Problem: Analytical case-comparative analysis of profitability and financial leverage measures
The annual reports of the Coca-Cola Co. and PepsiCo, Inc., indicate the following for the year ended December 31, 2008 (amounts in millions):
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Coca-Cola Co.
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PepsiCo., Inc.
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Net revenues
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$
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31,994
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$
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43,251
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Net income
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5,807
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|
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5,142
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Total assets, January 1, 2008
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43,269
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34,628
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Total liabilities, January 1, 2008
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21,525
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17,394
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Total liabilities, December 31, 2008
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20,047
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23,888
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Total stockholders' equity, December 31, 2008
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20,472
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12,203
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Required:
Q1. Calculate ROI and ROE for each company for 2008. (Hint: You will need to calculate some of the numbers used in the denominator of these ratios.)
Q2. Based on the results of your ROI and ROE analysis in part a, do you believe that either firm uses financial leverage more effectively than the other? (Hint: Compare the percentage differences between ROI and ROE for each firm).
Q3. Calculate the debt ratio and debt/equity ratio for each firm at the end of 2008.