Coca-Cola and PepsiCo
University of Phoenix
We will be comparing two companies; both are strong and have great credibility. Ideally with a solid competitor we want to show differentials and make a solid contrast. In this case we want to compare at least two years of financial data. A great way to exemplify this is to compare Coke to Pepsi. To say which one is better to drink is debatable, but what we are looking at is which is better to invest in. We will analyze the information provided in the appendixes and make a conscience decision as to which company is stronger, therefore a smarter investment choice. After all, I wouldn’t want you to throw your money down the drain. The three main characteristics used to determine a company’s success are liquidity, solvency, and of course profit. The aspects, when analyzed, can help you decide which is more successful and financially honored as a better investment. This can also help someone decide which is more successful and financially stable. While we look at these statements I would like to keep in mind how good it is to look at trend over time. This opens our next concept which is vertical and horizontal analysis. By taking a step back and going over the ratio analysis which is composed of the three main characteristics, we are able to see what has happened during the time period we compare with. Hence us making our intelligent investment decision. Going back, ratio analysis is where we divide two numbers in order to get a percentage which we will compare to the competitor. First characteristic is liquidity. This is where we see the company paying their debts, and on time. This is very similar to an individual person’s credit score. Are they paying their bills? This shows financial responsibility and that is a very important component in investments. The information is typically shown as a ratio or percentage of the liquid assets. The higher the ratio the bigger the safety margin is in which the corporation will fulfill their debts. You wouldn’t rent a home to someone with bad credit. Nor would you loan someone money if they had a bad tendency to not be responsible with money. Going back to business mind state, we can look at the potential ability to turn a good or service into profit. This is crucial to investing. It’s also crucial to compare companies within the same industry. It seems logical initially but there are ratios and formulas that are used that operate most efficiently when comparison is done within similarities. So, let’s get on with the fun stuff already!
PepsiCo’s Balance Sheet and Liquid Ratio
(Remember, we are dividing the current asset with the liabilities for both years, not dividing the annual comparison. Meaning; do not divide the two numbers next to each other. This is the essential difference between horizontal and vertical analysis. ) Current ratio 2005=10,4549406=1.11
Current ratio 2004= 86396752=1.28
Just to make a quick observation before we move on the ratio of 2005 is 1.11:1 and in 2004 it is 1.28:1. We now have the ratios; let’s get the percentage of total assets from cash and equivalents. Then we will do Coca-Cola’s and compare. Percentage of cash for 2005=1716 (cash and equiv)10454 (total assets)= .1641 Percentage of cash for 2004=12808639= .1481
That’s 16.41% for 2005 and 14.81% for 2004. This is solid statistic and I don’t really see much room for improvement based on the information found. It seems to be a solid bet, but we are far from done.
Coca-Cola’s Balance Sheet and Liquid Ratio
(Again, remember to divide the total asset with total liability.) Current ratio 2005=10,2509,836=1.042
Current ratio 2004=12,28111,133=1.103
So the ratio is 1.042:1 for 2005 and 1.103:1 for 2004. Don’t feel discouraged, we will take this information and further discuss. I would like to mention that liability ratio lowering isn’t a bad thing and can mean potential growth. That being...