Analyzing the Reclassification of Debt PepsiCo, Inc., is a $25 billion company in the beverage, snack food, and restaurant businesses. 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 and ability to 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 quick ratio improved from 0.21 to 0.59. Do you think the reclassification was appropriate? Why do you think management made the reclassification? As a financial analyst, would you use the quick ratio before the reclassification or after the reclassification to evaluate PepsiCo’s liquidity?