A Study On The Financial Performance Of Coca – Cola

Introduction

Beverages have evolved into an indispensable aspect of contemporary living, with one iconic
brand standing at the forefront of this global phenomenon – Coca-Cola. Once regarded as a
luxury enjoyed by the affluent, Coca-Cola has seamlessly integrated into the fabric of
everyday life for people worldwide. No longer solely a symbol of prestige, it has become an
integral part of daily routines, facilitating commutes to work, aiding small business owners in
their ventures, and offering comfortable travel from one location to another. While the
proliferation of automobiles has contributed to increased traffic and environmental concerns,
their significance has skyrocketed in this era of globalization.

From humble beginnings with bullock carts tied to oxen for transportation in ancient times,
the evolution of transportation witnessed the advent of motors during the industrial
revolution. This evolution led to the creation of two-wheeled vehicles, motor cars, and
airplanes, with the present era witnessing the emergence of electric bikes and cars. Much like
the transformative journey of transportation, Coca-Cola, a global beverage giant, has
undergone its own remarkable evolution.

Coca-Cola, with its roots tracing back to the late 19th century, has become a symbol of
refreshment and enjoyment worldwide. As of the latest available data, Coca-Cola continues
to hold a prominent position in the global beverage market. The company's rich history and
unwavering commitment to quality have established it as a household name. This analysis
aims to delve into the intricate financial performance of Coca-Cola, unraveling the factors
that contribute to its enduring success and global prominence.

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Profitability Index

PI = Cash outflow/Cash Inflow

Interpretation

Over the past five years, Coca Cola has consistently maintained a marginally profitable
profitability index, indicating that the company has been able to generate modest profits.
However, the profit margin during this period has not been notably high. Several factors may
contribute to such a scenario. Firstly, Coca Cola operates in a highly competitive industry,
where profit margins are inherently low due to intense rivalry. The challenges posed by
competitors may restrict the company's ability to achieve a more substantial profit margin.

Another potential reason for a marginally profitable profitability index could be attributed to
Coca Cola's involvement in a new industry, which might still be in the early stages of
development. It's plausible that the company has not yet reached its full profitability
potential, and ongoing investments and strategic initiatives are necessary to position itself
more lucratively in the market.

Additionally, the marginally profitable profitability index could stem from Coca Cola facing
a period of financial difficulty. Economic challenges, increased operational costs, or other
financial constraints may be influencing the company's overall profit margins. Addressing
these challenges and implementing effective financial management strategies will be crucial
for Coca Cola to enhance its profitability and navigate successfully through any ongoing
financial difficulties.

Net Present Value

NPV = Cash Inflow – Cash Outflow

Interpretation

In a comprehensive analysis of Coca Cola's financial performance over the past five years,
notable trends and observations emerge. The company encountered losses in three of the five
years, with the most substantial deficit occurring in 2020-2021. Conversely, 2019-2020
stands out as a singular year of high profitability, raising questions about subsequent factors
that may have contributed to the subsequent losses. While there is a slight improvement in
profitability in the more recent years (2021-2022 and 2022-2023), they still reflect a
marginally profitable position.

However, it's imperative to acknowledge the limitations of this interpretation due to the
absence of additional context regarding the industry landscape, Coca Cola's size, or specific
factors influencing its profit and loss dynamics. To obtain a more nuanced understanding of
the company's financial health, a holistic analysis should encompass various financial metrics
and consider external factors that may impact Coca Cola's performance. This additional
context is essential for a more accurate assessment of the company's overall financial
landscape and the identification of potential causes behind the observed fluctuations in
profitability.
In navigating these financial nuances, stakeholders and analysts should look beyond the
surface-level observations and delve into a comprehensive evaluation, considering a broader
range of financial indicators and external influences to derive more informed insights into
Coca Cola's financial standing.

