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XACC 280 Financial Analysis

XACC 280 Financial Analysis

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Financial Analysis
Financial Analysis

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1Financial AnalysisXACC/280October 7, 2012Professor Kennedy
 
2Financial AnalysisThe Pepsi Company and The Coca-Cola Company are the two leading beveragecompanies in the world today. Both offer great potential for growth and make investing appear to be a good idea. The information presented will be a financial analysis of PepsiCo and Coca-Cola,detailing the overall health of each individual company. It is important to investigate the welfareof a business prior to making any decision to invest. Understanding the financial history allowsone to make a general assumption of future expectations, providing preventative education to both investors and the businesses own executives and board of directors.This report will include a horizontal and a vertical analysis of the balance sheet andincome statement. Key ratios will be figured to accurately calculate trends and allow for appropriate recommendations to be made. Upon the review of the material provided within thisreport, readers can expect clarification of the different comparison bases and understand them being used with real life accounting information from The Pepsi Company and The Coca-ColaCompany.A vertical analysis is a process that evaluates the data within a financial statement byexpressing each item in a financial statement as a percentage of a base amount (Weygandt,Kimmel, & Kieso, 2008). It is generally used in both intra-company and intercompanycomparisons. Intra-company basis helps to identify any changes in financial relationships andsignificant trends within a company (Weygandt, Kimmel, & Kieso, 2008).The intercompany basis of compar 
ison determines a company’s
competitive position (Weygandt, Kimmel, & Kieso,2008).It compares a financial relationship of one company with the same financial relationship of one or more competing companies (Weygandt, Kimmel, & Kieso, 2008).The third basis is calledindustry averages. This is only used among the ratio analysis as it compares data between similar 
 
3companies distinguishing their relative performance within the industry (Weygandt, Kimmel, &Kieso, 2008).We will begin with a vertical analysis, or common-size analysis, of both The PepsiCompany and The Coca-Cola Company consolidated income statement (Weygandt, Kimmel, &Kieso, 2008). According to the information provided in Appendix A and B in the coursematerials, the cost of sales for The Pepsi Company were $11,691 in 2003, then increased to$12,674 in 2004, increasing yet again in 2005 to $14,176 (Weygandt, Kimmel, & Kieso, 2008).Coca-
Cola’s cost of goods sold began at $7,776, decreasing to $7,674, ultimately
increasing in2005 to $8195 (Weygandt, Kimmel, & Kieso, 2008). This was 35% and 35.47% of net sales in2004 and 2005.The Coca-Cola
Company’s
cost of goods data appears to be less predictable with costsgoing up and down without any apparent pattern. The Pepsi Co
mpany’
s cost steadily increased,never decreasing allowing for a more accurate forecast of future costs (Weygandt, Kimmel, &Kieso, 2008).The Coca-Cola Company has a steady pattern seen among the gross profit,operating income, income before taxes, net income, and the basic and diluted net income per share figures (Weygandt, Kimmel, & Kieso, 2008). However, the average shares that wereoutstanding and the average shares that were outstanding assuming dilution decreased from 2003to 2005(Weygandt, Kimmel, & Kieso, 2008).In 2005, The Pepsi and Coca-Cola
Company’s
net income was 21.09% and 12.52%,confirming that The Coca-Cola Company in the ratio of net profit was higher than The PepsiCompany (Weygandt, Kimmel, & Kieso, 2008). This is the most obvious difference between thetwo statements.
The Pepsi Company’s
net income and net income per share, (both basic anddiluted,) increased in 2004, but decreased in 2005 (Weygandt, Kimmel, & Kieso, 2008). The

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