2011 Case study of Coca-Cola

I.  Introduction

A. Objective of paper

The objective of this paper is to analyze and assess the financial statements and any other supplementary documents of material relevance to the financial performance of a chosen company in order to identify and provide advice on the strengths and weaknesses of the company. This accounting information will be used to assess the company’s credit worthiness and investment potential.  Our financial consulting firm has been hired by the Coca-Cola Company to conduct this in depth research and analysis.  Coca-Cola will often be referred to as the Company during this assessment.  The Company is the undisputed world-wide leader in the soft drink market.  Coca-Cola is second to none in brand recognition and appeal throughout the world.  The information and data documented in this report is sourced from the 2010 Coca-Cola Annual 10K report. (1) unless otherwise stated.   The financial information sourced for this report was derived using the Excel template provided and from ValuEngine’s custom software.  Notes have been made where applicable.

B.  Summary of findings

The Coca-Cola Company is a very successful company with a proven track record of success.  The Company continues to improve its top and bottom lines. The company has strong liquidity and financial stability.  They are at the pinnacle of the market with over 150 billion in market capitalization. There overall stability and continuing efforts to procure new technology ensures that they remain at the forefront of the industry.  The financial position has been reviewed an in the opinion of this report the statements and annual report shows that the Coca-Cola Company remains a successful company based on its performance and incentives to remain on top of the world.

2.  Firm, Industry, and Environment

2.1  Description of firm and its management

The Coca-Cola Company is the world’s leading owner and marketer of nonalcoholic beverage brands and the world’s largest manufacturer, distributor and marketer of concentrates and syrups used to produce nonalcoholic beverages. It  owns or licenses and market more than 500 nonalcoholic beverage brands, primarily sparkling beverages but also a variety of still beverages such as waters, enhanced waters, juices and juice drinks, ready-to-drink teas and coffees, and energy and sports drinks. It is produced by The Coca-Cola Company in Atlanta, Georgia, and is often referred to simply as Coke (a registered trademark of The Coca-Cola Company in the United States since March 27, 1944). Originally intended as a patent medicine when it was invented in the late 19th century by John Pemberton, Coca-Cola was bought out by businessman Asa Griggs Candler, whose marketing tactics led Coke to its dominance of the world soft-drink market throughout the 20th century.

 

The Cola-Cola Company sold its products for the first time in the United States in 1886. Now it is selling products in more than 200 countries. The Coca-Cola Company was incorporated in New York Stock Exchange in September 1919 under the laws of the State of Delaware and succeeded to the business of a Georgia Corporation with the same name that had been organized in 1892. Of the approximately 54 billion beverage servings of all types consumed worldwide every day, beverages bearing trademarks owned by or licensed to the Coca-Cola Company and its subsidiaries account for approximately 1.6 billion.  It manufactures, markets and sells, beverage concentrates, referred to as beverage bases, and syrups, including fountain syrups (the concentrate business or concentrate operations), and finished sparkling and still beverages (finished products business or finished products operations).It operates in six segments: Eurasia and Africa, Europe, Latin America, North America, Pacific, Bottling Investments and Corporate. On October 2, 2010, it acquired the North American business of Coca-Cola Enterprises Inc. (CCE).

Muhtar Kent is the President, Chief Executive Officer and Chairman of the Board of Directors of the Company. The Company’s operating structure is the basis for our internal financial reporting. As of December 31, 2010, the operating structure included the following operating segments, the first six of which are sometimes referred to as

‘‘operating groups.’’

