Coca-Cola Financial Analysis free essay sample

The Coca-Cola recipe was originally founded and formulated by John Pemberton at the Pemberton’s Eagle Drug and Chemical House. By 1885, the product was registered as a French Wine Coca as a patent medicine. Pemberton claimed Coca-Cola cured morphine addiction, dyspepsia, neurasthenia, headaches and impotence. The carbonated drink began its first sales at Jacob’s Pharmacy in Atlanta, Georgia on May 8, 1886 for 5 cents a glass with its first advertisement in the Atlanta Journal on May 29, 1886. It wasn’t until 1955 when cans of Coke started to make its first appearance (Official Coca-Cola website). By the 21st century, Coca-Cola is proclaimed to be the world’s largest beverage company sold in more than 200 countries. The company owns and markets four out of the world’s top five beverage brands; Coca-Cola, Diet Coke, Fanta, and Sprite. Coca-Cola’s current business situation is obviously more expansive than the early years, with increased sales, maximized profit, and product expansion into new markets. We will write a custom essay sample on Coca-Cola Financial Analysis or any similar topic specifically for you Do Not WasteYour Time HIRE WRITER Only 13.90 / page According to Chief Executive Officer, Muhtar Kent, Coca-Cola’s net income rose six (6) percent to $2. 45 billion, or 54 cents a share, from $2. 31 billion, or 50 cents a share from a year earlier ( NY Times, 2013). Based on Coca-Cola’s quarterly profit, the company is right on track with their goal in doubling its 2010 revenue. The sales volume of noncarbonated drinks like juices, tea’s, fuze, and bottled water has had double digit percentage growth in comparison to Coke’s actual soda beverage. A SWOT analysis was conducted for Coca-Cola in 2013, the results were as follows; Strengths: (1) The best global brand in the world in terms of value ($77,839 billion), (2) Coca-Cola holds the largest beverage market share in the world (40%), (3) Coca-Cola’s advertising expenses accounted for more than $3 billion in 2012, increasing firm sales and brand recognition, (4) Coca-Cola serves more than 200 countries and more than 1. 7 billion servings a day, (5) Coca-Cola has bargaining power over their suppliers to receive the lowest prices, and (6) Coca-Cola focuses on their Corporate Social Responsibility programs such as, recycling/packaging, energy conservation, active healthy living, which boosts the company’s image and resulting in a competitive advantage over their competitors. Weaknesses: (1) Coca-Cola is still focusing on selling carbonated drinks. This strategy only works in short term as the world is moving towards the importance of consuming healthier food and drinks to fight obesity, (2) Coca-Cola primary focus is still on selling beverages which places them at a disadvantage to other markets selling food or snacks, (3) Nearly $8 billion of debt acquired from CCE’s acquisition significantly increased Coca-Cola’s debt level, interest rates and borrowing costs, (4) Highly criticized through negative publicity for high water consumption in water scarce regions and using harmful ingredients to produce its drinks, (5) Coca-Cola sells more than 500 brands but only few of the brands bring in more than $1 billion sales and their success in introducing new drinks is weak. Ratio Analysis Interpretation Liquidity and Efficiency Ratios As we learned in class, liquidity ratios measure a company’s ability to meet its short-term obligations. Coca-Cola’s current ratio for FY2011 and FY2012 were calculated by utilizing the company’s consolidated balance sheet s. The assets for the company were added together to get the total current assets. The liabilities were added together to get the total current liabilities. The total current liabilities were subtracted from the total current assets. In order to get the current ratio’s each total current asset for FY2011 and FY2012 was divided by the less current liabilities. Coca-Cola’s current ratio slightly improved from 2011 to 2012. The higher the current ratio, the more capable the company is of paying its obligations. If the ratios were under 1, that would mean the company would not be able to pay off their obligations if it were due at that point. The current ratio gives a sense of the efficiency of a company’s operating cycle or its ability to turn its product into cash. (In millions) 2011 2012 Cash $12,803$8,442 Short term investments 1,088 5,017 Marketable securities 4,920 4,759 Trade accts. receivables 3,092 3,264 Inventories 3,450 2,781 Prepaid expenses and other assets 144 3,092 Assets held for sale 0 2,973 TOTAL CURRENT ASSETS $25,497$30,328 TOTAL CURRENT ASSETS $25,497$30,328 LESS CURRENT LIABILITIES $24,283$27,821 WORKING CAPITAL $1,214$2,507 CURRENT RATIO 1. 