XACC/280 Week-Seven CheckPoint

Ratio, Vertical, and Horizontal Analyses
Financial statement analysis is the process of examining relationships among financial statement elements and making comparisons with relevant information. There are a variety of tools used to evaluate the significance of financial statement data. Three of the commonly used tools are the ratio analysis, horizontal analysis, and vertical analysis. Ratio analysis is a method of analyzing data to determine the overall financial strength of a business. These ratios are most useful when compared to other ratios such as the comparable ratios of similar businesses or the historical trend of a single business over several business cycles. Horizontal analysis is a type of fundamental analysis in which certain financial data is used to asses a company's performance over a period of time. Horizontal analysis can be assessed on a single company over a period of time, comparing the same items or ratios, or it can be performed on multiple companies in the same industry to assess a company's performance relative to competitors. Vertical analysis is a method of analyzing financial statements in which each item in the statement is represented as a percentage of a single larger item. Vertical analysis makes comparisons between two or more companies in the same industry easier. It also allows a company to weigh current reports against reports of the past, revealing areas that may need improvement.

Calculate the following for PepsiCo, Inc. and show your work: • The Current Ratio for 2005 • The Current Ratio for 2004 The current ratio for any company is calculated with the use of the following mathematical equation. Current Ratio = Current Assets Current Liabilities PepsiCo, Inc. 2005 $ 10454 =1.11:1 $ 9406 PepsiCo, Inc. 2004 $ 8639 =1.28:1 $ 6752 Itemon B /S =Percentage or Total Assets

Vertical Analysis =

Item on B/S = Percentage Total Liabilities with Shareholders ' Equity Two measures of vertical analysis: Current Assets 10454 = = 33% Total Assets 31727 Short −term Obligations 2889 = = 9% Total Liabilities with Shareholders Equity 31727

Horizontal Analysis

Current Year Amount = Current Results in relation to Base Period Base Year Amount

Two measures of horizontal analysis: Current Assets 2005 10454 = = 121% or a 21% increase in assets from 2004 to 2005. Current Assets 2004 8639 Current Liabilities 2005 9406 = = 139% or a 39% increase in liabilities from 2004 to 2005. Current Liabilities 2004 6752

Calculate the following for Coca-Cola and show your work: • The Current Ratio for 2005 • The Current Ratio for 2004 The current ratio for any company is calculated with the use of the following mathematical equation. Current Ratio = Current Assets Current Liabilities Coca-Cola 2005 10250 = 1.04 : 1 9836 Vertical Analysis = Coca-Cola 2004 12281 = 1.10 : 1 11133 Itemon B/S =Percentage or Total Assets

Item on B/S = Percentage Total Liabilities with Shareholders ' Equity Two measures of vertical analysis: Current Assets 10250 = = 34.8% Total Assets 29427 Loans Notes Payable 4518 = = 15.4% Total Liabilities with Shareholders Equity 29427 Horizontal Analysis Current Year Amount = Current Results in relation to Base Period Base Year Amount

Two measures of horizontal analysis: Current Assets 2005 10250 = = 83.5% or a 16.5% decrease in assets from 2004 to 2005. Current Assets 2004 12281 Current Liabilities 2005 9836 = = 88.4% or an 11.6% decrease in liabilities from 2004 to Current Liabilities 2004 11133 2005.

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