Horizontal Analyses Essay

Ratio, Vertical, and Horizontal Analyses Regina Stewart XACC/280 February 3, 2012 Jose Rodriguez Ratio, Vertical, and Horizontal Analyses A detailed examination of the tools used in financial analysis, in addition to their various functions, is provided within this paper. The current ratio and calculations on the questions are provided herein. A variety of tools are used to assess the importance of financial data. Frequently used tools of financial statement analysis consist of horizontal analysis, vertical analysis and ratio analysis. These techniques assist in the evaluation of financial statements providing information regarding the financial condition of a business. Evaluating the data of financial statements over a period of time, is considered horizontal analysis and is primarily used in intracompany comparisons with the purpose of determining an increase or decrease over a period of time. Vertical analysis expresses individual items in the financial statement in the percentage format of the base amount and is used in comparisons of both intracompany and intercompany. Vertical analysis reflects the comparative size of each category in the balance sheet along with the percentage change in the individual asset, liability, and stockholders’ equity items. Ratio analysis articulates the relationship between selected items of financial statement data and is used in all three comparison types. Ratios can be used to evaluate liquidity, profitability, and solvency in addition to providing evidences to underlying conditions that may not be obvious. Current ratio computation for Pepsico Current ratio evaluates a company’s liquidity and the ability to repay short-term debt and is calculated by dividing current assets by current liabilities. Pepsico current ratio for 2005 Current ratio=Current assetsCurrent liabilitiesCurrent ratio=104549406=1. 1 Pepsico current ratio for 2004 Current ratio=Current assetsCurrent liabilitiesCurrent ratio=86396752=1. 3 Analysis Depending on who is analyzing the Pepsico current ratio determines whether the analysis is favorable.