The three tools of the financial statement analysis are as follows: Vertical or Common Size Analysis, Horizontal or Trend Analysis, and Ratio Analysis. Each of the analysis functions is different from each other; however each of them serves to analyze pertinent data found on the financial statement. The Vertical Analysis functions to evaluate financial statement data by expressing each item in a financial statement as a percent of the base amount. The Horizontal Analysis functions to evaluate a series of financial statement data and the Ratio Analysis functions to express the relationship among selected items of the financial statement data.
If we take a look at PepsiCo, Inc.’s ...view middle of the document...
The same equation applies for 2004 numbers.
% = 1280 (cash and cash equivalents) = 0.046
27987 (total assets)
The equation result is PepsiCo, Inc. having had 4.6% cash and cash equivalents for 2004.
The cash and cash equivalents belong to a larger figure known as the Current Assets. The equation below is used to determine the percentage of grouped numbers. For Example:
% = 10454 (current assets) = 0.3295 or 32.95 % (2005)
31727 (total assets)
% = 8639 (current assets) = 0.3087 or 30.87 (2004)
27987 (total assets)
To evaluate PepsiCo, Inc. using Horizontal Analysis we need to determine increase and decrease that has occurred from 2004 to 2005. Alike, we need to determine the total change in assets by percentage. To accomplish this, we divide 2005 current assets by 2004 current assets in the equation below.
(10454 (total current assets 2005) / (8639 (total current assets 2004) = 1.2101
This demonstrates a difference of 21.01% increase in total current assets. The same equation can be used to determine if the company’s increase in assets is a factor in their increase of liabilities as well.
(9404 (total current liabilities 2005) / (6752 (total current liabilities 2004) = 1.393
The above equation demonstrates a 39% increase in liabilities; which is a result of the company acquiring more liabilities altogether. This analysis finding is somewhat of a red flag for the business.
To evaluate the Coco-Cola...