Current Ratio Paper

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  • Topic: Balance sheet, Generally Accepted Accounting Principles, Accounts receivable
  • Pages : 1 (493 words )
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  • Published : October 10, 2011
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The current ratio is calculated as current assets divided by current liabilities. The current ratio for the Coca-Cola Company in 2008 was 0.93 (12,176/12,988) and for 2009 it was 1.28 (17,551/13,721). For every dollar of current liabilities in 2009, Coca-Cola has $1.28 of current assets. The ratio indicates that Coca-Cola has enough assets to cover its debts. From 2008 to 2009, the company had a large increase in cash, which increased their current assets. They also had a similar increase in the long-term debt, which leads to the conclusion that they took out a large loan to increase their cash. The company is more liquid in 2009 compared to 2008. The industry average for 2009 was 1.41 (BizMiner, 2007-2010). This means that Coca-Cola is less liquid than its competitors. The debt ratio determines if the company finances its assets more by debt or equity. It expresses what percentage of the firm’s assets is financed by debt. The remaining percentage is then financed by equity. The debt ratio is calculated as total debt divided by total assets. The debt ratio for Coca-Cola in 2008 was 32% (. For 2009, debt as a total percent of assets is 28% (23,325/48,671). Companies generally finance about 40% of their assets (book). Coca-Cola therefore uses significantly less debt than the average company. Return on common equity measures the earnings available to stockholders. It is calculated as net income divided by common equity including par, paid in capital, and retained earnings. In 2008, the return on common equity for Coca-Cola was 28%. In 2009, it is 27%. The industry average is 23.7%, so in comparison to the industry, Coca-Cola’s investors receive a greater return on their investment. The days’ receivable ratio calculates the how many days on average it takes for a company to collect on its sales to customers in credit ( . First, one must determine the accounts receivables turnover ratio,...
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