This document is a case study submission for The Coca-Cola Company (A) that analyzes the company's financial reporting and relationships with its bottling partners. It addresses questions about how various transactions between Coca-Cola and its bottlers are accounted for, how consolidation would affect accounting, and whether consolidation should occur. The submission finds that consolidation is not necessary and separate analysis provides more accurate understanding of each entity's performance and risk.

1. Case Study – The Coca-Cola Company (A)
Case Study The Coca-Cola Company (A)
Submission Date 6-Oct-2009
Class EPGP– 09-10
Subject Financial Reporting and Analysis
Submitted by
 Abhishek Pangaria
 Mandeepak Singh
 Rajendra Inani
 Saravanan Logu
 Tarandeep Singh
 Vivek Edlabadkar
Table of contents
Question – 1: ...................................................................................................................................2
Question – 2: ...................................................................................................................................3
Question – 3: ...................................................................................................................................5
Balance Sheet for Company, Enterprises and consolidated firm.................................................7
Income Statement.........................................................................................................................7
Ratios for Company, Enterprises and consolidated firm.............................................................9
Question – 4: ...................................................................................................................................9
Question – 5: ...................................................................................................................................9
Page 1 of 10

2. Case Study – The Coca-Cola Company (A)
Question – 1:
What role does Coca-Cola’s various ownership interests in its bottler companies play in the company’s
global strategy?
Coca-Cola has business relationships with three types of bottlers:
1. Independently owned bottlers
2. Coca-Cola invested with non-controlling ownership interests
3. Coca-Cola invested with controlling ownership interests
Interest Type Independently Non-controlling Controlling
owned bottlers ownership ownership
interests interests
Year 1998 Business 34% 55% 11%
Interest distribution
worldwide
(Unit case volume)
Coca-Cola makes equity investments in selected bottling operations with the intention of
maximizing the strength and efficiency of the Coca-Cola business system’s production, distribution,
and marketing systems around the world.
Coca-Cola’s primary long term business strategy is not to own a controlling interest. Coca-Cola’s
prime intention is to provide expertise and resources to strength the business of bottlers to ensure
its sale of concentrate and syrup.
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3. Case Study – The Coca-Cola Company (A)
Question – 2:
How are the following transactions accounted for by Coca-Cola?
a. Sale of Concentrate and syrup to Enterprises?
It is recorded as a sale. The data shown are as following
Year 1998 1997 1996
Concentrate / Syrup $ 3.1 bln $ 2.5 bln $ 1.6 bln
sale to Enterprises
Net Operating 16% 13% 9%
Revenue % of
Company
b. Enterprises’ purchase of sweeteners through Coca-Cola?
Any sweeteners purchased by Enterprise are done through the company, but its collection from
Enterprises and payment to supplier is not recorded in company’s income statement.
Year 1998 1997 1996
Transaction Amount $ 252 mln $ 223 mln $ 247 mln
c. Receipt of cooperative advertising payments from Enterprises?
This would be reduced from the expenses done by Company on supporting marketing activities
of Coca-Cola Enterprises. Though, the given case study do not give data in detail as how much
out of the expenses done by company on support of marketing activity were refunded by
Enterprises.
Page 3 of 10

4. Case Study – The Coca-Cola Company (A)
d. Coca-Cola’s direct support marketing payments to Enterprises?
This is treated as marketing expenses.
Year 1998 1997 1996
Company expenses on direct $ 899 mln $ 604 mln $ 448 mln
support of marketing activities
of Enterprises
e. Fees received for administrative services provided to Enterprises?
This would be treated as other earnings.
f. Infrastructure improvement payments made to Enterprises?
This would be treated as other assets by Coca-Cola Company, which would be amortized over
the useful life of asset. These are treated as revenue by Enterprises in the period it is received.
g. Sales of bottler ownership investments to Enterprises?
Gains are shown as other income after provision of deferred tax payment by Coca-Cola Co.
h. Enterprises’ issuance of common stock to acquire bottlers?
In cash flow of Enterprises, it is shown in “Cash flow from investing activities”.
Stock issued are shown in Liabilities.
i. Coca-Cola’s equity investment in Enterprises?
It is shown as Assets in Coca-Cola Company balance sheet using equity method investment.
Page 4 of 10

