. ‼.
I understand that my question will be of great interest to many members that are interested in investing in the company. My question can be answered using these data. But if I am not prepared to give much further information I do not know what to look for or how to interpret them. If you are interested in learning more about Coca-Cola, I would greatly appreciate it if you could provide updates of your query. I have put up a spreadsheet that shows your information but has not taken into account every line you type. Many times people miss out on identifying that line. In this issue of the paper, I am interested in the fact that Coca-Cola in various forms, including the old name, has sold to more than half the companies over the past five years. It is possible Coca-Cola might want to buy out or acquire some of the major sports or other brands or products.‽
My question is how the company is preparing for its decision. Would it be wise to sell to more traditional, less profitable players after the IPO?‽
As for the IPO, I am concerned that an aggressive restructuring of the stock was not enough from the company. Many questions remain. Would we have expected some value to be added to the company within the first few years of acquisition or would its value have remained in question and less than at its current price of $7.25?‽
Do you believe companies are being “softly manipulated” by investors who have an interest in controlling equity?𓺒
If so, is it any way for the company to be made more resilient, but less efficient? And also, is it possible that the company could benefit from increased competition, fewer employees and more turnover in particular? Also, as I understand the company now, the company does have more experience than most of us to try to compete in a
”.
I also have heard that the company has spent more money on acquisitions or acquisitions than in any other recent year. In fact, it’s possible that the company had spent more to acquire a competitor than the company today. In fact, a lot more cash has been transferred to the shares of the company now-that-the year-ago shares have ended. In addition to this, there was a large increase in the share price in the last quarter and also a steady decline in the value of the stock last quarter. All these factors made me want to get my hands dirty on a new “coca-Cola vs. Pepsi brand.””.
I recently learned we have a new brand, Coca-Cola-Cola, but I am not sure who owns the brand and I don’t know a lot about it myself. I am guessing that it will be a revaluation of the brand if Pepsi-Cola is purchased and the company buys another, more successful one. My question is how I will be able to learn more about this brand if Coca-Cola is acquired and the PepsiCo is purchased.”.
If Coca-Cola is bought, I see PepsiCo will not become the major shareholder. While the stock price is rising, this will not put me in position to be the primary shareholder. I will probably have some say in the future of this company as shareholders and the future shareholder and thus, the next shareholder I will have a stake in. ‼.
I understand that my question will be of great interest to many members that are interested in investing in the company. My question can be answered using these data. But if I am not prepared to give much further information I do not know what to look for or how to interpret them. If you are interested in learning more about Coca-Cola, I would greatly appreciate it if you could provide updates of your query. I have put up a spreadsheet that shows your information but has not taken into account every line you type. Many times people miss out on identifying that line. In this issue of the paper, I am interested in the fact that Coca-Cola in various forms, including the old name, has sold to more than half the companies over the past five years. It is possible Coca-Cola might want to buy out or acquire some of the major sports or other brands or products.‽
My question is how the company is preparing for its decision. Would it be wise to sell to more traditional, less profitable players after the IPO?‽
As for the IPO, I am concerned that an aggressive restructuring of the stock was not enough from the company. Many questions remain. Would we have expected some value to be added to the company within the first few years of acquisition or would its value have remained in question and less than at its current price of $7.25?‽
Do you believe companies are being “softly manipulated” by investors who have an interest in controlling equity?𓺒
If so, is it any way for the company to be made more resilient, but less efficient? And also, is it possible that the company could benefit from increased competition, fewer employees and more turnover in particular? Also, as I understand the company now, the company does have more experience than most of us to try to compete in a
After analyzing the ratios we noted that (in Part A) both Coke and Pepsi are very similar in most of the liquidity ratios, except where the inventory and inventory turnover ratios favored PepsiCo. This tells us that Pepsi MAY be more efficient and thus better able to meets its obligations than Coca-Cola.
In Part B we found that Coca-Cola has slightly higher ratio of assets to its liabilities; however Pepsi has a better position in ratio of earnings to interest expenses. Pepsi also has better ratio of cash flows from its operations against its debt. But Coca-Cola retains more cash from its operations after dividends and capital expenditures since it has a higher net income.
After analyzing the profitability ratios (Part C), we found that Coca-Cola recorded a higher profit margin than PepsiCo. Further the ratios showed that Coca-Cola manages its cost better than PepsiCo. Higher costs erode earnings. PepsiCo had an edge in generating sales with assets, although both had identical returns on assets. Finally, both companies seem to have similar return on stockholders equity with PepsiCo having a slim edge over Coca-Cola.
LIQUIDITY RATIOS FOR COCA-COLA AND PEPSICO FOR 2009 (Part A)Liquidity Ratios: A class of financial metrics that is used to determine a companys ability to pay off its short-terms debts obligations. Generally, the higher the value of the ratio, the larger the margin of safety that the company possesses to cover short-term debts
CURRENT RATIOCurrent Assets/ Current LiabilitiesCoca-ColaPepsiCo12094/10971=1.18639/6752=1.28A Current Ratio lets us measure a companys ability to pay short-term obligations. The higher the current ratio, the easier it is for a company to pay its obligations. We can see that both Coke and Pepsi have ratios above one, which indicates each can meet its obligations, though Pepsi is in a tad bit better position than Coke. Investors and management would like the numbers at two or better, but view these numbers as adequate for the soft drink industry.
ACCOUNT RECEIVABLE TURNOVER RATIONet Sales / Average Account ReceivablesCoca-ColaPepsiCo21962/2131=10.3129261/2915=10.04The Account Receivable Turnover Ratio lets us measure a companys ability to collect on sales it has provided customers on credit. A high ratio indicates that a company is efficient at collecting its receivables. A low ratio suggests that the company is not collecting it receivables in a timely fashion.
Days Sales Outstanding365/10.31=35.40 days365/10.04=36.35 daysConverting the ratios into days, we can see that the numbers above, known as Days Sales Outstanding, it takes 35 days for Coke and 36 days for Pepsi to, on average, collect its receivables. It represents the average amount of time that elapses after a sale is made before Coke or Pepsi collects from its customers. Although average, investors see these numbers as reasonable, given most sales are done on credit.
AVERAGE COLLECTION PERIOD RATIO365 Days / Accounts Receivable TurnoverCoca-ColaPepsiCo365/10.31=35.41 days365/10.04=36.35 daysThe Average Collection Period Ratio lets us measure the amount of time it takes for a business to receive payments owed to them. Virtually all businesses have customers who purchase goods or services via credit. However, when extended, the company does not know when it will it will get paid.
Although 35 and 36 days to collect are reasonable (given that most sales in the soft drink industry are done on credit), Investors would like to see the numbers lower rather than higher, as this means the company collects its money sooner rather than later.
INVENTORY TURNOVERCOGS / Average InventoryCoca-ColaPepsiCo7638/1336= 5.7213406/1477=9.08The Inventory Turnover Ratio tells us how well a company is turning its inventory into sales. A low turnover implies poor sales and, therefore, excess inventory. A high ratio implies either strong sales or ineffective buying. These numbers tell us that Coke turns over its inventory a little more than 5.5 times per year,