ACC 318 Module Two Assignment

ACC 318 Module Two Assignment

Debt-to-Assets Ratios

1. Calculate the quality of the debt-to-assets ratios for both companies.

Debt to Asset Ratio= Total Liabilities/Total Assets
Coca Cola 2020
Total Current Assets: $87296 Debt: $66012 $87296-$21284
Debt to Asset Ratio: $66012/$87296 = 75.6%
PepsiCo.
Debt to Asset Ratio: $79366/$92918= 85.4%

2. Explain the quality of the debt-to-assets ratios for both companies.

Both companies have high debt-to-asset ratios. However, that of PepsiCo is a bit higher than that of Coca-Cola Cola which indicates that the company will have a difficult time to fulfill its financial obligations due to high debt levels (Husna & Satria, 2019). Thus, the ratios are of low quality and the companies should consider measures to reduce the debt levels.

3. Determine which company is more highly leveraged.

Compared to Coca-Cola, PepsiCo appears to be a more leveraged firm. PepsiCo is likely to struggle to get the funding it needs to pay down its debt because of its greater debt-to-asset ratio. If revenue declines, the firm may also have financial difficulties.

Times-Interest-Earned Ratios

1. Calculate the times-interest-earned ratios for both companies.

TIE= Earnings Before Interest/Total Interest Expense
Coca Cola TIE: 7747+1128+1894/1128=7.8
PepsiCo TIE: 7175+1128+1894/1128=9

2. Explain the times-interest-earned ratios for both companies. Address the following questions in your response:

A. Are the times-interest-earned ratios adequate?
Given that their ratios are more than 2.5, both PepsiCo and Coca-Cola have acceptable times-earned ratios.
B. Is the times-interest-earned ratio greater than or less than 2.5? What does that mean for the companies’ income?
A TIE greater than 2.5 indicates that the businesses can afford twice as much in interest expense payments. PepsiCo can afford a rate that is nine times the interest expenditure, but Coca-Cola can afford an interest expense that is seven times. These figures would indicate to creditors and investors alike that both businesses could not only afford the interest charge but would also be in excellent standing.
C. Can the company afford the interest expense on a new loan?
A greater TIE does not always indicate that a corporation is not making enough money to pay its debts or that they are not fulfilling their financial responsibilities on time. A company’s ability to take on additional debt is determined by a few characteristics, including its low debt to asset ratio, payment history, and steady earnings.

Foreign Debt

1. Explain why The Coca-Cola Company and PepsiCo, Inc. may use foreign debt to finance their operations.
By negotiating cheaper interest rates or taking advantage of favorable exchange rates, Coca-Cola and PepsiCo can profit from foreign debt.

2. Explain the risks involved in using foreign debt to finance operations.
Companies that borrow money always run some risk, but the danger increases when they depend on overseas funding to fund their operations. The nation’s volatile currency is one of the biggest hazards associated with utilizing foreign currency (Akhmadeev et al., 2018). Exchange rates can affect businesses and may not be favorable if they take on foreign debt. Additionally, there’s a chance that the foreign nation may experience political unrest and modifications to its debt-related laws and policies.

References

Akhmadeev, R. G., Bykanova, O. A., & Turishcheva, T. B. (2018). Brics’ foreign debt burden and its impact on core institutional basis. Journal of Reviews on Global Economics, 7, 345-359.

Husna, A., & Satria, I. (2019). Effects of return on asset, debt to asset ratio, current ratio, firm size, and dividend payout ratio on firm value. International Journal of Economics and Financial Issues, 9(5), 50-54.

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ACC 318 Module Two Assignment

ACC 318 Module Two Assignment Template

Complete this template by replacing the bracketed text with the relevant information.

ACC 318 Module Two Assignment

Debt-to-Assets Ratios

1. Calculate the quality of the debt-to-assets ratios for both companies.
[Insert text.]

2. Explain the quality of the debt-to-assets ratios for both companies.
[Insert text.]

3. Determine which company is more highly leveraged.
[Insert text.]

Times-Interest-Earned Ratios

1. Calculate the times-interest-earned ratios for both companies.
[Insert text.]

2. Explain the times-interest-earned ratios for both companies. Address the following questions in your response:
A. Are the times-interest-earned ratios adequate?
B. Is the times-interest-earned ratio greater than or less than 2.5? What does that mean for the companies’ income?
C. Can the company afford the interest expense on a new loan?
[Insert text.]

Foreign Debt

1. Explain why The Coca-Cola Company and PepsiCo, Inc. may use foreign debt to finance their operations.
[Insert text.]

2. Explain the risks involved in using foreign debt to finance operations.
[Insert text.]

References

Include any references used to complete this assignment. This section is for the full citation. Sources should be cited using APA style.

[Insert text.]