TOPIC: Financial Ratios Analysis of Coca-Cola

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Enes BOLFİDAN B1013.16015

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Coca Cola InternationalThe Coca-Cola Company is the world's largest beverage

company.

It is no.1 brand according to fortune 2009 survey.

The company operates a franchised distribution system datingfrom 1889.

The Coca-Cola Company is headquartered in Atlanta, Georgia.

With local operations in over 200 countries around the world.

Coca Cola has 150,900 employees worldwide.

• Assessment of the firm’s past, present and future financial conditions

• Done to find firm’s financial strengths and weaknesses

• Primary Tools:

– Financial Statements

– Comparison of financial ratios to past, industry, sector and all firms

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Objectives of Ratio Analysis

• Standardize financial information for comparisons

• Evaluate current operations

• Compare performance with past performance

• Compare performance against other firms or industry standards

• Study the efficiency of operations

• Study the risk of operations

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Types of Ratios• Financial Ratios:

– Liquidity Ratios• Assess ability to cover current obligations

– Leverage Ratios• Assess ability to cover long term debt obligations

• Operational Ratios:– Activity (Turnover) Ratios

• Assess amount of activity relative to amount of resources used

– Profitability Ratios• Assess profits relative to amount of resources used

• Valuation Ratios:• Assess market price relative to assets or earnings

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December 31, 2012 2011

(In millions except par value) As Adjusted

ASSETS

CURRENT ASSETS

Cash and cash equivalents $ 8,442 $ 12,803

Short-term investments 5,017 1,088

TOTAL CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS 13,459 13,891

Marketable securities 3,092 144

Trade accounts receivable, less allowances of $53 and $83, respectively 4,759 4,920

Inventories 3,264 3,092

Prepaid expenses and other assets 2,781 3,450

Assets held for sale 2,973 —

TOTAL CURRENT ASSETS 30,328 25,497

EQUITY METHOD INVESTMENTS 9,216 7,233

OTHER INVESTMENTS, PRINCIPALLY BOTTLING COMPANIES 1,232 1,141

OTHER ASSETS 3,585 3,495

PROPERTY, PLANT AND EQUIPMENT — net 14,476 14,939

TRADEMARKS WITH INDEFINITE LIVES 6,527 6,430

BOTTLERS’ FRANCHISE RIGHTS WITH INDEFINITE LIVES 7,405 7,770

GOODWILL 12,255 12,219

OTHER INTANGIBLE ASSETS 1,150 1,250

TOTAL ASSETS $ 86,174 $ 79,974

THE COCA-COLA COMPANY AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

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LIABILITIES AND EQUITY

CURRENT LIABILITIES

Accounts payable and accrued expenses $ 8,680 $ 9,009

Loans and notes payable 16,297 12,871

Current maturities of long-term debt 1,577 2,041

Accrued income taxes 471 362

Liabilities held for sale 796 —

TOTAL CURRENT LIABILITIES 27,821 24,283

LONG-TERM DEBT 14,736 13,656

OTHER LIABILITIES 5,468 5,420

DEFERRED INCOME TAXES 4,981 4,694

THE COCA-COLA COMPANY SHAREOWNERS’ EQUITY

Common stock, $0.25 par value; Authorized — 11,200 shares;

Issued — 7,040 and 7,040 shares, respectively 1,760 1,760

Capital surplus 11,379 10,332

Reinvested earnings 58,045 53,621

Accumulated other comprehensive income (loss) (3,385) (2,774)

Treasury stock, at cost — 2,571 and 2,514 shares, respectively (35,009)

(31,304

)

EQUITY ATTRIBUTABLE TO SHAREOWNERS OF THE COCA-COLA COMPANY 32,790 31,635

EQUITY ATTRIBUTABLE TO NONCONTROLLING INTERESTS 378 286

TOTAL EQUITY 33,168 31,921

TOTAL LIABILITIES AND EQUITY $ 86,174 $ 79,974

BALANCE SHEETS Cont’d

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Year Ended December 31, 2012 2011

(In millions except per share data)

As

Adjuste

d

NET OPERATING REVENUES $ 48,017 $ 46,542

Cost of goods sold 19,053 18,215

GROSS PROFIT 28,964 28,327

Selling, general and administrative expenses 17,738 17,422

Other operating charges 447 732

OPERATING INCOME 10,779 10,173

Interest income 471 483

Interest expense 397 417

Equity income (loss) — net 819 690

Other income (loss) — net 137 529

INCOME BEFORE INCOME TAXES 11,809 11,458

Income taxes 2,723 2,812

CONSOLIDATED NET INCOME 9,086 8,646

Less: Net income attributable to noncontrolling interests 67 62

NET INCOME ATTRIBUTABLE TO SHAREOWNERS OF THE COCA-COLA COMPANY $ 9,019 $ 8,584

BASIC NET INCOME PER SHARE1$ 2.00 $ 1.88

DILUTED NET INCOME PER SHARE1$ 1.97 $ 1.85

AVERAGE SHARES OUTSTANDING 4,504 4,568

Effect of dilutive securities 80 78

AVERAGE SHARES OUTSTANDING ASSUMING DILUTION 4,584 4,646

THE COCA-COLA COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

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Liquidity RatiosCurrent Ratio:

