Xacc280 Financial Analysis

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Week 9 Final Assignment: Financial Analysis

Korina Mitchell
XACC280/Financial Accounting Concepts and Principles
July 10, 2010
Tonya Brewer

The Coca-Cola company has been in business since its inventor began selling it in drug stores in 1886 (The Coca-Cola Company, 2009). Pepsi-Cola was invented a short time later in 1898, but at the time it was called “Brad’s drink.” It was later renamed Pepsi-Cola in 1902 (Butler, 2006). Since those early days when the sodas were invented, Coca-Cola and Pepsi have been in competition with each other for the domination of the world’s soda market. Over the course of more than a century, sales have continued to rise for both companies, and they both consistently earn a profit. Both companies
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This might make both of these companies more attractive to potential creditors and investors.
Comparison of Solvency through Total Debt to Total Assets Calculations In addition to knowing the liquidity of the companies, investors may also want to know how solvent each of the companies will be for the long term. The quickest way to measure their solvency is to divide the companies’ total assets by their total liabilities. In the case of PepsiCo, their debt to asset percentage in 2004 was 51.68%, and in 2005 that number increased to 55.08%. Coca-Cola had a similar debt to asset percentage of 50.68% in 2004, and in 2005 their percentage was 55.57%. This means that both companies were competitive in this comparison, although both actually increased their debt percentage slightly. Neither of the two companies had a drastic change, however, so investors may only be mildly concerned with this difference. Additional information about the debt that was incurred might be requested for a potential investor to make an informed decision about which company would provide a better investment.
Comparison of Retained Earnings through Vertical Analysis One last thing that investors might want to know about PepsiCo and Coca-Cola is what percentage of the income is being retained and reinvested in each company. This information is calculated by determining the
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