TopicFinancial Ratios Analysis of Coca-Cola Topic: Financial Ratios Analysis of Coca-Cola 1

2 Coca Cola International The 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 dating from 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 3

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 4

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 5

December 31, (In millions except par value)As Adjusted ASSETS CURRENT ASSETS Cash and cash equivalents$8,442$12,803 Short-term investments5,0171,088 TOTAL CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS13,45913,891 Marketable securities3, Trade accounts receivable, less allowances of $53 and $83, respectively4,7594,920 Inventories3,2643,092 Prepaid expenses and other assets2,7813,450 Assets held for sale2,973— TOTAL CURRENT ASSETS30,32825,497 EQUITY METHOD INVESTMENTS9,2167,233 OTHER INVESTMENTS, PRINCIPALLY BOTTLING COMPANIES1,2321,141 OTHER ASSETS3,5853,495 PROPERTY, PLANT AND EQUIPMENT — net14,47614,939 TRADEMARKS WITH INDEFINITE LIVES6,5276,430 BOTTLERS’ FRANCHISE RIGHTS WITH INDEFINITE LIVES7,4057,770 GOODWILL12,25512,219 OTHER INTANGIBLE ASSETS1,1501,250 TOTAL ASSETS$86,174$79,974 THE COCA-COLA COMPANY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS 6

LIABILITIES AND EQUITY CURRENT LIABILITIES Accounts payable and accrued expenses$8,680$9,009 Loans and notes payable16,29712,871 Current maturities of long-term debt1,5772,041 Accrued income taxes Liabilities held for sale796— TOTAL CURRENT LIABILITIES27,82124,283 LONG-TERM DEBT14,73613,656 OTHER LIABILITIES5,4685,420 DEFERRED INCOME TAXES4,9814,694 THE COCA-COLA COMPANY SHAREOWNERS’ EQUITY Common stock, $0.25 par value; Authorized — 11,200 shares; Issued — 7,040 and 7,040 shares, respectively1,760 Capital surplus11,37910,332 Reinvested earnings58,04553,621 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 COMPANY32,79031,635 EQUITY ATTRIBUTABLE TO NONCONTROLLING INTERESTS TOTAL EQUITY33,16831,921 TOTAL LIABILITIES AND EQUITY$86,174$79,974 BALANCE SHEETS Cont’d 7

Year Ended December 31, (In millions except per share data) As Adjuste d NET OPERATING REVENUES$48,017$46,542 Cost of goods sold19,05318,215 GROSS PROFIT28,96428,327 Selling, general and administrative expenses17,73817,422 Other operating charges OPERATING INCOME10,77910,173 Interest income Interest expense Equity income (loss) — net Other income (loss) — net INCOME BEFORE INCOME TAXES11,80911,458 Income taxes2,7232,812 CONSOLIDATED NET INCOME9,0868,646 Less: Net income attributable to noncontrolling interests6762 NET INCOME ATTRIBUTABLE TO SHAREOWNERS OF THE COCA-COLA COMPANY$9,019$8,584 BASIC NET INCOME PER SHARE 1 $2.00$1.88 DILUTED NET INCOME PER SHARE 1 $1.97$1.85 AVERAGE SHARES OUTSTANDING4,5044,568 Effect of dilutive securities8078 AVERAGE SHARES OUTSTANDING ASSUMING DILUTION4,5844,646 THE COCA-COLA COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME 8

Liquidity Ratios Current Ratio: Years Current Ratio In 2011, the firm’s ability to cover its current liabilities with its current assets was 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. 9

10 Quick/Acid Test Ratio: Years Quick Ratio 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 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.

Activity (Turnover) Ratios Total Asset Turnover Ratio: Years Assets Turnover The ratio is supposed to be high. Here we can see that the coca-cola company’s total asset turn over ratio in 2011 was 0.58, which means that the company generated more revenue per dollar of asset investment. The ratio then comes slightly down in

12 Inventory Turnover Ratio: Years Inventory Turnover 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 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.

Average Collection Period: Years Avg. Collection Period 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. 13

14 Average Payment Period: Years Avg. Payment Period (days)1715 Coca-Cola’s average period for payment has reduce to 15 days in 2012 which was 17 days in This reduction in average payment period shows that how efficiently company is paying back their creditors and also assuring that payments are being made in a prompt manner by Coke to its creditors. This period should remain low as much as possible.

Debt Ratios Debt Ratio: Years Debt Ratio % 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 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. 15

16 Times Interest Earned Ratio: Years T.I.E Ratio In 2012 Coca-Cola has a ratio of which is a large increase from 2011 when their ratio was This means that they have a comfortable coverage of interest, and that the coverage has increased from the previous year.

Profitability Ratios Gross Profit Margin: Years Gross Profit Margin % 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. 17

18 Operating Profit Margin: Years Operating Profit Margin % Coca-Cola’s operating profit margin has increased in 2012 than the margin in 2011 by approximately 3%. This increase in Operating Profit Marin is mainly due to growth of net revenue, good cost control and strong productivity in company in This higher margin reflects that the Coca-Cola is more efficient cost management or the more profitable business.

Net Profit Margin: Years Net Profit Margin % 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. 19

Return on Assets (ROA): Years ROA % The decrease in Return on Assets indicates that the company is generating less profits from all of its resources in the year 2012 as compared to the year The higher of this ratio is, the better for the company. Therefore this decrease in Coca-Cola’s ratio is indicating that the company is not that much prospering. 20

21 Return on Equity (ROE): Years ROE % The ratio should be higher. Here starting from 2011, the ratio was 27.10% and goes up in 2012 to 27.51%. This increase in Return on Equity is a good thing for stockholders and indicates that Coca Cola is using the equity provided by stockholders during this specific year effectively and using it to generate more equity for the owners.

Market Ratios Price/Earning Ratio: Years P/E Ratio Coca-Cola’s price-earnings ratio has decreased 0.6 times in 2012, because in 2011 the ratio was times but in 2012 it become 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. 22

23 Market/Book Ratio: Years M/B Ratio We can say that Coca-Cola’s future prospects are being viewed favorably by investors. Because still, investors are willing to pay more for stocks than their accounting book value as M/B ratio’s fluctuation is negligible in 2012 against 2011.

Conclusion After 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. 24