• E13-6

1. Net profit margin: Net Income ÷ Net Sales Revenue

2. Inventory turnover ratio: Cost of Goods Sold ÷ Average Inventory
3. Average days to collect receivables: Days in Year ÷ Receivable Turnover Ratio
4. Dividend yield ratio: Dividends per Share ÷ Market Price per Share
5. Return on equity: Net Income ÷ Average Total Stockholders’ Equity
6. Current ratio: Current Assets ÷ Current Liabilities
7. Debt-to-equity ratio: Total Liabilities ÷ Total Stockholders’ Equity
8. Price/earnings ratio: Market Price per Share ÷ Earnings per Share
9. Receivable turnover ratio: Net Credit Sales ÷ Average Net Receivables
10. Average days to sell inventory: Days in Year ÷ Inventory Turnover Ratio
11. Earnings per share: Net Income ÷ Weighted Average Number of Common Shares
Outstanding
12. Return on assets: Net Income ÷ Average Total Assets
13. Quick ratio: (Cash & Cash Equivalents + Net Accounts Receivable + Marketable
Securities) ÷ Current Liabilities
14. Times interest earned ratio: (Net Income + Interest Expense + Income Tax Expense) ÷
Interest Expense
15. Cash coverage ratio: Cash Flows from Operating Activities ÷ Interest Paid
16. Fixed asset turnover ratio: Net Sales Revenue ÷ Average Net Fixed Assets

• E13-7

Sales $ 83,062.00 Recievable Turnover Ratio

CREDIT SALE $ 74,755.80 Net Credit Sale Avg Net Recievable VALUE
AVG GROSS PROFIT $ 40,700.38 $ 74,755.80 $ 6,447.00 11.60
COGS $ 42,361.62 DAYS TAKEN 31
Acc Receive (Y) $ 6,386.00
Acc Receive (Y-1) $ 6,508.00 Inventory Turnover Ratio
Inventory (Y) $ 6,759.00 COGS Avg Inventory VALUE
Inventory (Y-1) $ 6,909.00 $ 42,361.62 $ 6,834.00 6.20
DAYS TAKEN 59

On average it takes P&G 31 days to collect on its accounts receivable, and 59 days to sell
its inventory.
 • P13-3

REQUIREMENTS VALUE
Net Income Average Total SE
Return on equity (ROE)
$ 8,630.00 $ 2,893.50 298.3%

Net Income Average Total Assets

Return on assets (ROA)
$ 8,630.00 $ 43,747.50 19.7%

Net Sales Revenue Average Total Assets

Total asset turnover
$ 100,904.00 $ 43,747.50 2.31

COGS Average Inventory

Inventory turnover (IT)
$ 66,548.00 $ 12,648.50 5.26

Current Assets Current Liabilities

Current ratio
$ 18,933.00 $ 16,194.00 1.17

Required Asset accounts Current Liabilities

Quick ratio (QR)
$ 5,547.00 $ 16,194.00 0.34

Cash Flows from Op Act Interest Paid

Cash coverage ratio
$ 12,031.00 $ 991.00 12.14

Total Liabilities Total Shareholder Equity

Debt-to-equity ratio
$ 43,075.00 $ 1,454.00 29.63

o For ROE – Avg Total SE = Avg of SE from current & previous year
o For ROA – Avg Total Assets = Avg of Total Assets from current & previous year
o For IT – Avg Inventory = Avg of Inventory from current & previous year
o For QR – Required Asset accounts = Cash & Cash Eq + Net Acc Receivable +
Marketable Securities

• P13-9 requirement 1

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 REQUIREMENTS VALUE
Net Income Average Total SE
Return on equity (ROE)
$ (406.00) $ 191,830.50 -0.21%

