Topic: Financial Ratios Analysis of Coca-Cola

Group Members

Wajid Ali Haris Riaz

3335

3382

Presented To : Prof. Tahir Mahmood

Coca Cola International

The Coca-Cola Company is the world's largest company. beverage

It is no.1 brand according to fortune 2009 survey.

The company operates a franchised distribution system dating from 1889.

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 firms past, present and future financial conditions Done to find firms financial strengths and weaknesses Primary Tools:
Financial Statements Comparison of financial ratios to past, industry, sector and all firms
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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
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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

Valuation Ratios:

Assess profits relative to amount of resources used Assess market price relative to assets or earnings
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THE COCA-COLA COMPANY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS

December 31, (In millions except par value) 2012 2011 As Adjusted

ASSETS CURRENT ASSETS Cash and cash equivalents Short-term investments TOTAL CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS Marketable securities Trade accounts receivable, less allowances of $53 and $83, respectively Inventories Prepaid expenses and other assets Assets held for sale TOTAL CURRENT ASSETS EQUITY METHOD INVESTMENTS OTHER INVESTMENTS, PRINCIPALLY BOTTLING COMPANIES OTHER ASSETS PROPERTY, PLANT AND EQUIPMENT net TRADEMARKS WITH INDEFINITE LIVES BOTTLERS FRANCHISE RIGHTS WITH INDEFINITE LIVES GOODWILL OTHER INTANGIBLE ASSETS TOTAL ASSETS

8,442 5,017 13,459 3,092 4,759 3,264 2,781 2,973 30,328 9,216 1,232 3,585 14,476 6,527 7,405 12,255 1,150

$ 12,803 1,088 13,891 144 4,920 3,092 3,450 25,497 7,233 1,141 3,495 14,939 6,430 7,770 12,219 1,250 7 $ 79,974

$ 86,174

BALANCE SHEETS Contd

LIABILITIES AND EQUITY CURRENT LIABILITIES Accounts payable and accrued expenses Loans and notes payable Current maturities of long-term debt Accrued income taxes Liabilities held for sale TOTAL CURRENT LIABILITIES LONG-TERM DEBT OTHER LIABILITIES DEFERRED INCOME TAXES THE COCA-COLA COMPANY SHAREOWNERS EQUITY Common stock, $0.25 par value; Authorized 11,200 shares; Issued 7,040 and 7,040 shares, respectively Capital surplus Reinvested earnings Accumulated other comprehensive income (loss) Treasury stock, at cost 2,571 and 2,514 shares, respectively EQUITY ATTRIBUTABLE TO SHAREOWNERS OF THE COCA-COLA COMPANY EQUITY ATTRIBUTABLE TO NONCONTROLLING INTERESTS TOTAL EQUITY TOTAL LIABILITIES AND EQUITY 1,760 11,379 58,045 (3,385) (35,009) 32,790 378 33,168 $ 86,174 1,760 10,332 53,621 (2,774) (31,304 ) 31,635 286 31,921 $ 79,9748 $ 8,680 16,297 1,577 471 796 27,821 14,736 5,468 4,981 $ 9,009 12,871 2,041 362 24,283 13,656 5,420 4,694

THE COCA-COLA COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME

Year Ended December 31, 2012 2011 As Adjuste d

(In millions except per share data)

NET OPERATING REVENUES Cost of goods sold GROSS PROFIT Selling, general and administrative expenses Other operating charges OPERATING INCOME Interest income Interest expense Equity income (loss) net Other income (loss) net INCOME BEFORE INCOME TAXES Income taxes CONSOLIDATED NET INCOME Less: Net income attributable to noncontrolling interests NET INCOME ATTRIBUTABLE TO SHAREOWNERS OF THE COCA-COLA COMPANY BASIC NET INCOME PER SHARE1 DILUTED NET INCOME PER SHARE1 AVERAGE SHARES OUTSTANDING Effect of dilutive securities AVERAGE SHARES OUTSTANDING ASSUMING DILUTION

48,017 $ 19,053 28,964 17,738 447 10,779 471 397 819 137 11,809 2,723 9,086 67

46,542 18,215 28,327 17,422 732 10,173 483 417 690 529 11,458 2,812 8,646 62 8,584 1.88

$ $

9,019 $ 2.00 $

1.97 $
4,504 80 4,584

1.85
4,568 78

4,646

Current Ratio:
Current Ratio :

Liquidity Ratios
Current Assets $30,328 1.09 Current Liabilitie s $27,821
2011 2012

Years

Current Ratio

1.05

1.09

In 2011, the firms ability to cover its current liabilities with its current assets was 1.05. 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.
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Quick/Acid Test Ratio:

Current Assets- Inventory $27,064 Quick Ratio : 0.97 Current Liabilitie s $27,821
Years Quick Ratio 2011 0.92 2012 0.97

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 2012. 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.

