Financial Analysis: Dr. Pepper Snapple Group vs. Coca-Cola
Analyzing and comparing the financial statements of Coca-Cola (KO) and Dr. Pepper Snapple Group (DPS) for the year 2010 will expose the strengths and weaknesses of Dr. Pepper Snapple group compared to Coca-Cola. Liquidity ratios are used to determine a business’s ability to pay off its short-term debt obligations. The first liquidity ratio I used in my analysis is the current ratio. Coca-Cola has a current ratio of 1.17 and DPS has a current ratio of 0.98. Coca-Cola is more able to cover its short-term debt obligations than DPS. DPS’s current ratio indicates that the company is in a bad financial position because it is not able to meet its current debt obligations using only its current assets. The quick ratio indicates a company’s ability to pay off its current debt obligations using only its most liquid assets. This differs from the current ratio in that it does not include inventory as an asset. With KO’s quick ratio of 1.0227, it is in a better financial position compared to DPS’s 0.7960. I speculate that DPS is less liquid because it has a shorter operating cycle. A company with a long operating cycle may have a greater need for liquid assets than a company with a short operating cycle. That’s because a long operating cycle indicates that money is tied up in inventory for a longer length of time. Leverage ratios are used to calculate the financial leverage of a company to get an idea of the company’s methods of financing or to measure its ability to meet financial obligations. DPS’s long-term-debt-to-equity ratio is 0.6861 and KO’s is 0.4529. These values indicate that DPS has greater leverage and, thus, it is considered to be more risky because they have more liabilities and less equity. The debt-to-total-assets ratio indicates the percentage of total assets that were financed by debt. 57.05% of Coca-Cola is financed by debt as compared to 72.24% of Dr. Pepper. Coca-Cola is more favorable in this...
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