Coca-Cola: Financial Research Report

Cite this

Introduction

Coca-cola is a multinational corporation in the beverage industry. The company manufactures, bottles, distributes and markets its brands of soft drinks. They are considered the best and world-renowned drinks. The corporation was founded back in the 1880s and currently has an estimated 400 brands of soft drink and related goods that are sold in more than 200 countries. The corporation is a global model of how a multinational grows and is managed effectively. In all countries, the distinctive identity of Coca Cola is not lost as the subsidiaries established are distinct and have a sense of originality. The corporation may have a worldwide advert for the coca-cola brand but throughout the individual economies, each subsidiary alters the advert to suit the particular market it is operating in. this is mainly done through for instance changing the language in use in the advert. It is important to note that Coca Cola as a company does not do the actual production, bottling and distribution but instead manufactures the syrup and sells to companies who hold the Coca Cola franchise who then do the bottling and distribution(Gitman, 2006).

On-Time Delivery!
Get your customized and 100% plagiarism-free paper done in as little as 3 hours
Let’s start
322 specialists online

Coca Cola as a company and as a multinational has had a huge influence on the soft drink/beverage industry as well as the world. To begin with, Coca Cola is involved in sponsorships all over the world in sports and entertainment. This contributes positively to society as it directly results in the improvement of the quality of life. Sports and entertainment help in recreation and relaxation and the level of development of sports especially may be used as a slight indicator of the quality of life. This means that coca-cola contributes to making society a happier place. In addition, the sponsorships are in some way incomes to the beneficiaries and thus it aids in income redistribution and increasing the level of incomes in general (Hill, 2008).

Secondly, the Coca Cola Company through its firms and subsidiaries is a very large employer worldwide. The impact on employment is positive since it has employees in virtually all the countries of the world and from almost all races and nationalities. It can be considered therefore as a fair employer. The contributions towards employment affect economies positively by raising the employment levels and by extension, the income and consumption levels in an economy which are essential if an economy is to grow(Collins, 2010; Riley, 2006).

Coca Cola like many other multinationals is guilty of relying on expatriates to run its companies to the extent that these are even imposed on the subsidiaries. This is unfair to the nationals of the host economies who may be qualified for the top management jobs but are overlooked for the expatriates. This translates to lost income for the host nation as well as a lost opportunity for the improvement of the management and entrepreneurial skills that would have been as a result of the employment opportunity. As much as the company wishes to improve its global appeal, it has to change its hiring practices. Secondly, Coca Cola is accused of engaging in monopolistic tendencies via its multinationals (Greenpeace.org, 2007).

Coca-Cola is a measure industry player in the soft drink industry with a brand name that has stood the test of time. The soft drink industry does not have many competitors as other industries because we have a few multinationals who call the sort in the industry. It requires huge capital investment something that makes new entrants to the market have difficulties. The huge capital investments cost of machinery, marketing, storage and labour. Coca-Cola has already developed an economy of scale something that makes new companies have difficulties in setting a price for their products.

Coca-Cola has introduced more products to the market which makes it very competitive. Some of the products produced include Dasani water. (Riley 2006).

The Coca-Cola Company prides itself to have its roots planted deep in local communities as the pioneers would deal with local entrepreneurs for bottling and distribution. As it was the practice a century ago. This gives Coke an added edge as people from different parts of the world look for brands that respect local identity and distinctiveness. The greatest challenge that the company faces at present is its plans of expansion in China (Roberts 2009, p. 1).

Yes, we can!
Our experts can deliver a custom Coca-Cola: Financial Research Report paper for only $13.00 $11/page
Learn More
322 specialists online

Ratio Analysis

RATIO FORMULAE 2009 2008 2007
Acid ratio Current assets-stocks
Current liabilities
15197000=1.11
13721000
9989000 =0.77
12988000
9885000 =0.75
13225000
Current ratio Current assets
Current liabilities
17551000=1.279:1
13721000
12176000=0.94:1
12988000
12105000=0.91:1
13225000
Debt to equity Total debt
Total equity
23872000 =96.3%
24799000
20047000=98%
20472000
21525000=99%
21744000
Gross margin Gross profit
sales
19902000 =64.2%
30990000
20570000=64.4%
31944000
18451000=64%
28857000
Profit margin Net income
sales
8231000 =26.6%
30990000
8446000=26.4%
31944000
7252000 =25%
28857000
Return on assets (ROA) EBIT
Average total sales
9301000 =19%
48671000
7877000 =19.4%
40519000
8329000 =19.2%
43269000
Return on owners equity(ROE) Net income
Average stockholders’ equity
8946000 =36%
24799000
7439000 =36%
20472000
7873000 =36%
21744000
EPS Net income-preferred dividends
The weighted average number of common stock outstanding
6824000 5807000 5981000

