Question:
Current Position Analysis: PepsiCo, Inc., the parent company of Frito-Lay snack foods and Pepsi beverages, had the following current assets and current liabilities at the end of two recent years:

Current Year (in millions) Prior Year (in millions)
Cash and cash equivalents $5,943 $3,943
Short-term investments, at cost 426 192
Accounts and notes receivable, net 6,323 4624
Inventories 3,372 2,618
Prepaid expenses and other current assets 1,505 1,194
Short-term obligations 4,898 8,292
Accounts payable 10,994 464

Determine the (1) current ratio and (2) quick ratio for both years.

Current Ratio and Quick Ratio:
The current ratio is calculated by taking current assets divided by current liabilities. The quick ratio is calculated by taking cash, short-term investments, and current receivables together then dividing them by current liabilities, Both of these ratios help measure liquidity and solvency.

The current assets = Cash and cash equivalents + Short-term investments + Accounts and notes receivable + Inventories + Prepaid expenses and other current assets

= $5,943 + $426 + $6,323 + $3,372 + $1,505

= $17,569

And, current liabilities would be

= Short-term obligations + Accounts payable

= $4,898 + $10,994

= $15,892

Now put these values to the above formula

So, the ratio would equal to

= $17,569 ÷ $15,892

= 1.11 times

For Prior year,

The current assets = Cash and cash equivalents + Short-term investments + Accounts and notes receivable + Inventories + Prepaid expenses and other current assets

= $3,943 + $192 + $4,624 + $2,618 + $1,194

= $12,571

And, current liabilities would be

= Short-term obligations + Accounts payable

= $8,292 + $464

= $8,726

Now put these values to the above formula

So, the ratio would equal to

= $12,571 ÷ $8,726

= 1.44 times

2. Quick ratio = Quick assets ÷ total current liabilities

where,

Quick assets = Cash and cash equivalents + short-term investments + Accounts receivable (net)

For current year it would be,

= $5,943 + $426 + $6,323

= $12,692

And, the current liabilities is $15,892

Now put these values to the above formula

So, the value would equal to

= $12,692 ÷ $15,892

= 0.79 times

For prior year it would be,

= $3,943 + $192 + $4,624

= $8,759

And, the current liabilities is $8,726

Now put these values to the above formula

So, the value would equal to

= $8,759 ÷ $8,726

= 1 times