  • Eurasia and Africa
  • Europe
  • Latin America
  • North America
  • Pacific
  • Bottling Investments
  • Corporate

 

 

2.2         Discuss of competitive Environment

The Company competes in the nonalcoholic beverages segment of the commercial beverages industry. The nonalcoholic beverages segment of the commercial beverages industry is highly competitive, consisting of numerous companies. These include companies that, like Coca Cola, compete in multiple geographic areas, as well as firms that are primarily regional or local in operation. Competitive products include numerous nonalcoholic sparkling beverages; various water products, including packaged, flavored and enhanced waters; juices and nectars; fruit drinks and dilatable (including syrups and powdered drinks); coffees and teas; energy and sports and other performance-enhancing drinks; dairy-based drinks; functional beverages; and various other nonalcoholic beverages. These competitive beverages are sold to consumers in both ready-to-drink and other than ready-to-drink form. In many of the countries in which Coca Cola does business, including the United States, PepsiCo, Inc., is one of their primary competitors. Other significant competitors include, but are not limited to, Nestlé’s, Dr Pepper Snapple Group, Inc., Groupe Danone, Kraft Foods Inc. and Unilever.

In certain markets, Coca Cola’s competition includes beer companies. They also compete against numerous regional and local companies and, in some markets, against retailers that have developed their own store or private label beverage brands. Competitive factors impacting Coca Cola’s business include, but are not limited to, pricing, advertising, sales promotion programs, product innovation, increased efficiency in production techniques, the introduction of new packaging, new vending and dispensing equipment, and brand and trademark development and protection.  Coca Cola’s competitive strengths include leading brands with a high level of consumer acceptance; a worldwide network of bottlers and distributors of Company products; sophisticated marketing capabilities; and a talented group of dedicated associates. Their competitive challenges include strong competition in all geographic regions and, in many countries, a concentrated retail sector with powerful buyers able to freely choose among Company products, products of competitive beverage suppliers and individual retailers’ own store or private label beverage brands.

2.3         Economic Climate and Outlook

While the economic forecast seems dim, Coca-Cola CEO Muhtar Kent told the audience at the Commonwealth Club of California on Nov. 16 that “America can still be a leader” and help the world recover from the economic downturn.

“The future is one of my favorite subjects,” said Kent, who has served as the CEO and Chairman of Coca-Cola since 2008. Kent spoke about 4 uniquely strong American traditions Coca Cola is taking the lead on as they progress into the future.
1. Innovation
2. Education
3. Entrepreneurship… and…
4. International trade

He says these four critical areas have made the U.S. the greatest economic power the world has ever known.

  1. Innovation .

Coca-Cola turned 125 years young this year, and there’s no question that innovation has been indispensable to their long-term success. In fact, he always encourages his people, all around the world, to remain “constructively discontent.”

While it would be tough to imagine a drink more widely and enthusiastically loved than Coca-Cola, their fans like new and varied tastes, and now has more than 500 brands worldwide.

For our fans and our customers, choice is good — and we deliver. .. Sparkling and still… Calorie, mid-calorie, non-calorie… Juices, teas, coffees, sports drinks and many more.

One of their most important new innovations is called Coca-Cola Freestyle — a fountain capable of providing 125-plus branded beverages. They developed this fountain of the future in coordination with Dean Kamen — the man behind the Segway and the first insulin pump.

Today, Coca Cola has a very promising partnership growing with Bloom Energy — a California company headquartered just down the road in Sunnyvale. They are working with Bloom Energy to install hydrogen cell batteries in their production facilities, allowing Coca Cola to cut energy consumption 30 to 35 percent at a given location.

  1. Education

Coca-Cola supports many education initiatives in America and around the world.

Coca Cola is proud to be providing a multi-year, $500,000-dollar grant to fund the Coca-Cola First Generation Scholarship Program at the University of San Francisco. They believe it will open many doors for some exceptional students who are the first in their families to head to college.

This is in addition to the Coca-Cola Scholars Program, where for 25 years, they have proudly been sending more than 200 students per year to universities around the country.

  1. Entrepreneurship

Coca Cola must never forget that small businesses and big businesses depend on each other.

Large corporations are often the biggest customers of small entrepreneurs. In fact, I believe one of the great untold business stories of our time is the mutual dependency of American businesses, large and small.

Each year, the Coca-Cola system invests over $10 billion dollars in their U.S. supply chain. Many of these suppliers and retailers are small businesses. And all of them have the potential to become big businesses.

