• Due Date: Day 2 [Post to Main forum]
• Review the annual reports for PepsiCo, Inc. and The Coca-Cola Company in Appendixes A & B of Financial Accounting (6th ed.). Select either PepsiCo, Inc. or The Coca-Cola Company. In your estimation, the company you chose may be financially healthier or weaker.
• Post your response to the following questions:
Would you invest in this company? Explain why or why not.
Justify your reasoning, by presenting at least three key financial ratios that analyze the profitability, the liquidity, or the solvency of the company.
• Respond to your classmates’ postings, by agreeing or disagreeing with their assessments while pointing to the data. o Respond to at least …show more content…
To calculate this decision one took three ratios in examination in order to make this summary. Within the profitability, liquidity, and solvency ratios, are ratios that determine the financial health of the company and it's weakness. All the ratios are important in making such investments but the three main ratios that were compared, from profitability were the current ratios for both companies, for liquidity the ratio used was the return of assets, and lastly from the solvency ratios were the debt to total assets ratio. The current ratio for the Pepsi Company in 2004 to 2005 were arrange from 1.11 percent and 4.14 percent. This ratio tells me that the Pepsi Company had increase in Assets and Liabilities in 2005. Next, I examined the Return of Assets ratio the Pepsi Company has had in 2004 to 2005. In 2004 the company had 23 percent in return of assets and in 2005 they had a 1.93 percent return in assets, this was a huge increase in returns. Lastly I determined the debt to total assets ratio to see how much assets are provided from their creditors, and in 2004 was at 86 percent and in 2005 it was at 73 percent, which shows the decrease in the creditors activities in the assets obtained within the …show more content…
I think that this decrease could be the beginning of a downfall, but it would help to have other year's current ratio's.
I also chose to find the profit margin if I figured out the profit margin correctly, then the profit margin is 55% that is too close to being half. Since the profit margin is defined as a measure of percentage of each dollar of sales that results in net income. If 55% is creating profit that means that 45% is not creating a profit. I think that the profit margin needs to be higher.
When I did the acid-test ratio it also decreased from 2004 to 2005. So unless I am not understanding all of this correctly I do not think that Pepsi Co. would be a good investment. ( the acid-test ratio decreased from .95 to 1 in 2004 and in 2005 it was .86 to 1. ) The acid-test ratio is showing the immediate liquidity. If I did this ratio correctly the company would not be able to cover their