0 1. 1 ($25,497/$24,283) Coca-Cola’s Quick Ratio for FY2011 and FY2012 were calculated by also utilizing the company’s consolidated balance sheets. The ‘quick assets’ for the company were added together to get a total which included the cash assets, temporary investments, and accounts receivable. The quick assets were divided into the current liabilities to get the ‘quick’ ratio’s indicated above. Coca-Cola’s quick ratio deteriorated from 2011 to 2012. Quick ratio shows the extent of cash and other current assets that are readily convertible into cash in comparison to the short term obligations of an organization. A quick of 0. 5+ would suggest that a company is able to settle half of its current liabilities instantaneously. However, it is better for a company to have at least a 1. 0+ which would mean the company has enough liquid assets to pay off all its debts in small amount of time if needed without liquefying any inventory quickly. As this would indicate the company is financially stable. Quick Assets:20112012 Cash $12,803 $8,442 Temporary Investments 1,088 5,017 Marketable securities 144 3092 Accounts Receivable 4,920 4,759 TOTAL QUICK ASSETS $18,955 $21,310 CURRENT LIABILITIES $24,283 $27,821 QUICK RATIO 0. 78 0. 77 Solvency and Leverage Ratios Coca-Cola’s Times Interest Earned ratio for FY2011 and FY2012 were calculated by utilizing the company’s consolidated balance sheets to complete the following formula; ‘Income before income tax plus interest expense divided into the interest expense to reach the ratios of 28. 5 and 30. 7. The times interest earned ratio is a metric used to measure a company’s ability to meet its debt obligations. The ratio indicates how many times a company can cover its interest charges on a pretax basis because failing to meet such obligations could force a company into bankruptcy. Ensuring interest payments to debt holders and preventing bankruptcy depends mainly on a company’s ability to sustain earnings. The higher the times interest earned ratio, the more likely is that company able to meet its interest payments. Coca-Cola obviously meets this ability. (In millions) 2011 2012 Income before income tax $11,458 $11,809 Add interest expense $417 $397 Amount available to pay interest $11,875 $12,206 Number of times interest charges earned 28. 5 30. 7 Coca-Cola Debt-To-Equity ratio for FY2011 and FY2012 was calculated by utilizing the company’s consolidated balance sheet to locate their total liabilities and total stockholder’s equity. The ratio consisted of a formula calculation of the total liabilities divided by the total shareholders’ equity for each year. The debt to equity ratio measures how much debt a company has compared to its equity. This means how much does the company owe divided by the firm’s equity. This ratio is important to investors because the more outstanding debt a company has, the greater the proportion of earnings it must use to make payments on the interest and principal. A ratio less than 1 means equity provides the majority of the financing. This puts Coca-Cola in a safe zone. (In millions) 2011 2012 Total Liabilities $24,283 $27,821 Total Shareholders’ Equity $31,635 $32,790 RATIO0. 77 0. 84 Coca-Cola’s gross margin ratio for FY2011 and FY2012 was calculated by utilizing the company’s consolidated statement of income. The gross profit was found by subtracting the cost of goods sold from the revenues. The gross profit was used to divide by the revenue to reach a gross margin ratio of . 60 for both years. The gross margin is what is left over after costs associated directly with the sale of a product or service, such as materials and direct labor, are paid for. Gross margin ratios are the best tool to analyze a company’s potential for profit, as it tells you the profit made on the cost of sales. Investors should avoid investing in companies that have declining gross margin percentages. Coca-Cola’s gross margin has remained steady without an increase or decrease. Coke ultimately has the best gross profit margin in 2012 in comparison to Pepsi’s . 