Executive Summary
The purpose of the assignment is the financial analysis of the global brand, Coca Cola along with the brief environmental scanning. The report starts with analyzing the competencies of the Company in internal and external environments and how these dynamics affect the operations of the Company. Given this environmental analysis, the Company decides its strategies, which directly affect the financial position of the Company. As an financial entity, Coca cola is a stable company with strong financials and balanced spending and revenue. The ROE of the Company as per the DuPont analysis is on a rise, which is a good sign for the investors. The ratio analysis of the Company also suggests that the Company is in good shape, though some variations may be observed in some years. This is to say that the Company will excel in investor expectations through its calculated financial existence.
Basic Coca Cola Background and History:
Popularly known as the “biggest brand in the world”, Coca Cola was founded in Atlanta in the year 1886. The time taken for the expansion was however longer and initiated only in the year 1955. At the initial stages, the only product that the Company manufactured and promoted was Coca Cola. For almost seventy years, the Company did not think about an alternative.
The Company has a high share in the market and the customer base is highly diversified. This diversification is because of the differences in behaviors and background, with one common theme of preference towards beverages. The Company functions in about 200 nations at different locations of the globe and has a wide product range consisting of about five hundred beverage brands. The Company now has copyright for the manufacture of almost three thousand five hundred different beverages under the company name (Company et al. 2016).
Before the financial analysis of the Company, it is also necessary to scan the environmental effects of the organization using different techniques. One of these techniques could be using the framework of Porter’s five forces. If we try to segregate the five forces, only three of these forces relate to the market competition for the product. From the result of the five forces, the Companies including Coca cola will have to design their strategies for the market. The external forces effect on the operations of the Company can be correctly assessed if the environmental analysis is done effectively. This helps in strengthening the situation of the business and identifying the various risks at the market and individual levels. The management will then be able to draft creative and effective ways to tackle competition as well as increase operational and sales efficiency. The different segments in which the Company is involved require varied environmental analysis as each segment comprises of individual units that are made up of different behaviors and features.
Based on the environmental scan performed at internal and external levels, we can assess that differentiation is the major strategy used by the Company.
The overall environmental analysis of the Coca Cola Company can be performed through SWOT analysis for internal and external environments.
Strengths: To assess the internal environment
A brand equity that is well established: Coca Cola as a company has been immensely successful in establishing great standards of brand equity. One of the reflections of the same could be the Brand Equity Award 2011 received by the Company.
Strength of valuation: Coca Cola has the leverage of standing as the most valued global brand. Thus the value of the company in the market is soaring with a value of about eight hundred billion. This included summation of global assets and total value of brand.
High levels of Loyalty from customers: the large market share the Coca cola has been able to capture is not just because of its ability to explore new markets but also its ability to retain old customers. The basis for this success can be credited to the strategy of differentiation that the Company has been using for years (SWOT of Coca Cola - SWOT analysis of Coca cola. 2014).
Strength in the network for Distribution: Having a good product is just not enough; there should be continuous efforts to make that product reachable to the market. Coca Cola has been able to understand this need and thus has a strong distribution network that is spread across cities and villages at various parts of the world. It is also one of the competitive advantages.
Weaknesses
High level of Competition: Pepsi stands as the toughest competitor for Coca Cola. The absence of Pepsi from the market would mean that Coke would have monopoly in the market. The fierce tussle between these two big brands compels the Company to develop strategies of differentiation.
Low level of diversification in products: The efforts of product diversification are higher from Pepsi in comparison to Coke. Coke tackles the diversification tactics from Pepsi by resorting to the strategy of differentiation.
Opportunities: To assess external environment
Novel markets and product diversity line diversifications: The potential of the Company to enter newer areas and product categories like health and food is high. This will help enhance brand value and build customer loyalty, not just towards a product but towards the brand.
The development of supply chain: Coca Cola does have a wide choice in its supply chain from which it receives its orders for manufacturing. However, the costs associated with the same are high and the related issues are also on a rise. There is need of amendment in the management of supply chain.
Threats
Raw Materials sourcing activities: Water seems to be one of the major ingredients in the preparation of Coca Cola. Pesticide use skepticism is one of the topics that are on the rise for the Company. The rise in the amount of water that is used in manufacturing is one of the burning issues in the organization. Global warming could be one of the reasons.
Financial Analysis:
Now we move on to the financial analysis of the Company so that the financial position of the can be assessed. Coca cola has a complex and interesting financial history since it is a company which is years old and very big. The bases for the assessment of financial stability of the Company are profitability and solvency. The two years considered are 2015 and 2014.
The analysis given by the measures of solvency is the ascertainment of the ability of the Company to meet debts. The cash flow efficiency situation is given by these ratios. The following ratios could be assessed for the Coca Cola Company. The measures of profitability on the other hand help in understand the Coca Cola capacity to earn. There is a comparison between expenses and the costs of operations given a specific period of time.
