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Accounting questions Go to the textbook's companion website and use information found there to...

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Accounting questions : Go to the textbook's companion website and use information found there to answer the following questions related to The Coca-Cola Company and PepsiCo, Inc. for the annual reports of 2011: http://bcs.wiley.com/he-bcs/Books?action=resource&bcsId=9080&itemId=1118985311&resourceId=38777

1.) Where is "depreciation and amortization" reported by Coca-Cola and PepsiCo in their statements of cash flows? What is the amount and why does it appear in that section of the statement of cash flows?

2.) Based on the information contained in Coca-Cola's and PepsiCo's financial statements, compute the following 2011 ratios for each company. These ratios require the use of statement of cash flows data.

(a) Current cash debt coverage ratio.

(b) Cash debt coverage ratio.

3.) What conclusions concerning the management of cash can be drawn from the ratios computed in (e)?

What Is Operating Cash Flow:

A company's Operating Cash Flow is presented in the top portion of the statement of cash flows prepared at the end of every reporting period. The Operating Cash Flow includes the cash generated by income and any changes in the working capital structure.

Answer and Explanation:

1.

PepsiCo:$2,737 Million

Coca Cola: $1,954 Million

In both case, the amount is reported in the OPERATING CASH FLOW section of the cash flow statement. It appears there because depreciation and amortization are non-cash expenses and thus are added back to income.

2.

(a) Current cash debt coverage ratio.

=Operating cash flow / Current liabilities

PepsiCo: 8,944/18,154

=49.3%

Coca Cola: 9,474/24,283

=39.0%

(b) Cash debt coverage ratio.

=Operating cash flow / Total liabilities

PepsiCo: 8,944/51,983

=17.2%

Coca Cola: 9,474/(24,283 +13,656+5,420+4,694)

=19.7%

3.

This shows that Pepsi Co has a better ability to use its operating cash flow to pay off current liabilities while Coca Cola is able to pay its its total liabilities more easily with its operating Cash flow than PepsiCo.


Learn more about this topic:

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Operating Cash Flow: Definition & Examples

from Finance 101: Principles of Finance

Chapter 10 / Lesson 4
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