ACC 318 Module Three Assignment Template

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Apr 3, 2024

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ACC 318 Module Three Assignment Template Complete this template by replacing the bracketed text with the relevant information. Operating Activities 1. Identify the method of computing net cash provided by operating activities each company used. Both companies present their net cash provided by operating activities under the “Operating activities” section of the Consolidated Statements of Cash Flows. The key line item indicating net cash provided by operating activities is “Net Cash Provided by Operating Activities”. Both companies seem to follow the indirect method of presenting cash flows from operating activities, where the net income is adjusted for non-cash items and changes in working capital to arrive at the net cash provided by operating activities. 2. Calculate the amounts of cash provided by operating activities reported by each company in 2020. PepsiCo. Net Income $7,175 Depreciation and amortization 2,548 Share-based compensation expense 264 Restructuring and impairment charges 289 Cash payments for restructuring charges (255) Inventory fair value adjustments and merger and integration charges 255 Cash payments for merger and integration charges (131) Pension and retiree medical plan expenses 408 Pension and retiree medical plan contributions (562) Deferred income taxes and other tax charges and credits 361 Net tax related to the TCJ Act N/A Tax payments related to the TCJ Act (78) Other net tax benefits related to international reorganizations N/A Change in assets and liabilities: Accounts and Notes receivable (420) Inventories (516) Prepaid expenses and other current assets 26 Accounts payable and other current liabilities 766 Income taxes payable (159) Other, net 642 Net Cash Provided by Operating Activities 10,613

Coca-Cola Company Consolidated Net Income $7,768 Depreciation and Amortization 1,536 Stock-based compensation expense 126 Deferred income taxes (18) Equity (income) loss – net of dividends (511) Foreign currency adjustments (88) Significant (gains) losses – net (914) Other operating charges 556 Other items 699 Net change in operating assets and liabilities 690 Net Cash Provided by Operating Activities 9,844 3. Explain the two companies’ trends in net cash provided by operating activities over the period 2018 to 2020. The net cash provided by operating activities has shown a consistent increase from 2018 to 2019 and further increased in 2020. PepsiCo exhibited a positive trend in generating cash from its operating activities over the specified period. Both companies experienced growth in net cash provided by operating activities from 2018 to 2019. The Coca-Cola Company saw a slight decrease in 2020, while PepsiCo continued to show growth. The trends suggest variations in the companies’ ability to generate cash from their core operating activities over the specified period. Investing Activities 1. Identify the most significant item in the investing activities section reported by each company in 2020. In the investing activities section for The Coca-Cola Company in 2020, the most significant item is likely the “ Acquisitions of businesses, equity method investments, and nonmarketable securities ”, which is reported as a cash outflow of $1,052 million. This indicates the company’s investment in acquiring businesses, equity method investments, and nonmarketable securities during the specified period. For PepsiCo, Inc. in 2020, the most significant item in the investing activities section is the “ Acquisitions, net of cash acquired, and investments in noncontrolled affiliates ”, which is reported as a cash outflow of $6,372 million. This item represents the cash spent on acquiring businesses and making investments in noncontrolled affiliates during the year. Financing Activities 1. Identify the most significant item in the financing activities section reported by each company in 2020. In the financing activities section for The Coca-Cola Company in 2020, the most significant item is likely the “ Issuances of debt ”, reported as a cash inflow of $26,934 million. This indicates the company raising funds through the issuance of debt during the specified period.

For PepsiCo, Inc. in 2020, the most significant item in the financing activities section is the “ Proceeds from issuances of long-term debt ”, reported as a cash inflow of $13,809 million. This item represents the cash generated by the company through the issuance of long-term debt during the year. Depreciation and Amortization 1. Identify what activity would depreciation and amortization be reported on in each company’s statement of cash flow using the indirect method. In The Coca-Cola Company’s statement of cash flows using the indirect method, depreciation and amortization would be added back to the net income in the operating activities section. Depreciation and amortization are non-cash expenses, so they are added back to reconcile net income to the net cash provided by operating activities. The general format for the adjustment in the operating activities section: Net Income + Depreciation ∧ Amortization + Other NoncashCharges − Other Changes ∈ Operating Activitie . Similarly, in PepsiCo, Inc.’s statement of cash flows using the indirect method, depreciation and amortization would be added back to the net income in the operating activities section. The adjustment is made to reflect the cash impact of these non-cash expenses. The adjustment formula for the operating activities section is as follows: Net Income + Depreciation ∧ Amortization + Other NoncashCharges − Other Changes ∈ Operating Activitie . In both cases, the goal is to provide a clearer picture of the cash generated or used by the company’s core operating activities by adjusting for non-cash items. 2. Explain why each company reported on depreciation and amortization where they did in their statement of cash flows. The Coca-Cola Company reported depreciation and amortization in the operating activities section of its statement of cash flows for the following reasons:  Non-Cash Expense Adjustment : Depreciation and amortization are non-cash expenses. Including them in the operating activities section allows the company to reconcile net income to net cash provided by operating activities. Since these expenses don’t involve actual cash outflows, adding them back provides a more accurate representation of the cash generated by the company’s core operating activities.  Operating Activity Impact : Depreciation is often associated with the wear and tear of physical assets (like machinery and equipment), while amortization typically involves intangible assets (like patents or trademarks). Both are considered part of the ongoing cost of doing business. By adding back depreciation and amortization to net income, the statement of cash flows reflects the cash impact of these non-cash expenses, giving a clearer picture of the company’s cash-generating ability from its operational activities.

