When looking at the financial status of PepsiCo, Inc. and Coca-Cola, every dollar amount in every column has some significance. To find out what these amounts represent a financial comparison of both companies is required. Using financial analysis tools such as vertical analysis, horizontal analysis, and ratio analysis, one can get a clearer picture of the financial status of each company.
When evaluating financial statement data for a specific period of time we use a technique call horizontal analysis. This method will show if there has been an increase or decrease in the financial status of PepsiCo, Inc. and Coca-Cola. In comparing both of these companies I have evaluated the net revenue and net income for the period of 2003 to 2005, with 2003 being the base year and 2005 being the current year. The formula I have used will show the change in the net revenue and net income for this span of time. The formula to calculate the change since the base period is the current year amount minus the base year amount divided by the base year amount.
COCA-COLA (dollar amounts in millions)
Net Revenue 23,104(2005) – 20,857(2003) divided by 20,857(2003) = 2247 divided by 20,857= 10.77%
Net Income 4872(2005) – 4387(2003) divided by 4387(2003) = 485 divided by 4387 = 11.0%
Net Revenue 32,562(2005) – 26,971(2003) divided by 26971(2003) = 5591 divided by 26,971 = 20.73%
Net Income 4078(2005) – 3568(2003) divided by 3568(2003) = 14.29%
The balance sheet for PepsiCo, Inc. showed an increase in assets, liabilities, and stockholders equity for the period of 2003 to 2005. These increases suggest “the company expanded its assets base and financed it primarily by retaining income not assuming additional long term debt.”( Chapter 15) Coca-Cola on the other hand saw a decrease in assets, liabilities, and stockholders equity for the same time frame. This would suggest they didn’t retain any income and any expansion would incur additional long term debt for the company. The increase in both company’s gross profit and net income, however, signals a favorable profit trend.
This financial tool can also be used to evaluate the financial status of both PepsiCo, Inc. and Coca-Cola. Vertical analysis expresses each item as a percentage of a base amount. In comparing both companies I used this tool to evaluate their assets for the years 2004 and 2005. The base amount used for these calculations is the Total Assets of each.
Consolidated Balance Sheet
PepsiCo, Inc. and Subsidiaries
December 31, 2005 and December 25, 2004
in millions except per share amounts) 2005 2004
2005 % 2004 %