PORTFOLIO PROJECT (350 points)
Important! Read First
Select one of the following two assignment choices to complete for the Portfolio Project. Do not do both options. Identify your project choice in the title of your submission.
Option #1: Analysis of Payton Furniture Corp.
Payton Furniture Corp. is nationally recognized for making high-quality products. Management is concerned that the company is not fully exploiting its brand power. Payton’s production managers are also concerned because their plants are not operating at near full capacity. Management is currently considering a proposal to offer a new line of affordable furniture.
Those in favor of the proposal (including the vice president of production) believe that, by offering these new products, the company could attract a clientele that it is not currently servicing. It could also operate its plants at full capacity, thus taking better advantage of its assets.
The vice president of marketing, however, believes that the lower-priced (and lower-margin) product would have a negative impact on the sales of existing products. The vice president believes that $10,000,000 of the sales of the new product will be from customers that would have purchased the more expensive product but switched to the lower-margin product because it was available. (This is often referred to as cannibalization of existing sales.) Top management feels, however, that even with cannibalization, the company’s sales will increase and the company will be better off.
The following data are available:
|
(In Thousands)
|
Current Results
|
Proposed Results without Cannibalization
|
Proposed Results with Cannibalization
|
|
Sales Revenue
|
$45,000
|
$60,000
|
$50,000
|
|
Net Income
|
$12,000
|
$13,000
|
$12,000
|
|
Average total assets
|
$100,000
|
$100,000
|
$100,000
|
Instructions:
- Compute Payton’s return on assets, profit margin, and asset turnover, both with and without the new product line.
- Discuss the implications that your findings in part (A) have on Payton’s decision.
- Are there any other options that Payton should consider? What impact would each of these have on the above ratios?
Show your work and use MS Excel or Word for your submission. The written portion of your assignment should be 4-6 pages in length with document and citation formatting conformity with the CSU-Global Guide to Writing and APA Requirements.
Option Choice #2: Coca-Cola vs. PepsiCo
The Coca-Cola Company and PepsiCo, Inc., provide refreshments to every corner of the world. Selected data from the 2014 consolidated financial statements for the Coca-Cola Company and for PepsiCo, Inc., are presented here (in millions).
|
Coca-Cola
|
PepsiCo
|
|
Total current assets
|
$12,551
|
$12,571
|
|
Total current liabilities
|
13,721
|
8,756
|
|
Net Sales
|
30,990
|
43,332
|
|
Cost of Goods Sold
|
11,088
|
20,099
|
|
Net income
|
6,824
|
5,946
|
|
Average (net) accounts receivable for the year
|
3,424
|
4,654
|
|
Average inventories for the year
|
2,271
|
2,570
|
|
Average total assets
|
44,595
|
37,921
|
|
Average common stockholders’ equity
|
22,636
|
14,556
|
|
Average current liabilities
|
13,335
|
8,772
|
|
Average total liabilities
|
21,960
|
23,466
|
|
Total assets
|
48,671
|
39,848
|
|
Total liabilities
|
23,872
|
23,044
|
|
Income taxes
|
2,040
|
2,100
|
|
Interest expense
|
355
|
397
|
|
Net cash provided by operating activities
|
8,186
|
6,796
|
|
Capital expenditures
|
1,993
|
2,128
|
|
Cash dividends
|
3,800
|
2,732
|
Instructions:
- Compute the following liquidity ratios for 2014 for Coca-Cola and PepsiCo and comment on the relative liquidity of the two competitors.
- Current ratio
- Accounts receivable turnover
- Average collection period
- Inventory turnover
- Days in inventory
- Current cash debt coverage.
- Compute the following solvency ratios for the two companies and comment on the relative solvency of the two competitors.
- Debt to asset ratio
- Times interest earned
- Cash debt coverage
- Free cash flow.
- Compute the following profitability ratios for the two companies and comment on the relative probability of the two competitors.
- Profit margin
- Asset turnover
- Return on assets
- Return on common stockholders’ equity.
- Interpret your findings for the ratio comparatives analysis for Coca-Cola and PepsiCo.
- Evaluate what, if any, options with regard to financial activities should Coca-Cola and PepsiCo consider (i.e., how can these companies improve financial performance)? What impact would each of these have on the above ratios?
Show your work and use MS Excel or Word for your submission. The written portion of your assignment should be 4-6 pages in length with document and citation formatting conformity with the CSU-Global Guide to Writing and APA Requirements.
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