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PepsiCo, Inc. also reported depreciation and amortization in the operating activities section of its statement of cash flows for similar reasons:  Non-Cash Expense Adjustment : Depreciation and amortization are non-cash expenses that are deducted when calculating net income. Including them in the operating activities section allows the company to reverse these non-cash charges and provide a more accurate representation of the cash generated by its core operating activities.  Operating Activity Impact : Like The Coca-Cola Company, PepsiCo’s inclusion of depreciation and amortization in the operating activities section helps to show the cash impact of these expenses. It reflects the fact that, while these expenses are recognized for accounting purposes, they don’t involve actual cash outflow during the period. In summary, both companies place depreciation and amortization in the operating activities section to reconcile net income with net cash provided by operating activities, offering stakeholders insights into the cash flow generated from their day-to-day business operations. 3. Identify the amount of depreciation and amortization for each company. The amount of depreciation and amortization for The Coca-Cola Company in 2020, as reported in the Consolidated Statements of Cash Flows, is $1,536 million. The amount of depreciation and amortization for PepsiCo, Inc. in 2020, as reported in the Consolidated Statement of Cash Flows, is $2,548 million. Statement of Cash Flows and Ratios 1. Compute the current cash debt coverage for each company. Coca-Cola Company  Average Current Liabilities AverageCurrent Liabilities = 14,601 + 26,973 2 = 20,787 .  Current Cash Debt Coverage Ratio: Current CashDebt Coverage Ratio = 9,844 20,787 ≈ 0.473 . PepsiCo, Inc.  Average Current Liabilities: AverageCurrent Liabilities = 23 , 372 + 20,461 2 = 21,916.5 .  Current Cash Debt Coverage Ratio: Current CashDebt Coverage Ratio = 10,613 21,916.5 ≈ 0.485 . These ratios indicate the ability of each company to cover its current liabilities with the net cash provided by operating activities.

2. Compute the cash debt coverage for each company. Coca-Cola Company:  Average Total Liabilities AverageTotal Liabilities = 79,366 + 87,296 2 = 83,331 .  Cash Debt Coverage Ratio: Cash DebtCoverage Ratio = 9,844 83,331 ≈ 0.118 . PepsiCo, Inc.  Average Total Liabilities AverageTotal Liabilities = 63,679 + 79,366 2 = 71,522.5 .  Cash Debt Coverage Ratio: Cash DebtCoverage Ratio = 10,613 71,522.5 ≈ 0.149 . These ratios indicate the ability of each company to cover its total liabilities with the net cash provided by operating activities. 3. Explain what conclusions can be drawn from the current cash debt coverage ratio and the cash debt coverage ratio. Address the following questions in your response: A. What conclusions can be drawn from the current cash debt coverage ratio? B. What conclusions can be drawn from the cash debt coverage ratio? Current Cash Debt Coverage Ratio : The current cash debt coverage ratio measures a company’s ability to repay its total liabilities using the net cash provided by operating activities generated in the current period. A higher ratio indicates a better ability to cover its short-term obligations. Here are the conclusions that can be drawn:  The Coco-Cola Company (2020): The current cash debt coverage ratio is approximately 0.118, suggesting that for every dollar of current liabilities, Coca-Cola has around $0.118 in net cash provided by operating activities to cover them. This indicates a moderate ability to meet short-term obligations.  PepsiCo, Inc. (2020): The current cash debt coverage ratio is approximately 0.149, indicating that PepsiCo has around $0.149 in net cash provided by operating activities for every dollar of current liabilities. This suggests a slightly better ability compared to Coca-Cola to cover short-term obligations. Cash Debt Coverage Ratio: The cash debt coverage ratio provides a broader perspective by considering average total liabilities over a period. It assesses a company’s ability to cover its total liabilities with the net cash provided by operating activities. Here is the conclusions:

 The Coca-Cola Company (2020): With a cash debt coverage ratio of approximately 0.118, Coca-Cola demonstrates the ability to cover about 11.8% of its average total liabilities with its net cash provided by operating activities. This indicates a moderate capacity to cover long-term obligations.  PepsiCo, Inc. (2020): PepsiCo has a cash debt coverage ratio of approximately 0.149, suggesting that it can cover about 14.9% of its average total liabilities with its net cash provided by operating activities. This indicates a relatively stronger capacity compared to Coca-Cola to cover long-term obligations. In summary, both ratios suggest that both companies have the ability to cover their liabilities with operating cash, with PepsiCo exhibiting a slightly stronger position in both short-term and long-term coverage compared to The Coco-Cola Company. However, it’s essential to consider industry benchmarks and historical trends for a more comprehensive analysis. References Include any references used to complete this assignment. This section is for the full citation. Sources should be cited using APA style. Kieso, D. E., Weygandt, J. J., & Warfield, T. D. (2022). Wiley (18th ed.). Wiley.

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ACC 318 Module Three Assignment Template

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