A Financial Analysis of Coca Cola
The Coca-Cola Company is the world largest beverage company. Along with Coca-Cola, recognized as the world’s most valuable brand, the company markets four of the world’s top 5 non-alcoholic sparkling brands, including Diet Coke, Fanta, and Sprite. Consumers in more than 200 countries are enjoying the company’s beverages at a rate exceeding 1. 4 billion servings each day. The Coca-Cola Company engages in the manufacture, distribution, and marketing of nonalcoholic beverage concentrates and syrups worldwide.
The company offers nonalcoholic beverages, principally carbonated soft drinks, as well as noncarbonated beverages. Its beverage products comprise bottled and canned soft drinks and beverages products. The company’s products also include beverage concentrates, such as flavoring ingredients and sweeteners; syrups, the beverage ingredients produced by combining concentrates, sweeteners, and added water; and fountain syrups that use equipment for mixing the syrups with carbonated or noncarbonated water for immediate consumption, and are sold to fountain retailers, such as restaurants.
The Coca-Cola Company owns or licenses more than 400 brands, which consists of noncarbonated beverages, including waters and flavored waters, juice and juice drinks, energy and sports drinks, teas, and coffees. It also has ownership interests in numerous bottling and canning operations. Finished beverage products bearing the CompanyGCOs trademarks are sold in more than 200 countries. As of December 31, 2006, the Company operated through eight segments: Africa; East, South Asia and Pacific Rim; European Union; Latin America; North America; North Asia, Eurasia and Middle East; Bottling Investments, and Corporate.
In June 2007, the Company completed the acquisition of Energy Brands, Inc. , known as glaceau. The company markets its nonalcoholic beverages under various brand names, including Coca-Cola, Diet Coke, Fanta, and Sprite. It sells its finished beverage products primarily to distributors. The company sells its beverage concentrates and syrups to bottling and canning operators, distributors, fountain wholesalers, and fountain retailers. History In May 1886 Coca-Cola was invented by John Pemberton, a pharmacist from Atlanta, Georgia.
John Pemberton concocted the Coca Cola formula in a three legged brass kettle in his backyard. The name was a suggestion given by his bookkeeper Frank Robinson who also scripted the famous logo . The soft drink was first sold to the public at the soda fountain in Jacob’s Pharmacy in Atlanta. Until 1905, the soft drink, marketed as a tonic, contained extracts of cocaine as well as cocoa nut. In 1887, Asa Candler, his partrner bought the formula from Mr. Pemberton for $2,300. By thelate 1890s, Coca Cola was one of the America’s best selling drinks, largely due to Candler’s aggressive marketing of the product.
Under Candler’s ownership the company increased its sales by over 4000% between 1890 and 1900. Mission,Vision & Values Mission The Coca-Cola Company in everything they do is inspired by their enduring mission: •To Refresh the World… in body, mind, and spirit. •To Inspire Moments of Optimism… through our brands and our actions. •To Create Value and Make a Difference… everywhere we engage. Vision To achieve sustainable growth, they have established a vision with clear goals. •Profit: Maximizing return to shareowners while being mindful of our overall responsibilities. People: Being a great place to work where people are inspired to be the best they can be.
Taken together, these statements will give an accounting picture of the firm’s operations and financial position. Detailed data will be provided to show what has actually happened to assets, earnings, and dividends over the past few years and somehow include some verbal statements to explain somehow why things turned out the way they did. Furthermore, we will also be presenting the following measures or indices to provide clear insights of the management and how well they have performed in maximizing shareholder wealth. 1.
Net Operating Working Capital (NOWC) 2. Total Net Operating Capital (TNOC) 3. Net Operating Profit After Taxes (NOPAT) 4. Free Cash Flow (FCF) 5. Net Investment in Operating Capital (NIOC) 6. Return on Invested Capital (ROIC) 7. Economic Value Added (EVA) 8. Market Value Added (MVA) Balance Sheets Table 1 shows The Coca-Cola Company’s most recent five-year balance sheets, which represent “snapshots” of its financial position on the last day of each year. The Balance Sheet presents a picture of the business’ net worth at a particular point in time.
It summarizes all the financial data about the company business, breaking that data into 3 categories; assets, liabilities, and equity. The relationship between them is expressed in this equation: Assets = Liabilities + Equity. Assets are what a company uses to operate its business, while its liabilities and equity are two sources that support these assets. Owner’s equity, referred to as shareholders’ equity in a publicly traded company, is the amount of money initially invested into the company plus any retained earnings, and it represents a source of funding for the business. Table 1.
The Coca Cola Company 5 Year Balance Sheet Analysis of Total Assets As shown above, the total assets of the company is consistently depict an increasing trend, which shows that it is financially stable and has been profitable. The increase in cash and cash equivalent in 2004 compared to 2003 was due primarily to net cash provided by operating activities of $5,968 million. A significant portion of this cash was generated in locations outside the US. The decrease in cash and cash equivalent in 2006 compared to 2005 was due to increase in property, plant and equipment amounting to almost 1. million brought about by acquisitions and purchases which consequently increases the net fixed assets and other non current assets. Along with the assets, the total liabilities and stockholder’s equity also increased throughout the past 5 years. Based on the company’s annual report, the increase in loans and notes payable of $1,948 million in 2004 was due to the issuance of commercial paper to meet short-term cash needs in the US, including the quarterly dividend payments and repurchases of common stock.
The decrease in loans and notes payable in 2006 compared to 2005 was primarily due to the net repayment of commercial paper and short term debts. Income Statement The Coca Cola Company’s income statement for the past 5-year as shown on Table 2, reflects the company’s performance during these period unlike the balance sheet that provides snapshot of a firm at point in time. The Income Statement is also known as Profit and Loss Statement (P&L). The Income Statement shows your Revenues, Expenses, and Profit for a particular period.
