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This paper will focus on the financial activities of Pepsi Co. and Coca-Cola Co. for 2004 and 2005. The financial analysis covers three different categories. The categories are cash generated by operation activities, investing, and financing activities. The main financial statements used in this paper are the balance sheet, the statement of income and the statement of cash flow. However, these financial statements are the beginning point for the financial analysis. The study also includes the ratio analysis to evaluate success, failure, progress, and positive or negative trends that each company may be starting within the beverage industry.

Financial ratio analysis is the calculation and comparison of ratios derived from the information in a company's financial statements. The level and historical trends of these ratios can be used to make inferences about a company's financial condition, its operations, and attractiveness as an investment. Financial ratio analysis groups the ratios into categories which tell us about different facets of a company's finances and operations. An overview of the categories of ratios used in this analysis is given below. Leverage Ratios show the extent that debt is used in a company's capital structure, the use of liquidity ratios give a picture of a company's short term financial situation or solvency. The use of operational ratios use turnover measures to show how efficient a company is in its operations and use of assets, profitability ratios use margin analysis and show the return on sales and capital employed, and solvency ratios give a picture of a company's ability to generate cash flow and pay it financial obligations.

Hence current ratio for Pepsi Co. Inc. for 2005 is 1.11:1.For 2004, PepsiCo, Inc. had a Current Ratio of 1.28:1. This is a questionable drop in the current ratio of this company.  It points out 17% decline in the company current assets. The current ratio for coca cola company for 2005 is 1.042:1 whereas in 2004 it had 1.103:1.this is a significant increase of 6.1% in the coca cola current assets

To evaluate PepsiCo, Inc.  and coca-cola co. using Vertical Analysis we will focus on individual items in the consolidated balance sheet and express them as ration of the total company's assets. It is crucial to also to get the ratio of cash equivalents to total assets for us to know the percentage of cash and its equivalent to total assets.  This translates to PepsiCo, Inc. having had a total of 5.4% cash and cash equivalents for 2005.  For 2004,  PepsiCo.Inc. had 4.6% cash and cash equivalents. The cash and cash equivalents belong to a larger figure known as the Current Assets. Coca-cola co. had 15.98 % cash and cash equivalents for 2005.  For 2004,   coca-cola had 21.33% cash and cash equivalents which is a remarkable growth.

Evaluating  using Horizontal Analysis, the greatest concern lies on the increase or the decrease that occurred from 2004-2005. Total change in assets by percentage also need to be determined.. To accomplish this, we divide 2005 current assets by 2004 current assets in the equation below. For Pepsi Co. Inc.

            Total current assets 2005/ total current assets 2004

            = 10454/8639


This demonstrates a difference of 21.01% increase in total current assets. Applying the same equation to determine whether the company's increase in assets is a factor in their increase of liabilities as well:

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            =total current liabilities 2005 / total current liabilities 2004

             =9404/ 6752


This demonstrates a 39% increase in liabilities; which is a result of the company acquiring more liabilities altogether. This analysis finding is somewhat of a red flag for the business.

To evaluate the Coco-Cola Company:

% comparison of current assets 2005 versus 2004:

Total current assets 2005*100/ total current assets 2004


 = 0.835 or 83.5%. The percentage of 83.5% is a decrease from 2004. The percentage represents a total of 83.5% in 2005 of current assets as compared to 2004's percentage; which is 100%.

 To calculate the difference:

Decrease in total current assets:

100% - 83.5%= 16.5%

Decrease in total current liabilities:

Total current liabilities 2005/ total current liabilities 2004

=9836/11133 = 0.8835 or 88.35%

Coca cola Company:

Liquidity ratios:

Current ratio: current assets/current liabilities.

(As previously calculated)

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Working capital (current assets - current liabilities).



Solvency ratios:

Debt to asset turnover (total liabilities/total assets)



Debt to equity turnover (total liabilities/total equity). (Total equity: total assets-total liabilities)

2004: 11133/ (31441-11133) =11133/20308=0.548

2005:9836/ (29427-9836) =9836/19591=0.502

PepsiCo Company:

Liquidity ratios:

Current ratio: current assets/current liabilities.

(As previously calculated)

Working capital (current assets - current liabilities).



Solvency ratios:

Debt to asset turnover (total liabilities/total assets)

2004:14464/27987=0.52 or 52.1%

2005:17476/31727=0.551 or 55.1%

Debt to equity turnover (total liabilities/total equity). (Total equity: total assets-total liabilities)

2004: 14464/ (27987-14464) =14464/13523=1.07

2005:17476/ (31727-17476) =17476/14251=1.23

Pepsi Co. vs. Coca Cola Co.

This consolidated financial analysis for Pepsi Co. entails the four lines of business. Frito-Lay North America, PepsiCo Beverage North America, PepsiCo International, and Quicker Foods North America. According to the 2005 yearly financial statement, PepsiCo has a record of giving strong financial presentation. This company aims at rising income, market share, amount, profits and earnings per share. This is no variation for other companies that excel . The ratio analysis in the table shows the performance of Pepsi Co in 2004 and 2005.

In 2005 most of the liquidity ratios decreased for PepsiCo. however, PepsiCo amplified its cash and cemented on their ability to pay its short-term debt. The decrease in working capital is not a major impact on the company.

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