Question

Evaluate the financial performance of Coca-Cola; (KO) and Pepsi (PEP) for the year ended December 31, 2017. Follow the instructions below to access each company’s information and perform a financial analysis based on the financial measures we have learned in this course. Select www.yahoo.com and then select Finance. In the Search section at the top of the screen select KO for Coca-Cola and PEP for Pepsi Select “Financials” and select Income Statement when accessing the Income Statement Select “Financials” and select Balance Sheet when accessing the Balance Sheet Do the following for KO and PEP for the year ended 12/31/17 only Perform a vertical analysis of the Income Statement for KO and PEP for the year ended 12/31/17. Include in your vertical analysis all of following as a % of total revenue: Cost of Revenue as a % of Total Revenue Gross Profit as a % of Total Revenue Selling, gen and administrative expenses as a % of Total Revenue Operating Income as a % of Total Revenue Net Income as a % of Total Revenue B. Current Ratio C. Quick Ratio D. Accounts Receivable turnover. Assume the total revenue on the Income Statement represents all of the sales on account E. Average collection period F. Merchandise Inventory turnover. Assume the Cost of Revenue on the Income statement represents the Cost of Goods Sold G. Times Interest Earned Ratio H. Rate of Return on Common Stockholder’s Equity I. Rate of Return on Total Assets J. Debt to Equity Ratio K. Operating-Cash Flow to Current Liabilities Ratio L. Asset Turnover M. Price Earnings Ratio on basic earnings per share as of 12/31/2017. The closing market price can be determined by following these procedures: i.Select Http://www.yahoo.com/ and select Finance at the top. ii.Go to Yahoo! Finance and enter Symbol key KO for Coca-Cola and PEP for Pepsi. Select Historical data and scroll down to the closing price for 12/31/2017. Do this for both KO and PEP You will also need the Earnings per Share from the SEC filings. To access the Earnings Per share: To access SEC filings go to U.S. Securities and Exchange Commission Edgar Company Filings. In the “Fast Search” select KO for Coke and PEP for Pepsi. Select Form 10K filed on 2/23/18 for Coke and 2/13/18 PEP for Pepsi and select the Interactive Data tab. You will have to scroll down to find the form 10-K. Select Financial Statements and the Consolidated Income and scroll down to the and use the Basic Net Income per Share. In preparing the vertical analysis and other financial analysis above; define each measure and identify the strengths and weaknesses of KO and PEP as related to each other. Below is an example how of you should set it up a long with the definition and strength or weakness:

Answer 1

Income statement          KO Coco cola
         
All numbers in thousands         
Revenue   31-12-2017     
Total revenue   35410000.00     
Cost of revenue   13256000.00     
Gross profit   22154000.00     
Operating expenses         
Research development   -     
Selling general and administrative   14653000.00     
Non-recurring   -     
Others   -     
Total operating expenses   -     
Operating income or loss   7501000.00     
Income from continuing operations         
Total other income/expenses net   -989000.00     
Earnings before interest and taxes   7583000.00     
Interest expense   841000.00     
Income before tax   6742000.00     
Income tax expense   5560000.00     
Minority interest   1905000.00     
Net income from continuing ops   1182000.00     
Non-recurring events         
Discontinued operations   101000.00     
Extraordinary items   -     
Effect of accounting changes   -     
Other items   -     
Net income         
Net income   1248000.00     
Preferred stock and other adjustments   -     
Net income applicable to common shares   1248000.00   

Balance sheet          KO
         
All numbers in thousands         
Period ending   31-12-2017     
Current assets         
Cash and cash equivalents   6006000     
Short-term investments   14669000     
Net receivables   3667000     
Inventory   2655000     
Other current assets   9548000     
Total current assets   36545000     
Long-term investments   21952000     
Property plant and equipment   8203000     
Goodwill   9401000     
Intangible assets   7235000     
Accumulated amortisation   -     
Other assets   4560000     
Deferred long-term asset charges   -     
Total assets   87896000     
Current liabilities         
Accounts payable   9158000     
Short/current long-term debt   16503000     
Other current liabilities   1533000     
Total current liabilities   27194000     
Long-term debt   31182000     
Other liabilities   8021000     
Deferred long-term liability charges   2522000     
Minority interest   1905000     
Negative goodwill   -     
Total liabilities   70824000     
Stockholders' equity         
Misc. Stock options warrants   -     
Redeemable preferred stock   -     
Preferred stock   -     
Common stock   1760000     
Retained earnings   60430000     
Treasury stock   -50677000     
Capital surplus   15864000     
Other stockholder equity   -10305000     
Total stockholder equity   17072000     
Net tangible assets   436000   

Ratio calculation as on 31/12/2017

Financial ratios

Cost of Revenue as a % of Total Revenue =cost of revenue/total revenue =13256000/35410000 =37%

Gross Profit as a % of Total Revenue =Gross profit/Total revenue= 22154000/35410000 = 63%

