Coke and Pepsi are well-known international brands. Coca-Cola Co. sells more than $42 billion each year while annual sales of PepsiCo products exceed $62 billion. Compare the two companies as a potential investment based on the following ratios as reported by csimarket.com for the twelve months ended September 30, 2016:

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 decision.

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.

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Ratio Coca-Cola PepsiCo Gross profit percentage Net profit margin 60.6% 55.1% 17.1% 10.2% $1.67 $4.39 EPS Inventory turnover ratio 9.0 5.8 Current ratio 1.24 1.35 Debt-to-assets 0.72 0.85 P/E ratio 25.2 25.1