Red Soda Company vs. Blue Soda Company
The Red Soda Company (Red Soda) and The Blue Soda Company (Blue Soda) provide refreshments to every corner of the world. Selected data from the 20X6 consolidated financial statements for Red Soda and Blue Soda are presented here (in millions).
|
|
Red Soda
|
Blue Soda
|
|
Total current assets
|
$12,551
|
$12,571
|
|
Total current liabilities
|
13,721
|
8,756
|
|
Net Sales
|
30,990
|
43,332
|
|
Cost of Goods Sold
|
11,088
|
20,099
|
|
Net income
|
6,824
|
5,946
|
|
Average (net) accounts receivable for the year
|
3,424
|
4,654
|
|
Average inventories for the year
|
2,271
|
2,570
|
|
Average total assets
|
44,595
|
37,921
|
|
Average common stockholders' equity
|
22,636
|
14,556
|
|
Average current liabilities
|
13,335
|
8,772
|
|
Average total liabilities
|
21,960
|
23,466
|
|
Total assets
|
48,671
|
39,848
|
|
Total liabilities
|
23,872
|
23,044
|
|
Income taxes
|
2,040
|
2,100
|
|
Interest expense
|
355
|
397
|
|
Net cash provided by operating activities
|
8,186
|
6,796
|
|
Capital expenditures
|
1,993
|
2,128
|
|
Cash dividends
|
3,800
|
2,732
|
Instructions:
A. Compute the following liquidity ratios for 20X6 for Red Soda and Blue Soda, comment on the relative liquidity of two competitors.
1. Current ratio
2. Accounts receivable turnover
3. Average collection period
4. Inventory turnover
5. Days in inventory
6. Current cash debt coverage
B. Compute the following solvency ratios for the two companies and comment on the relative solvency of the two competitors.
1. Debt to asset ratio
2. Times interest earned
3. Cash debt coverage
4. Free cash flow
C. Compute the following profitability ratios for the two companies and comment on the relative probability of the two competitors.
1. Profit margin
2. Asset turnover
3. Return on assets
4. Return on common stockholders' equity.
D. Interpret your findings for the ratio comparatives analysis for Red Soda and Blue Soda.
E. Evaluate what, if any, options with regard to financial activities should Red Soda and Blue Soda consider (i.e., how can these companies improve financial performance)? What impact would each of these have on the above ratios?