In this paper, you will find financial comparisons on both PepsiCo and the Coca-Cola Corporation. Some increases in certain areas of one company and some decreases in areas of another company. There are vertical analysis, horizontal analysis, and ratios of both the industries. These are still the two leading soft drinks in the industry, and most like will remain the leaders in the upcoming years.
The purpose of this paper is to provide a financial analysis comparison between PepsiCo and the Coca-Cola Cooperation. Many companies are forever finding ways to improve market value to increase sales, and income. Consumers will always look for deals or special buys to not only save them money but also, give them better quality. Companies are always looking for ways to make profits when marketing their products. This paper analyzes the financial statements of the two leaders in the soft drink industry. Looking at the Consolidated Statements of Income and the Balance Sheets of both companies, one might determine which would be the better company to invest their money. One of these companies has a greater increase in sales, profit gain, net cash, and income than the other one. Using calculations of Ratios, Horizontal Analysis and Vertical Analysis will show why one company would be the better choice in investing than the other. Performing a Vertical Analysis or Common Size, A method of financial statement analysis in which each entry for each of the three major categories of accounts (assets, liabilities and equities) in a balance sheet is represented as a proportion of the total account. The main advantage of vertical analysis is so that the balance sheets of businesses of all sizes can easily be compared. It also makes it easy to see relative annual changes within one business (http://www.investopedia.com/terms/v/vertical_analysis.). The Vertical Analysis is represented as a percentage of a base amount. Each category has a different way to determine the base amount. To come up with the base amount for assets, one would look at the total current assets, which for PepsiCo are $10,454, or $10,454,000 since it has to be in the millions. These current assets were for the year 2005. The total current assets for 2004 totaled $8,639 or $8,639,000. The base for liabilities and stockholder’s equities are the total liabilities and stockholder’s equities which for 2005 were $9,406 or $9,406,000 because it has to be represented in the millions and $6,752 or $6,752,000 for 2004 the final base amount would be the Income Statement Account which are net sales or net revenues. The net revenue for 2005 was $32,562,000 and $29,261,000 for 2004. The Vertical Analysis I conducted on PepsiCo gave me 30.87 or 31 percent for 2004 and 32.95 or 33 percent for 2005. This shows a slight increase from one year to the next. The Vertical Analysis I conducted on Coca-Cola gave me 35 percent which was done by dividing 10,250,000 by 29,427,000 or 10,250,000/29,427,000 = 35% for 2005 and I received 39 percent for 2004 which was done by dividing 12,281,000 by 31,441,00 or 12,281,000/31,441,00 = 39%.
I then chose to conduct a Horizontal Analysis or Trend Analysis as it is sometimes referred as. This Analysis is the comparative study of a balance sheet or income statement for two or more accounting periods, to compute both total and relative variances for each line item(www.businessdictionary.com/horizontal-analysis). The calculations I received from performing this analysis were done by dividing 2005’s current liabilities 17,476,000/ 2004’s current 14,464,000 which equals 1.20824 The liabilities part calculates to 139% that’s from dividing 2005’s current liabilities 9,406,000/ 2004’s 6,752,000 which gives me 1.39307 or 139%. The purpose of the Horizontal Analysis is to examine the decrease or increase of the financial statements that has occurred of a certain period. This determination can be...
References: Investopedia ULC. (2011). Retrieved from http://www.investopedia.com/terms/v/vertical_analysis.
Web Finance Inc. (2011). Retrieved from http://businessdictionary.com/horizontal-analysis
Weygandt, J. J., Kimmel, P. D., & Kieso, D. E. (2008). Financial Accounting (6th ed.). Hoboken, NJ: Wiley.
Please join StudyMode to read the full document