Coca-Cola Corporate Valuation

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I do not recommend to anyone relying on the PowerPoint slides for making any decision on whether to invest on Coca-Cola stock. These slides were published for potential employers to gain information about my educational background, not for financial advice.

*Update / Correction: Pepsi was stated as a substitute under the discussion of Porter's Five Forces. This cannot be true because Porter's Five Forces clearly states that a substitute cannot be competitors' similar products. Instead, a substitute is considered an entirely different product groups. So, in this case, Pepsi is not considered a substitute for Coke but Gatorade, Budweiser, coffee and tea.

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Coca-Cola Corporate Valuation

  1. 1. The Coca-Cola Company Corporate Valuation
  2. 2. Overview The Coca-Cola Company SWOT & Porter’s 5 Forces DuPont Analysis Ratio Analysis Analysis of Firm Risk WACC Gordon Dividend Model Recommendations
  3. 3. The Coca-Cola CompanyFrom 1886 to 2011
  4. 4. CSD Market Share - 2010
  5. 5. SWOT Analysis: Strengths Strong brand identity Highest Market Share in CSD Large distribution network Various product lines Globalization
  6. 6. SWOT Analysis: Weaknesses Brand failures Product recalls Destocking of products
  7. 7. 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)
  8. 8. SWOT Analysis: Threats Porter’s Five Forces
  9. 9. Porter’s 5 Forces: New Entrants Brand Loyalty Advertising Ability Access to Distribution Channels Supplier Availability
  10. 10. Porter’s 5 Forces: SubstituteProducts Pepsi Gatorade Budweiser Coffee/ Tea Brands
  11. 11. Porter’s 5 Forces:Bargaining Power of Buyers Fast Food Chains Vending Machines Convenience Stores Super Markets
  12. 12. Porter’s 5 Forces: BargainingPower of Suppliers Low Cost of Raw Materials High Volumes of Raw Materials Low Switching Costs
  13. 13. Porter’s 5 Forces: CompetitorRivalry Advertising/ Marketing Strategies Differentiated Products Consumer Control Expansion Opportunities
  14. 14. 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)
  15. 15. Ratio Analysis - DuPont
  16. 16. 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
  17. 17. Ratio Analysis - DuPont
  18. 18. Ratio Analysis - DuPont
  19. 19. Ratio Analysis - DuPont
  20. 20. Total Debt Ratio & D/E Ratio
  21. 21. Net Working Capital &Current Ratio
  22. 22. 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)
  23. 23. Analysis of Firm Risk
  24. 24. WACC (Weighted Average Cost of Capital)
  25. 25. WACC Variables
  26. 26. WACC Calculation
  27. 27. 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
  28. 28. 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
  29. 29. Questions? The Coca-Cola Company Corporate Valuation

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