Finance

Finance

Financial Analysis

Return on Equity (ROE) is total income which the firm was able to earn divided by the total shareholder equity (Microstrategy.com, 2013). This gives us the answer for the amount the investor will be getting on the amount of money they have invested. The formula for calculating ROE is: Net Income / Total Shareholder Equity. Pepsi's ROE for the financial year 2004 is 33.05% while for 2005, , it was 29.23%. Whereas Coca-Cola's ROE for the financial year 2004 is 32.18% and for 2005 was 30.18%. As it can be seen that in the year 2004 and 2005, the ROE of both the companies has decreased.

The profitability of any firm can also be calculated by the return on Assets(ROA) ratio. This ratio indicates profitabity with reference to it's total assets. The efficiency of management can be checked by this ratio, as it indicate profitability relative to total assets. When net income is divided by total income the answer that we get is of ROA. ROA is also at times called as “return on investment”. Pepsi's ROA for the financial year 2004 is 15.79% while for 2005, , it was 13.65%. Whereas Coca-Cola's ROE for the financial year 2004 is 16.52% and for 2005 was 16.04%. As it can be seen that in the year 2004 and 2005,, the ROE of both the companies had decreased, but it can be said that the ROA of Pepsi decreased more because of increase in Assets of the company.

The debt to equity (DTE) ratio of Pepsi was way more than that of Coca cola, revealing that Pepsi had significantly more debt than coca cola (Microstrategy.com, 2013). The Current ratio of Pepsi for 2005 was 1.11 while Coca cola recorded a current ratio of 1.04. The main difference was due to the fact that ...