As chief lending officer for a bank, you need to decide whether to make a loan to The CocaCola 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):
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 Analysis Model on page 74 to analyze the current ratios for The Coca-Cola Company and PepsiCo:
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. Replicate 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