  1. International Trade

America depends on global companies and global trade. Today, global American-based companies, including Coca-Cola, directly employ 22 million workers in the U.S. and support more than 41 million additional American jobs through our supply chains. That’s nearly one-in-three American workers.

Success abroad creates jobs and investments at home. And that means global U.S. companies are every day creating real and tangible benefits for Main Street America.

Trade, of course, is a two-way street. Having access to other markets means opening up the USA’s own. That can take faith, even courage.

After all, Kent believes the USA’s history is pretty clear: America became a global power by being a global player. We’ve never profited as a nation from closing our minds, our borders or our ports of entry.  When we think broadly, innovate actively and engage the world, we always do better.  Kent believes we’re already seeing the beginnings of the next great cycle of American growth.

2.4         Other factors, e.g. governmental regulations, labor relations, litigation

Obesity and other health concerns may reduce demand for some of Coca Cola products.

Consumers, public health officials and government officials are becoming increasingly concerned about the public health consequences associated with obesity, particularly among young people. In addition, some researchers, health advocates and dietary guidelines are encouraging consumers to reduce consumption of sugar-sweetened beverages, including those sweetened with HFCS or other nutritive sweeteners. Increasing public concern about these issues; possible new taxes and governmental regulations concerning the marketing, labeling or availability of the Company’s beverages; and negative publicity resulting from actual or threatened legal actions against the Company or other companies in the industry relating to the marketing, labeling or sale of sugar-sweetened beverages may reduce demand for our beverages, which could affect the Coca Cola Company’s profitability.

Water scarcity and poor quality could negatively impact the Coca-Cola system’s production costs and capacity.

Water is the main ingredient in substantially all of Coca Cola’s products. It is also a limited resource in many parts of the world, facing unprecedented challenges from overexploitation, increasing pollution, poor management and climate change. As demand for water continues to increase around the world, and as water becomes scarcer and the quality of available water deteriorates, Coca Cola’s system may incur increasing production costs or face capacity constraints which could adversely affect their profitability or net operating revenues in the long run.

Changes in the nonalcoholic beverages business environment could impact our financial results.

The nonalcoholic beverages business environment is rapidly evolving as a result of, among other things, changes in consumer preferences, including changes based on health and nutrition considerations and obesity concerns; shifting consumer tastes and needs; changes in consumer lifestyles; and competitive product and pricing pressures. In addition, our industry is being affected by the trend toward consolidation in the retail channel, particularly in Europe and the United States. If we are unable to successfully adapt to this rapidly changing environment, our share of sales, volume

growth and overall financial results could be negatively affected.

  1. EVALUATION OF FINANCIAL STATEMENTS

3.1     OVERVIEW

The Coca-Cola Company is a publicly traded company. As such, they are required to file an Annual Form 10-K report in accordance with the Generally Accepted Accounting Principles (GAAP) in the United States and in accordance with the Securities Exchange Act of 1934.  The consolidated financial statements have been audited by the independent registered public accounting firm, Ernst & Young LLP.   Management of the Coca-Cola Company is responsible for establishing and maintaining adequate internal control over financial reporting as such term is defined in Rule 13a-15(f) under the Securities Exchange Act of 1934 (‘‘Exchange Act’’).  Management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2010. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control — Integrated Framework.

During 2010, the Company acquired the North American operations of Coca-Cola Enterprises Inc. (subsequently renamed Coca-Cola Refreshments USA, Inc.). Refer to Note 2 of Notes to Consolidated Financial Statements for additional information regarding this event. Management has excluded this business from its evaluation of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2010. The net operating revenues attributable to this business represented approximately 10 percent of the Company’s consolidated net operating revenues for the year ended December 31, 2010 and its aggregate total assets represented approximately 31 percent of the Company’s consolidated total assets as of December 31, 2010. Based on this assessment, management believes that the Company maintained effective internal control over financial reporting as of December 31, 2010.  The Company’s independent auditors, Ernst & Young LLP, a registered public accounting firm, are appointed by the Audit Committee of the Company’s Board of Directors, subject to ratification by our Company’s share-owners. Ernst & Young LLP has audited and reported on the consolidated financial statements of The Coca-Cola Company and subsidiaries and the Company’s internal control over financial reporting. The reports of the independent auditors are contained in this annual report.