Net Income Net Sales Revenue

Net Profit Margin
$ (406.00) $ 630,606.00 -0.06%

COGS Average Inventory

Inventory turnover (IT)
$ 148,732.00 $ 5,692.00 26.13

Current Assets Current Liabilities

Current ratio
$ 49,625.00 $ 93,151.00 0.53

Required Asset accounts Current Liabilities

Quick ratio (QR)
$ 21,230.00 $ 93,151.00 0.23

Total Liabilities Total Shareholder Equity

Debt-to-equity ratio
$ 136,533.00 $ 194,411.00 0.70

Net Income Weighted avg common shares outstanding Used for next
Earnings per Share
$ (406.00) $ 24,488.00 -0.02

Market price per Share Earnings per share

P/E Ratio
$ 1.12 $ (0.02) -67.55

o For ROE – Avg Total SE = Avg of SE from current & previous year
o For IT – Avg Inventory = Avg of Inventory from current & previous year
o For QR – Required Asset accounts = Cash & Cash Eq + Net Acc Receivable +
Marketable Securities
o Earnings Per Share calculation done to feed into the P/E ratio computation

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 COCA COLA (COKE) vs PEPSICO (PEPSI)

Coke has a lower Return on Equity (0.40) as compared to Pepsi (0.51), but Pepsi’s

approach to financing & operation would leave it potentially more exposed to market

and/or economic fluctuations. Coke on the other hand has a more conservative approach.

Let’s analyze the key financial indicators for each company’s performance:

Profitability (Net Profit Margin - NPM) Coke has higher profitability overall (NPM 0.23).

Pepsi (NPM 0.10) while being lower, generates higher sales volume as evidenced by its

inventory turnover (46 days - over 39 days quicker than Coke)

Asset Turnover (AT)

Pepsi is better at generating revenue from its assets (AT 0.95) as compared to Coke (AT

0.48). Coke is on the other hand more ecicient in using its long term assets (Fixed AT 4.8

v.s. 3.56 for Pepsi). Pepsi keeps suppliers happier, collecting on recievables 18 days later

on average than Coke.

Liquidity (Financial Leverage - FL)

Pepsi is ultimately using more debt to boost its equity (FL 5.40) as compared to Coke (FL

3.56). This might be indicative of a more aggressive operating & marketing strategy. This is

further reinforced by Pepsi’s debt in relation to its sharehoder equity (Debt-To-Equity 4.39

v.s. 2.56 for Coke)

While both have similar Asset situations (around $100 Bn), Pepsi carries significantly more

Liability ($ 11 Bn more than Coke) with a more tenuous Current Ratio (0.85)
APPENDIX:

Net Profit Margin

Net Income Net Sales Revenue Value

Coca-Cola $ 10,714.00 $ 45,754.00 0.23

PepsiCo $ 9,074.00 $ 91,471.00 0.10

Total Asset Turnover

Net Sales Revenue Average Total Assets Value

Coca-Cola $ 45,754.00 $ 95,233.00 0.48

PepsiCo $ 91,471.00 $ 96,341.00 0.95

Financial Leverage

Average Total Assets Average Shareholder Equity Value

Coca-Cola $ 95,233.00 $ 26,653.00 3.57

PepsiCo $ 96,341.00 $ 17,826.00 5.40

Return on Equity

Coca-Cola 0.40

PepsiCo 0.51

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 Fixed Asset Turnover Ratio

Net Sales Revenue Average Net Fixed Assets Value

Coca-Cola $ 45,754.00 $ 9,538.50 4.80

PepsiCo $ 91,471.00 $ 25,665.00 3.56

Inventory Turnover Ratio

COGS Average Inventory Value
Coca-Cola $ 18,520.00 $ 4,328.50 4.28
PepsiCo $ 41,881.00 $ 5,278.00 7.94

Inventory Turnover Ratio (DAYS)

Coca-Cola 85.31

PepsiCo 46.00

Debt-To-Equity Ratio

Total Liabilities Total Shareholder Equity Value

Coca-Cola $ 70,223.00 $ 27,480.00 2.56

PepsiCo $ 81,858.00 $ 18,637.00 4.39

Current Ratio

Current Assets Current Liabilities Value

Coca-Cola $ 26,732.00 $ 23,571.00 1.13

PepsiCo $ 26,950.00 $ 31,647.00 0.85