Internal Rate Of Return

IRR= Base factor + positive net present value/ difference in positive and negative net
present value*DP

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BASE FACTOR = 10%

DP = 4%

= 10%+ 1973.7293/1973.7293-(-73.1112)*4%

= 10% +1973.7293/2046.841*4%

= 10 +3.856

= 13.856%

= 13.86%

Interpretation

The internal rate of return (IRR) for each year has been computed based on the cash inflows
and a 10% discount rate. Notably, the IRR remains positive throughout the four-year period,
indicating that the project is anticipated to yield a return on investment exceeding the
discount rate. The peak IRR is observed in 2022-2023, reaching 25.14%. This implies that an
investment made in the project in 2022 is expected to yield a 25.14% return over the
subsequent four years.

Furthermore, the table displays the net present value (NPV) for each year, calculated as the
sum of present values of cash inflows minus the initial investment. Remarkably, the NPV
remains positive across all four years, signifying that the project is anticipated to generate a
cash flow surpassing the initial investment.

In conclusion, the IRR and NPV analyses collectively suggest that this project is a favorable
investment. The expected positive return on investment and cash flow make it an attractive
proposition. It's crucial for Coca-Cola to maintain a discount rate of 10% or potentially
consider a reduction for even higher returns. Deviating to a 14% discount rate could result in
negative cash flows, making it imperative to adhere to the optimal discount rate. This
investment has proven resilient, sustaining positive cash flows even during challenging times
such as the pandemic. The IRR calculation underscores that setting the discount rate at
13.86% would lead to an NPV of zero, emphasizing the sensitivity of the project's
profitability to the discount rate.

ARR

Accounting Rate Of Return

Average Income/ Average Investment

INCOME

2018 - 19. - 180492

2019 - 20. - 137663

2020 - 21. - 142297

2021 - 22. - 156506

2022 - 23 - 175006

791964

INVESTMENT

2018 - 19. - 161154

2019 - 20. - 132057

2020 - 21. - 121316

2021 - 22. - 131936

2022 - 23 - 147447

693910

Avg.Income - 791964 / 5

Avg.Investments - 693910 / 5

= 1,58,392.8 / 1,38,782
= 1.14

Interpretation

The indicated Accounting Rate of Return (ARR) for Coca-Cola over the past five years, at
1.50, implies that the company's average profit margin has seen an annual increase of 150%
over that period. This trend reflects robust and sustained growth in profitability for Coca-
Cola. ARR, also known as the average rate of return, doesn't incorporate the time value of
money but offers insight into the company's profitability over time.

Findings

Profitability Index (PI) Analysis: Post-Pandemic Recovery and Strength

In the Profitability Index (PI) analysis, the indices initially were high, but faced a temporary
decline during the onset of the pandemic. However, post-pandemic, these indices are
gradually recovering and surpassing the baseline, with values now consistently exceeding 1,
indicating a robust financial position.

Net Present Value (NPV) Analysis: Rollercoaster Cash Flows with an Upward
Trajectory

The NPV analysis reflects dynamic cash flows resembling a rollercoaster, yet consistently
improving over time. Despite fluctuations, the overall trend showcases positive
developments, underlining the company's ability to adapt and recover effectively.

Internal Rate of Return (IRR) Analysis: Positive Returns Indicative of Sound

The IRR analysis underscores the company's sound investment decisions, as it indicates a
positive return on the investments made. This positive trend affirms the strategic
effectiveness of the company's financial decisions and capital utilization.
Conclusion

Coca-Cola stands well-equipped to fulfill the company's requirements, having enhanced its
performance, revenue streams, and introduced innovative features across its product
portfolio. There is no imperative need for the removal of any brand or divestment of
subsidiaries. Maruti Suzuki's strategic investments in social and corporate initiatives, coupled
with forward-looking activities, bode well for the company's future objectives and goals.

To ensure continued dominance in the market, Coca-Cola is advised to diligently review and
maintain its existing strategies while focusing on mitigating macroeconomic risks. The
company boasts robust financial metrics, high credit ratings, and a consistent year-to-year
performance improvement, indicating a strong and stable foundation. Upholding this
trajectory will be key to sustaining competitive leadership in the market.