Financial Analysis of PepsiCo Inc. versus Coca Cola.

The two major competing companies that manufacture beverages and other foods are PepsiCo and Coca Cola. These two companies have been competing to become the number one manufacturer and distributor worldwide. These two companies are easily recognized where ever they might go. They each have identifiable logos that cannot be mistaken by anyone whether local or foreign. Both of these companies hire famous people to promote their products. They dont only make carbonated drinks such as Coke or Pepsi. They also make other drinks such as flavored water and have their own water products. After getting to know who the major soft drink corporations are we will be reviewing the companies income statements and balance sheets to reveal the financial condition of the companies in relation towards one another. We are going to perform their vertical and horizontal analysis by using their annual report financial data and then I will be recommending one of these companies if not both. Today we might see other distributors of knock of carbonated drinks and offer them at a lesser value than Coke or Pepsi would. No matter what competitors have come into the war of the soft drinks, Coke and Pepsi have always been the top two distributors. It is normal to see both companies with similar products after all it is a competitive market. If one company decides to make it so will the other company it is as if they mirror each other. This is what the Coca Cola Company refers to as the follow up strategy. They do not just stop there they also provide similar services and products to our local markets. There really isnt a single company who can compete with these two business tycoons. I believe that Liquidity, profitability and solvency are the three characteristics of a business that can be determined from the companys financial statements. The methods applied to reach these characteristics are the ratio analysis, the vertical analysis, and the horizontal analysis. The ratio analysis produces the relationship among selected items of financial statement data. The companys liquidity ratio, profitability ratio, and their solvency ratio can all be obtained through this analysis. The information that we obtain from these ratios can provide us with the information to determine the financial stability or weakness of a business, which are not immediately obvious in the basic financial statements. Vertical analysis is described as a technique that expresses each financial statement item as a percent of a base amount. The vertical analysis is can also be called a common-size analysis. We can acquire this information by dividing each balance sheet item by the companys total assets, doing so produces a number which can then be translated into a percentage by shifting the decimal two places. This percentage will show the development pattern that the company is having. The company can either be going up or down depending on the increase in debts or positives in sales or retained earnings.

The horizontal analysis is also known as a trend analysis. The purpose that the horizontal analysis serves is to determine the increase or decrease in the companys financial data for a base year. The horizontal analysis can be performed on the balance sheet, the income statement, and the retained earnings statement. This is valuable information regarding the stability and the success of the company and whether it is a good investment or a risk. We will begin with the vertical analysis for both of these companies. The vertical analysis is taken from each companys financial statement and reveals a percentage base figure. The base figure represents the total assets of each competitor from a specific annual period. We can get the percentage by dividing each balance sheet line item by the total assets for that company. The total assets for each company are then our starting point of the analysis. In 2004 Pepsis total assets were $27,987. For 2005 Pepsis total assets were $31,727 (Weygandt, Kimmel, and Kieso, 2008). Cokes total assets in 2004 were $31,441. For 2005 Cokes total assets were $29,427 (Weygandt, Kimmel, and Kieso, 2008). The total assets figures can then be related to items from each companys balance sheet. Cost of sales for Pepsi during 2004 was $12,674 dividing the total assets of 2004 $27,987 would give us a ratio percentage of 45.3% of their total assets. For 2005, Pepsis cost of sales was $14,167 and when divided by their 2005 total assets of $31,727 it would give us a percentage of 44.7% of their total assets. Cokes 2004 cost of goods sold was $7,674 and when we divide their 2004 total assets of $31,441 we get a percentage of 24.4% of their total assets.Their 2005 cost of goods sold were $8,195 and this would give us a ratio percentage of 27.8% after it has been divided by $29,427. 8,195/29,427 = 27.8%. Pepsis cost of goods sold differed by only .5% over the two years. Coke showed an increase of 3.4% during the same two years. Increases are always good especially when it comes to cost of goods sold. Net income would be the next item to be examined for the two companies. Pepsi had a net income in 2004 of $4,212 when divided by Pepsis total assets of $27,987 the ratio percentage would be 15.1% of their total assets. Pepsis 2005 net income would be $4,078 and when divided by their 2005 total assets of $31,727 our ratio percentage would be 13% of Pepsis total assets. This would show that Pepsi is showing a decrease in their net income for the two years while also showing decrease in cost of sales during the same two years. Coke showed a 2004 net income of $4,847 when dividing it by their 2004 total assets the ratio percentage would be 15.4% of their total assets. Cokes 2005 net income would be $4,872 after dividing their 2005 total assets of $29,427 our ratio percentage would be 16.6% of their total assets. When identifying each companys consolidated balance sheet to compare each companys current assets and current liabilities to their total assets for each of the two years.