EVALUATING Financial Business Plan

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Financial Business Plan, Management and Evaluation Report

Student's Name

Supervisor’s Name

Course Name

Due Date
Table of contents

I. Executive summary

II. Introduction

III. Main body

a) Ratio analysis using a five year data

b) Interpretations

c) Financial projection for the next five years using excel spreadsheet

d) Breakeven analysis

e) Critical evaluation of the appropriate sources of finance

f) Appropriate source of finance for the chosen organisation, the advantages and

disadvantages

IV. Conclusion and Recommendations

V. Appendices

a) Financial data...Income statement

b) Table showing ratio calculations

c) Other relevant information

VI. List of reference


Executive Summary

In 1886, John S. Pemberton invented Coca-Cola. (coca-cola.com) Coca-Cola is a global

leader in the non-alcoholic beverage industry. More than two hundred nations around the

world stock its wares. It sells over 400 different beverage brands, including sodas, energy

drinks, bottled water, and fruit juices. Coca-Cola is the company's flagship soft drink. Coca-

Cola has become one of the most well-known brands in the world thanks to its long history of

aggressive advertising campaigns. Coca-Cola commanded 42.8% of the non-alcoholic

beverage market in 2019. Coca-sales have been on the decline over the past decade, likely as

a result of rising awareness of the negative effects of sugary drinks on health and weight.

Coca-stated purpose is "to refresh the world, to spark moments of optimism and happiness, to

generate value and make a difference." Coke wants to be an excellent place to work where

employees are encouraged to give their all in-order to fulfil the company's and its customers'

demands and wants, and where the company itself is efficient, effective, and nimble.

Since March 2020, Coca-performance Cola's has been steadily deteriorating due to Covid.

Sales have dropped by 25% in the US division between March and April, and are down by

varied percentages in the rest of the divisions as well. The potential of a subsequent pandemic

rampage makes it all the more critical for management accountants and company CEOs to

concentrate on strategic management adjustments inside the organization and consider

alternative tactics in an effort to ensure business continuity.

From a financial accounting perspective, companies may use tools like SWOT and Porter's

Five Forces (P5F) in conjunction with ratio analysis, or from a management accounting

perspective, they may use the Balanced Scorecard (BSC) tool proposed by (Norton & Kaplan

1986) to analyze performance and strategy components.


Introduction

Financial evaluation and management are fundamental control management functions.

Investors, creditors, and management utilize financial evaluation to assess the past, present,

and future financial performance of a business. Upon completion of the review, the

information is communicated to the relevant stakeholders, both inside and outside the

business, who then make decisions.

The financial analysis and evaluation are two crucial elements in the process of conducting

due diligence to examine the capacity and sustainability of executing or implementing

agencies. This report's mission is to guarantee that Coca-initiatives Cola's continue to be

sustainable and contribute to the company's broad goals of poverty reduction, inclusive

economic growth, environmental sustainability, and regional integration. The Coca-Cola

Company has a fiduciary duty to guarantee that all investment projects it supports are

subjected to the highest standards of financial due diligence, so that their implementation

meets the requirements for economy and efficiency. All Coca-Cola-supported investment

proposals for sovereign projects must be evaluated for financial and economic viability. The

financial analysis focuses on the adequacy of financial returns to project owners and

operators to ensure the firm's continued viability throughout its economic life.

Ratio analysis using a five-year data

Financial performance measures condense a significant amount of data into an easily

analyzed manner. No one financial performance metric is sufficient for assessing a

corporation. Evaluation of many financial measurements might be more effective for guiding

the management to ask the proper questions than for delivering solutions towards the

business's financial difficulties (Merchant& Van der Stede 2007). The total performance and

standing of the company should be examined using a set of criteria including liquidity,

solvency, profitability and efficiency. Each criterion measures a distinct component of a

company's financial performance and/or position.


Liquidity Ratio

Reflects a company's capacity to satisfy its financial commitments when they become

due. The business is liquid if its obligations, including principal and interest on debt, are paid

on time without interfering with its usual operations. Current ratio, quick ratio and cash ratio

improved from 2019 to 2020 but then slightly deteriorated from 2020 to 2021

Solvency Ratio

Assesses a company's capacity to pay all of its debts if its assets were sold. In general,

a business is solvent if the market value of its entire assets is more than its existing debt

obligations. Debt to equity ratio, debt to capital ratio and debt to asset ratio improved from

2019 to 2020 and from 2020 to 2021. Financial leverage ratio decreased from 2019 to 2020

and from 2020 to 2021.

