FINANCIAL ANALYSIS

Financial Analysis

Financial Analysis of Pepsi and Coke

Introduction

This report analyses the financial position of PepsiCo Inc and the Coca Cola Company and the financial performance is compared of both the company for the period of years 2005 and 2004. The financial analysis is performed through ratio analysis, vertical analysis of Balance Sheet and Horizontal Analysis of Income Statement. In the end some suggestions and recommendations are given to improve its financial position.

Financial Ratio Analysis

The liquidity ratios are used to judge the ability of a company to meet its short-term obligations, since they can get a lot of evidence about the solvency of the company's current Cash and ability to remain solvent in the case adverse situations. It is generally considered that a company with assets consisting mainly of cash and accounts receivable circulating has more liquidity than a company whose assets consist primarily of inventories. Liquidity analysis is important because it allows investors to see how much of its assets the company can convert to cash quickly in order to cover expenses or take advantage of opportunities. Quick ratio, inventory turnover ratio and working capital ratio are key liquidity indicators. To determine short-term and long-term debt paying ability, one should calculate and analyze times interest earned ratio, fixed charge coverage ratio and debt ratio (Thomas, 2006). The results of this analysis will give even a novice investor a clear picture of an organization's ability to pay its obligations.

Profitability ratios are those ratios that cover all the ratios that compare the profits of a period with certain items of Income Statement and Balance. Their results materialize efficiency in the management of the company, i.e. how managers have used the resources of the company. They are widely used to assess the financial - economic activity of enterprises of all industries (Vandyck, 2006). These ratios tell the company that how good it is for the company to increase further funds or not. Return on assets describes the ability of the company's management to effectively use its assets to generate profits. In addition, this ratio reflects the average yield obtained on all sources of capital (equity and debt). The ratio of return on assets measures the competence of the management team of a company as to the execution of his work. The ratio of return on assets, which compares to net income and average total assets, shows the amount of income that management was able to recover from the value of each MGA assets of a company. Investors and potential investors use this ratio to evaluate the management of a company (Vandyck, 2006).

The receivable turnover ratio is used this ratio as an indicator to judge the company's efficiency in collecting the debt. This is linked to the number of times to collect the debt within a certain period, the higher the average for previous years or for similar companies, it refers to the improved management of the company in the collection of debts. Some companies appear in the financial reporting of the ...