Posted: April 10th, 2016
1. Purchased a six-month certificate of deposit
2. Purchased a 60-day Treasury bill
3. Issued 1,000 shares of common stock
4. Purchased 1,000 shares of stock in another company
5. Purchased 1,000 shares of its own stock to be held in the treasury
6. Invested $1,000 in a money market fund
7. Sold 500 shares of stock to another company
8. Purchased 20-year bonds of another company
9. Issued 30-year bonds
10. Repaid a six-month bank loan
PROBLEM 13-6: Liquidity Analyses for Coca-Cola and Pepsi
The following information was summarized from the balance sheets of the Coca-Cola Company and Subsidiaries at December 31, 2010, and PepsiCo Inc. and Subsidiaries at December 25, 2010:
(in millions) Coca-Cola PepsiCo
Cash and cash equivalents $8,517 $5,943
Short-term investments 2,682 426
Marketable securities 138 –
Accounts and notes receivables, net* 4,430 6,323
Inventories 2,650 3,372
Prepaid expenses and other current assets 3,162 1,505
Total current assets $21,579 $17,569
Current liabilities $18,508 $15,892
*Described as “trade accounts receivable, less allowances” by Coca-Cola.
1. Using the information provided, compute the following for each company at the end of 2010:
2. Coca-Cola reported cash flow from operations of $9,532 million during 2010. PepsiCo reported cash flow from operations of $8,448 million. Current liabilities reported by Coca-Cola at December 31, 2009, and PepsiCo at December 26, 2009, were $13,721 million and $8,756 million, respectively. Compute the cash flow from operations to current liabilities ratio for each company for 2010.
3. Comment briefly on the liquidity of each of these two companies. Which appears to be more liquid?
4. What other ratios would help you more fully assess the liquidity of these companies?
EXERCISE 13-8 Solvency Analyses for IBM
The following information was obtained from the comparative financial statements included in IBM’s 2010 annual report. (All amounts are in millions of dollars).
Total liabilities $90,279 $86,267
Total stockholders’ equity 23,172 22,755
For the Years Ended December 31
Interest expense $368 $402
Interest paid on debt 951 1,240
Provision for income taxes 4,890 4,713
Income taxes paid-net of refunds 3,238 1,567
Net income 14,833 13,425
Net cash provided by operating activities 19,549 20,773
Cash dividends paid 3,177 2,860
Payments for plant, rental machines and other property 4,185 3,447
Payments to settle debt 6,522 13,495
1. Using the information provided, compute the following for 2010 and 2009:
a. Debt-to-equity ratio
b. Times interest earned
c. Debt service coverage ratio
d. Cash flow from operations to capital expenditures ratio
2. Comment briefly on the company’s solvency.
EXERCISE 13-11: Profitability Analysis for Carnival Corp.
Carnival Corporation and plc is one of the largest cruise companies in the world with such well-known brands as Carnival Cruise Lines, Holland America Line, and Princess Cruises. For the year ended November 30, 2010, the company reported net income of $1,978 million. Total shareholders’ equity on this date was $23,031 million, and on November 30, 2009, it was $22,039 million. No preferred stock was outstanding in either year.
1. Compute Carnival’s return on common stockholders’ equity for the year ended November 30, 2010.
2. What other ratio would you want to compute to decide whether Carnival is successfully employing leverage? Explain your answer
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