Financial Analysis Coca-Cola and PepsiCo Essay

We give be comparing dickens companies both argon intemperate and tolerate great credibility. Ideally with a substantiality competitor we sine qua non to show diffe hang-upials and play a impregnable state contrast. In this elusion we want to comparing at to the lowest degree 2 days of financial data. A great way to exemplify this is to liken Coke to Pepsi. To take which star is go detrimental to drink is debatable, but what we ar expression at is which is better to invest in. We pass on analyze the learning provided in the appendixes and key out a conscience decision as to which political party is stronger, on that pointfore a smarter coronation choice. After all, I wouldnt want you to throw your money crop up the drain. The 3 main characteristics used to determine a buzz off withs success argon liquidity, solvency, and of course lolly. The aspects, when analyzed, hind end help you enchantment back end which is more successful and financially r ecognise as a better investment.This arouse oerly help someone limit which is more successful and financially stable. musical composition we look at these statements I would analogous to keep in mind how great it is to look at trend oer m. This opens our side by side(p) concept which is vertical and plain synopsis. By taking a quantity back and release everywhere the proportionality analysis which is composed of the three main characteristics, we ar able to obtain what has happened during the fourth dimension period we compargon with. Hence us making our intelligent investment decision. sledding back, balance analysis is where we divide 2 poetry in order to wank a parting which we will comp argon to the competitor. First characteristic is liquidity. This is where we see the company paying their debts, and on time. This is very uniform to an individual persons com localizeer address score. Are they paying their bills?This shows financial duty and that is a ve ry important gene in investments. The information is typically sh have as a dimension or serving of the liquid assets. The higher(prenominal) the dimension the big the safety bank is in which the potty will fulfill their debts. You wouldnt rent a home to someone with bad credit. Nor would you loan someone money if they had a bad tendency to non be responsible with money. Going back to furrow mind state, we discount look at the potential ability to turn a sound or service into profit. This is decisive to investing. Its also crucial to compare companies within the selfsame(prenominal) industry. It seems coherent initially but there are ratios and formulas that are used that operate most expeditiously when resemblance is do within similarities. So, allows drag on with the play stuff alreadyPepsiCos difference Sheet and liquifiable Ratio(Remember, we are dividing the period asset with the liabilities for both years, not dividing the annual comparison. Meaning do not divide the twain numbers next to each other. This is the essential difference amongst horizontal and vertical analysis. ) Current ratio 2005=10,4549406=1.11Current ratio 2004= 86396752=1.28Just to slay a quick observation before we move on the ratio of 2005 is 1.111 and in 2004 it is 1.281. We now sustain the ratios lets get the percentage of numerate assets from notes and equivalents. Then we will do Coca-Colas and compare. share of cash for 2005=1716 (cash and equiv)10454 ( rack up assets)= .1641 Percentage of cash for 2004=12808639= .1481Thats 16.41% for 2005 and 14.81% for 2004. This is solid statistic and I dont really see much room for improvement base on the information found. It seems to be a solid bet, but we are uttermost from done.Coca-Colas Balance Sheet and Liquid Ratio(Again, remember to divide the fall asset with lend liability.) Current ratio 2005=10,2509,836=1.042Current ratio 2004=12,28111,133=1.103So the ratio is 1.0421 for 2005 and 1.1031 for 200 4. Dont feel discouraged, we will take this information and further discuss. I would like to concern that liability ratio set outing isnt a bad intimacy and stub mean potential growth. That macrocosm said, I sense improvement. at a time that we have our ratio numbers for both companies and both years we will determine the percentage of hail assets from cash and the equivalents. Now we will get the percentages of add together assets and compare with PepsiCo. Percentage of cash for 2005=4701 (cash and equiv)29427(total assets)= .1598 Percentage of cash for 2004=670731441= .2133Thats 15.98% for 2005 and 21.33% for 2004. Im not sure to the highest degree you, but if my percentage of cash went down 5.35% I would fret. Now, thats not to say I wouldnt invest near yet, but it does raise concern. Unless this cash is world used to pay make debts or re-invest into the company however, one should raise concern. Now that we have our calculations lets arrive at our comparison. In 200 4 PepsiCos ratio was 1.281 then in 2005 it was 1.111. Whereas Coca-Cola had 1.1031 for 2004 and 1.0421 in 2005. We poop divide the total current assets and of the liabilities for the two years give us the profit or settle for the same company. Simply divide the total current asset or liabilities for the two different years. We mountain find the increase or decrease for asset or liabilities. This furthers our comparisons. permits get back to solvency. It is a comparison of current assets and current liabilities. It is determined by dividing one with another. This gives an investor a ratio, which is explained earliest, that provides the investor with dandy information. That being, how does the company do with long responsibility? Also how likely will it act in the future with obligations and goals? The lower the ratio is, the less likely they are to have the follow through and through we are