# Xacc280 Week 7 Checkpoint

The three tools of financial statement analysis include ratio, horizontal, and vertical analysis.   Ratio analysis expresses the relationship among selected items of financial statement data. It is used in all three types of comparisons. Horizontal analysis, also known as “trend”, evaluates a series of financial statement data. It is used primarily in intra company comparisons. Its purpose is to determine the increase or decrease that has taken place. Vertical analysis, also known as “common size”, evaluates financial statement data by expressing each item in a financial statement as a percent of a base amount. It is used in both intra- and intercompany comparisons.

To see the current ratio, you use the formula Current Ratio = Current Assets divided by
Current Liabilities.   After examining the PepsiCo, Inc. consolidated balance sheet data provided in Appendix A (pg. A6), I found that the current ratio of the company is:

Current Ratio = 10,554 (current assets) / 9,406 (current liabilities) = 1.11

So PepsiCo’s 2005 current ratio is 1.11:1. Their 2004 current ratio is calculated as
follows:

Current Ratio = 8639 (current assets) / 6752 (current liabilities) = 1.28

PepsiCo, Inc. has a current ratio of 1.28:1 for 2004.

% = 1716 (cash and cash equivalents) / 31727 (total assets) = 0.054

So, during 2005, PepsiCo, Inc. cash and cash equivalents were a total of 5.4%. Their
2004 figures yield the following equation.

% = 1280 (cash and cash equivalents) / 27987 (total assets) = 4.6% cash and cash equivalents for 2004.

So in 2005, Pepsi Co. had:

% = 10454 (current assets) / 31727 (total assets) = or 32.95%

In 2004, the company showed:

% = 8639 (current assets) / 27987 (total assets) = or 30.87%

So, now we can figure whether there were increases or decreases between the years 2004 and 2005.

10454 (total current assets 2005) / 8639 (total current assets 2004) = 21.01% increase

This shows that there was an increase in assets which...