IIPM- Accounting for Managerial Decisions

Assignment on Ratio Analysis

Accounting for Managerial

Decisions

Submitted To:-
Prof. P.K Katiyal

Submitted By:-
Arjun Vasishta

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 IIPM- Accounting for Managerial Decisions

Contents:-

 Introduction
 Balance sheet
 Ratio Analysis
o Liquidity Ratio
o Leverage ratio or solvency ratio
o Activity Ratio or performance ratio
o Profitability Ratio

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 IIPM- Accounting for Managerial Decisions

Coca-Cola is a carbonated soft drink sold in the stores, restaurants, and vending machines of more

than 200 countries. It is produced by The Coca-Cola Company of Atlanta, Georgia, and is often
referred to simply as Coke (a registered trademark of The Coca-Cola Company in the United States
since March 27, 1944). Originally intended as a patent medicine when it was invented in the late 19th
century by John Pemberton, Coca-Cola was bought out by businessman Asa Griggs Candler, whose
marketing tactics led Coke to its dominance of the world soft-drink market throughout the 20th
century.

The company produces concentrate, which is then sold to licensed Coca-Cola bottlers throughout the
world. The bottlers, who hold territorially exclusive contracts with the company, produce finished
product in cans and bottles from the concentrate in combination with filtered water and sweeteners.
The bottlers then sell, distribute and merchandise Coca-Cola to retail stores and vending machines.
Such bottlers include Coca-Cola Enterprises, which is the largest single Coca-Cola bottler in North
America and western Europe. The Coca-Cola Company also sells concentrate for soda fountains to
major restaurants and food service distributors.

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Balance Sheet:-
Coca-Cola Company
Consolidated Balance Sheet - January 31, 2001

Current Assets Dec. 31, 2001 Dec. 31, 1999

Cash & Equivalents $1,819,000,000 $1,611,000,000
Short Term Investments $73,000,000 $201,000,000
Receivables $1,757,000,000 $1,798,000,000
Inventories $1,066,000,000 $1,076,000,000
Pre-Paid Expenses $1,905,000,000 $1,794,000,000
Total Current Assets $6,620,000,000 $6,480,000,000
Long Term Assets $8,129,000,000 $8,916,000,000
Property, Plant, & Equipment $4,168,000,000 $4,267,000,000
Goodwill $1,917,000,000 $1,960,000,000
Total Assets $20,834,000,000 21,623,000,000
Current Liabilities
Accounts Payable $9,300,000,000 $4,483,000,000
Short Term Debt $21,000,000 $5,373,000,000
Total Current Liabilities $9,321,000,000 $9,856,000,000
Long-Term Liabilities
Long-Term Debt $835,000,000 $854,000,000
Other Liabilities $1,004,000,000 $902,000,000
Deferred Long Term Liability Charges $358,000,000 $498,000,000
Total Liabilities $11,518,000,000 $12,110,000,000
Shareholders' Equity
Common Stock $870,000,000 $867,000,000
Retained Earnings $21,265,000,000 $20,773,000,000
Treasury Stock ($13,293,000,000) ($13,160,000,000)
Capital Surplus $3,196,000,000 $2,584,000,000
Other Stockholder Equity ($2,722,000,000) ($1,551,000,000)
Total Stockholder Equity $9,316,000,000 $9,513,000,000

2001 2000
Gross profit $152,710,500 $93,901,200
Sales $2,545,715,000 $2,347,530,000

Ratio analysis Of Coca-Cola during the year 2000-2001;

1. Liquidity ratio ( short term solvency)

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Dec 2001 Dec1999

Current Assets $ 6,620,000,000 $6,480,000,000
Current Liabilities $9,321,000,000 $9,623,000,000

Working Capital Ratio or Current Ratio

Working capital ratio or Current Ratio = current assets/current liabilities

Current ratio (2001) $ 6,620,000,000/$9,321,000,000 = 0.71

Current ratio (2000) $6,480,000,000/$9,623,000,000 =0.67

Quick ratio

Quick ratio = Current Assets-Investment/Current liabilities

Quick ratio (2001) $6,620,000,000-$1,066,000,000/$9,321,000,000=0.595

Quick ratio (2000) $6,480,000,000-$1,076,000,000/$9,623,000,000=0.561

Note:- In liquidity ratio, we observe that current ratio in 2001 is more in comparison to 2000, it
means that the company’s efficiency increases in paying current liability.
Similarly it is increasing in quick ratio.

2. Leverage Ratio or Solvency ratio:-

Total Debt ratio

Total debt ratio = Total debt /capital employed

Total debt (2001) = $856,000,000

Capital employed =net worth+borrowings
= 22,100,000,000+9,321,000,000
= $115,310,000,000
Total debt ratio(2001) = 856,000,000/$115,310,000,000
= 0.74

Now for 2000

Total debt = $6,275,000,000
Capital employed =net worth+borrowings
= 21,627,000,000+9,856,000,000
= $31483000,000
Total debt ratio(2001) = 6,275,000,000/$115,310,000,000
= 0.54

Debt Equity ratio

Debt equity ratio = Net worth/total debt

For 2001= $22,100,000,000/$856,000,000

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 IIPM- Accounting for Managerial Decisions

= 2.6
For2000=$21,627,000,000/$6,275,000,000
=3.4

Capital Equity ratio

Capital equity ratio= Capital employed/Net worth

For 2001:
Capital equity ratio= $115,310,000,000/$22,100,000,00
=5.2

For 2000:
Capital equity ratio= $31,483,000,000/$21,627,000,000
=1.46

Note:-
In 2001, the long term financial position of the company worsened as the capability of long term
debt. decreases.

3. Activity ratio or Performance ratio:-

Stock or Inventory Turnover Ratio

Inventory Turnover ratio= Cost of goods sold/Inventory
2001 2000
Cost of goods sold $2,545,715,000 $2,347,530,000
Inventory $1,066,000,000 $1,076,000,000

For 2001;
Inventory turnover ratio =$2,545,715,000/$1,066,000,000
= 23.88
For 2000:
Inventory turnover ratio =$2,347,530,000/$1,076,000,000
= 21.80

Assets turnover ratio:-

Assets turnover ratio= Sales/ Net assets or capital employed

For 2001:
Asset turnover ratio= $2,545,715,000/$115,310,000,000
=2.20
For 2000:
Asset turnover ratio = $2,347,530,000/$31483000,000

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 IIPM- Accounting for Managerial Decisions

=0.7

4. Profitability Ratio:-

Gross profit ratio=Gross profit/sales

Gross profit ratio(2001) =$152,710,500 /$2,545,715,000

= 0.06

Gross profit ratio(2000)=$93,901,200/ $2,347,530,000

= 0.04

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