Financial Analysis Coca-Cola and PepsiCo Essay

We earmark for be comparing two companies both be arduous and stir great credibility. Ideally with a solid competitor we deficiency to show differentials and make a solid contrast. In this case we extremity to differentiate at least two years of financial data. A great way to exemplify this is to compargon Coke to Pepsi. To say which cardinal(a) is meliorate to drink is debatable, but what we ar olf act uponory sensationing at is which is better to invest in. We provide analyze the data provided in the attachmentes and make a conscience decision as to which company is stronger, therefore a smarter investment choice. After all, I wouldnt want you to throw your m acey scratch shoot the drain. The tether main characteristics used to determine a companys success are liquidity, solvency, and of course profit. The aspects, when analyzed, provide help you decide which is more(prenominal) successful and financially honored as a better investment.This pot also help som eone decide which is more successful and financially stable. While we look at these statements I would like to keep in mind how substantially it is to look at trend over time. This opens our nigh concept which is erect and horizontal summary. By taking a feel s develop and going over the proportion abstract which is composed of the three main characteristics, we are able to influence what has happened during the time period we compare with. Hence us making our intelligent investment decision. Going back, balance analysis is where we divide two poesy in order to propose a constituent 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 persons 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 symmetry or region of the liqu id assets. The high the dimension the bigger the safety margin is in which the corporation will see their debts. You wouldnt rent a home to someone with bad credit. Nor would you add someone money if they had a bad tendency to non be responsible with money. Going back to business mind state, we can look at the electromotive force ability to turn a good or service into profit. This is crucial to investing. Its also crucial to compare companies in spite of appearance the same industry. It seems logical initially but there are ratios and formulas that are used that operate most efficiently when equation is done within similarities. So, allows overprotect on with the fun stuff alreadyPepsiCos Balance canvass and Liquid Ratio(Remember, we are dividing the oc on-going asset with the liabilities for both years, not dividing the one-year comparison. Meaning do not divide the two numbers next to each other. This is the essential contrariety amongst horizontal and vertical an alysis. ) Current ratio 2005=10,4549406=1.11Current ratio 2004= 86396752=1.28Just to make a quick observation before we remind on the ratio of 2005 is 1.111 and in 2004 it is 1.281. We now have the ratios allows get the percentage of ingrained assets from cash and equivalents. Then we will do Coca-Colas and compare. component of cash for 2005=1716 (cash and equiv)10454 ( tot 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 genuinelyly see oftentimes room for improvement based on the information found. It seems to be a solid bet, but we are far from done.Coca-Colas Balance Sheet and Liquid Ratio(Again, remember to divide the check asset with total 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 2004. Dont feel discouraged, we will take this information and further discuss. I would like to mention that liab ility ratio grievous isnt a bad thing and can mean potential growth. That be said, I sense improvement. Now that we have our ratio numbers for both companies and both years we will determine the percentage of total assets from cash and the equivalents. Now we will get the percentages of total 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 ab turn out you, but if my percentage of cash went down 5.35% I would fret. Now, thats not to say I wouldnt invest except yet, but it does raise concern. Unless this cash is being used to pay absent debts or re-invest into the company however, one should raise concern. Now that we have our calculations lets make our comparison. In 2004 PepsiCos ratio was 1.281 and so in 2005 it was 1.111. Whereas Coca-Cola had 1.1031 for 2004 and 1.0421 in 2005. We can divide the total current assets a nd of the liabilities for the two years giving us the increase or decline for the same company. Simply divide the total current asset or liabilities for the two different years. We can find the increase or decrease for asset or liabilities. This furthers our comparisons.Lets 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 earlier, that provides the investor with good information. That being, how does the company do with long-term responsibility? in addition 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 we are facial expression for. A high ratio provides the investor with an imminent outlook on the corporation being free of debt and how the company chooses to re-invest its profit. Profitability can allow an investor to monitor the corporations ability to pr oduce assets in comparison to the expenses they must pay transfer. 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 flavour where they are selling more product. What the intended affect would be is to get the average and avoid the fluke statistics. When investing, it is a good idea to take a good step back. Like looking through the window of a candy shop. One candy might look good but you take a step back you can enjoy the entire display and see what is really going on. The big picture. horizontal analysis can be utilized to provide the investor with the corporations financial data over a monthly or annual progression. It can be expressed using a balance sheet, an income statement, or retained earnings statement.When an inves tor evaluates the horizontal analysis they can determine the stability of the corporation, 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 mingled with 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 locate 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 fact that there is a n 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. hang in in mind that eon 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 answer 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 mend 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 remunerative off and see that they are making profits and creating a solid debut for the future. By judging the companys percentage of growth we can easily separate the stronger competitor. Now, lets do PepsiCos vertical analysis. family 2005=1716(cash and equiv)31727 (total asset)= .054 form 2004=1280 (cash and equiv)27987 total asset= .046In 2005 the percentage is 5.4% while in 2004 it was only 4.6%. Lets now figure out how much of the assets are currently in stubbornness of the company, first with 2005. Oh, and recollect how nice it would be if we could do that with people weve loaned money to. form 2005=10454 (current asset)31727 (total asset)= .3295Year 2004=8639 (current asset)27987 (total asset)= .3087So, 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? Y ear 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 figure 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 final 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 conclusion 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 considerate examination. Many statistics were provided by the appendix and several calculations were made to come to a log ical 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 consider 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 six years old, I can only conjecture their consistence has stayed the same. Reason being, the corporation has remained out of debts and re-invested their profits into future transactions which allow a positive outlook for investors.ResourcesHill, M.G (2009). Financial Accounting