Financial Accounting Concepts and Principles
September 9, 2011
PepsiCo, Inc. and The Cola-Cola Company are two the of the world’s largest beverage distributors. Both organizations are known worldwide and can be found in almost any store. Even though the organizations are very similar in what they do; they are very different when it comes financial analysis and branding. As you will see in this paper the financial comparison of the two are quiet different. We will look at the vertical analyses and horizontal analyses for each organization for the years of 2004 and 2005. A Horizontal analysis evaluates a series of ...view middle of the document...
We take $29,427,000-$31,441,000= -$2,014,000. So we divided -$2,014,000/$31,441,000= -6.4% decrease in their assets from 2004 to 2005. As you can see in the comparison PepsiCo earned money with a 13.4% increase in assets from 2004 to 2005. Coca-Cola on the other hand had a loss with a 6.4% decrease in their assets. Now let’s see the horizontal analysis of each company’s liabilities. PepsiCo had $17,476,000 for 2005 and $14,464,000 for 2004, so if we take $17,476,000-14,464,000=$3,012,000, so now we divided $3,012,000 /$14,464,000 =20.8% increase in their liabilities from 2004 to 2005. Coca-Cola had $13,072,000 for liabilities in 2005 and $15,506,000 in liabilities for 2004. We take $13,072,000-$15,506,000=$2,434,000, we then divided that by $15,506,000 which shows a decrease in liabilities of 16% from 2004 to 2005. The horizontal analysis is primarily used for intra-company comparisons. This determines the increase or decrease over a period of time such as the two year comparison above.
The horizontal analysis is referred to as trend analysis shows that PepsiCo is growing in assets but there liabilities as well. At this rate they really need to find a better balance between their asset growth rate and their liability growth rate. We all know that it takes money to make money but PepsiCo has to be smart and start paying down their liabilities so that their debt decreases and their assets increase. The best way for them to accomplish this is by working on decreasing their accounts payable and their short-term obligations. Coca-Cola at first glance isn’t having the best year. They had an asset loss of 6.4% but at the same time their liabilities dropped by 16%. They need to increase their assets and keep decreasing their liabilities. Coca-Cola could increase their cash flow by getting more inventories on the shelves. If you look at 2004 and 2005 their inventory is slightly up. They also need to do more reinvesting into the company to help increase their assets and cash flow.
Now let’s look at the vertical analysis for each company. The formula for the vertical analysis is the current assets divided by the total assets. PepsiCo in 2005 had currents assets of $10,454,000 and total assets of $31,727,000. If we take $10,454,000/$31,727,000=32.9%; then if we take the current assets from 2004 of $8,639,000/$27,987,000=30.9%, so we can see that there was a 2% increase in assets from 2004 to 2005. Now let’s look at the vertical analysis for Coca-Cola from 2004 to 2005. In 2005 Coca-Cola had current assets of $10,250,000 and total assets of $29,427,000, so we take $10,250,000/$29,427,000=34.8%. In 2004 they had current assets of $12,281,000/31,441,000=39.1%, so there was a decrease in assets from 2004 to 2005. Vertical analysis can show the percentage change in the individual assets, liability, and stockholder equity items. Vertical analysis is used in intercompany and intra-company transactions. Vertical...