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Acc 280 Financial Analysis Coca Cola and PepsiCo

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Accounting

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Acc 280 Financial Analysis Coca Cola and PepsiCo
My analysis on this paper was derived from this year’s numbers of both
companies because I wasn’t able to get their averages because of data
limitations. My paper contains information about the attempt I made in
analyzing the biggest corporation in the beverage industry and these are
PepsiCo, Inc. and The Coca-Cola Company. The type of analysis I did
was vertical analysis which others may know of as a common-size
analysis. Using this technique means that every item in the financial
statement is expressed as one part of another base figure. The
equations used in my analysis include the assets account and its base
account which was Total Assets, liabilities and stockholders equity had
its base as their stockholders equity and total liabilities, last, income
statement had its base containing the accounts for their net revenues
and sales. In this paper is my version of a horizontal analysis, it involves
and evaluation of all the financial statements I have a hold of over the
course of time. Behind this analysis is a purpose and it determines all
the changes that took place in those figures over the years.
Representation for these changes may come as different amounts or
percentage changes.
With the thorough examination I did on the financial reports, I gathered
from these two beverage industry giants my analysis came out like this:
In general, I saw improvements in all their figures over the years from
the two different analysis techniques that I used on the excel sheet that I
had which are Horizontal and Vertical (Trend).
The figures present in Pepsi Corporation’s balance sheet showed a rise
in the years 2004 to 2005; an apparent decrease of the current ratio of
the company in these same years can be attributed to the slightly
stagnant growth of their current assets compared to their growing current
liabilities figures.
Contrary to that, Coca-Cola experienced a decrease in their current
assets in the years 2004 to 2005 from $12,281 to $10,250, and a

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decrease in their liabilities on those same years where from $11,133 for
2004 to $9,386 for 2005.
In the inventories account for Pepsi Cola, an increase was recorded from
2004 to 2005 which showed $1,541 to $1,693, it is a good sign for the
company because it shows that they are improving in terms of their
turnover ratio and the days their inventories last. Many times, a high
inventory number would be a bad thing for a company to have, but there
are cases where it could be beneficial to them especially when they try
to meet the demands of their customers.
The Coca-Cola Company also had an increase in their inventory figures
in the years 2004 and 2005, $1,420 and $1,424, respectively. The
figures tell us that the management of this company doesn’t expect more
than their industry counterpart.
In the cash and cash equivalents account of PepsiCo, it showed an
increase in the years 2004-2005 at $1,280 to $1,716 increasing 34.06%.
Their accounts receivable also increased in the same years they were at
$2,999 to $3,261. The same increase result happened to their sales from
the year 2004-2005 which had figures of $29,261 to $32,562 showing an
11.28% increase. All the figures in the PepsiCo inventory account tells us
that the demand for their product has increased and this is their way to
cope with this increase. The reason behind the increase in their cash
and cash equivalents account can be attributed to the strict credit policy
that they have recently applied. The increase of purchases in cash also
can be attributed to the larger demand for their products.
The situation is different in Coca-Cola, their cash and cash equivalents
accounts experienced a 29.91% decrease in 2004 and 2005 (from
$6,707 to $4,701). Their accounts receivable account had an 8.2%
increase in the year 2004 and 2005 (from $2,244 to $2,281) and their
sales also had increased after the years end in 2004-2005 that was at
$21,742 to $23,104 showing a 6.26% increase.
Based on the sales figures of both companies, Pepsi has grabbed a
larger share of the market for the past years, which means that Coca-
Cola should strive harder to get their share of the market back to
increase their competitiveness.
The retained earnings are their total liabilities and stockholders’ equity
which experienced a decrease since their 66.92% in 2004 had dropped

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to 66.56% in 2005. This meant that the company has maintained their
payout ratio for their dividends.
On the other side, Coca-Cola had their figures on Retained Earnings as
a percentage of their Total Liabilities and their Stockholders Equity
increase in number in 2004 to 2005 (from 92.57% to 106.36%). It means
that the company has lessened the payout ratio so that they could be
ready when they expand.
I did a ratio analysis on both companies and in my examination of the
company’s current ratio (measuring their ability to pay out their short-
term debt) and acid test ratio (a quick ratio measuring how fast the
company can pay the short-term debts they have), it resulted into both
companies having lower numbers in both of the ratios, but the
companies receivables turnover ratio (a ratio measuring the liquidity of
their receivables), receivable of their sales in a day (a stat that measures
how many days it takes for the firm to turn all their receivables into
cash), inventory turnover (a stat measuring their inventory’s liquidity),
and the days’ sales in inventory (how many days it takes for the
merchandise the company has remaining before they are sold) have all
experienced an improvement. The improvements in these figures tells us
that they are getting faster concerning collecting money, thus, the faster
turnover of all their receivables in 2005 compared to 2004 is the same
when we examine the figures they showed for inventory turnovers. In
PepsiCo’s case, their current assets as a percentage of their total assets
has risen which was at 30.87% in 2004, now it is 32.95 in 2005. This
change is an improvement because it shows that PepsiCo is now
starting to decrease the investments they put in their noncurrent assets.
With my examination of the analysis I made on the excel sheet I have, it
can be seen in the profit margin ratios (a ratio measuring how much of a
company’s net income, in percentage, was because of the sales they’ve
made) for the two companies have decreased in the years 2004 and
2005, which can be attributed to the fierce competition between the two
companies. The increase was spurred by their increasing costs for the
goods that they’ve sold during those years (2004 and 2005).
Both companies Asset Turnover (a stat that measures the management
of the company’s efficiency in handling their asset base so that they can
augment their sales numbers) numbers decreased which were 1.05 in
2004 and in 2005 it is 1.03, while their competition, Coca-Cola,

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