CheckPoint: Ratio, Vertical and Horizontal Analysis
The calculations you perform for this CheckPoint form the basis of your analysis of your capstone project. • Write an essay in 250 to 300 words an explanation of the three tools of financial statement analysis and the function of each.
• Examine PepsiCo, Inc.’s Consolidated Balance Sheet on p. A6 in Appendix A of Financial Accounting, especially its Current Assets, Current Liabilities, and Total Assets for years 2005 and 2004.
• Calculate the following for PepsiCo, Inc. and show your work:
o The Current Ratio for 2005
o The Current Ratio for 2004
o Two measures of vertical analysis—for example, compute the current assets divided by total assets for each year, and express your result as a percentage o Two measures of horizontal analysis—for example, compute the total change in assets by percentage, by dividing current assets in 2005 by current assets in 2004. Compute a similar percentage for current liabilities
• Examine The Coca-Cola Company’s Consolidated Balance sheet on p. B2 in Appendix B of Financial Accounting, especially its Current Assets, Current Liabilities, and Total Assets for years 2005 and 2004.
• Post your explanation and calculations.
• Due Date: Day 3 [post to your Individual forum]
Three tools of evaluating financial statements that are used most often are Horizontal analysis, Vertical analysis, and Ratio analysis.
Horizontal (or trend) analysis concentrated on evaluation of financial statements for a certain timeframe and is mainly used for the needs within company. It is usually performed for each item of statement, thus giving figures of increase of decrease for each item separately (including the totals of statement). The main goal is determining whether the company grows or decreases, the result can be shown in the amounts or percentage rates; it is relatively easy to read and it provides...
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