5. Case Study – The Coca-Cola Company (A)
Question – 3:
If Enterprises was included in Coca-Cola’s consolidated financial statements on a fully consolidated
basis, how might Coca-Cola’s accounting for the above transactions changes?
a. Sale of Concentrate and syrup to Enterprises?
Earlier it was recorded as a sale, but now it would be recorded as cost of material.
b. Enterprises’ purchase of sweeteners through Coca-Cola?
Earlier, any sweeteners purchased by Enterprise are done through the company, but its
collection from Enterprises and payment to supplier is not recorded in company’s income
statement. Now, only the payment to Supplier would be recorded as cost of raw material.
c. Receipt of cooperative advertising payments from Enterprises?
This would be treated as before.
d. Coca-Cola’s direct support marketing payments to Enterprises?
This would continued to be treated as before as marketing expenses.
e. Fees received for administrative services provided to Enterprises?
Earlier, it was treated as other earnings, but now it would be given and received in the same
account.
f. Infrastructure improvement payments made to Enterprises?
This would be continued as same treatment, but no more taken as revenue by Enterprises.
g. Sales of bottler ownership investments to Enterprises?
Gains are shown as other income after provision of deferred tax payment by Coca-Cola Co.
h. Enterprises’ issuance of common stock to acquire bottlers?
No change than earlier treatment.
Page 5 of 10

6. Case Study – The Coca-Cola Company (A)
i. Coca-Cola’s equity investment in Enterprises?
No change than earlier treatment.
Page 6 of 10

7. Case Study – The Coca-Cola Company (A)
Balance Sheet for Company, Enterprises and consolidated
firm
Coca-Cola Enterprises Consolidat * adjustment
Company ed for
Consolidation
Assets
Total Current Asset 6380 2285 8665
Investments and other assets 8549 7965 584
Property Plan Equipment 5685 7654 13339
Less Depreciation -2016 -2956 -4972
Goodwill 547 547
Construction in progress 193 193
Franchise and other Non Current Assets 13956 13956
Total Assets 19145 21132 40277
Liabilities 0
Current Liabilities 8640 3397 12037
Long term debt 687 9605 10292
Other Liabilities 991 977 1968
Deferred Income Taxes 424 4715 5139
Share owners’ equity 8403 2438 10257 584
Total Liabilities 19145 21132 40277
Income Statement
Net Operating Revenue 18813 13414 23836 -8391
Page 7 of 10

8. Case Study – The Coca-Cola Company (A)
cost of goods sold -5562 -8391 -5562
Gross Profit 13251 5023 18274
Selling admin exp -8284 -4154 -12438
Operating Income 4967 869 5836
Interest income 219 219
interest expenses -277 -701 -978
Equity income 32 32
Other income net 230 1 231
Gains on issues of stock 27 27
Income before Tax 5198 169 5367
income tax -1665 -27 -1692
Net Income 3533 142 3675
Page 8 of 10

9. Case Study – The Coca-Cola Company (A)
Ratios for Company, Enterprises and consolidated firm
Coca-Cola Company Enterprises Consolidated
Asset Turnover ratio 0.98 0.63 0.59
(Sales / total assets)
Comments: The Company has higher Asset Turnover ratio then the Enterprises. Consolidation
would bring this ration down for the Company.
Return on sales % 18.78 1.06 15.42
(Net income / sales)
Comments: The Enterprises have very low return on sales percentage. Consolidation would
bring down Company’s return on sales %.
Total Leverage ratio 2.28 8.67 3.93
( Total Asset / Owner's equity)
Comments: Enterprises have very good Leverage Ratio. Consolidation would improve
Company’s Leverage Ratio.
Return on Equity 0.42 0.06 0.36
( Net income / Owner's equity)
Comments: Company is having better return on equity then the Enterprises. Consolidation
would bring down this ratio for Company.
Question – 4:
Do you believe Coca-Cola should include Enterprises in its consolidated financial statements on a fully
consolidated basis?
As comments in the above analysis, it does not bring any valuable improvement in the Company’s
performance ratios, this it is better to keep the Enterprises separately. This would help analysis of
Balance Sheet of the two firms correctly and performance ratios would be correctly interpreted.
Question – 5:
How do you answer Wilson’s question?
Page 9 of 10

10. Case Study – The Coca-Cola Company (A)
In order to fully appreciate Coca-Cola’s profitability, financial risk and operating risk, she should be
analyzing the Company and Enterprises financial statements separately and not with consolidation.
Page 10 of 10