Ratio Analysis of Coca-Cola
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Ratio Analysis of Coca-Cola

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This particular project is based on ratio analysis of Coca-Cola International. I have analyzed two years financial performance of Coke i.e. from 2011 to 2012. I hope my this effort will help other ...

This particular project is based on ratio analysis of Coca-Cola International. I have analyzed two years financial performance of Coke i.e. from 2011 to 2012. I hope my this effort will help other interested students.

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  • 2012 CalculationsPayables turnover = Net operating revenues ÷ Trade accounts payable= 48,017 ÷ 1,969 = 24.39

Ratio Analysis of Coca-Cola Ratio Analysis of Coca-Cola Presentation Transcript

  • Topic: Financial Ratios Analysis of Coca-Cola 1
  • Group Members Wajid Ali 3335 Haris Riaz 3382 Presented To : Prof. Tahir Mahmood 2
  • 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. 3
  • • 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 4
  • 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 5
  • 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 6
  • THE COCA-COLA COMPANY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS December 31, 2012 (In millions except par value) ASSETS CURRENT ASSETS Cash and cash equivalents Short-term investments 2011 As Adjusted 8,442 5,017 $ 12,803 1,088 13,459 13,891 3,092 4,759 3,264 2,781 2,973 144 4,920 3,092 3,450 — TOTAL CURRENT ASSETS 30,328 25,497 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 9,216 1,232 3,585 14,476 6,527 7,405 12,255 1,150 7,233 1,141 3,495 14,939 6,430 7,770 12,219 1,250 $ 86,174 7 $ 79,974 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 ASSETS $
  • BALANCE SHEETS Cont’d LIABILITIES AND EQUITY CURRENT LIABILITIES Accounts payable and accrued expenses 8,680 $ 9,009 16,297 12,871 1,577 2,041 Accrued income taxes 471 362 Liabilities held for sale 796 — TOTAL CURRENT LIABILITIES 27,821 24,283 LONG-TERM DEBT 14,736 13,656 OTHER LIABILITIES 5,468 5,420 DEFERRED INCOME TAXES 4,981 4,694 1,760 1,760 Capital surplus 11,379 10,332 Reinvested earnings 58,045 53,621 Accumulated other comprehensive income (loss) (3,385) (35,009) (2,774) (31,304 ) 32,790 31,635 378 286 33,168 31,921 Loans and notes payable Current maturities of long-term debt $ THE COCA-COLA COMPANY SHAREOWNERS’ EQUITY Common stock, $0.25 par value; Authorized — 11,200 shares; Issued — 7,040 and 7,040 shares, respectively 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 $ 86,174 $ 79,9748
  • THE COCA-COLA COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME Year Ended December 31, 2012 As Adjuste d (In millions except per share data) NET OPERATING REVENUES Cost of goods sold 2011 $ 48,017 $ 19,053 46,542 18,215 GROSS PROFIT Selling, general and administrative expenses Other operating charges 28,964 17,738 447 28,327 17,422 732 OPERATING INCOME Interest income Interest expense Equity income (loss) — net 10,779 471 397 819 10,173 483 417 690 137 529 11,809 2,723 11,458 2,812 9,086 67 8,646 62 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 $ 9,019 $ 8,584 BASIC NET INCOME PER SHARE1 $ 2.00 $ 1.88 DILUTED NET INCOME PER SHARE1 $ 1.97 $ 1.85 AVERAGE SHARES OUTSTANDING Effect of dilutive securities AVERAGE SHARES OUTSTANDING ASSUMING DILUTION 4,504 4,568 80 78 4,584 9 4,646
  • Liquidity Ratios Current Ratio: Current Ratio : Current Assets Current Liabilitie s $30,328 $27,821 Years 2011 2012 Current Ratio 1.05 1.09 1.09 In 2011, the firm’s 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. 10
  • Quick/Acid Test Ratio: Current Assets- Inventory Quick Ratio : Current Liabilitie s $27,064 $27,821 Years 2011 2012 Quick Ratio 0.92 0.97 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. 11
  • Activity (Turnover) Ratios Total Asset Turnover Ratio: Sales $48,017 Total Asset Turnover : Total Assets $86,174 Years 2011 2012 Assets Turnover 0.58 0.55 0.55 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 2012. 12
  • Inventory Turnover Ratio: Cost of goods sold Inventory Turnover : Inventory Years 2011 5.90 5.8 2012 Inventory Turnover $19,053 $3,264 5.80 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 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. 13
  • Average Collection Period: 365 365 Avg. Collection Period : Receivables Turnover 10.09 Years 2011 2012 Avg. Collection Period 38.60 36.17days 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. 14
  • Average Payment Period: 365 Avg. Payment Period : Payable Turnover Years Avg. Payment Period (days) 365 24 .39 2011 2012 17 14.96 days 15 Coca-Cola’s 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. 15
  • Debt Ratios Debt Ratio: Total Liabilitie s Debt Ratio : Total Assets $53,006 $86 ,174 Years 2011 2012 Debt Ratio % 60.09 61 .51 % 61.51 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 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. 16
  • Times Interest Earned Ratio: EBIT $11,809 Times Interest Earned Ratio : Interest $471 Years 2011 2012 T.I.E Ratio 23.72 25.07 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. 17
  • Profitability Ratios Gross Profit Margin: Gross Profits Gross Profit Margin : Sales $28,964 $48,017 Years 2011 2012 Gross Profit Margin % 60.90 60 .32 % 60.32 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. 18
  • Operating Profit Margin: EBIT Operating Profit Margin : Sales Years 2011 $11,809 $48,017 24.59% 2012 Operating Profit Margin % 21.80 24.59 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 2012. This higher margin reflects that the Coca-Cola is more efficient cost management or the more profitable business. 19
  • Net Profit Margin: Net Profit Margin : Years Net Income Sales $9, 019 $48,017 2011 2012 Net Profit Margin % 18.40 18.78% 18.78 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. 20
  • Return on Assets (ROA): ROA Net Income Total Assets $9,019 $86,174 Years 2011 2012 ROA % 10.70 10.46% 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-Cola’s ratio is indicating that the company is not that much prospering. 21
  • Return on Equity (ROE): ROE Net Income Total Common Equity $9,019 $32,790 Years 2011 2012 ROE % 27.10 27.51 % 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. 22
  • Market Ratios Price/Earning Ratio: P/E Ratio Market price/share of C.S Earning Per share Years 2011 19.00 18 .40 times 2012 P/E Ratio $36 .25 $1.97 18.40 Coca-Cola’s 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. 23
  • Market/Book Ratio: Market price/share of C.S M/B Ratio : Book value /per share of C.S Years 2011 5.00 4.93 2012 M/B Ratio $36 .25 $7.34 4.93 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. 24
  • 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. 25
  • Thank you! Presented By : Wajid Ali 3335 Haris Riaz 3382 26