3.2.    Short-term liquidity:

  • Liquidity Ratios:

Liquidity ratios attempt to measure a company’s ability to pay off its short-term debt obligations. The analysis of these ratios is done by comparing a company’s most liquid assets (those easily convertible to cash) to its short-term liabilities.

Liquidity Ratios 2008 2009 2010
Current Ratio 0.94 times 1.28 times 1.17 times
Quick Ratio 0.62 time 0.95 times 0.85 times

The greater the coverage of liquid assets to short-term liabilities the better as it is for that company as it can pay its debts that are coming due in the near future and still fund its ongoing operations. On the other hand, a company with a low coverage rate will have difficulty meeting running its operations, as well as meeting its obligations.

Table 1: Liquidity Ratios of Coca-Cola Company Limited

  1. Current Ratio

The current ratio is used to test a company’s liquidity (also referred to as its current or working capital position) by deriving the proportion of current assets available to cover current liabilities.

Interpretation

  • In the year 2010, the Coca-Cola had 1.17 times higher current assets than current liabilities.
  • Company is improved over 2008 but slightly decreased from 2009 in 2010.
  • Both current liabilities and assets were increased by the time but assets increased in greater proportion.
  1. Quick Ratio

The quick ratio is a liquidity ratio calculated as (cash plus short-term marketable investments plus receivables) divided by current liabilities.

Interpretation:

  • The company’s current assets excluding inventories are higher than the current liabilities in the year 2009.
  • Year by year the ratio is increasing which is favorable.
  • Inventories dropped off in a small amount in the year 2008 and slightly raised in 2009, that is why core liquidity has increased.
  • OPERATING EFFICIENCY:

Asset management ratios measure profitability that is affected by the way that the assets of a business are used. These ratios which are also known as efficiency ratios help us to overcome these problems of in efficient use of assets. The ratios are used to ensure that production targets are met efficiently.

Asset Management Ratios 2008 2009 2010
Inventory turnover Ratio 5.16 times 4.88 times 5.07 times
Days in Inventory 70.71 days 74.74 days 71.95
Total asset Turnover Ratio 0.76 0.69 0.58
Fixed assets Turnover Ratio 3.80 3.47 2.89 

Table 2: Asset Management Ratios of Coca-Cola Company Limited

  1. Inventory Turnover Ratio

The ratio is regarded as a test of Efficiency and indicates the rapidity with which the company is able to move its merchandise

Interpretation:

  • In the year 2010, the Coca-Cola sold out and restocked its inventory 5.07 times.
  • In 2008, the ratio rose up to almost 5 times but has decreased slightly in 2009.
  • After 2007, Coca-Cola started to manage higher level of inventories because sales were favorable. In 2008, sales were increased and because of high demand they stocked more inventories which eventually caused lower sales.

Days in Inventory:

Days in Inventory gives the number of days the stock was in the inventory.

Interpretation:

  • Days in inventory is increasing, progressively.
  • The company is maintaining more stocks and sales.
  1. Total Asset Turnover Ratio

The total asset turnover illustrates how much of sales have been generated from the total assets used.

Interpretation:

  • In the year 2009, Coca-Cola’s every $1 worth of assets is generating $0.64 worth of sales.
  • It was increased in 2008 but again decreased in greater proportion in 2009.
  • In three years sales amount was average but total assets fluctuated more, that is why ratio has changed randomly
  1. Fixed Asset Turnover Ratio

The fixed asset turnover means how much of sales have been generated by using the fixed assets.

