Final Project: Financial Analysis
• Review the annual reports for PepsiCo, Inc. and The Coca-Cola Company in Appendixes A & B, especially the Consolidated Statements of Income and the Balance Sheets on pp. A4, A6, B1, & B2 of Financial Accounting.
• Write a 1750- to 2,050-word paper in APA format with citations and references that provides a financial comparison of the two companies and your recommendations to improve the financial status of each.
• Include the following:
o An introductory paragraph with a statement of the purpose of your paper and a synopsis of what readers may expect to find in the paper – It is best to write this after writing the rest of the paper.
o Vertical analyses for both companies – You may use your calculations from the Checkpoint Ratio, Vertical, and Horizontal Analyses, providing you show your work.
o Horizontal analyses for both companies – You may use your calculations from the Checkpoint Ratio, Vertical, and Horizontal Analyses, providing you show your work.
• Due Date: Day 7 [post as an attachment to your Individual forum]
Please note that in conducting the analysis, I have used the current year’s figures instead of averages since the data for 2003 is not available.
In this paper, I have attempted to analyze the financial statements of two industry leaders in the field of soft drinks, Pepsico, Inc., and The Coca-Cola Company. In this analysis, I have conducted a vertical analysis (also called common-size analysis) which is a technique that expresses each financial statement item as a percent of a base amount.[i] In this analysis, the base for assets is Total Assets, for liabilities and stockholders’ equity, the base is the Total Liabilities, and Stockholders’ Equity, and finally for Income Statement accounts, the base is Net Sales or Net Revenues. I have also conducted a horizontal Analysis (also known as Trend Analysis) which is a technique for evaluating a series of financial statement data over a period of time. Its purpose is to determine the increase or decrease that has taken place. This change may be expressed as either an amount or a percentage.[ii]
Through examining the financial statements of Pepsico, Inc, and The Coca-Cola Company, I would like to present the following analysis:
Overall, both companies seem to be improving which can be seen from the Horizontal Analysis and Vertical Analysis on the attached excel sheet. Almost all items on Pepsico’s balance sheet have favorably increased between 2004 and 2005; yet it is obvious that current assets have not increased with the same rate as current liabilities, which would explain why the current ratio have decreased from 2004 to 2005. For Coca-Cola, however current assets have decreased from $12,281 in 2004 to $10,250 in 2005, while current liabilities have decreased from $11,133 in 2004 to $9,836 in 2005. For Pepsico, Inventories have increased from $1,541 in 2004 to $1,693 in 2005, this could be a favorable sign especially when we see the improvement in the inventory turnover ratio and days’ sales in inventory. The increase in inventory is usually unfavorable, but in this case it appears that the increase in inventory is to meet increased demand for the company’s products. For Coca-Cola, inventories have increased from $1,420 in 2004 to $1,424 in 2005 which shows that he expected demand Coca-Cola’s management is expecting is not as high as the one expected by Pepsico’s management. For Pepsico, Cash and Cash Equivalents have increased from $1,280 in 2004 to $1,716 in 2005 (34.06% increase), while Accounts Receivables have increased from $2,999 in 2004 to $3,261 in 2005 (a 8.74% increase) while sales have increased from $29,261 in 2004 to $32,562 in 2005 (a 11.28% increase). This explains the increase in inventory as Pepsico seems to be an increase in the demand for its products. The larger increase in cash and cash equivalents in comparison to...
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