52 gross margins (Hargreaves, 2013). 20112012 Gross Profit $28,327 $28,964 Revenue $46,542 $48,017 Gross Margin Ratio . 60 . 60 Profit Margin Ratio for FY2011 and FY2012 was calculated by utilizing the company’s consolidated statement for income. The consolidated net income was divided into the revenue to reach a total profit margin ratio of . 48 for both years. Profit margins are the most important indicators of a company’s financial health. They show how much money the company has made in the most recent period. Maintaining or improving profit margins allows investing aggressively in marketing expansion and business growth, which helps a company to thrive rather than fall back as a company. In order to maximize profit, a company must operate efficiently and control costs and expenses. Profit margins are very useful when comparing companies in similar industries. A higher profit margin indicates a more profitable company that has better control over its costs compared to its competitors. 20112012 Net Income $8,646 $9,086 Revenue $18,215 $19,053 Profit Margin Ratio . 48 . 48 Analysis of Coca-Cola’s Ratio Versus Pepsi Coca-Cola Company VS. Pepsi Company Financial Statement Comparison December 31, 2012 and 2011 FY2012 FY2012 FY2011 FY2011 Coca-Cola Pepsi Coca-Cola Pepsi Assets Current assets35. 20%25. 10%31. 90%23. 90% Long-term investments16. 30%4. 40%14. 80%3. 40% Property, plant, equip. (net)16. 80%25. 60%18. 70%27. 00% Intangible assets31. 70%44. 90%34. 60%45. 70% Total assets100%100%100%100% Liabilities Current liabilities32. 30%22. 90%30. 40%24. 90% Long-term liabilities29. 20%47. 10%29. 70%46. 40% Total liabilities61. 50%70. 00%60. 10%71. 30% Stockholders Equity Common stock2. 00%0. 03%2. 20%0. 03% Capital surplus13. 20%5. 60%12. 90%6. 10% Reinvested earnings67. 30%57. 60%67. 00%55. 10% Accum. comprehensive income (loss)(-3. 9%)-7. 35%(-3. 5%)-8. 60% Treasury stock(-40. 6%)-26. 10%(-39. 1%)-24. 50% Equity attributable to shareowners38. 00%29. 90%39. 50%28. 20% Equity attributable to noncontrol interests0. 43%0. 14%0. 30%0. 40% Total stockholders equity38. 50%30. 00%39. 90%28. 70% Total liabilities and stockholders equity100%100%100%100% Coca-Cola’s current asset in the most recent year has the advantage against Pepsi. Yet Pepsi’s liabilities are higher than Coca-Cola. Coca-Cola and Pepsi are the most two recognized beverage brands across the globe and have spread their operations across continents. While Coca-Cola only operates in the beverage sector, Pepsi does not restrict its brands from being beverage only. Coca-Cola on the other hand, has a second to none global supply chain system which provides its products to more than 200 countries worldwide which makes it almost impossible to have its retail strength and brand replicated. Being that Coke is the most valuable brand in the world only helps to make the profit case for the beverage company. Conclusion Now, if I had $25,000 to invest in the stock of this company I would definitely choose Coca-Cola as my first attempt in this investment industry. The Coca-Cola company continues to grow which gives investors a very high return on equity, meaning the money I would invest is typically higher than the industry average. Coke is over 19% higher than other beverage or similar companies return and the company has also increased their stock dividend every year for almost fifty (50) years straight. I believe for me, it would be a great way to start my investments in stock as I believe Coca-Cola is a strong lifelong investment. Overall, Coca-Cola can be viewed as a fairly low-risk stock investment. Coca-Cola may not be viewed as the perfect stock, as it’s far from cheap, yet its globally diversified operations serve to both preserve and grow investment capital over the years to come. Coca-Cola is at least a good stock for a long-term investor. The company still continues to generate substantial cash flows from its mega brands, and more importantly, it has invested heavily in emerging markets. Just by evaluating and analyzing the different ratios of the company, reading the history and future prospects, including the income statement and gross margin ratios, I have developed a great sense of worth in investing into the company’s stock in hopes that the coca-cola industry will remain the world’s largest beverage company. Financial Statement Analysis Horizontal Analysis Coca-Cola Company Horizontal Analysis December 31, 2012 and 2011 DecemberDecember Increase (Decrease) 31, 201231, 2011AmountPercent Assets Current assets$30,328 $25,497 $4,831 18. 