To receive full credit, all 5 bullets must be answered. You will also need to reply to 1 other student. Please read all documents and follow the instructions. This will be a 6 part case study.  In

Case Study Part 4 – Liquidity & Turnover (Pepsi Co) DUE 3/14/19 Late work will not be accepted For the remainder of this project, Pepsi Co will be the company you will work on. Make sure to keep all assignments as you will need it to complete the remaining parts of the case study. To view financial statements for your company, please view Morningst ar , Yahoo Finance , or Reuters . Reuters is free but will require you to sign up. To begin your analysis of your firm's liquidity and turnover, you must first gather data. Using Reuters.com to find the following ratios for your firm along with industry averages: the Current and Quick Ratios; Receivables, Inventory and Total Asset Turnover; Net Profit Margin and Return on Assets. If your firm did not have accounts receivables or inventory tur nover, be sure to mention that in the post with an explanation, such as "my firm is a service firm, therefore it holds little (or no) inventory." Use Morningstar, Yahoo Finance, or Reuters to find your firm's financial reports. ** Reuters.com is free to subscribe, you just have to sign up *** Then answer the following 6 questions below: 1. Liquidity is an indication of how easily a firm can pay its short -term bills. How does your firm’s liquidity compare to that of firms in its industry and sector? 2. Turnover ratios are also known as Efficiency ratios because firms invest in assets to produce sales. Low turnover ratios may indicate overinvestment. How does your firm’s turnover compare to that of firms in its industry and sector? Industries that rely heavily on fixed assets (aka asset intensive industries) will often have relatively low turnover ratios. Does seem true of your industry? 3. Generally we see a trade -off between liquidity and turnover. Mathematically it is true because current assets are in the numerator of liquidity ratios and in the denominator of the turnover ratios. Intuitively it is true because holding more current assets, particularly cash, reduces risk but may do little to increase sales. Do you see evidence of that here? Do you se e it in all of the turnover ratios or just some? 4. Generally we see a trade -off between profit margin and turnover, as high margin products often have lower sales volume than low margin products. (Note that there is no direct relationship between liquidity and profit margin.) Do you see evidence of that trade -off here? 5. Return on Assets (ROA) is one measure of the effectiveness of a firm’s investment policy. ROA is equal to Net Profit Margin times Total Asset Turnover. How does your firm’s ROA compare to that of firms in its industry? 6. Complete the following sentence, filling in the blanks: (Enter your firm’s name ) has relatively __________________ liquidity and ___________________ turnover. Turnover directly affects a firm’s ROA, but so does profit marg in. Increases in margin tend to decrease turnover and vice versa. Therefore, firms with low turnover might still generate high ROA if margins are large enough, while firms with high turnover might still generate low ROA if margins are too low. (Enter you r firm’s name ) ROA is relatively _______ because _____________ (margins or turnover) is ____________ . To get full credit (10 points ) for this post, you must do the following: • Fully answer all six questions ( 6 points ) • Write using complete sentences with minimal typos and other errors ( 1 point ) • Use data to support your answers. For example, don't just say, "My firm holds a lot of cash." Say, "At 20% of total assets, my firm's cash holdings are relatively large." ( 2 points) • Make a comparison between your firm and at least one other firm posted either in your first post for this DB or in a follow up post to this DB before the due date. For example, "At 20% of total assets, my firm's cash holdings are relatively large. However, John Smith's firm Acme I nc. in the same industry appears to hold even more cash, at 30% of assets. Perhaps Acme is preparing for an acquisition." The reference should be a meaningful comparison. Here for example, I don't just compare, I offer a possible explanation for the di fference. (1 point ) *** Respond to ONLY 1 classmate s post below **** Guidelines for responding to a class mates post Read your classmates’ posts and find a firm that differs from yours in regards to either FINANCING , INVESTMENTS or OPERATIONS . (Choose only one of these three areas.) Describe how they differ and try to explain why they differ. For example, if your firm is in retail and has high cost of goods sold, you might compare your firm to a service firm that has low cost of goods sold but high lab or expense. These firms differ because retail is the reselling of items, whereas service firms do not resell items, they offer a service, generally performed by employees. You can do this either in your first post for this DB or in a follow up post. Stu dent 1 Post ( GENERAL MILLS ) 1. General Mills has low liquidity ratios compared to the industry and sector. Its quick ratio is .36 compared to the industry’s 1.12 and the sector’s 0.94. Its current ratio is .58 compared to the industry’s 1.57 and the sector’s 1.54. Based on the quick ra tio, General Mills’ current assets don’t generate enough funds to cover the current liabilities. 2. General Mills’ receivable turnover of 10.09 is much lower than the industry and sector, 12.77 and 20.99 respectively. Its asset turnover of 0.62 is also low er than the industry’s 0.93 and the sector’s 1.73. While General Mills’ inventory turnover of 6.81 was lower than the industry’s 7 but higher than the sector’s 6.72. Since General Mills has relatively low turnover ratios this could indicate that they overi nvested or have a reliance on fixed assets. Based on the common sized balance sheet General Mills has 32.66% of its total assets in property, plant and equipment and 45.93% of its total assets in goodwill.

Given this information it looks like the reason fo r the low ratios was due to overinvestment as well as a reliance on fixed assets. 3. In general, I see the relationship where the liquidity ratios are low and the turnover ratios are high and vice versa. This relationship is most evident in terms of the re ceivable and inventory turnovers. For instance, General Mills has a quick ratio of 0.36 and current ratio of 0.58. It’s receivable turnover of 10.09 and inventory turnover of 6.81 are much higher than the liquidity ratios, but the asset turnover of 0.62 is not much different from the liquidity ratios. The ratios for the industry don’t follow the trade -off pattern clearly either. With a high quick ratio of 1.12 and current ratio of 1.57, you would expect all of the turnover ratios to be low but the receivabl e turnover of 12.77 and inventory turnover of 7.0 are high while the asset turnover of 0.93 is low. 4. I can see the trade -off of between profit margin and turnover. This relationship is the most evident when comparing asset turnover to net profit margin. General Mills has an asset turnover of 0.62 when its net profit margin is 8.95. Similarly the industry has a 0.93 asset turnover when its net profit margin is 8.09 and the sector has a 1.73 asset turnover when its net profit margin is 10.04. 5. General M ills has a ROA that is a bit lower than the industry and significantly lower than the sector. General Mills has a ROA of 5.54, the industry has a ROA of 7.63 and the sector has a ROA of 28.07.