DuPont analysis:
The DuPont analysis for Coca cola can be done by decomposing the ROE in two ways:
ROE = ROA × Leverage
Dec 31, 2015 28.77% 8.16% 3.53
Dec 31, 2014 23.41% 7.71% 3.04
Dec 31, 2013 25.88% 9.53% 2.71
Dec 31, 2012 27.51% 10.47% 2.63
Dec 31, 2011 27.10% 10.72% 2.53
Another DuPont analysis for Coca cola can be done by decomposing the ROE in three ways:
ROE = Net Profit Margin × Asset Turnover × Leverage
2015 28.77% 16.60% 0.49 3.53
2014 23.41% 15.43% 0.50 3.04
2013 25.88% 18.32% 0.52 2.71
2012 27.51% 18.78% 0.56 2.63
2011 27.10% 18.42% 0.58 2.53
The analysis suggests that the trend of ROE is growing, which is a favorable sign (Coca-Cola Co. (KO) | DuPont Analysis. 2016).
Market value added
The formula for market value added is market value minus the capital invested (Coca-Cola Co. (KO) | Market Value Added. 2016). There was an increase in the MVA of Coca cola from 2013 to year 2014 and again to 2015.
Economic value added
There was a decline in the economic profit earned by Coca Cola as it went from year 2013 to 2014, which then increased as it jumped from 2014 to the year 2015 (Coca-Cola Co. (KO) | Economic Value Added. 2016).
Cost volume analysis
The Company has been able to utilize its cost and volume dimensions by decreasing the point of break even and eventually increasing profits.
Analysis
When the financial statements and the above mentioned variables are studied for the Company, there are no traces of unusual behavior or facts that deviate from the standards of a globally successful company. There is almost same level matching up of selling costs and the costs of sales, which is also reflected in the high amounts spent on advertising by the Company.
The level of current assets in the Company is on the rise, along with some crucial changes for the category of long term liabilities. The level of short term loan for the Company has also increased over the years. One of the primary reasons for this could be lessened US interest rates which mean that Coca cola would be in a good position for borrowing favors.
If we analyze the industry statistically, there could be conclusions that the margin on profit for Coca cola is great, given its performance. Above fifteen percent of net margin gives the Company the advantage of taking concrete decisions on detainment and investments. The Company had to face some losses in the year 2014 because of foreign exchange issues, which means that profit margins were lowered. The net profit margin for the Company has also always been on a rise. Investors have a bright chance given the market price of shares and the company.
Conclusion
There can be some clear deductions from the way that the company has shown its financial performance across many years. The company can be predicted to follow the same trend of retaining preferred dividends. The vision and far-sightedness of the Company can be reflected in the single stock class that the Company decided to keep. Year after year, the number of outstanding shares is decreasing and this is primarily because of buy back activities. The future of Coca cola might see buy back of even more number of shares as there is no stock issue. The net income will rise year after year when the revenues increase and costs are decreased. There are some fluctuations in the profit and other variables over the years; however the pick-up strength of the Company is great.
A financial investor will be able to trace the favorability of investment prospects in Coca cola with a detailed financial analysis with respect to the environmental concerns in the market. The history of Coca Cola is glorious and in case the company adopts correct tools to adapt to the changing preferences in the customers and market, the company will be able to generate much more than it is doing in the current times.
References
Coca-Cola Co. (KO) | DuPont Analysis. (2016). Stock Analysis on Net. Retrieved 11 May 2016, from https://www.stock-analysis-on.net/NYSE/Company/Coca-Cola-Co/Ratios/DuPont
Coca-Cola Co. (KO) | Economic Value Added. (2016). Stock Analysis on Net. Retrieved 11 May 2016, from https://www.stock-analysis-on.net/NYSE/Company/Coca-Cola-Co/Performance-Measure/Economic-Value-Added
Coca-Cola Co. (KO) | Market Value Added. (2016). Stock Analysis on Net. Retrieved 11 May 2016, from https://www.stock-analysis-on.net/NYSE/Company/Coca-Cola-Co/Performance-Measure/Market-Value-Added
Company, O., Main, O., Journey, A., Mission, V., System, T., & Overview, W. et al. (2016). Coca-Cola Product Descriptions: The Coca-Cola Company. The Coca-Cola Company. Retrieved 11 May 2016, from http://www.coca-colacompany.com/brands/product-description/
Growth, Profitability, and Financial Ratios for Coca-Cola Co (KO) from Morningstar.com. (2016).Financials.morningstar.com. Retrieved 11 May 2016, from http://financials.morningstar.com/ratios/r.html?t=KO
SWOT of Coca Cola - SWOT analysis of Coca cola. (2014). Marketing91.com. Retrieved 11 May 2016, from http://www.marketing91.com/swot-coca-cola/