It’s a snapshot of the company that shows whether or not your business is profitable at that point in time. Below is a simple illustration of the P&L: Revenue – Expenses = Profit/Loss. This is very useful for internal use as well as to external users for it shows whether the company made or lost money during the period being reported. Through this income statement, investors and creditors would be able to forecast future performance, assess the risk of achieving future cash flows. As shown on Figure 1 and Table 2, the Coca Cola Company had experienced a consistently profits for the past five years.
Thus, it projects that they operate profitably and demonstrates its ability to use borrowed and invested funds in a successful manner. This positive result that was manifested in the Coca Cola Company’s P&L is synonymous to company’s ability to operate profitably which benefits its employees particularly the management, shareholders, as it’s also equally important to creditors particularly current lenders and investors The increase in cash and cash equivalent in 2004 compared to 2003 was due primarily to net cash provided by operating activities of $5,968 million.
A significant portion of this cash was generated in locations outside the US. The decrease in cash and cash equivalent in 2006 compared to 2005 was due to increase in property, plant and equipment amounting to almost 1. 9 million brought about by acquisitions and purchases which consequently increases the net fixed assets and other non current assets. Figure 1 The following table indicates, on a percentage basis, the estimated impact of key factors resulting in significant increases (decreases) in net operating revenues: Percent Change
Year Ended December 31 2006 vs 20052005 vs 20042004 vs 20032003 vs 2002 Increase in gallon sales4%3%2%3% Structural cahnges-20-3-1 Price and product/geographic mix2101 Impact of currency fluctuations versus the US dollar 0255 Total Percentage increase 4%6%4%8% Net Cash Flow The net cash flow differs from accounting profit because some of the revenues and expenses reflected in accounting profits may not have been received or paid out in cash during the year. Depreciation is typically the largest noncash item, so net cash flow is Table 2 – Income Statement ften expressed as net income plus depreciation. Investors are at least as interested in a firm’s projected net cash flow as in reported earnings because it is cash, not paper profit, that is paid out as dividends and plowed back into business to produce growth. Figure 2 – Net Cash Flow The above calculations are in accordance to the income statements and balance sheets. As exhibited, the net cash flow is continuously increasing which strongly suggests that the Coca-Cola Company’s ability to generate cash from operations is one of the fundamental financial strength Free Cash Flow (FCF)
This is the cash flow that is actually available for distribution to investors after the company has made all the investments in fixed assets and working capital necessary to sustain ongoing operations. Figure 3 – Free Cash Flow (FCF) As shown in Fig. 3 that in 2004 the FCF of the company plummeted but this was primarily the impact of the major acquisition of plants and bottling companies in Germany, South Africa including the big purchase of San Miguel Corporation, the biggest bottling company in the Philippines. And in year 2005, the company was able to bounced back in their FCF, a significant increase from -$236. 0 millions to almost 6 billion. Net Operating Working Capital (NOWC) This is a traditional measure of company’s liquidity and potential for growth. Net operating working capital is defined as non-interest bearing current assets minus non-interest charging liabilities. This also known as “investor-supplied capital”, which is equal to cash, accounts receivables, and inventories less accounts payable and accruals. This particular measure is not being used when assessing management’s performance as it is not including natural or human capital in its calculation. Total Net Operating Capital (TNOC)
It is defined as the sum of net operating working capital and operating long-term assets (liabilities). Other way of calculating this is by adding up the funds provided by investors, such as notes payables, long-term bonds, preferred stock, and common stock. Year 2004 always shows a major changes among the five years operation of the company. The company increased its operating capital to $25,248 from $21,593, or by almost $4 billion, during 2004. Furthermore, most of this increase went into working capital, which rose from $2,647 to $6,015 million, or by almost $4 billion.
This is again caused by the aforementioned major acquisition. CONCLUSION Performing this research on Coca-Cola was very hard work. It took a lot of time and dedication to put all of this information together. Coca-Cola can be seen as a group of individuals working together to become stronger and the best. If one individual appears to be weak, the others must pull together to help compensate for the weakness being presented. Working as a team on this project is similar to how we view Coca-Cola. We were a group of individuals working together to become stronger and the best.
We fed off of each others energy to achieve a good project in the end. By doing this research, I found out that Coca-Cola makes Odwalla, which I believe is well-known in Africa and was recently introduced in the United States. I learned that Coca-Cola has used commercial paper throughout various years. For those who do not know what commercial paper is, keep reading. Commercial paper is a type of unsecured promissory note issued by large, strong firms and sold primarily to other business firms, to insurance companies, to pension funds, to money market mutual funds, and to banks (Brigham, page 803).
This came as a surprise to me at first, but then I realized that even successful firms need help along the way. Coca-Cola appears to be doing well with its current operations. Since Coca-Cola has done well in the past, I believe that they will continue to do well in the future. The non-alcoholic beverage industry seems to be growing with each passing societal change-from people wanting to have soda, but with fewer calories, from people wanting water with a kick, from people wanting energy, and for moms who want their kids to drink things that are good for them.
Coca-Cola will be able to keep up with these changes as long as they keep inspiring and letting their employees to be the best they can be. With success comes hard times trying to stay the best and Coca-Cola is living proof of that. Coca-Cola has been around for more than 200 years and counting. With business of this longevity, they must be doing something right. After all, a building is only as strong as its foundation. Coca-Cola was built on a foundation of being the best at what they do and they have not fallen as of yet, so keep up the good work.