90% Long-term investments$14,033 $11,869 $2,164 18. 20% Property, plant, equip. (net)$14,476 $14,939 -463(-3. 1%) Intangible assets27,33727,669-332(-1. 2%) Total assets$86,174 $79,974 $6,200 7. 70% Liabilities Current liabilities$27,821 $24,283 $3,538 14. 60% Long-term liabilities$25,185 $23,770 $1,415 5. 90% Total liabilities$53,006 $48,053 $4,953 10. 30% Stockholders Equity Common stock$1,760 $1,760 Capital surplus$11,379 $10,332 $1,047 10. 10% Reinvested earnings$58,045 $53,621 $4,424 8. 20% Accum. comprehensive income (loss)-3,385-2,774-611(-22%) Treasury stock-35,009-31,304-3,705(-11. 8%) Equity attributable to shareowners$32,790 $31,635 $1,155 3. 60% Equity attributable to noncontrol interests$378 $286 $92 32. 20% Total stockholders equity$33,168 $31,921 $1,247 3. 90% Total liabilities and stockholders equity$86,174 $79,974 $6,200 7. 70% Vertical Analysis Coca-Cola Company Vertical Analysis December 31, 2012 and 2011 Dec. 31, 2012 Dec. 31, 2011 Amount Percent Amount Percent Assets Current assets$30,328 35. 20%$25,497 31. 90% Long-term investments$14,033 16. 30%$11,869 14. 80% Property, plant, equip. (net)$14,476 16. 80%$14,939 18. 70% Intangible assets27,33731. 70%27,66934. 60% Total assets$86,174 100%$79,974 100% Liabilities Current liabilities$27,821 32. 30%$24,283 30. 40% Long-term liabilities$25,185 29. 20%$23,770 29. 70% Total liabilities$53,006 61. 50%$48,053 60. 10% Stockholders Equity Common stock$1,760 2. 00%$1,760 2. 20% Capital surplus$11,379 13. 20%$10,332 12. 90% Reinvested earnings$58,045 67. 30%$53,621 67. 00% Accum. comprehensive income (loss)-3,385(-3. 9%)-2,774(-3. 5%) Treasury stock-35,009(-40. 6%)-31,304(-39. 1%) Equity attributable to shareowners$32,790 38. 00%$31,635 39. 50% Equity attributable to noncontrol interests$378 0. 43%$286 0. 30% Total stockholders equity$33,168 38. 50%$31,921 39. 90% Total liabilities and stockholders equity$86,174 100%$79,974 100% Preparation of Common-Sized Financial Statement Coca-Cola Company Preparation of Common-Sized Statement December 31, 2012 and 2011 12/31/2012 12/31/2011 Percent Percent Assets Current assets35. 20%31. 90% Long-term investments16. 30%14. 80% Property, plant, equip. (net)16. 80%18. 70% Intangible assets31. 70%34. 60% Total assets100%100% Liabilities Current liabilities32. 30%30. 40% Long-term liabilities29. 20%29. 70% Total liabilities61. 50%60. 10% Stockholders Equity Common stock2. 00%2. 20% Capital surplus13. 20%12. 90% Reinvested earnings67. 30%67. 00% Accum. comprehensive income (loss)(-3. 9%)(-3. 5%) Treasury stock(-40. 6%)(-39. 1%) Equity attributable to shareowners38. 00%39. 50% Equity attributable to noncontrol interests0. 43%0. 30% Total stockholders equity38. 50%39. 90% Total liabilities and stockholders equity100%100% Competitor Comparison Coca-Cola Company VS. Pepsi Company Financial Statement Comparison December 31, 2012 and 2011 FY2012 FY2012 FY2011 FY2011 Coca-Cola Pepsi Coca-Cola Pepsi Assets Current assets35. 20%25. 10%31. 90%23. 90% Long-term investments16. 30%4. 40%14. 80%3. 40% Property, plant, equip. (net)16. 80%25. 60%18. 70%27. 00% Intangible assets31. 70%44. 90%34. 60%45. 70% Total assets100%100%100%100% Liabilities Current liabilities32. 30%22. 90%30. 40%24. 90% Long-term liabilities29. 20%47. 10%29. 70%46. 40% Total liabilities61. 50%70. 00%60. 10%71. 30% Stockholders Equity Common stock2. 00%0. 03%2. 20%0. 03% Capital surplus13. 20%5. 60%12. 90%6. 10% Reinvested earnings67. 30%57. 60%67. 00%55. 10% Accum. comprehensive income (loss)(-3. 9%)-7. 35%(-3. 5%)-8. 60% Treasury stock(-40. 6%)-26. 10%(-39. 1%)-24. 50% Equity attributable to shareowners38. 00%29. 90%39. 50%28. 20% Equity attributable to noncontrol interests0. 43%0. 14%0. 30%0. 40% Total stockholders equity38. 50%30. 00%39. 90%28. 70% Total liabilities and stockholders equity100%100%100%100% References Coca-Cola Co. (KO) | Profitability. (n. d. ). Retrieved from http://www. stock-analysis-on. net/NYSE/Company/Coca-Cola-Co/Ratios/Profitability#Gross-Profit-Margin