09.127,821$

30,328$

sLiabilitieCurrent

AssetsCurrent :RatioCurrent

Years 2011 2012

Current Ratio 1.05 1.09

In 2011, the firm’s ability to cover its current liabilities with its current assets was 1.05. In 2012, the ratio goes up to 1.09 as compared to 2011, which means that the company has the ability to pay its liabilities, as the definition says that higher the ratio, greater the ability of the firm to pay its bills. This tells that Coca-Cola is improving their liquidity and efficiency, because their current ratio is improving.

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Industry Average 1.20 to 1

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97.027,821$

064,72$

sLiabilitieCurrent

Inventory-AssetsCurrent :RatioQuick

Quick/Acid Test Ratio:

Years 2011 2012

Quick Ratio 0.92 0.97

According to the definition of Acid Test Ratio, the company should have the ability to pay its liabilities through its most liquid assets. The table shows that in 2011, the firm has the ratio 0.92 cents. Then we observe a slight improvement in 2012. *So we can figure out from the ratios that Coca-Cola still cannot pay its debts without its inventory. This leads us to believe that Coca-Cola is a somewhat risky business, even though it is the largest in the nonalcoholic beverage industry.

Industry Average 1.10 to 1

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Inventory Turnover Ratio:

8.53,264$

19,053$

Inventory

sold goods ofCost :TurnoverInventory

Years 2011 2012

Inventory Turnover 5.90 5.80

The Coca-Cola’s Inventory turnover ratios deteriorated from 2011 to 2012, which means that its ability to sell inventory has relatively come down. In 2011 Coca-Cola had a ratio of 5.90 and in 2012 has a ratio of 5.80. *These ratios are not what we expected; we assumed that the ratios would be much higher because Coca-Cola sell its syrup to bottling partners around the world so it does not need to deal with the storing of the bottled product.

Times

Industry Average 7.50 times

Average Collection Period:

days17.3609.10

365

Turnover sReceivable

365 :Period Collection Avg.

Years 2011 2012

Avg. Collection Period 38.60 36.17

The ability of the firm of collecting the receivables in the specific time. Here in the year 2011 the turnover in days was almost 39, but the collection days decrease in the year 2012 and the collection period of approximately 36 days is well within the 60 days allowed in the credit terms. This shows that the collection is faster as compared to the previous year.

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Industry Average 37.63 days

Debt RatiosDebt Ratio:

%51.61174,86$

006,53$

Assets Total

sLiabilitie Total :RatioDebt

Years 2011 2012

Debt Ratio % 60.09 61.51

The ratio shows the company’s ability to cover its debts through its total assets. The ratio was 60.09% in 2011, then goes up in 2012. The ratio has to be low. So we can interpret that in the year 2012, the risk of the firm is getting higher as the ratio goes up.

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Industry Average55.78%

Profitability Ratios

Gross Profit Margin:

%32.60017,48$

28,964$

Sales

Profits Gross :MarginProfit Gross

Years 2011 2012

Gross Profit Margin % 60.90 60.32

The ratio should be high according to the definition. Because higher the ratio, higher will be the firm’s ability to produce goods and services at low cost with high sales. Here in this table there is small difference between the ratios in two years, but its still high, which means it is favorable.

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Industry Average58.01%

Net Profit Margin:

18.78%48,017$

0199,$

Sales

IncomeNet :MarginProfit Net

Years 2011 2012

Net Profit Margin % 18.40 18.78

According to the definition, higher the ratio, higher will be the firm’s ability to pay its taxes. In the year 2011, the margin was little low but in 2012 the margin increases by 0.4%. For the company, roughly 0.38 cents out of every sales dollar consists of ‘After Tax Profit'. Coca-Cola is more efficient at converting sales into actual profit and its cost control is good.

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Industry Average18.80%

Market RatiosPrice/Earning Ratio:

times40.1897.1$

25.36$

sharePer Earning

C.S of eprice/sharMarket Ratio P/E

Years 2011 2012

P/E Ratio 19.00 18.40

Coca-Cola’s price-earnings ratio has decreased 0.6 times in 2012, because in 2011 the ratio was 19.00 times but in 2012 it become 18.40 times which suggests that investors may be looking less favorably at the Coca-Cola. This ratio should be high, because the higher the P/E ratio, the higher will be the investors confidence in company.

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Industry Average19.98 times

ConclusionAfter applying all the ratios we got an idea that the Coca Cola Company is a profitable firm. Because through out the analysis of two years, we found that the company is getting profitable return on short term and long term investment, their profit margin has been increased as well and they are in the position to pay their debts with in their resources.

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Thank you!

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