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Activity (Turnover) Ratios

Total Asset Turnover Ratio:
Sales $48,017 Total Asset Turnover : 0.55 Total Assets $86,174
Years
Assets Turnover

2011
0.58

2012
0.55

The ratio is supposed to be high. Here we can see that the coca-cola companys 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 2012.

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Inventory Turnover Ratio:

Cost of goods sold $19,053 Inventory Turnover : 5.8 Inventory $3,264
Years Inventory Turnover 2011 5.90 2012 5.80

The Coca-Colas 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 5.80. 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.
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Average Collection Period:

365 365 Avg. Collection Period : 36.17days Receivables Turnover 10.09
Years
Avg. Collection Period

2011
38.60

2012
36.17

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.

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Average Payment Period:

365 365 Avg. Payment Period : 14.96 days Payable Turnover 24 .39
Years Avg. Payment Period (days) 2011 17 2012 15

Coca-Colas average period for payment has reduce to 15 days in 2012 which was 17 days in 2011. 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.

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Debt Ratios
Debt Ratio:
Total Liabilitie s $53,006 Debt Ratio : 61 .51 % Total Assets $86 ,174
Years Debt Ratio % 2011 60.09 2012 61.51

The ratio shows the companys ability to cover its debts through its total assets. The ratio was 60.09% in 2011, then goes up in 2012. 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.

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Times Interest Earned Ratio:

EBIT $11,809 Times Interest Earned Ratio : 25.07 Interest $471
Years
T.I.E Ratio

2011
23.72

2012
25.07

In 2012 Coca-Cola has a ratio of 25.07 which is a large increase from 2011 when their ratio was 23.72. This means that they have a comfortable coverage of interest, and that the coverage has increased from the previous year.

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Profitability Ratios
Gross Profit Margin:
Gross Profits $28,964 Gross Profit Margin : 60 .32 % Sales $48,017
Years Gross Profit Margin % 2011 60.90 2012 60.32

The ratio should be high according to the definition. Because higher the ratio, higher will be the firms 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.

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Operating Profit Margin:

EBIT $11,809 Operating Profit Margin : 24.59% Sales $48,017
Years 2011 2012

Operating Profit Margin % 21.80 24.59 Coca-Colas 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 2012. This higher margin reflects that the Coca-Cola is more efficient cost management or the more profitable business.
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Net Profit Margin:

Net Income $9, 019 Net Profit Margin : 18.78% Sales $48,017
Years 2011 2012 18.78 Net Profit Margin % 18.40

According to the definition, higher the ratio, higher will be the firms 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.
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Return on Assets (ROA):

Net Income $9,019 ROA 10.46% Total Assets $86,174
Years ROA % 2011 10.70 2012 10.46

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 2011. The higher of this ratio is, the better for the company. Therefore this decrease in Coca-Colas ratio is indicating that the company is not that much prospering.
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Return on Equity (ROE):

ROE Net Income $9,019 27.51 % Total Common Equity $32,790
Years ROE % 2011 27.10 2012 27.51

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.
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Market Ratios
Price/Earning Ratio:
P/E Ratio Market price/share of C.S $36 .25 18 .40 times Earning Per share $1.97
Years 2011 2012
18.40

P/E Ratio 19.00

Coca-Colas price-earnings ratio has decreased 0.6 times in 2012, because in 2011 the ratio was 19.00 times but in 2012 it become 18.40 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.

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Market/Book Ratio:
Market price/share of C.S $36 .25 M/B Ratio : 4.93 Book value /per share of C.S $7.34
Years M/B Ratio 2011 5.00 2012 4.93

We can say that Coca-Colas 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 ratios fluctuation is negligible in 2012 against 2011.
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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.
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Thank you!
Presented By :
Wajid Ali 3335 Haris Riaz 3382
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