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RATIO 1. Short-term liquidity

ANALYSIS Both of the current ratio and the acid-test ratio are more favorable for KO (1.13 and 0.65) than CCE (0.89 and 0.53). Clearly, the gap between two firms is reduced when it comes to the acid-test ratio. The account receivable turnover for KO is also better than that of CCE. However, the difference is just marginal. The significant mark is the inventory turnover rate. CCE can turn over the inventory much faster than KO. It can be understandable that KO just produce the extract, while CCE produce the completely final product. CCE will bring in a large amount of sales. However, Large sales are also together with higher COGS and expenses for CCE. In sum, the short-term liquidity of KO is much better than CCE From the introduction of KO and CCE, we realize that KO will need less financing funds than CCE because KO just produces the syrup extract and then distributes it to CCE. Then CCE will be in charge of manufacturing the final products and distributing the products to the final consumers. With that in mind, it is understandable that CCE has large proportion of debt in the capital structure than KO. Besides, the long-term debt to ratio of CCE is also particularly larger than that of KO. From the abovementioned information, I think that CCE has been more financially leveraged than KO. The pros of CCE are that if used judiciously, it can increase the amount of leverage, which is a component of ROCE. The cons of CCE are that it can have matter when it faces with financial distress because it have to pay the principal the interest on a prorate basis. As regards the solvency, the difference between two companies is becoming more and more remarkable. The time interest earned of KO is almost three times as high as that of CCE. This may be for CCE’s lower profitability margin and higher debt proportion in the capital