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Ratio, Vertical & Horizontal Analyses

There are three ways internal and external users of a company can analyze financial statements. They include the vertical analysis, the horizontal analysis, and the ratio analysis (Weygandt, Kimmel, & Kieso, 2008). The vertical analysis is a technique that expresses each financial statement as a percent of a base amount (Weygandt, Kimmel, & Kieso, 2008).

Horizontal analysis, or trend analysis, is how one can evaluate the financial statement over a specific period of time (Weygandt, Kimmel, & Kieso, 2008). With the horizontal method, an increase or decrease in assets liabilities or stockholders equity can be determined (Weygandt, Kimmel, & Kieso, 2008). This can be expressed as a percentage or by total amounts, and is primarily used for intercompany comparison (Weygandt, Kimmel, & Kieso, 2008).

The ratio analysis utilizes three different comparisons for financial statements such as industry average comparisons, intracompany comparisons, and intercompany comparisons (Weygandt, Kimmel, & Kieso, 2008). A ratio conveys the mathematical relationship by means of a percentage, a rate or a proportion (Weygandt, Kimmel, & Kieso, 2008). It also measures a company’s financials in terms of liquidity, profitability, and solvency (Weygandt, Kimmel, & Kieso, 2008).

PepsiCo, Inc.

2005- Current ratio is 1.11%. Current assets of $10,454 and current liabilities of $

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9,406 (in millions). 2004- Current ratio is 1.28% with current assets of $8,639 and current liabilities of $

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6,752 (in millions). 2005- vertical analysis: 0.054% with $1,716(cash equivalents) $31,727 (total assets) 2004- vertical analysis: 0.05% with $1,280 (cash equivalents) and $27,987 (total assets) 2005- vertical analysis: 0.1% with $3,166 (short term investments) $31,727 (total assets) 2004- Vertical analysis: 0.08% with $2,165 (short term investments) $27,987 (total assets) Horizontal analysis: Total change in assets by percentage from 2005 ($10,454) to 2004 ($8,639) is 1.21% Horizontal analysis: Total change in current liabilities from 2005 ($9,406) to 2004 ($6,752) is 1.40%

Coca-Cola Company

2005- Current ratio is 1.04%. Current assets of $10,252 and current liabilities of $

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9,836 (in millions). 2004- Current ratio is 1.10%. Current assets of $12,281 and current liabilities of $

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11,133 (in millions). 2005- vertical analysis: 0.16% with $4,701 (cash equivalents) $29,427 (total assets) 2004- vertical analysis: 0.21% with $6,707 (cash equivalents) and $31,441 (total assets)

2005- vertical analysis: 0.002% with $66 (marketable securities) $29,427 (total assets) 2004- Vertical analysis: 0.002% with $61 (marketable securities) $31,441 (total assets) Horizontal analysis: Total change in assets by percentage from 2005 ($10,250) to 2004 ($12,281) is 0.83% Horizontal analysis: Total change in current liabilities from 2005 ($9,836) to 2004 ($11,133) is 0.88%

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