Solution for QID #59625: Problem 2-10 Making Business Decisions: Loaning Money to The | StudyHelpMe

Problem 2-10 Making Business Decisions: Loaning Money to The Coca-Cola Company As chief lending officer for a bank, you need to decide whether to make a loan to The Coca- Cola Company. The current items, listed in alphabetical order, are taken from the consolidated balance sheets of The Coca-Cola Company and its competitor PepsiCo at the end of 2011 and 2010 (included in the companies’ Form 10-Ks for the years ended December 31, 2011; all amounts are in millions of dollars):           The Coca-Cola Company 12/31/11 12/31/10 Accounts payable and accrued expenses $  9,009 $  8,859 Accrued income taxes 362 273 Cash and cash equivalents 12,803 8,517 Current maturities of long-term debt 2,041 1,276 Inventories 3,092 2,650 Loans  and  notes payable 12,871 8,100 Marketable securities 144 138 Prepaid expenses and other assets 3,450 3,162 Short-term  investments 1,088 2,682 Trade accounts receivable, less allowances of $83 and $48, respectively   4,920   4,430 PepsiCo 12/31/11 12/25/10 Accounts and notes receivable,   net $  6,912 $  6,323 Accounts payable and other current  liabilities 11,757 10,923 Cash and cash equivalents 4,067 5,943 Income taxes payable 192 71 Inventories 3,827 3,372 Prepaid expenses and other current   assets 2,277 1,505 Short-term  investments 358 426 Short-term obligations 6,205 4,898 Required Part A. The Ratio Analysis  Model A banker must be able to assess a company’s liquidity before loaning it money. Liquidity is the ability of a company to pay its debts as they come due. Replicate the five steps in the Ratio Anal- ysis Model on page 74 to analyze the current ratios for The Coca-Cola Company and PepsiCo: (Continued )           1.        Formulate the Question 2.        Gather the Information from the Financial Statements 3.        Calculate the Ratio 4.        Compare the Ratio with Other Ratios 5.        Interpret the Ratios Part B. The Business Decision Model A banker must consider a variety of factors, including financial ratios, before making a loan. Rep- licate the five steps in the Business Decision Model on page 75 to decide whether to make a loan to The Coca-Cola Company. 1.        Formulate the Question 2.        Gather Information from the Financial Statements and Other Sources 3.        Analyze the Information Gathered 4.        Make the Decision 5.        Monitor Your Decision