Pepsi or Coke From - Research Paper Example

The current ratio for Pepsi is 1.09. Current ratio measures the ability of the firm to pay its current liability using the current asset. Current asset is the most liquid form of asset that a firm can easily turn into cash. Current liabilities are short term payable in a period less than a year for example short term loan. From the ratios, Coca-Cola has a lower current ratio compared to Pepsi. The lower current ratio for coca-cola is an indication that the firm is not doing well in its current liability management compared to Pepsi.

When the current ratio is low, it means Coca-Cola may not be able to meet its current liability obligation using the current asset. As a result, Coca-Cola may resolve to use other sources of financing to cover its current liabilities. Lower current ratio is an indication of inefficiency in managing assets of the firm. On the other hand, Pepsi has a higher current ratio than coca cola. A comparison of the two reveals that Pepsi is doing better than her rival coca-cola in managing its current ratio.

A higher current ratio is an indication that Pepsi can meet its current liabilities more comfortably using its current asset. The current creditors can be more confident with on their payment. The creditors are assured of timely payment due to enough current assets to meet the firm’s current obligation. Also, in case of dissolution, current asset can be used to pay current debtors with more ease. Further, a high current ratio increases the credit worthiness of the firm and in this case Pepsi has higher credit worthiness than coca-cola.

This is attributed to the firms not having most of its assets tied in fixed asset thus quicker to liquidate the current asset to meet current obligation. The profitability ratios calculated in the appendix are the return on asset and return on equity. Return on asset is the ratio of net income to average total asset. It measures how much revenue is earned from application of the