Interpretation:

  • In the year 2009, Coca-Cola has generated $1.01 of sales for every $1 worth of fixed assets.
  • Ratio has increased in 2008 but declined in 2009 slightly.
  • In 2008 sales gone up also assets gone down to increase the ratio. But in 2009, sales gone down slightly and assets were greater than previous year, which caused the ratio to decrease.
  1. Average Collection Period (Day’s Sales Outstanding):

Day’s outstanding ratio determines on an average how much time is taken to collect the money from the collectors.

  1. Average Payment Period:

Average payment period distinguishes on an average how many days are needed to pay back the creditors.

Days Sales Outstanding 36.60 days 40.33 days  42.55 days
Payable Periods 44 days 46 days 47 days

Interpretation:

  • On an average Coca-Cola took 42 days to collect its account receivable from the customers in 2010.
  • On an average Coca-Cola took 47 days to clear its account payable to its creditors in 2010.

3.4     CAPITAL STRUCTURE AND LONG-TERM SOLVENCY

Debt management ratios give users a general idea of the company’s overall debt load as well as its mix of equity and debt. Debt ratios can be used to determine the overall level of financial risk a company and its shareholders face. In general, the greater the amount of debt held by a company the greater the financial risk of bankruptcy.

Leverage Ratios Dec. 31, 2008 Dec. 31, 2009 Dec. 31, 2010
Debt/Equity 14% 20% 45%
Long term debt 6.86 times 10.39 times 19.26 times
Financial Leverage 1.98 times 1.96 times 2.35 times
Free Cash Flow/Net Income 0.96 times 0.91 times 0.62 times
 

Table 3: Debt Management Ratios of Coca-Cola Company Limited

  1. Debt to equity ratio

The debt-to-equity ratio is a leverage ratio that compares a company’s total liabilities to its total shareholders’ equity. This is a measurement of how much suppliers, lenders, creditors and obligors have committed to the company versus what the shareholders have committed.

Interpretation:

  • In the year 2010, Coca-Cola’s 45% of total assets were financed by the debt.
  • For every $1 of total assets $0.45 is financed by total debt.

3.5     PROFITABILITY

Profitability ratios distinguish the different measures of corporate profitability and financial performance. These ratios give a good understanding of how well the company utilized its resources in generating profit and shareholder value.

The long-term profitability of a company is vital for both the survivability of the company as well as the benefit received by shareholders. It is these ratios that can give insight into the all important “profit”.

Profitability  Ratios 2008 2009 2010
Gross Profit Margin 64.39% 64.22% 63.86%
Net Profit Margin 18.18% 22.02% 33.63%
Return on Asset 13.86% 15.30% 19.42%
Return on Equity 27.51% 30.15% 42.32%

Table 4: Profitability Ratios of Coca-Cola Company Limited

  1. Gross Profit Margin

The gross profit margin is used to analyze how efficiently a company is using its raw materials, labor and manufacturing-related fixed assets to generate profits. A higher margin percentage is a favorable profit indicator.

Interpretation:

  • In the year 2010, the gross profit margin of Coca-Coca was 63.86%. That means they are generating profit more than the double of the cost price.
  • It rose in 2008 efficiently but slightly went down in 2009.
  • Sales rose more than gross profit that is why the ratio got slightly down in 2009. And the situation was just the opposite in 2008.
  1. Net Profit Margin

Investors can easily see from a complete profit margin analysis that there are several income and expense operating elements in an income statement that determine a net profit margin. It allows investors to take a comprehensive look at a company’s profit margins on a systematic basis.

Interpretation:

  • In the year 2009, the net profit margin was 22.02%.  It rose significantly in 2010 at 33.63%.
  • Because of high interest rate it went down in 2008 but in 2009, low interest and high sales help it to rise.
  1. Return on Assets

The Return on Total Assets, also called return on investment measures the overall effectiveness of management in generating profits with its available assets. The higher the firm’s return on total assets, the better it is considered.