Profitability Ratio

Indicates the degree of income generated by the firm business and is quantified in

terms of the rates of return generated by labor, management, and capital. GPM deteriorated

from 2019 t0 2020 but then improved from 2020 to 2021 not reaching 2019 level. Th OPM

improved from 2019 to 2020 but then deteriorated significantly from 2010 to 2021. NPM,

ROA and ROE deteriorated from 2019 to 2020 but then improved exceeding 2019 level

Efficiency Ratio

Assesses the degree to which labor, management, and capital are utilized efficiently

within a corporation. Measures how a company can efficiently perform its day-to-day task.

Efficiency measures the link between inputs and outputs and can be quantified in physical or

monetary terms. We assess long-term ratios and short-term ratios. Net fixed assets turnover

ratios and total asset turnover deteriorated from 2019 to 2020 but then improved from 2020 to

2021. Equity turnover ratio deteriorated from 2019 to 2020 and 2020 to 2021.

Interpretations
A. Capital expenditures – All expenses incurred for fixed assets, including construction-

related interest.

B. Cash from internal sources - The difference between: The sum of cash flows from all

sources associated with operations, including cash generated from consumer deposits and

consumer advances of any form, sale of assets, cash yield on investments, and net

nonoperating income; and

The total of all operating expenses, including administration, adequate maintenance, taxes

and payments in lieu of taxes (excluding provision for depreciation and other noncash

operating charges), debt service requirements, all cash dividends paid and other cash

distributions of surplus, increase in working capital other than cash, and other cash outflows

other than capital expenditures.

C. Current assets excluding cash - All assets other than cash that can be converted into cash

within a year, such as accounts receivable, marketable securities, inventory, and prepaid

expenses reasonably chargeable to operational expenses in the upcoming fiscal year.

Current obligations include accounts payable, client advances, debt service requirements,

taxes, and payments in lieu of taxes, as well as dividends.

D. Debt - Any obligation of the borrower that matures more than one year after the date it

was originally incurred. Considered to have been incurred:

(i). pursuant to a loan contract or agreement or other instrument providing for such debt or

the adjustment of its terms of payment as of the date of such contract or agreement; and

(ii) pursuant to a guarantee arrangement, on the date that the guarantee agreement has been

executed. Financial obligations incurred by a lessee-borrower under finance leasing

arrangements may likewise be considered debt.

E. Equity — The amount of the borrower's total unimpaired paid-up capital, retained

earnings, and reserves that are not allocated to pay certain liabilities.
F. Financial analysis - The process of examining businesses, initiatives, and businesses to

determine their investment viability.

G. Financial evaluation — The process of evaluating the project cash flows to determine the

cost-effectiveness of the project in meeting its objectives, and to assess whether the cash

flows are sufficient to fund the operating and maintenance costs of the project, meet its debt

service obligations, and pay back the project costs to stakeholders after satisfying any tax

obligations.

H. Balance Sheet/Statement of Financial Position

Also known as the statement of financial position, this summarizes an entity’s assets,

liabilities, and shareholders’ equity, and shows the financial status of an entity at a specific

point in time. Assets are reported on one side and liabilities and equity on the other.

I. Income Statement/Statement of Comprehensive Income

Also known as the statement of comprehensive income, this statement provides a summary of

the entity’s financial operating performance over a specific period (usually one accounting

year). Financial performance is measured by revenue generated by the entity less the costs of

doing business.
Financial projection for the next five years using excel spreadsheet

12 months ended: Dec 31, 2026 Dec 31, 2025 Dec 31, 2024 Dec 31, 2023 Dec 31, 2022

Net operating revenues 53,655  49,014  47,266  43,856  40,345 


Cost of goods sold (13,357) (15,452) (11,234) (14,234) (13,260)
Gross profit 40,298  33,562  36,032  29,622  27,085 

Selling, general and administrative (15,876) (12,731) (12,173) (11,307) (12,496)


expenses
Other operating charges (945) (913) (852) (1,079) (1123)
Operating income 23,477  19,918  23,007  17,236 13,466 

