Comparative Financial Statement Analysis
for 2008 and 2009
An Analysis Prepared for
Financial Management (BAFI 2109)
Ms. Maria Luna Luz Castro-Labay, MSC Acctg, CPA
Muscat, Sultanate of Oman
Baguio City, Philippines
The main purpose of Financial Statements is to communicate the financial condition and operating results of the business. Hence, interpretation of the financial statements is crucial to the decision making of the management of any business. Financial Statement analysis may be done in several ways. The different methods are • Ratio analysis
• Vertical analysis,
• Horizontal analysis, and
• Trend analysis.
These methods are interrelated in a way that a particular ratio is also a horizontal analysis or a vertical analysis. Trend analysis is also based on either the horizontal analysis or the vertical analysis. In this report, the financial statements of Coca-Cola Company (Coke) and PepsiCo, Inc. (Pepsi) for the years 2009 and 2008 were taken to illustrate how financial statement analysis is done or accomplished. An individual analysis for each company was made followed by a comparative analysis on the performance of both companies as taken from the individual analysis made. Coca-Cola Company and PepsiCo, Inc. are the two leading soft drink or Cola companies. Both companies are producing variety of products to the point that one product of Coke may dominate the market and another product of Pepsi may dominate another. The above mentioned were used on the financial statements of Coca-Cola Company and PepsiCo, Inc. were ratio analysis, vertical analysis, and horizontal analysis/trend analysis. From the calculated ratios the performances of the two companies were consistent from 2008 to 2009. The trend created can be monitored and noted for further analysis. The limitation on the number of years to study on is insufficient to really consider it as a trend analysis. The limitations in financial statement analysis, the use of the three (3) methods is not enough to gather concrete evidence for a reliable conclusion. The two years under consideration is enough to calculate for the ratios for illustrative purposes only and not for decision making or conclusive performance evaluation for the two companies.
This financial analysis of the two giant cola companies was prepared for the following objectives: • to know the performance of Coke and Pepsi;
• to know which company is performing better;
• to identify the more profitable company; and
• To have a better understanding in analyzing financial statements.
The different methods of analyzing the financial statements of PepsiCo and Coca-Cola, presented in the Appendices are presented in the following paragraphs. Interpretation of the calculated ratios is also discussed. Ratio Analysis
There are different financial ratios that can be use to analyze a financial statement. The different ratios are used to measure the different financial capabilities or performance of an entity. Financial ratios are used to measure an entity’s liquidity, profitability and stability. An entity’s liquidity refers to its capability to settle currently maturing obligations otherwise known as short term obligations. Profitability of an entity refers to its capacity to earn profit or income, while an entity’s stability refers to its capacity to meet its long term obligations. For the given companies under study, the financial ratios considered are: • Debtor Turnover ratio
• Average Collection Period
• Creditor Turnover ratio
• Average Days of Payables
• Current Ratio
• Total Assets Turnover ratio
• Fixed Asset Turnover ratio
• Earnings Per Share (EPS)
Debtor Turnover ratio also known as Receivable Turnover ratio is calculated by dividing Turnover or Sales by the average trade receivables. The turnover reflects the number of times the receivables are...
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