Financial Management Analysis on Coca-Cola Company
This paper is intended to conduct financial management analysis, evaluation and comment on Coca-Cola Company’s financial reports in comparison with its competitor PepsiCo Inc. Its scope is limited to provide financial information to investor and other users by applying theories, concepts, calculation and principles of financial management. The method used for financial management analysis includes vertical analysis of selected income statement items (operating revenue, EBITDA, EBIT, EBT and net income.)by assigning revenue as base and vertical analysis of selected balance sheet accounts (total asset, current asset, plant asset, total liability and stock holders equity, current liability, long term liability and common stock holders equity. )by assigning total asset as a base for asset items (CA and PA)and by assigning total liability and stock holders’ equity as a base for liability and equity items(current liability, long term liability and stock holders equity),financial ratio analysis (profitability ratio),beta coefficient, bond rating and WACC.
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For this purpose, a three year (2009-20011) Coca-Cola company and PepsiCo Inc’s annual financial report are used. These companies are competitive because both have been operating their business in soft drink production for many years. Additionally, certain information out of the company’s annual financial reports are taken from yahoo finance and other references that are listed in the reference section. Over view of Coca-Cola company In May, 1886 Coca-Cola was invented by doctor john pemberton a pharmacist from Atlanta, Georgia.
Coca-Cola Company is a non alcoholic beverage company any produces a verity of products over worldwide and have about 136,000 employees. Vertical analysis of income statement In order to compare Coca-Cola company with PepsiCo inc a three year, annual relative percentage change, of five selected income statements elements are computed in an excel spreadsheet using the companies 2009-20011 annual financial statement reports. To perform the relative percentage change of these selected income statement items we have made operating revenue as a base.
This shows us even if Coca-Cola Company and PepsiCo Inc prefer debt financing; Coca-Cola Company’s return on equity is less than PepsiCo Inc because of an enormous amount of equity in its balance sheet. The trend of both Coca-Cola Company and PepsiCo Inc’s ROE is decreased by 3. 05% and 3. 14% respectively. As it is discussed above it is apparent that Coca-Cola company performs good on net income, which in turn attributed to the great performance on PM and ROA. On the other hand PepsiCo inc performs better on BEP and ROE.
Bond rating: to evaluate the bond quality of Coca Cola Company we used S&P bond rating reports. On November 1, 2011 s&p upgraded Coca-Cola Company’s bond rating from A to A+ on the back of the company’s strong operational and credit quality. On the other hand on March 17, 2010 s&p downgraded PepsiCo Inc’s bond rating from A+ to A. From this we can conclude that it is easier for Coca-Cola Company to raise debt capital asset with least possible cost than PepsiCo Inc.
Beta coefficient: a company’s stock beta coefficient is believed to be an appropriate measure of the stock relevant risk as it measures the stock’s contribution to a market portfolio risk. According to yahoo finance Coca-Cola company beta stock coefficient is 0. 44 whereas PepsiCo Inc’s beta stock coefficient is 0. 34. When we see this figures both companies are not risky as the market which has beta stock co efficient of 1. But when we compare Coca-Cola company stock with PepsiCo Inc stock, Coca-Cola Company has to pay more to attract stock investors.
Weighted Average Cost of Capital (WACC): As we mentioned on the above discussion Coca-Cola Company has a lower cost of debt and a higher cost of equity due to its higher bond quality and a relatively higher beta co efficient. On the other hand PepsiCo Inc has a lower cost of equity and a higher cost of debt due to its relatively lower quality of bond and lower beta coefficient. Their weighted average cost of capital is equal at 7% this means that both Coca-Cola Company and PepsiCo Inc have equal cost of raising capital asset. | | | | | | | | | | | | | |