# Financial Analysis

The three tools of the financial statement analysis are as follows: Vertical or Common Size Analysis, Horizontal or Trend Analysis, and Ratio Analysis. Each of the analysis functions is different from each other; however each of them serves to analyze pertinent data found on the financial statement. The Vertical Analysis functions to evaluate financial statement data by expressing each item in a financial statement as a percent of the base amount. The Horizontal Analysis functions to evaluate a series of financial statement data and the Ratio Analysis functions to express the relationship among selected items of the financial statement data.
If we take a look at PepsiCo, Inc.’s consolidated balance sheet as an example, we are able to determine the company’s current ratio. If we apply the formula for Current Ratio, and plug in the company’s consolidated balance sheet numbers, we derive at this equation.
Current Ratio = 10,554 (current assets) = 1.11
9,406 (current liabilities)

This equation concludes that for 2005, PepsiCo, Inc. had a Current Ratio of 1.11:1
To determine the Current Ratio for the previous year, the same equation is used and the numbers for 2004 are applied as follows:

Current Ratio = 8639 (current assets) = 1.28
8752 (current liabilities

The equation demonstrates that for 2004, PepsiCo, Inc. had a Current Ratio of 1.28:1
To evaluate PepsiCo, Inc. using Vertical Analysis, we have to look at individual items on the consolidated balance sheet and divide them by the total assets of the company. In order for us to know the percentage of cash and cash equivalents to total assets, we have to divide the cash and cash equivalents by the total assets.
% = 1716 (cash and cash equivalents) = 0.054
31727 (total assets)

This equation translates to PepsiCo, Inc. having had a total of 5.4% cash and cash equivalents for 2005. The same equation applies for 2004 numbers.
% = 1280 (cash and cash equivalents) = 0.046...