BUSINESS MANAGEMENT
Financial Analysis for Coca-Cola Beverage Company
Financial Analysis, Planning and Control
Abstract
The objective of this paper entails examining the financial statement of the Coca-Cola Company during the past years that have passed. In this case, ratios, such as the leverage ratio, liquidity, and profitability as well as the size analysis regarding the income statement of the company are the main factors which are taken into consideration when determining its financial position. Despite the fact that the company has been experiencing a tremendous increase in its revenue, its liquidity base is still based on the debt financing strategies it has which are also based within a certain range (Keown et al., 2017).
Company overview
The Coca-Cola Company is an American multinational beverage company headquartered in Atlanta, Georgia. The company’s day-to-day operating activities include manufacturing, retailing, as well as marketing nonalcoholic beverages and syrups. This company is well recognized for its flagship product Coca-Cola which was established in 1886. Conversely, the financial base of the company is one of the factors which have made it to increase its scale of operation worldwide. Although each manufacturing activity of the company is conducted differently, all of them are governed differently. Likewise, although the main competitor of the company is Pepsi, the company uses various promoting activities, such as advertising so as to gain a higher customer base (Bodden, 2009). Since there is no much differentiation of its products, such strategies come from asset management which the enterprise takes from its advertising standpoint. In their industry, the exit barriers are somehow moderate since the equipment and the techniques used in producing products are fairly specialized. It is the huge investment which the company makes which enables it to be the main competitor in their industry. Equally, its management authority has managed to set industry standards, which enables it to continue enjoying the economies of scale in all its branches. The company also has a network of distribution channels and, a well-established relationship which is cultivated with the various players found in that channel.
Common Size Income Statement
Considering the annual statement of the Coca-Cola Company over the past four years that have passed, it means that it is easier to evaluate its marketing trends over time as well as across other businesses found in the same industry. Thus, the common size income statement is typically perceived as being the percentage of sales which the company makes which this duration. This statement is tabulated below
|
|
2017 |
2016 |
2015 |
|
Sales |
98% |
100% |
97.00% |
|
COS (Cost of sales) |
39.87% |
37.32% |
38.90% |
|
SG&A |
36.33% |
37.44% |
35.94 |
|
External and internal operating expenses |
2.56% |
1.81% |
0.92% |
|
Income obtained from other investment activities |
1.76% |
1.32% |
1.67% |
|
losses |
-2.67% |
1.227% |
0.289% |
|
Interest income |
0.00% |
0.00% |
0.00% |
|
Interest expenses |
1.04% |
0.89% |
0.84% |
|
Tax expenses |
4.48% |
6.12% |
5.67% |
|
Preferred dividends |
0.00% |
0.00% |
0.00% |
|
Net of unusual returns |
1.56% |
-0.17% |
0.38% |
|
Outstanding common shares |
9.54% |
9.36% |
9.14% |
|
Net income |
15.43% |
18.79% |
18.44% |
Form the above data; it implies that the common size income statement is ultimately used for the purpose of comparing line products across the industry and other associated companies. Each individual item is divided by the sales the company made which that year, which in return gives the percentage of sale made. With that percentage at hand, it implies that it is easier to compare the value of different companies as well as that of differentiated industries. This implies that the common size income statement is typically compared with the net income numbers of the company achieves in each year (Keown et al., 2017).
As shown in the following table, the sales of the company had consistently increased over the past 3 years. It decreased by 15.43% in 2017 from 2016, after an increase of 18.44% in 2016. In 2016, it means that the company had managed to make more sales as compared to the percentage of sales which was obtained in 2015 (18.44%).
From the above table, it implies that the company’s SG&A is comparable to the costs of sales since is based on the extensive product promotions the company makes. The other lines of products are ultimately fairly similar during these years. Conversely, this information indicates that the short-term obligations of the company had increased substantially because of the decline in sales and the extensive competition experienced in the same industry. Such a re-casted income statement suggest that the income generating trend the company have been experiencing indicates how well the management authority have been fairing on well in improving their economies of scale so as to continue thriving in the current beverage market (Keown et al., 2017).
Graphical representation of profit margin
Y-axis
50
40
% change
30
20
10
2015 2016 2017
Year
for the past three years that have passed, it implies that the company have been having a reasonable profit margin give in return gives it enough capital for reinvesting or distributing to its shareholders. Thus, the decline in its profit margin can also be said to be brought about the extensive competition it encounters in the industry. Although the company has been having higher equity returns, profit margin is a good indicator of how its assets are utilized in improving its financial base. Considering the number of investments which was made by the potential investors, it means that the company had the potential of increasing assets with such an investment.
This suggests that the revenues that the company generates can be spread out effectively so as to cater for the expenses the company has as well as retaining enough money for investing or paying investors. The importance of the company’s profit margin indicates that the management authority is given the opportunity of lowering their prices when the economy worsens. In case, the company managed to obtain a higher profit margin, it implies that it was possible for the company to accept less revenue but still have the ability of covering all expenses.
Return on assets
|
|
2017 |
2016 |
2015 |
|
Percentage change |
7.87 |
9.34 |
10.22 |
|
|
|
|
|
The company’s return on assets is used for the purpose of measuring the manner in which the company has been generating its profits per share dollar of assets which it has. It assists in illustrating how efficiently the management authority utilizes its assets in generating profit. Therefore, a higher the percentage indicates how efficiently the company has been using its assets. This is important because it assists potential investors in determining whether their funds were wisely invested (Keown et al., 2017). Mostly, the assets of the company are made of marketable securities, long-term intangible and tangible assets which it trades in. despite that, the marketable securities and cash are not the main trading or income generating securities because they are not invested in anything. Although these numbers can either be down or high, the truth is that the company would be better off without them. This, therefore, indicates that other long-term investment assets are important in evaluating the manner in which the company has been investing its money so as to generate more of it in the long run. The reason as to why the net income that the company has been declining is because the amount of assets required in maintaining its day-to-day operating activities have been rising.
Earnings before interest and tax (EBIT) margin
|
|
2015 |
2016 |
2017 |
|
Percentage change |
23.47 |
24.89% |
22.54% |
From the above table, it means that such figures are important in evaluating the true day-to-day operating capacity of the company. The reason for that is because incorporates all the sources the company uses in generating revenue, the costs the company incurs, but excluding tax and interest expense. The importance of excluding tax and interest expenses is because they are not regarded as operating expenses. EBIT is essential in determining the manner in which the company has been using generated revenues in covering its operating expenses (Keown et al., 2017).
Conclusion
The Coca-Cola Company has been having a considerable increase in total revenues for the past three years. The capacity of generating revenue enables it to meet both the short-term and the long-term obligations so as to improve its economies of scale. The company’s day-to-day receivables are also impressive. What equally makes it impressive to invest with this company is because the majority of its businesses are conducted overseas. The general increase in assets is also attributed to the equitable utilization of resources as well as the extensive reinvestments which the company makes. Therefore, for investors, it wise to use the stocks of the company in making wise investments.
References
Keown, A.J, Martin, J.D, & Petty, J. W. (2017). Foundations of Finance.Pearson Publishing Co.
Bodden, V. (2009). The story of Coca-Cola. Mankato, MN: Creative Education.
