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Financial Statement Analysis

Both current ratios are quite healthy though when compared to others in the industry. .
             Another measure of a company's ability to pay back loans, this time over a long period, measures solvency. Coca-Cola's debt to total assets ratio is 35% in 2004 and 33% in 2005 compared to PepsiCo's less attractive ratio of 52% in 2004 to 55% in 2005. Coca-Cola's debts represent a healthy percentage of assets and in this case the lower the number the better. Coca-Cola's debt to total assets ratio decreased by 2% from 2004 to 2005 while PepsiCo's ratio increased by 3%. Were a potential lender or investor to look at these numbers alone they would prefer the performance of Coca-Cola over PepsiCo but there are still many calculations to be made and factors to consider. .
             Another solvency ratio that measures a company's ability to survive over a long period is the long-term debt to networking capital ratio. In this formula one subtracts current liabilities from current assets and then the total is divided by the total by long-term debt obligations. This formula provides insight into an organization's ability to pay back long-term debt and interest. According to numbers from Appendix B Coca-Cola's ability to pay back long-term debt after liabilities is subtracted from assets in 2004 is 1.01:1 and increases to 2.79:1 in 2005. This is an attractive number that reflects an increase in ability to pay back long-term debt by 1.78 from 2004 to 2005. According to Appendix A PepsiCo's ability to pay back long-term debt after current liabilities are taken from current assets is -.72:1 in 2004 and -.51:1 in 2005. Although the risk decreases .21 from 2004 to 2005 the negative number may frighten investors or lenders as the denominator in the fraction that determines the solution (current assets less current liabilities) is negative. I would expect stronger numbers were I to consider investing in a company. Coca-Cola's long-term debt to networking capital ratio shows improvement of an already strong number.


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