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Group 8 Jennifer Chan Jesse Lee Nick Rosas Analyzing the Reclassification o
Black Hills State University, US has reference to this Academic Journal, Group 8 Jennifer Chan Jesse Lee Nick Rosas Analyzing the Reclassification of Debt PepsiCo, Inc. is a $25 billion company is the beverage, snack food, in addition to restaurant business. PepsiCo?s annual report included the following note: At year-end, $3.5 billion of short-term borrowings were reclassified as long-term, reflecting PepsiCo?s intent in addition to ability so that refinance these borrowings on a long-term basis, through either long-term debt issuances or rollover of existing short-term borrowings. As a result of this reclassification, PepsiCo?s current ratio improved from 0.51 so that 0.79. Do you think the reclassification was appropriate? Why do you management made the reclassification? As a financial analyst, would you use the current ratio before the reclassification or after the reclassification so that evaluate PepsiCo?s liquidity?
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Answer: It was appropriate because the management reclassified the short-term current liability of the short term loan into a long-term non-current liability. They made this reclassification most likely because they wanted so that extend the life of the loan. This in-turn improved their current ratio. As a financial analyst would want so that use the current ratio before the reclassification because it gives the most accurate reading of PepsiCo?s liquidity. Since the reclassified current ratio does not include the newly adjusted long term liability, the ratio cannot be used so that evaluate PepsiCo?s liquidity correctly. Group 8 Jennifer Chan Jesse Lee Nick Rosas
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