Financial Analysis for Pepsi and Coke

Topics: Generally Accepted Accounting Principles, Revenue, Balance sheet Pages: 7 (1967 words) Published: October 14, 2012
Financial Analysis for Pepsi and Coke
Axia College of University of Phoenix

Comparing financial data from statements can help determine whether or not it is a sound decision to invest in a company. This information can also help determine if a company is operating successfully and areas of risk within the company. This analyzing can help one company compare itself to another company and ensure that they are able to compete with other companies in their respective industries. PepsiCo and Coca-Cola are two major companies that make a majority of their money from producing and selling soft drinks. To compare these companies we are going to use vertical and horizontal analyses to see if these companies are built for long-term success as well as short-term success. The use of ratio analyses for both companies can be useful to compare financial data for specified areas of each company. Both ratios and analyses will help determine which company would be of better interest to an individual for investment opportunities. Using financial analysis will help use the financial statements of PepsiCo and Coca-Cola to see which company is more financially sound, and determine which company will have the ability to make money over a longer period of time.

Horizontal Analyses
Horizontal analysis is a technique of comparing data from financial statements over a period of time. The purpose of comparing this data is to track and trend information that can help people understand whether a company is doing good or bad financially. After conducting horizontal analysis for PepsiCo and Coca-Cola, it looks as though Coca-Cola is in better shape financially. While PepsiCo’s net revenues (Example 1) have grown at a much greater rate, their net income (Example 2) has come down at a good rate. Coca-Cola’s net revenues (Example 1) have dropped, but the net income has rose. Even though PepsiCo’s net revenues grew Coca-Cola’s dropped, Coca-Cola’s net income rose and PepsiCo’s net income dropped. When investing in a company it is good to see that the net income is rising, even if not by a great amount, at a steady rate. For PepsiCo to get better financially in this area they need to find a way to raise net revenues without suffering losses in net income. 1. PepsiCo Net Revenues and Coca-Cola Net Revenues change since base year:

PepsiCo Net Revenues (assuming 2003 is base year)
| 2005| 2004| 2003|
Net Revenue| $32,562| $29,261| $26,971|
Increase or (Decrease) in % from base year| (32,562-26,971)/26,971= 20.7% | (29,261-26,971)/26,971= 8.4%| |

Coca-Cola Net Revenues (assuming 2003 is base year)
| 2005| 2004| 2003|
Net Revenue| $23,104| $21,742| $20,857|
Increase or (Decrease) in % from base year| (23,104-20,857)/20,857= 10.7% | (21,742-20,857)/20,857= 4.2%| |

2. PepsiCo Net Income and Coca-Cola Net Income change since base year
PepsiCo Net Income (assuming 2003 is base year)
| 2005| 2004| 2003|
Net Income| $4,078| $4,212| $3,568|
Increase or (Decrease) in % from base year| (4,078-3,568)/ 3,568= 14.3% | (4,212-3,568)/ 3,568= 18.04%| |

Coca-Cola Net Income (assuming 2003 is base year)
| 2005| 2004| 2003|
Net Income| $4,872| $4,847| $4,347|
Increase or (Decrease) in % from base year| (4,872-4,347)/ 4,347= 12.07% | (4,847-4,347)/ 4,347= 11.5%| |

Vertical Analyses
Vertical Analysis is a method of comparing financial data to determine what percentage a certain element is in relation to an overall area. For example, if current assets were $15 and the total assets were $100, current assets would be 15% of total assets. After conducting vertical analysis for PepsiCo and Coca-cola, it seems as though Coca-Cola may be in better shape financially. PepsiCo’s current assets...

References: Weygandt, J. J., Kimmel, P. D., & Kieso, D. E. (2008). Financial accounting (6th ed.). Hoboken, NJ: Wiley.
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