Interest income 346 286  245 315  234


Interest expense (1,345) (1,663) (882) (1029) (1005)
Equity income, net 1,538  1.078  2.349  1,458  1,621 
Other income (loss), net 2,452  2161  912  (824) (1,123
Income from continuing 26,468  21,780  25,631 17,159  13,093 
operations before income
taxes
Income taxes from continuing (3,452) (2,453) (2,156) (2,359) (2,245)
operations
Net income from continuing 23,016 19,327  23,475  14,800  10,848 
operations
Income (loss) from discontinued (624) —  (345)  —  —  
operations, net of income taxes
Consolidated net income 22,392  19,327  23,130  14,800  10,848 

Net income attributable to (313) (221) (165) (142) (135)


noncontrolling interests
Net income attributable to 22,079  19,106  22,965  14,658  10,713
shareowners of The Coca-Cola
Company
Breakeven analysis

This is an analysis to determine the point at which revenue received equals the cost

associated with the receiving revenue. It calculated the margin of safety, the amount that

revenues exceed the breakeven point. This is the amount that revenues can fall while still

staying above the breakeven point. Break even analysis looks at costs such as direct material,

direct labour, indirect material, indirect labour, fixed cost, manufacturing cost, sales and

promotion.

At break-even point= R(x)=C(x) R= revenue, C= cost

Critical evaluation of the appropriate sources of finance

Equity Financing
This is either personal or capital from equity investors who provide financing in exchange for
part ownership. New ventures may be funded entirely by the owner’s funds or may have
finances provided externally in return for ownership in the venture. This is a source of capital
raised from the company's owners by issuing stocks to the public, existing shareholders, or
new shareholders who wish to subscribe to become owners (IvyPanda 2021).
Debt Financing

This is when a company borrows money in order to meet its financial requirements and pays

back the money with interest.

Appropriate source of finance for the chosen organisation, the advantages and

disadvantages

The Coca-Cola Company has leveraged both internal and external funding sources.

These sources of capital for multinational corporations are equity capital, long-term and

short-term debt, and medium-term and short-term debt (Fan et.al.,2022 pp. 985-99). Each

source of capital is used for distinct causes or objectives.

Equity Financing

The benefits of equity capital


The source is not restricted; however, it will rely on the company's reputation and the type of

investment they will make. If the company wants to make a substantial investment and has a

reputation as a performer, it can raise substantial funds.

The absence of a dividend payment provision throughout the capital-raising process has no

effect on the company's risk profile.

Disadvantages

Once these shares have been issued, they diminish the company's control, which may impact

its performance.

It is a pricey source of funding because advertising for the issuance of shares is costly.

Not all businesses have access to this source of funding, as some are not listed on the stock

exchange.

It is dangerous to issue a high number of these shares because they'll increase the return rate

and decrease earnings per share.

Finances on the short-term and medium-term

Advantages

Flexibility - they can be utilized as needed, for example, bank overdrafts can be utilized as

long as the business does not exceed the required limit. Also, loan terms might be extended

based on the given goods or services.

This facility is simply accessible to any business that fits the standards.

In most cases, interest rates exceed the base rate and are tax-deductible.

Disadvantages

Due to their legal obligation to be repaid on demand or within a specified time frame, these

loans are high-risk.

Typically, floating levies on assets or, in the case of private enterprises, personal guarantees

from the owners are required as security.

The cost of interest varies with bank base rates.


Long term capital sources

Advantages

Debenture holders might accept a lower rate of return because the investment carries less

risk.

Cost is restricted to the specified interest payment.

Since no right to vote are granted when debt is offered, there is no loss of control.

Disadvantages

Interest is a mandatory default that will result in the sale of company securities or in the

receivership of the company.

It is constrained because shareholders are afraid that a geared company would not be able to

pay its interest and dividends.

Provision must be made for the repayment of fixed-rate debt maturities.

Conclusion and recommendation

In conclusion managers and investors benefit from quantitative and qualitative

reviews. Quantitative analysis begins with period changes. Ratios show growth, profitability,

efficiency, liquidity, and solvency (Abdilazova2021). Managers adapt to the company's

situation, strengths, and weaknesses. Management accounting and strategic management can

support the firm in unanticipated hazards through efficient operations and strategy changes.

