Question

PepsiCo, Inc. (PEP), the parent company of Frito-LayTM snack foods and Pepsi beverages, had the following current assets and current liabilities at the end of two recent years: Year 2 (in millions) Year 1 (in millions) Cash and cash equivalents $ 9,096 $ 6,134 Short-term investments, at cost 2,913 2,592 Accounts and notes receivable, net 6,437 6,651 Inventories 2,720 3,143 Prepaid expenses and other current assets 1,865 2,143 Short-term obligations (liabilities) 4,071 5,076 Accounts payable and other current liabilities 13,507 13,016 a. Determine the (1) current ratio and (2) quick ratio for both years. Round to one decimal place.

Answer 1

Current ratio

Year 1 = 1.3

Year 2 = 1.1

Quick ratio

Year 1 = 1.0

Year 2 = 0.8

Step-by-step explanation:

Current ratio is the ration of a company's current assets to the current liabilities while the quick ratio is similar to the current asset except that the prepaid expenses and inventories are excluded from the determination of the assets.

Current assets

Year 1 = 9,096 + 2,913 + 6,437 + 2,720 + 1,865

= $ 23,031.00

Year 2 = 6,134 + 2,592 + 6,651 + 3,143 + 2,143

= $ 20,663.00

Current Liabilities

Year 1 = 4,071 + 13,507

= $ 17,578.00

Year 2 = 5,076 + 13,016

= $ 18,092.00

Current ratio

Year 1 = $ 23,031.00/$ 17,578.00

= 1.3 ( to 1 decimal place)

Year 2 = $ 20,663.00/$ 18,092.00

= 1.1 to 1 decimal place

Quick ratio

Year 1

= (23,031.00 - 2,720 - 1,865)/ 17,578.00

= 1.0 to 1 decimal place

Year 2

= (20,663.00 - 3,143 - 2,143)

= 0.8 to 1 decimal place