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Financial Ratios APA

Give an identification of three primary financial statement ratios, giving an example of a separate ratio for each one of the categories

For this topic, the consolidated results for the Coca Cola Corporation over the latest three year period have been considered in terms of the financial ratios. Also given is a specific justification for the exampled ratios. At the end of the analysis, the given ratios are given a comparison with another major industry competitor as a benchmark - PepsiCola Inc.

Number 1: Liquidity ratios (given in millions of dollars)
Number SUBJECT 2003 2002 2001
1 Current assets - current liabilities = Capital 510 11 n/a

A distinct trend can be discerned here, since for the current assets there is an excess after current liabilities are paid for, which is essentially the measure of liquidity in the short term. It is important to note that capital has increased dramatically over the given year period. If we compare this to Pepsi America Inc, the organization had a negative capital in 2003 of roughly 40 million, and roughly 150 million in the previous year.

2. Leverage ratios:
Number SUBJECT 2003 2002 2001
1 Ratio of Total debt to Total Assets = Total liabilities/Total assets 0.48:1 0.51:1 n/a

The leverage ratios table presents the mixing between debts and assets of the company, and the overall debt of the company, which was marginally above half of the total assets in 2002, which reduced to 48% in 2003, which shows an improvement. During the financial year of 2003, the total debt of Pepsi was 0.56:1.

3. Ratios of profitability: The margin ratio of net profit
Number SUBJECT 2003 2002 2001
1 Net margin of profit = (Net Income (after Accounting change) / Net Operating Revenue) x 100 20.65% 15.59% 22.62%

The ratios present in this table present the net profitability of the company. It is easy to see where the important information is - the profit margin of Coca Cola increases from 16% in 2002, to 21% in 2003, but if we look to period before we can see a downward trend that is more severe. Coca Cola will need to analyze what specific factors were to blame for the decrease in the period from 2001 to 2002. In 2003, Pepsi Inc scored a net profitability margin of 4.86%.

Reference

Barker, R. (2004). Reporting Financial Performance. Accounting Horizons, 18(2), 157