Management accounting results and quantitative analysis should be used to adapt company

plans when the external environment gets riskier. Risk-averse companies should check

liquidity and solvency

The following recommendation is worth making, as is evidenced by the consumer

awareness of healthier products, Coca-Cola Kenya should intensify marketing of its juices as

much as it does for its core brands like Coke, Fanta and Sprite. It should have more juice

advertisements so that consumers out there are aware of its juices and also carry out winning

promotions of its juices. Over the years, consumers have known Coca- Cola to produce only
carbonated soft drinks but with more adverts and other marketing campaigns, they will also

know of their range of juices.


Financial data income statement

US$ in millions

 
12 months ended: Dec 31, 2021 Dec 31, 2020 Dec 31, 2019 Dec 31, 2018 Dec 31, 2017

Net operating revenues 38,655  33,014  37,266  31,856  35,410 


Cost of goods sold (15,357) (13,433) (14,619) (11,770) (13,256)
Gross profit 23,298  19,581  22,647  20,086  22,154 

Selling, general and administrative (12,144) (9,731) (12,103) (10,307) (12,496)


expenses
Other operating charges (846) (853) (458) (1,079) (2,157)
Operating income 10,308  8,997  10,086  8,700  7,501 

Interest income 276  370  563  682  677 


Interest expense (1,597) (1,437) (946) (919) (841)
Equity income, net 1,438  978  1,049  1,008  1,071 
Other income (loss), net 2,000  841  34  (1,121) (1,666)
Income from continuing 12,425  9,749  10,786  8,350  6,742 
operations before income
taxes
Income taxes from continuing (2,621) (1,981) (1,801) (1,623) (5,560)
operations
Net income from continuing 9,804  7,768  8,985  6,727  1,182 
operations
Income (loss) from discontinued —  —  —  (251) 101 
operations, net of income taxes
Consolidated net income 9,804  7,768  8,985  6,476  1,283 

Net income attributable to (33) (21) (65) (42) (35)


noncontrolling interests
Net income attributable to 9,771  7,747  8,920  6,434  1,248 
shareowners of The Coca-Cola
Company
Ratio calculations

Coca-Cola Co., liquidity ratios  

Dec 31, 2021 Dec 31, 2020 Dec 31, 2019 Dec 31, 2018 Dec 31, 2017
Current ratio 1.13 1.32 0.76 1.05 1.34
Quick ratio 0.81 0.96 0.56 0.66 0.90
Cash ratio 0.63 0.75 0.41 0.55 0.76

Liquidity ratio
1.6

1.4

1.2

0.8

0.6

0.4

0.2

0
Dec 31, 2017 Dec 31, 2018 Dec 31, 2019 Dec 31, 2020 Dec 31, 2021

Current ratio Quick ratio Cash ratio


Coca-Cola Co., profitability ratios  

Dec 31, 2021 Dec 31, 2020 Dec 31, 2019 Dec 31, 2018 Dec 31, 2017
Return on Sales
Gross profit margin 60.27% 59.31% 60.77% 63.05% 62.56%
Operating profit 26.67% 27.25% 27.06% 27.31% 21.18%
margin
Net profit margin 25.28% 23.47% 23.94% 20.20% 3.52%
Return on Investment
Return on equity 42.48% 40.14% 46.99% 37.89% 7.31%
(ROE)
Return on assets 10.36% 8.87% 10.33% 7.73% 1.42%
(ROA)

Profitability Ratio
70.00%

60.00%

50.00%
Gross profit margin
40.00% Operating profit margin
Net profit margin
30.00% Return on equity (ROE)
Return on assets (ROA)
20.00%

10.00%

0.00%
Dec 31, Dec 31, Dec 31, Dec 31, Dec 31,
2017 2018 2019 2020 2021
Coca-Cola Co., solvency ratios  

