Interpreting Financial Statements Essay Example | Topics and Well Written Essays - 1500 words

Interpreting Financial Statements - Essay Example The number of days in inventory for Pepsico is 40 days whereas it is 64 days for Coca – Cola. It is evident that Pepsico is more effective in converting its inventory into sale and hence has a better liquidity position in terms of the revenue generated. Both the companies have almost equally geared in terms of debt. The debt to total assets ratio is an indication of the company’s long term growth capacity and its ability to generate more capital through debts. Both Coca – Cola and Pepsico have significant interest coverage, as the earnings are almost 33 times the interest expenses. Hence it is evident that the companies will not face any issues in covering the interest expenses. The cash debt coverage is a measure of the ability of the company to cover its debts with the liquid cash in hand generated from the operations. Though both the firms have a significant value, Pepsico is able to generate higher cash from its operations and hence can manage about 57% of its debts with the cash from operations. The free cash flow, as the name indicates, is measured in million USD and is found that in 2004, Coca – Cola has a free cash of $ 5,213 million whereas Pepsico has about $ 3,667 million. It is evident that Coca – Cola has significantly higher free cash compared to that of Pepsico. It is clear from the values that Coca – Cola is able to convert 22% of its revenue as earnings or profit, whereas Pepsico converts only 14% of its revenue into income. Hence the profitability of Coca – Cola is comparatively much higher than that of Pepsico. This is the percentage of revenue after all the expenses, interests and taxes that is available to the shareholders and to the company. The Asset Turnover rate determines the ability of the company to effectively utilize its assets to generate revenue. It is important to note that a company generating high revenues may not actually be effective if its utilizing much