Coca-Cola Corporate Valuation

The Coca-Cola Company Corporate Valuation

Overview The Coca-Cola Company SWOT & Porter’s 5 Forces DuPont Analysis Ratio Analysis Analysis of Firm Risk WACC Gordon Dividend Model Recommendations

The Coca-Cola CompanyFrom 1886 to 2011

CSD Market Share - 2010

SWOT Analysis: Strengths Strong brand identity Highest Market Share in CSD Large distribution network Various product lines Globalization

SWOT Analysis: Weaknesses Brand failures Product recalls Destocking of products

SWOT Analysis: Opportunities Potential growth outside US Increased bottled water consumption Acquisition of CCE New product penetration NARTD market growth (Non-alcoholic ready-to-drink)

SWOT Analysis: Threats Porter’s Five Forces

Porter’s 5 Forces: New Entrants Brand Loyalty Advertising Ability Access to Distribution Channels Supplier Availability

Porter’s 5 Forces: SubstituteProducts Pepsi Gatorade Budweiser Coffee/ Tea Brands

Porter’s 5 Forces:Bargaining Power of Buyers Fast Food Chains Vending Machines Convenience Stores Super Markets

Porter’s 5 Forces: BargainingPower of Suppliers Low Cost of Raw Materials High Volumes of Raw Materials Low Switching Costs

Porter’s 5 Forces: CompetitorRivalry Advertising/ Marketing Strategies Differentiated Products Consumer Control Expansion Opportunities

Ratio Analysis - DuPont Helps to determine the financial strength of a company Examines trends and causes of ROE ROE is calculated as: Net Profit Margin (NPM) × Asset Turnover Ratio (AT) × Equity Multiplier Ratio (EM)

Ratio Analysis - DuPont

Ratio Analysis - DuPont The components of ROE:  Net Profit Margin – operating efficiency  Net Income ÷ Sales  Asset Turnover – asset use efficiency  Sales ÷ Total Assets  Equity Multiplier – financial leverage  Total Assets ÷Total Equity

Ratio Analysis - DuPont

Total Debt Ratio & D/E Ratio

Net Working Capital &Current Ratio

Analysis of Firm Risk Calculation of Altman Z-Score Z > 2.99= Strong  2.99 > Z > 1.81= “Grey Zone”  Z < 1.81= WeakZ = 1.2( WC÷TA) + 1.4(RE÷TA) + 3.3(EBIT÷TA) + 0.6(MVE÷TL) + 0.999(Sales÷TA)4.07 1.2(3,071,000÷ 1.4(49,278,000÷ 3.3(8,449,000÷ 0.6(153,043,480÷ 0.999(35,119,000÷ 72,921,000) + 72,921,000) + 72,921,000) + 41,604,000) + 72,921,000)

Analysis of Firm Risk

WACC (Weighted Average Cost of Capital)

WACC Variables

WACC Calculation

Gordon Dividend ModelStock Price (Constant required rate of return)Lower than expected growth (5.4%) �� = ��0 = 1.88 1 + 0.054 / 0.0899 − 0.054 = $55.20Lower than expected growth (6.0%) �� = ��0 = 1.88 1 + 0.060 / 0.0899 − 0.060 = $66.64Expected growth (6.4%) �� = ��0 = 1.88 1 + 0.064 / 0.0899 − 0.064 = $77.23Higher than expected growth (7.4%) �� = ��0 = 1.88 1 + 0.074 / 0.0899 − 0.074 = $126.99Stock Price (Constant growth rate at 6.4%)Lower cost of capital (7.99%) �� = ��0 = 1.88 1 + 0.064 / 0.0799 − 0.064 = $125.81Expected cost of capital (8.99%) �� = ��0 = 1.88 1 + 0.064 / 0.0899 − 0.064 = $77.23Higher cost of capital (9.40%) �� = ��0 = 1.88 1 + 0.064 / 0.0940 − 0.064 = $66.68Higher cost of capital (9.99%) �� = ��0 = 1.88 1 + 0.064 / 0.0999 − 0.064 = $55.72

Conclusion/ Recommendations Risks: Emerging Competition, Changing Consumer Preferences, Exchange Rate Fluctuations Buy Coca-Cola Stock at Current Market Value ($66.31) Hold Coca-Cola Stock if GR lower than 6% or Expected Cost of Capital is above 9.45% Coca-Cola is fairly stable and would be an excellent Long-Term Investment

Questions? The Coca-Cola Company Corporate Valuation

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Coca-Cola Corporate Valuation

by Firat Sekerli on Dec 16, 2011

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