The profitability of the company is assessed by calculating two ratios including return on assets and return on equity. Both measures of profitability make use of the net profit earned by both companies that is available to common shareholders for distribution. On profitability/ performance, it can be noted that the profitability of the firm is almost constant (Berk and DeMarzo, 2011). For the three years, ROE was constant at 36%. The net profit margin also increased to 26.6% in 2009 from 25% in 2007. On return on assets in 2009, the ROA decreased to 19% from 19.2% in 2007. This constant trend in the profitability of the firm shows that it is performing averagely. However, this has to be compared to the industrial average to determine whether the change is brought by changes in the economy.

Examining the change in net income over the past three years suggest that the net profit of Coca Cola’s profits have increased by 2.8% in 2009 after a drastic decline of 718% in 2008. Comparison of profitability measures indicates that coca-cola is making profits and is showing significant improvements in 2009.

Even though the profitability of the company has been almost constant, the management is required to take due care so that operating costs will not affect the company’s profitability. This is because the slight increase in profitability margins is associated with good management of operating costs. Therefore any change in operating costs will affect the profit margin.

There is a downward change in the debt/equity ratio. The ratio decreased from 99% in 2007 to 96.3% in 2009. These percentages are indicators of how many times the shareholders funds can pay total liabilities expressed in percentages. The decrease implies that the firm’s riskiness has reduced that the firm will not undergo solvency any sooner and therefore increasing the confidence of investors and suppliers of equity. Coca Cola Company has followed its corporate business strategy of expanding and being ahead in innovation through product differentiation which has contributed greatly to net income. The company’s earnings per share have increased because the firm is following a strategy that is working on and this has further increased its stocks. The price-earnings ratio of the company has also increased in the two years meaning that the earning to the owner equity is in good health (Harkonnen, 2010).

The current ratio shows the ability of the firm to meet its current obligations. This is an important short term measure that implies that if the value derived is less than one then the company may run into problems if its current obligations fall due. Coca-cola Company’s current ratio shows an increase for the last three years. This means that the company’s cash resources can easily meet its current obligations. The ratio portrays the ability of the company to sustain its operations which can be used as a margin of safety concerning cash resources available rather than cash resources expected. The increase from.91:1 in 2007 to 1.273:1 in 2009 shows an increase. The quick Asset Acid test ratio also increased from 0.74:1 in 2007 to 1.1:1 in 2009. The ratio indicates how able the firm is in meeting its financial obligations from the most liquid assets. It shows that the firm is strong in its liquidity. This has greatly improved the confidence of short-term lenders and creditors since the company’s current assets can be easily converted into cash.

However, this analysis needs to consider one of the limitations of the current ratio assessment is that the current assets include the value of inventory, which may not be considered liquid when a company runs into financial problems. However, it is not possible to conclude on this based on the current ratio and another ratio that is the quick ratio could be a better indicator of the company’s ability to meet its current liabilities.

There is also an improvement in the debt ratio it falls from 99% to 96.3% from 2007 to 2009 respectively The debt ratio is an indicator of the percentage of current assets that have been financed through borrowed capital. It means that in 2009 96.3% of the total assets were financed through debt and in 2007 they were 99% respectively. It means the firm might be financing its assets using internal means like retained earnings that are less costly to the organization (Bellows, 2008).

Cut 15% OFF your first order
We’ll deliver a custom Financial Markets paper tailored to your requirements with a good discount
Use discount
322 specialists online

Shareholders’ perspective has been addressed in this analysis by calculating two ratios – Dividend payout ratio and P/E Ratio. Coca Cola paid a dividend of 0.28c per share in 2008 despite of the negative earnings, which resulted in negative dividend payout ratio, and it further reduced to 0.20c per share in 2009 (Coca Cola, 2009). P/E is an important indicator of the stock’ performance that has been calculated using stock prices on the date of the year-end. P/E of Coca Cola has increased sharply in 2009 despite negative ratio value in 2008 due to negative earnings.

