What are your thoughts about how different accounting methods and standards impact financial analysis?

Q1- What are your thoughts about how different accounting methods and standards impact financial analysis?

Please read the attached discussion and make a reply to this question.

Please separate the answer into a separate file.

Word limit: 80 to 100. Please do not exceed the limit

Important:

Please note that it is important to include sufficient references in the work and ensure zero plagiarism.

Requirements: Word limit: 80 to 100.

Financial Analysis

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Financial Analysis

Compare the firms’ profits for the past two years.

Source (Walmart Inc. 2022 Annual report.; PepsiCo Inc. 2022).

The analysis of the net profit for Walmart for the financial years of 2021 and 2022, shows a decrease from $13,940 million in 2021 to $11, 292 million in 2022. This is not good because it translates into a decrease in earnings per share for investors. Therefore, it is not a good investment. On the other hand, Pepsi Inc registered an increase in profit for the past two years. The company’s net profit increased from $7,679 million in 2021 to $8,978 in 2022 (Walmart Inc. 2022 Annual report.; PepsiCo Inc. 2022). This is a good indicator of increasing return to shareholders and thus a worthwhile investment.

Compute the working capital for each firm.

Source (Walmart Inc. 2022 Annual report.; PepsiCo Inc. 2022).

Working capital is the amount that an organization will have after paying all current liabilities. When an organization is left with some cash after paying off creditors and other current obligations it is a sign of good financial health. Working capital is calculated by subtracting current liabilities from current assets. When the value is negative it is an indicator that the organization will have liquidity issues (Keown, Martin & Petty, 2020). Walmart has negative working capital of $16,543 million. This s an indicator that it will not be able to meet all its current liabilities as and when they fall due. Similarly, PepsiCo has a negative working capital of $5,246 million, which is an indicator of liquidity problems. The two firms are not good for investment, but when faced with the option of selecting between the two, PepsiCo s a better option because of a lower negative working capital value.

Determine the price-earnings (P/E) ratio.

Source (Walmart Inc. 2022 Annual report.; PepsiCo Inc. 2022).

The price earnings ratio is a valuation metric which is calculated by comparing an organization’s market share price to the earning per share. A higher value of P/E is an indicator of high growth expectation from investors. The calculation of Walmart and PepsiCo’s P/E shows that Walmart has a higher P/E ratio of 38.10 as compared to PepsiCo of 27.35. This is an indicator that investors are anticipating the higher growth and returns from Walmart in the future.

Calculate the debt-to-equity ratio.

Source (Walmart Inc. 2022 Annual report.; PepsiCo Inc. 2022).

The debt-to-equity ratio is an indicator of the amount of debt a company has used to finance its assets. Although, debt is good a high debt to equity may put the company at risk of being taken over by creditors if the case of economic depression (Keown, Martin & Petty, 2020). When comparing the two organizations, PepsiCo is highly leveraged with a debt-to-equity ratio of 4.33 as compared to Walmart at 1.9. This means that PepsiCo has a high risk of losing control to creditors as compared to Walmart (Pelaez-Verdet & Loscertales-Sanchez, 2021). Walmart is a good investment because of low risk.

Limitations of the Analysis

The primary limitations of the above analysis are that the two companies are not rivals because they do not operate in the same industry. Walmart operates in the retail industry, while PepsiCo operates in the beverages and food processing industry. The companies face different optimal capital structure patterns, therefore comparing their debt-to-equity ratios and other ratios will not lead to logical conclusions (Keown, Martin & Petty, 2020).

References

Keown, A. J., Martin, J. D., Petty, J. W. (2020). Foundations of finance. Pearson.

Pelaez-Verdet, A., & Loscertales-Sanchez, P. (2021). Key ratios for long-term prediction of hotel financial distress and corporate default: Survival analysis for an economic stagnation. Sustainability, 13(3), 1-17.

PepsiCo Inc. 2022 Annual report.

Walmart Inc. 2022 Annual report.

Hey there, I received a question from my tutor regarding the discussion that I posted. Please see below the discussion you sent me earlier:

Q1- What are your thoughts about how different accounting methods and standards impact financial analysis?

please read the attached discussion, and make reply to this question.

Please separate the answer on a separate file.

Word limit: 80 to 100. Please do not exceed the limit

Important:

Please note that it is important to include sufficient references in the work and ensure zero plagiarism.