2024年3月17日发(作者：)

CHAPTER 5

USING FINANCIAL STATEMENT INFORMATION

BRIEF EXERCISE

BE5–1

Coke Pepsi

(a) ROE = Net Income/Average Stockholders Equity 33.6% 33.3%

ROA = (Net Income +[Interest Expense (1-Tax Rate)])/

Average Total Assets 17.3% 15.1%

Common Equity Leverage = Net Income/(Net Income +

[Interest Expense(1-Tax Rate)]) 96.9% 96.9%

Capital Structure Leverage = Average Total Assets/

Average Stockholders Equity 2.00 2.28

Return on Sales = Net Income + [Interest Expense

(1- Tax Rate)]/Net Sales 21.3% 13.7%

Asset Turnover = Sales/Average Total Assets .81 1.11

Coke and Pepsi return similar percentages on equity, but Coke is slightly better at generating a

return from assets. Leverage is similar with Pepsi showing higher relative debt levels,

according to the Capital Structure Leverage ratio. Coke shows a large advantage on its margin

on converting sales into profits, but Pepsi generates more sales from each dollar of assets.

(b) ROA x Common Equity Leverage x Capital Structure Leverage = ROE

Coke: .173 x ..969 x 2.00 = .335 (rounding)

Pepsi: .151 x .969 x 2.28 = .334 (rounding)

(c) Profit Margin x Asset Turnover = ROA

Coke: .213 x .81 = .173

Pepsi: .137 x 1.11 = .152 (rounding)

(d) Coke has only a slight edge in ROE, but its ROA is over two points higher than that of Pepsi.

The advantage in ROA is driven by the much higher profit margin (21.3% versus 13.7%) of

Coke. Coke is better at converting sales into profits.

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EXERCISES

E5–1

Profitability Ratios:

Return on Equity = Net Income ÷ Average Stockholders’ Equity

2002: $1,893 ÷ 27,888 = .068

2003: $3,578 ÷ 28,342.5 = .126

Return on Sales = (Net Income + [Interest Expense (1 – Tax Rate)]) ÷ Net Sales

2002: ($1,893 + [0 x (1 - .29)]) ÷ $18,915 = .100

2003: ($3,578 + [0 x (1 - .29)]) ÷ $18,878 = .190

Solvency Ratios:

Current Ratio = Current Assets ÷ Current Liabilities

2002: $ 17,433 ÷ $ 8,375 = 2.08

2003: $ 13,415 ÷ $ 8,294 = 1.62

Leverage Ratios:

Capital Structure Leverage Ratio = Average Total Assets ÷ Average Total Stockholders’

Equity

2002: $36,516.5 ÷ $27,888 = 1.31

2003: $37,451 ÷ $28,342.5 = 1.32

Overall, by examining the above computed ratios, it appears that Cisco would be a good

investment. Profitability increased substantially from 2002 to 2003, while leverage remained

constant. The only ratio that would be somewhat negative is the decrease in solvency, but the

current ratio is still adequate.

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