Fundamentals of Financial Accounting 4th Edition by Fred Phillips,Robert Libby,Patricia Libby

Exercise 26

Interpreting Profitability, Liquidity, Solvency, and P/E Ratios
Coke and Pepsi are well-known international brands. Coca-Cola sells more than $35 billion worth of beverages each year while annual sales of Pepsi products exceed $43 billion. Compare the two companies as a potential investment based on the following ratios:

Required:
1. Which company appears more profitable Describe the ratio(s) that you used to reach this decision.
2. Which company appears more liquid Describe the ratio(s) that you used to reach this
3. Which company appears more solvent Describe the ratio(s) that you used to reach this decision.
4. Are the conclusions from your analyses in requirements 1-3 consistent with the value of the two companies, as suggested by their P/E ratios If not, offer one explanation for any apparent inconsistency.