Assignment #5: Financial Management

Long time competitors in the soft drink industry, PepsiCo and Coca-Cola continue efforts to gain additional market share. Which do you prefer, Coke or Pepsi? Let’s take a look at these two companies from a financial perspective rather than our drink preference.

To learn more about PepsiCo and Coca-Cola Enterprises, download the PepsiCo 2009 Annual Report at: http://www.pepsico.com/annual09/ and the Coca-Cola 2009 Annual Report at: http://www.cce2009annualreport.com/. Review the annual reports for general information.

Required:

1. Read Understanding the Income Statement at: http://www.investopedia.com/articles/04/022504.asp

2. Read Reading the Balance Sheet at: http://www.investopedia.com/articles/04/031004.asp

3. Compute the following financial ratios for both companies and provide as an appendix to the required paper. If you need help understanding the meaning of the ratios or how to they are computed, go to: http://www.investopedia.com/university/ratios/

Liquidity measurement ratio: · Current ratio

Profitability indicator ratios:· Return on assets · Return on equity

Debt ratio: · Debt ratio

Operating performance ratio: · Fixed asset turnover ratio

Cash flow indicator ratio: · Dividend payout ratio

Investment valuation ratio: · Price / Earnings ratio

You are to write a five to six (5-6) page report that answers the following:

1. Using the current ratio, discuss what conclusions you can make about each company’s ability to pay current liabilities (debt).

2. Using the profitability ratios, discuss what conclusions you can make about each company’s profits over the past three years.

3. Using the cash flow indicator and investment valuation ratios, discuss which company is more likely to have satisfied stockholders.

4. As an investor, discuss which company you would choose to invest in and provide a rationale for your decision.

5. Discuss what non-financial criteria you would consider when choosing between these two investment options?

The format of the report is to be as follows:

o Typed, double spaced, Times New Roman font (size 12), one inch margins on all sides, APA format.

o Use headers for each of the criteria, followed by your response.

o In addition to the 5-6 pages required, a title page is to be included. The title page is to contain the title of the assignment, your name, the instructor’s name, the course title, and the date.

NOTE: You will be graded on the quality of your answers, the logic/organization of the report, your language skills, and your writing skills.