The indirect method of statement of cash flows and financial analysis
Option #2: Red Soda Company vs. Blue Soda Company The Red Soda Company (Red Soda) and The Blue Soda Company (Blue Soda) provide refreshments to every corner of the world. Selected data from the 20X6 consolidated
financial statements for Red Soda and Blue Soda are presented here (in millions). Red Soda Blue Soda Total current assets $12,551 $12,571 Total current liabilities 13,721 8,756 Net Sales 30,990 43,332 Cost of Goods Sold 11,088 20,099 Net income 6,824 5,946 Average (net) accounts receivable for the year 3,424 4,654 Average inventories for the year 2,271 2,570 Average total assets 44,595 37,921 Average common stockholders’ equity 22,636 14,556 Average current liabilities 13,335 8,772 Average total liabilities 21,960 23,466 Total assets 48,671 39,848 Total liabilities 23,872 23,044 Income taxes 2,040 2,100 Interest expense 355 397 Net cash provided by operating activities
8,186 6,796 Capital expenditures 1,993 2,128 Cash dividends 3,800 2,732 Instructions: A.Compute the following liquidity ratios for 20X6 for Red Soda and Blue Soda, comment on the relative liquidity of two
competitors.1.Current ratio 2.Accounts receivable turnover 3.Average collection period 4.Inventory turnover 5.Days in inventory 6.Current cash debt coverage B.Compute the following solvency ratios for the two
companies and comment on the relative solvency of the two competitors.1.Debt to asset ratio 2.Times interest earned 3.Cash debt coverage 4.Free cash flow C.Compute the following profitability ratios for the two companies and comment on the relative probability of the two competitors.1.Profit margin 2.Asset turnover 3.Return on assets
4.Return on common stockholders’ equity. D.Interpret your findings for the ratio comparatives analysis for Red Soda and Blue Soda. E.Evaluate what, if any, options with regard to financial activities should Red Soda and Blue Soda consider (i.e., how can these companies improve financial performance)? What impact would each of these have on the above ratios? Show your work and use Excel or Word for your submission. The written portion of your assignment should be four to six pages in length