Dec 31,
Dec 31, 2021 Dec 31, 2020 Dec 31, 2019 2018 Dec 31, 2017
Debt Ratios
Debt to equity 1.86 2.22 2.25 2.56 2.79
Debt to equity 1.92 2.30 2.33 2.56 2.79
(including operating
lease liability)
Debt to capital 0.65 0.69 0.69 0.72 0.74
Debt to capital 0.66 0.70 0.70 0.72 0.74
(including operating
lease liability)
Debt to assets 0.45 0.49 0.50 0.52 0.54
Debt to assets 0.47 0.51 0.51 0.52 0.54
(including operating
lease liability)
Financial leverage 4.10 4.52 4.55 4.90 5.15
Coverage Ratios
Interest coverage 8.78 7.78 12.40 10.09 9.02
Fixed charge coverage 7.41 6.45 9.47 10.09 9.02

Solvency ratio
6.00

5.00

4.00 Debt to equity


3.00 Debt to capital
Debt to assets (including operating
2.00 lease liability)
Financial leverage
1.00


17 18 19 20 21
, 20 , 20 , 20 , 20 , 20
1 1 1 1 1
c3 c3 c3 c3 c3
De De De De De
Coca-Cola Co., short-term (operating) activity ratios  

Dec 31, 2021 Dec 31, 2020 Dec 31, 2019 Dec 31, 2018 Dec 31, 2017
Turnover Ratios
Inventory 4.50 4.11 4.33 4.26 4.99
turnover
Receivables 11.01 10.50 9.38 9.38 9.66
turnover
Payables turnover 3.34 3.82 3.84 4.71 5.79
Working capital 14.90 7.12 - 22.58 3.79
turnover
Average No. Days
Average 81 89 84 86 73
inventory
processing period
Add: Average 33 35 39 39 38
receivable
collection period
Operating 114 124 123 125 111
cycle
Less: Average 109 96 95 77 63
payables payment
period
Cash conversion 5 28 28 48 48
cycle
Short term operating actvity, turnover ratio
25

20

15

10

0
Dec 31, 2017 Dec 31, 2018 Dec 31,2019 Dec 31,2020 Dec 31,2021

Inventory turnover Receivables turnover


Payables turnover Working capital turnover
Coca-Cola Co., long-term (investment) activity ratios  

Dec 31, 2021 Dec 31, 2020 Dec 31, 2019 Dec 31, 2018 Dec 31, 2017
Net fixed asset turnover 3.90 3.06 3.44 3.84 4.32

Net fixed asset turnover 3.41 2.68 3.05 3.87 4.32


(including operating
lease, right-of-use asset)
Total asset turnover 0.41 0.38 0.43 0.38 0.40
Equity turnover 1.68 1.17 1.96 1.88 2.07

Long-term investment ratio


5
4.5
4
3.5
3
2.5
2
1.5
1
0.5
0
Dec 31, 2017 Dec 31, 2018 Dec 31, 2019 Dec 31, 2020 Dec 31, 2021

Net fixed asset turnover


Net fixed asset turnover (including operating lease, right-of-use asset)
Total asset turnover
Equity turnover
Other relevant information

A. Profitability Ratio

Net income margin = Net profit after tax/Net revenue

Operating profit ratio = Earnings before interest and tax/Net revenue

Return on assets = Net income/average total assets

Return on equity = Net income/ Average equity

Return on capital= Net income/(average equity + average debt)

B. Debt Ratio

Debt ratio = Total liabilities/ Total ratios

Debt-equity ratio = Total debt/Total equity

Interest coverage ratio = Earnings before interest but after tax/interest expences

C. Solvency and Liquidity Ratios

Debt service coverage ratio = Free cash flow from operations/ Debt service requirement

Self financing ration = Free cash flow from operations after debt services/average capital

expenditure

Current ratio = Current assets/ current liabilities

Quick ratio = (Current assets- inventory- prepaid expenses)/current liabilities


References

Merchant, K. A., & Van der Stede, W. A. (2007). Management control systems: performance

measurement, evaluation and incentives. Pearson education.

Walsh, H., & Dowding, T. J. (2012). Sustainability and The Coca-Cola Company: The

Global Water Crisis and Coca-Cola's Business Case for Water Stewardship. International

Journal of Business Insights & Transformation, 4.

IvyPanda. (2021, November 3). The Coca-Cola Company and Its Sources of

Capital. https://ivypanda.com/essays/the-coca-cola-company-and-its-sources-of-capital/

Abdilazova, M. (2021, July). ENTERPRISE FINANCIAL MANAGEMENT: METHODS

AND ASSESSMENT. In E-Conference Globe (pp. 97-100).

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