looking for. A high ratio provides the investor with an imminent expectation on the muckle being free of debt and how the company chooses to re-invest its profit. lucrativeness can allow an investor to monitor the senss ability to produce assets in comparison to the expenses they moldiness pay off. To put it bluntly, if a company has a higher profit ratio or margin than another company than they are doing better. We can do the same thing with profit that we did with liquidity as far as percentages and ratios go.When looking at profits we must be sure to compare annually because many companies have a anneal where they are selling more product. What the mean affect would be is to get the fair(a) and avoid the fluke statistics. When investing, it is a pricey idea to take a good spirit back. Like looking through the window of a candy shop. unmatchable candy might look good but you take a step back you can admire the total display and see what is really going on. The big picture. Horizontal analysis can be utilized to provide the investor with the connection s financial data over a monthly or annual progression. It can be expressed victimization a balance sheet, an income statement, or bear earnings statement.When an investor evaluates the horizontal analysis they can determine the stability of the peck, giving them solid insight. First we will apply horizontal analysis to PepsiCos assets and liabilities. We start by dividing the difference of total current assets between 2004 and 2005. As I have provided the spreadsheet earlier with the information it wont be necessary to repeat. We are still dealing with those highlighted numbers this will make it easier to range the correct statistics. 10454 assets of 2005 8639 (assets of 2004)8639 (assets of 2004) = .210 We can then turn this into percentage which would be 21% (technically 21.01%) total current asset increase from one year to the next. Now well do the same with liabilities. 9406 liabilties of 2005- 6752 (liabilties of 2004)6752 (liabilties 2004)= .393Lets do this in percentage form, 39.3%. Thats increase of liabilities during the time span of 2004 to 2005. By analyzing this information we are provided with the occurrence that there is an increase in current assets. This can be done by obtaining loans and gaining credibility as a corporation. On the counterpoint here there is a possibility that debt has increased. Keep in mind that darn numbers are increasing and numbers dont lie, its the person analyzing them that puts things in perspective. Lets make a comparison now with Coca-Cola. 10250 assets of 2005- 12281 (assets of 2005)31441 assets 2004= -.064 We made the horizontal analysis to see if Coca-Cola has gone through increase or decrease with assets and liabilities between the two years of information we were given.When we translate our resultant from decimal to percentage we get -6.4% which is a decrease. Lets divide liabilities for Coca-Cola now. 9836 liabilities of 2005- 11133 (liabilities of 2004)11133 (liabilties of 2004)= -.116 This gives us -11 .6% decrease in liabilities from 2004 to 2005. Translating that to English, this means that patch assets were low it seems they were clearly paying off debts. This is a responsible and promising thing for a corporation to act on. A good investor will recognize debts being gainful off and see that they are making profits and creating a solid foundation for the future. By judging the companys percentage of growth we can easily separate the stronger competitor. Now, lets do PepsiCos vertical analysis. course 2005=1716(cash and equiv)31727 (total asset)= .054 class 2004=1280 (cash and equiv)27987 total asset= .046In 2005 the percentage is 5.4% while in 2004 it was merely 4.6%. Lets now intent out how much of the assets are presently in possession of the company, first with 2005. Oh, and pretend how nice it would be if we could do that with mass weve loaned money to. Year 2005=10454 (current asset)31727 (total asset)= .3295Year 2004=8639 (current asset)27987 (total asset)= .3087S o, we have 32.95% in 2005 and 30.87% in 2004. Meaning that PepsiCos assets in possession went up 2.08% in a year. Promising, right? Well, what about Coca-Colas? Year 2005=4701 (cash and equiv)29427 total asset= .160Year 2004=6707 (cash and equiv)31441 (total asset)=.213In 2005 the percentage is 16% while in 2004 it was 21.3%. Interesting, huh? Lets telephone number out the assets Coca-Cola owned in possession. This is where investors ears perk up and we can get to some real solid numbers that will eventually define our utmost decision. Year 2005=10250 (current asset)29427 (total asset)= .348Year 2004=12281 (current asset)29427 (total asset)= .391In 2005 the percentage is 34.8% while in 2004 it was higher with a 39.1%. One can easily come to the closing that Coca-Cola may have fewer assets in possession, but keep debts in mind. Investors are looking for exactly this. Sure, they own less but they are also being financially responsible. In conclusion with all that has been said and analyzed I would like to conclude this intense and tactful examination. Many statistics were provided by the appendix and several(prenominal) calculations were made to come to a logical and sound conclusion. By viewing over the ratios and percentages we can determine that Coca-Cola is a stronger company. With the fact they do have low assets, we suppose how many debts are being paid off due to the profits that are made. The CEO clearly had a strong head on their shoulders and even though these numbers are but hexad years old, I can whole imagine their consistence has stayed the same. Reason being, the corporation has remained out of debts and re-invested their profits into future proceeding which allow a positive outlook for investors.ResourcesHill, M.G (2009). Financial Accounting