Interpretation:

  • In the year 2009, every $100 worth of assets of Coca-Cola are generating $15.30 of net income.
  • In the year 2010, every $100 worth of assets of Coca-Cola are generating $19.42 of net income.
  • Slightly got down in 2009 after increasing in 2008 but returned very strong in 2010.
  • However, the company efficiently using their assets. And both increase/decrease in net income and total assets are responsible.
  1. Return on equity

The return on common equity measures the return earned on the common stockholders investment in the firm. Generally, the higher the return, the better it is for the owners.

Interpretation:

  • In the year 2009, shareholders of this company had earnings of $30.15 for every $100 investment.  In the year 2010, shareholders of this company had a great increase of earnings of $42.32 for every $100 investment.
  • Increased in 2008 again decreased slightly in 2009 but rose significantly in 2010.

3.6     MARKET MEASURES

Stock Market ratios attempt to simplify the evaluation process by comparing relevant data that help users gain an estimate of valuation. When looking at the financial statements of a company, many users can suffer from information overload as there are so many different financial values. Stock Market ratios help to evaluate easily.

Stock Market Ratios 2008 2009 2010
Earnings Per Share $2.49 $2.93 $5.06
Price to Earnings $19.26 17.38
Dividend Yield 1.14% 1.64% 1.76%

Table 5: Stock Market Ratios of Coca-Cola Company Limited

 Earnings Per Share

Earnings per Share are the most frequently used of all the ratios and are generally felt to give the best view of performance. It indicates how much of a company’s profit can be attributed to each ordinary share in the company.

Interpretation:

  • In the year 2009, common shareholders have earned $2.93 per share.
  • In the year 2010, common shareholders have earned a much higher share than in 2009, $5.06.
  • Per share earnings slightly decreased in 2008 but increased efficiently in 2009.
  • Because of changes in common shareholders income the ratio changed respectively.
  1. Market to Book value ratio

The Market to Book value of the share compares the book value of the share which is the internal or face value of the share with the market price of the share. 

Interpretation:

  • In the year 2009, market price per share was 5.29 times higher than the book value per share.
  • Ratio decreased in 2008 but slightly increased in 2009.
  • Because of changes both in market value per share and total common share holders equity ratio has changed.
  1. Price earnings Ratio

The price/earnings (P/E) ratio is the best known of the investment valuation indicators. The P/E ratio has its imperfections, but it is nevertheless the most widely reported and used valuation by investment professionals and the investing public.

Interpretation:

  • In the year 2009, the company’s shareholders were willing to pay $19.26 for every $1 of reported earnings.
  • Slightly decreased in 2009 but decreased in a greater proportion in 2008.
  • Market price per share was actually responsible for changing the ratios.

Du Pont Equation:

Return on Asset = Net Profit Margin * Total Asset Turnover Ratio

Net Income   = Net Profit *  ___Sales___

Total Asset          Sales          Total Asset 

Du-Pont Equation Return on Asset Net Profit Margin Total Asset Turnover
2007 = 13.89% 20.73% 0.67

 

2008 = 14.39%

 

18.18% 0.79
2009 = 14.09%

 

22.02% 0.64

Interpretation:

In the year 2009, Coca-Cola’s ROA was 14.09% which is less than the previous year, but net profit margin has increased to 22.02% from 18.18%. Asset turn over ratio has decreased to 0.64 from 0.79. So there is a problem in Total Asset Turnover. Expense has decreased from the from the previous year.

Extended Du Pont Equation:

Return on Equity = Net Profit * Total Asset Turnover Ratio * Equity Multiplier

   Net Income___   =  Net Profit *  ___Sales___Total Asset_

Total Common              Sales          Total Asset      Total Equity

Stock Equity

Extended Du-Pont Equation Return on Equity Net Profit Margin Total Asset Turnover Equity Multiplier
2007 = 27.64% 20.73% 0.67

 

1.99
2008 = 27.86%

 

18.18% 0.79 1.94
2009 = 27.06%

 

22.02% 0.64 1.92

 

Interpretation:

In the year 2009, Coca-Cola’s ROE was 27.06% which is less than the previous year, but net profit margin has increased to 22.02% from 18.18%. Asset turn over ratio has decreased to 0.64 from 0.79 and equity multiplier also has decreased from the previous year. So there is a problem in Total Asset Turnover.