Selling, gen and administrative expenses as a % of Total Revenue = Selling,gen and ad exp/total revenue=14653000/35410000=41%                    
Operating Income as a % of Total Revenue   7501000.00   35410000      =A/B   21%     
                     
Net Income as a % of Total Revenue   1248000.00   35410000      =A/B   4%     
                     
B. Current Ratio   36545000   27194000      =A/B   134%     
                     
C. Quick Ratio   24342000   27194000      =A/B   90%     
                     
D. Accounts Receivable turnover.   3667000   35410000      =A/B   10%     
                     
E. Average collection period   3667000   365      =A/B   1004658%     
                     
F. Merchandise Inventory turnover   2655000   35410000      =A/B   7%     
                     
G. Times Interest Earned Ratio   1905000   365      =A/B   521918%     
                     
H. Rate of Return on Common Stockholder’s Equity   1248000.00   1760000      =A/B   71%     
                     
I. Rate of Return on Total Assets   1248000.00   87896000      =A/B   1%     
                     
J. Debt to Equity Ratio   31182000   17072000      =A/B   183%     
                     
K. Operating-Cash Flow to Current Liabilities Ratio   6006000   27194000      =A/B   22%     
                     
L. Asset Turnover   87896000   35410000      =A/B   248%     
                     
M. Price Earnings Ratio on basic earnings per share   1.8   2.8      =A/B   64%  

Income statement          PEP
         
All numbers in thousands         
Revenue   30-12-2017     
Total revenue   63525000     
Cost of revenue   28785000     
Gross profit   34740000     
Operating expenses         
Research development   -     
Selling general and administrative   24231000     
Non-recurring   -     
Others   -     
Total operating expenses   -     
Operating income or loss   10509000     
Income from continuing operations         
Total other income/expenses net   244000     
Earnings before interest and taxes   10753000     
Interest expense   1151000     
Income before tax   9602000     
Income tax expense   4694000     
Minority interest   92,000     
Net income from continuing ops   4857000     
Non-recurring events         
Discontinued operations   -     
Extraordinary items   -     
Effect of accounting changes   -     
Other items   -     
Net income         
Net income   4857000     
Preferred stock and other adjustments   -     
Net income applicable to common shares   4857000  

Balance sheet
Period ending   30-12-2017     
Current assets         
Cash and cash equivalents   10610000     
Short-term investments   8900000     
Net receivables   7024000     
Inventory   2947000     
Other current assets   1546000     
Total current assets   31027000     
Long-term investments   2042000     
Property plant and equipment   17240000     
Goodwill   14744000     
Intangible assets   13838000     
Accumulated amortisation   -     
Other assets   913000     
Deferred long-term asset charges   -     
Total assets   79804000     
Current liabilities         
Accounts payable   15017000     
Short/current long-term debt   5485000     
Other current liabilities   -     
Total current liabilities   20502000     
Long-term debt   33796000     
Other liabilities   11283000     
Deferred long-term liability charges   3242000     
Minority interest   92,000     
Negative goodwill   -     
Total liabilities   68915000     
Stockholders' equity         
Misc. Stock options warrants   -156000     
Redeemable preferred stock   -     
Preferred stock   -     
Common stock   24,000     
Retained earnings   52839000     
Treasury stock   -32757000     
Capital surplus   3996000     
Other stockholder equity   -13057000     
Total stockholder equity   11045000     
Net tangible assets   -17537000  

RATIO CALCULATION OF PEP
      A    B             
Cost of Revenue as a % of Total Revenue   28785000   63525000      =A/B   45%     
Assume the Cost of Revenue on the Income statement represents the Cost of Goods Sold                     
Gross Profit as a % of Total Revenue   34740000.00   63525000      =A/B   55%     
                     
Selling, gen and administrative expenses as a % of Total Revenue   24231000.00   63525000      =A/B   38%     
                     
Operating Income as a % of Total Revenue   10509000.00   63525000      =A/B   17%     
                     
Net Income as a % of Total Revenue   4857000.00   63525000      =A/B   8%     
                     
B. Current Ratio   31027000   20502000      =A/B   151%     
                     
C. Quick Ratio   26534000   20502000      =A/B   129%     
                     
D. Accounts Receivable turnover.   7024000   63525000      =A/B   11%     
                     
E. Average collection period   365   0.11      =A/B   40.36     
                     
F. Merchandise Inventory turnover   2947000   63525000      =A/B   5%     
                     
G. Times Interest Earned Ratio   92000   365      =A/B   25205%     
                     
H. Rate of Return on Common Stockholder’s Equity   4857000.00   24000      =A/B   202.375     
                     
I. Rate of Return on Total Assets   4857000.00   79804000      =A/B   6%     
                     
J. Debt to Equity Ratio   33796000   11045000      =A/B   306%     
                     
K. Operating-Cash Flow to Current Liabilities Ratio   10610000   20502000      =A/B   52%     
                     
L. Asset Turnover   79804000   63525000      =A/B   126%     
                     
M. Price Earnings Ratio on basic earnings per share   2.1   3.68      =A/B   57%