From the graph below it can be noted that the price changes in Coca Cola are more stable than the market. The graph displays volatility in the price of S& P 500 to be highly volatile. However, it is very difficult to see the exact pattern of Coca Cola price changes because it is near the bottom. However, the frequency of the chart for Coca Cola does not fluctuate as much as that of the market. The chart for the S&P 500 is bell-shaped which is a normal distribution. In this case, it is easier to state that Coca Cola shares performed well that is with less volatility than the market. The graph below illustrates a normal distribution and its distinctive bell shape. As you can see, the distribution has a much cleaner appearance than the actual return distributions. Even so, like the normal distribution, the actual distributions do appear to be at least roughly mound-shaped and symmetric. When this is true, the normal distribution is often a very good approximation.

Stock Prices and S &P 500 Trends

Also, keep in mind that the distributions in the figure are based on 5-year observations. If you have these two numbers, then there is nothing else to know. With a normal distribution, the probability that we end up within one standard deviation of the average is about 2/3. The probability that we end up within two standard deviations is about 95 per cent. Finally, the probability of being more than three standard deviations away from the average is less than 1 per cent.

Conclusion

Shareholders being investors in the company would be interested in the financial performance of the company and how it is expected to perform in the coming periods. Financial performance can be evaluated from the past information but annual reports do not provide information regarding the future of the company. The annual report provides a descriptive and to some extent financial view of the company’s plans, which could have a positive or negative impact on the financial position of the company. This has been mainly because of the poor run by Coca Cola in the year 2008 that was the outcome of the franchise license impairment charges. For an investor, values of ratios such as Dividend Payout, EPS, and P/E would be of major interest as they inform them regarding the value they should be expecting from the investments. Moreover, information regarding the company’s plans to repurchase its equity and issue of other securities can also be of concern to the shareholders which can cause dilution of their interests in the company.

From the above analysis, it shows that the company assets are well managed in terms of rate of return and the shareholders’ income is in a good position, however, from impeccable, the company shares seems to be performing very well in the market because of the strategic positioning especially in Africa. This company gave them an upper hand as compared to competitors. The company also has found out the management to have had financial misconduct.

Reference List

Bellows, A. (2008). The American gustatory crisis of 1985. Damninteresting.com. Web.

Get a custom-written paper
For only $13.00 $11/page you can get a custom-written academic paper according to your instructions
Let us help you
322 specialists online

Berk, J., & DeMarzo P. (2011). Corporate finance. Boston: Pearson Education.

Collins, C. (2010). 6 genius business ideas masquerading as PR disasters. Businessideas.net. Web.

Gitman, L. (2006). Principles of Managerial Finance. Boston: Addison Wesley.

Greenpeace.org. (2007). Coca-Cola to champion Greenpeace cooling technology at Olympics. Web.

Harkonnen, F. (2010). Strategic management concepts for professionals-part two. Bukisa.com. Web.

Hill, C. (2008). Global business today: Globalization. Boston: Irwin/McGraw-Hill.

Riley, G. (2006). A2 markets & market systems: Monopoly. Tutor2u.net. Web.

Roberts, J. (2009). Can Coca-Cola double sales within 10 years? New markets hold the answer. Getchee.com. Web.

Appendix

Coca-Cola Form 10K Year ending 2007
Coca-Cola Form 10K Year ending 2007

Cite this paper

Select style

Reference

BusinessEssay. (2022, January 4). Coca-Cola: Financial Research Report. Retrieved from https://business-essay.com/coca-cola-financial-research-report/

Reference

BusinessEssay. (2022, January 4). Coca-Cola: Financial Research Report. https://business-essay.com/coca-cola-financial-research-report/

Work Cited

"Coca-Cola: Financial Research Report." BusinessEssay, 4 Jan. 2022, business-essay.com/coca-cola-financial-research-report/.

References

BusinessEssay. (2022) 'Coca-Cola: Financial Research Report'. 4 January.

References

BusinessEssay. 2022. "Coca-Cola: Financial Research Report." January 4, 2022. https://business-essay.com/coca-cola-financial-research-report/.

1. BusinessEssay. "Coca-Cola: Financial Research Report." January 4, 2022. https://business-essay.com/coca-cola-financial-research-report/.


Bibliography


BusinessEssay. "Coca-Cola: Financial Research Report." January 4, 2022. https://business-essay.com/coca-cola-financial-research-report/.