3.7         Quality of financial reporting

The Coca Cola Company is a large company and as per the requirements of the Form 10-K and the auditors they are required to ensure that the quality of the financial reporting remain intact.  Furthermore the company is subjects to stringent requirements and regulations since the U.S. Government forms such a large customer. This requires the company to remain transparent in order to secure contract and projects from the government.

In October 2010, the company completed its $12.3 acquisition of Coca-Cola Enterprises, its largest bottler which was spun off 24 years ago as a separate company.  This strategy of buying out its bottlers, while initially causing decreasing margins, is believed to give Coca-Cola more flexibility in rapidly fluctuating market conditions to control its volume without dealing with the management concerns of various bottling groups.

4.     Outlook, Summary, and Conclusions

4.1         Investment potential

Findings:

  • Liquidity ratios are increasing year by year, which means they are having more current assets with time.
  • In the asset management ratios, there are a bit of ups and downs but the company gets much time to pay its debt.
  • Company’s owner’s equity portion is still greater than their debt and the ratio of times interest earned is also increasing year by year in the company’s favor.
  • Net profit margin increased by 2% but other profitability ratios have decreased slightly from last year.
  • EPS is quite favorable for the company but other stock market ratios are not historically sound.

4.2         Credit assessment

Coca-Cola’s true growth engine, however, like many of its peers, is based in emerging markets worldwide. The Eurasia and Africa group’s volume rose 12%, boosted by new drinks launched in Russia and India. Volume in China and Japan grew 12% and 11%, respectively. The global volume grew by an average of 5%, an encouraging sign for one of the world’s largest companies, valued at $142.15 billion USD. The company has a history of continuous investment; at the nadir of the financial crisis in 2009, it continued expanding marketing and supply channels to take advantage of depressed real-estate prices and cash-starved local distributors for a total of $2.5 billion. In fact, CEO Muhtar Kent has stated that he is “not going to waste this crisis”, alluding to a fertile market for further acquisitions and expansion. In October 2010, the company completed its $12.3 acquisition of Coca-Cola Enterprises, its largest bottler which was spun off 24 years ago as a separate company. By acquiring CCE, Coca-Cola has cut out the largest middleman, which was once used as a cost-cutting measure to allow the company to focus on its high margin syrup concentrates business. The current acquisition allows Coca-Cola to have majority control (90%) of its North American volume, while granting CCE, which still operates as a wholly owned subsidiary, control over its European bottling operations. This strategy of buying out its bottlers, while initially causing decreasing margins, is believed to give Coca-Cola more flexibility in rapidly fluctuating market conditions to control its volume without dealing with the management concerns of various bottling groups.

4.3         Summary and conclusions

Conclusion and Recommendations

After evaluating all the ratios we have prepared some recommendations for the Coca-Cola Company Limited and also for the current and probable investors in this organization.

Recommendation to Coca-Cola:

  • They should continue to grow their top line of revenue which has exceeded all expectations in 2010 and continues into 2011.
  • They should try to reduce the liabilities by reducing current liabilities, accrued expense etc. so that their liquidity ratios will improve.
  • They should look into inventory management and selling. They can advertise more or put some potential marketing officer in action.
  • They can increase their profit margins by reducing the operating cost.
  • As their earning per share is enough, they can give more dividend to attract new investors.

Recommendation to potential and existing investors:

Existing investors should be happy with the company’s present situation because the dividend exceeds their expectation. Coca-Cola should be concentrating more into shareholders equity than into retained earnings. Considering the current market share, attentiveness to shareholder and as it is one of the biggest in beverage industry; new investor should be interested in investing in Coca-Cola.

