Which firm appears to have more short-term liquidity risk

Reference no: EM13901650

INTERPRETING RISK RATIOS. Refer to the profitability ratios of Coca- Cola in Problem 4.25 in Chapter 4. Exhibit 5.17 presents risk ratios for Coca-Cola for 2006- 2008. As we did within the chapter for PepsiCo, we utilize Coca-Cola's footnote disclosures to extract the amount of trade accounts payable included within the line item accounts payable and accrued expenses.

Exhibit 5.17 Risk Ratios for Coca Cola
	2008	2007	2006
Revenues to Cash Ratio	6.9	8.4	6.5
Days Revenues in Cash	53	44	56
Current Ratio	0.9	0.9	0.9
Quick Ratio	0.6	0.6	0.6
Operating Cash Flow to Average Current
Liabilities Ratio	0.578	0.647	0.636
Days Accounts Receivable	37	37	37
Days Inventory	71	68	68
Days Accounts Payable	44	38	40
Net Days Working Capital	64	67	65
Liabilities to Assets Ratio	0.495	0.497	0.435
Liabilities to Shareholders' Equity Ratio	0.979	0.990	0.771
Long-Term Debt to Long-Term Capital Ratio	0.120	0.131	0.072
Long-Term Debt to Shareholders'
Equity Ratio	0.136	0.151	0.078
Operating Cash Flow to Average Total
Liabilities Ratio	0.364	0.414	0.456
Interest Coverage Ratio	17.0	17.3	29.9

Required:

a. Assess the changes in the short-term liquidity risk of Coca-Cola between 2006 and 2008.

b. Assess the changes in the long-term solvency risk of Coca-Cola between 2006 and 2008.

c. Compare the short-term liquidity ratios of Coca-Cola with those of PepsiCo discussed in the chapter. Which firm appears to have more short-term liquidity risk? Explain.

d. Compare the long-term solvency ratios of Coca-Cola with those of PepsiCo discussed in the chapter. Which firm appears to have more long-term solvency risk? Explain.

Reference no: EM13901650

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