# Final Financial Analysis

Pages: 5 (1870 words) Published: September 8, 2011
Final Financial Analysis

Axia College University of Phoenix

Financial Analysis is very important to the inner workings of a business. Keep track of financial statements, taxes, audits, and various other areas of financials will show how well a company has done, is doing, and how well it will do in the future. Seeing how well a company is doing into the future is important so they can see any mistakes and try to fix them before they become an issue and hinder the growth of the company. In this essay I will compare financial statements in two companies, PepsiCo. and Coca Cola Company. I will describe what vertical and horizontal analysis is then I will go over the vertical analysis of both companies, comparing one to the other. I will go over the horizontal analysis of both companies, comparing them as well. I will describe ratio analysis and I will show the ratio analysis of both companies, including the testing of a liquidity ration, a solvency ratio, and a profitability ratio. I will explain in my own opinion which company is more financial stable and why, using comparisons of the data from the data stated. I will finally include three recommendations to improve each company’s financial health for the future.

The three most common tools of financial analysis are the vertical analysis, the horizontal analysis, and the ration analysis (which will be discussed later). The vertical analysis evaluates financial statement data by expressing each item in a financial statement as a percentage of an original base amount (2010). The vertical analysis is also referred to as the common size analysis. The vertical analysis shows all data on a financial statement document in terms of a percentage. The vertical analysis will show how much assets, liabilities, or stockholders equity have gone up or declined from the year before. I am providing two examples of vertical analysis, one for PepsiCo. and one for Coca Cola to show which company has improved with assets and liabilities. Two Measures of Vertical Analysis for PepsiCo.

2005 Current Assets 10,454 divided by 2004 Current Assets 8,639 = 1.21= 121% 2005 Current Liabilities 9,406 divided by 2004 Current Liabilities 6,752 = 1.39 = 139% Two Measures of Vertical Analysis for Coca Cola Company

2005 Current Assets 10,250 divided by 2004 Current Assets 12,281 = .84= 84% 2005 Current Liabilities 9,836 divided by 2004 Current Liabilities 11,133 = .88 = 88% The horizontal analysis evaluates a sequence of financial statement data over a period of time (2010); the horizontal analysis is also called a trend analysis. The horizontal analysis determines when an increase or decrease has happened in a company’s financial statement; this like the vertical analysis can be shown as a percentage or unlike the vertical analysis can be shown just as an amount as well. I am providing two examples of the horizontal analysis, one for PepsiCo. and one for Coca Cola that shows the change in assets, in a percentage, from the year 2004 to 2005. Two Measures of Horizontal Analysis for PepsiCo.

2005 Current Assets 10,454 divided by Total Assets 31,727 = .33 = 33% 2004 Current Assets 8,639 divided by Total Assets 27,987 = .31 = 31% Two Measures of Horizontal Analysis for Coca Cola Company

2005 Current Assets 10,250 divided by Total Assets 29,427 = .35 = 35% 2004 Current Assets 12,281 divided by Total Assets 31,441 = .39 = 39% The ratio analysis expresses the association among selected items of financial statement data (2010). These associations can be shown in the forms of percentages, a rate or, a proportion. There are three ratios we will use, each individually will not show essential conditions that one would need to see if a company is financially sound but if used to together we get the full affect of what could be real problems within the company. The three ratios are the liquidity ratio, the solvency ratio, and the profitability ratio. I will provide a ratio analysis for each company...