Coca-Cola Accounting – Ratio Analysis & Liquidity Ratios
Ratio Analysis
Liquidity Ratios
Current Ratio: Over the past five years Coca Cola company has had a current ratio hovering around .9 – 1.3. This ratio gives us an idea of the companys ability to pay back its short-term liabilities with its short term assets. A higher current ratio means that a company is more capable of paying its obligations. In 2006, 2007, and 2008 Coca Cola had a current ratio which was less then 1. This suggests that Coca Cola would not have been able to pay off its obligations if they had all come due at that point. In 2009 Coca Cola had a current ratio of 1.3, compared to Pepsi with a current ratio of 1.4 and the industry average of 1.26. This indicates that Coca Cola grew financially and became more financially stable in 2009 from its past years, and indicates that they made solid investments and were able to increase their current assets. Pepsi is able to meet its near-term operating needs slightly more easily then Coca Cola. However, this does not necessarily mean that Pepsi is doing better financially then Coca Cola. Generally, a current ratio greater then 1.5 suggests that a company is hoarding its assets instead of using them to grow a business and it is something that could have long-term effects.. When compared to the industry standard of 1.26, Coca Cola is doing slightly better in that they are more able to pay back their current debts then the rest of the industry. Coca-Cola is slightly more aggressive then Pepsi, but slightly more conservative then the rest of the industry.
Quick Ratio: The quick ratio also gives us an idea of how well a company is able to pay back its short-term debt and operate on a day-to-day basis. One problem with the current ratio is inventory. If a company has most of its liquid assets tied up in inventory, that company becomes very dependent on the sale of that inventory to finance its operations. By taking the inventory out of the equation a company can find out if they have sufficient liquid assets to meet their short term operating needs. The quick ratio is generally considered a more conservative standard than the current ratio because if the quick ratio is less than one, there generally is no danger that the firm would not be able to meet its current obligations. From 2005 to 2008 Coca Cola had a quick ratio that ranged from .9 to .7. ItThis does not necessarily mean that they wereCoca Cola was having extreme financial difficulties. A low quick ratio can also indicate that an organization has good long-term prospects and is able to enter the capital market and borrow against those prospects to meet obligations. In 2009, Coca Cola had a quick ratio of 1.1 and as did Pepsi did as well. This indicates that both Coca Cola and Pepsi were financially sound and able to carry out their day-to-day operations. Their operations were not dependent upon the sales of their inventories.