5.    Appendix

APPENDIX

Ratios Formula 2007 2008 2009
Current Current asset/ current liabilities 12105 / 13225 12176 / 12988 17551 / 13721
Quick ratio (Current assets – Inventories )/ Current liabilities (12105-2220) / 13225 (12176-2187) / 12988 (17551-2354) / 13721
Inventory Turnover Sales/ Inventories 10406 / 2220 11374 / 2187 11088 / 2354
Total assets turnover Sales/ Total assets 28857 / 43269 31944 / 40519 30990 / 48671
Fixed Assets Turnover Sales/ Net fixed assets 28857 / 31164 31944 / 28343 30990 / 31120
Days sales outstanding (Receivable* 365)/ Sales (3317 *365) / 28857 (3090 *365) / 31944 (3758 *365) / 30990
Average payment period (Payable* 365)/ Purchase (6195 *365) / 10406 (6205 *365) / 11374 (6657 *365) / 11088
Debt to Assets Total debt/ Total assets 21525 / 43266 19657 / 40519 23325 / 48671
Debt to Equity Total debt/Total Debt +Total equity 21525 / 21525+21744 19657 / 19657+20862 23325 / 23325+25346
Time Interest Earned EBIT/ Time interest expense 7252 / 456 8446 / 438 8231 / 355
Gross Profit Margin Gross profit/ sales 18451 / 28857 20570 / 31944 19902 / 30990
Net Profit Margin Net profit/ Sales 5981 / 28857 5807 / 31944 6824 / 30990
Return on Assets Net profit/ Total assets 5981 / 43269 5807 / 40519 6824 / 48671
Return on Equity Net profit/ Total equity 5189 / 21744 5807 / 20472 6824 / 24799
Earnings Per Share Net profit/ Total number of common shares 5981 / 2318 5807 / 2312 6824 / 2303
Market to Book value Market value per share/ Book value per share 61.37 / (21744/2318) 45.27/ (20473/2312) 57.00 / (24799/2303)
P/E Ratio Price per share/ EPS 61.37 / 2.58 45.27 / 2.51 57.00 / 2.96

*In millions except per share value.

6.   Bibliography

  1. The Coca Cola Company 2010 Annual Report. Coca Cola Company. Georgia : s.n., 2011.http://www.thecoca-colacompany.com/ourcompany/ar/pdf/TCCC_2010_Annual_Review.pdf
  2. Editors of New World Books. How Coca-Cola Got Its Fizz Back. New York : New World City, 2011.
  3. Coke secret formula gets 1st new home since 1925 -AJC.com. Atlana Constitution Journal. [Online] December 9, 2011. [Cited: December 9, 2011.] http://www.ajc.com/news/nation-world/coke-secret-formula-gets-1255446.html
  4. The America Promise 2020 The Coca Cola Company. [Online] November 16, 2011. [Cited: November 16, 2011] http://www.thecoca-colacompany.com/dynamic/leadershipviewpoints/2011/11/the-american-promise-in-2020.html
  5. Coca Cola (KO) Key Financial Ratios. Morningstar Finance. [Online] December 9, 2011. [Cited: December 9, 2011.] http://financials.morningstar.com/ratios/r.html?t=KO
  6. Key Financial Ratios: Coca Cola Company (KO) – MSN Money. [Online] 2011. [Cited: 12 10, 2011.] http://moneycentral.msn.com/investor/research/sreport.asp?symbol=US%3AKO&Y1=1&CR=1&Type=Equity
  7. DETAILED STOCK VALUATION REPORT: COCA COLA CO:Ticker: KO – ValuEngine. [Online] 2011. [Cited: December 5, 2011.]

 

  1. Stock Analysis on the Net. [Online] 2011. [Cited: December 9, 2011.]

http://www.stock-analysis-on.net/NYSE/Company/Coca-Cola-Co/Analysis/Investments#Adjusted-ROE

 

 

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