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Financial Accounting Concepts And Principles Week 7

859 words - 4 pages

The three tools of financial statement analysis are ratio analysis, the vertical analysis and the horizontal analysis. The three characteristics of a business, liquidity, profitability and solvency can be determined from the company’s financial statements by using these three tools. The company’s liquidity ratio, profitability ratio and their solvency ratio can all be obtained through this analysis. The knowing of the financial stability of a business is what these ratios can provide.
The vertical analysis is described as “A technique that expresses each financial statement item as a percent of a base amount (Weygandt, Kimmel, & Kieso, 2008).” Common-size analysis is another name for ...view middle of the document...

We could determine the total cash percentage and cash equivalents by dividing total cash and cash equivalents each by the total of all company assets.
%=1716 Cash and cash equivalents31727 Total assets=0.054
During 2005, PepsiCo, Inc. cash and cash equivalents were a total of 5.4%.
%=1280 Cash and cash equivalents27987 Total assets=0.046 or 4.6% cash and cash equivalents for 2004.
The company’s current assets include the smaller figures, cash and cash equivalents. The application of this formula for grouped numbers also can be done.
In 2005, PepsiCo had:
%=10454 Current assets31727 Total assets=0.3295 or 32.95%
In 2004, the company showed:
%=8639 Current assets27987 Total assets=0.3087 or 30.87%
The calculation for PepsiCo, Inc.’s horizontal analysis shows whether or not there were increases or decreases between the years 2004 and 2005. This is done by looking at the total change in assets as a percentage of assets. Do this by taking the 2005 current assets figure and divides it by the 2004 current assets figure.
10454(total current assets 20058639(total current assets 2004=1.2101
There was a 21.01% increase in total current assets for PepsiCo.
Reviewing PepsiCo’s liabilities shows that an increase in assets is because of an increase in the company’s liabilities. The equation used is:
9406(total current liabilities 20056752(total current liabilities 2004=1.393
This is a 39% increase in PepsiCo’s liabilities during the same period. The company...

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