The Industry environment
The liquidity ratios demonstrate the industrial environment of the firm because they reflect its ability to meet short-term obligations. They indicate the solvency of the company and will be analyzed using the fiscal year 2013 and 2012 respectively.
Liquidity ratios
- Quick ratio = (current Assets-Inventory) / current liabilities
= (31,304- 3,277)/ 27,811
=1.01
= (30,328- 3,264)/ 27,821
= 0.97
- Current ratio = Current assets ÷ Current liabilities
31,304/27,811 =1.13
30,328/27,821 =1.09
The quick ratio indicates the company is in a position to settle almost 100 percent of its current liabilities immediately. Likewise, since the current ratio, which is higher than one show that Coca-Cola Company is capable of paying its obligations. The company has managed to maintain its liquidity in both fiscal year 2013 and 2012 to show it has adequate leverage against any liquidity risk considering the volatility of the industry environment. The company has managed to maintain higher current and quick ratios because of uncertainty in the sofa drinks industry. Since Coca-Cola Company is a large firm, its liquidity demonstrates it has well established relationships with banks that offers lines of credit and other short-term loan when it is on a need. For instance, in 2012 the quick ratio was lower than 2013, which indicate the company, had better credit terms with banks (“The Coca-Cola Company”). Therefore, the liquidity ratios demonstrate that Coca-Cola Company has sufficient leverage against uncertainty in the soft drinks industry.
Firm Strategy
In order to analyze the strategy that Coca-Cola Company is using to manage its resources, we will analyze activity ratios for fiscal year 2013 and 2012 respectively. This is so because activity ratios are used to indicate the efficiency and effectiveness of operations and asset management of the firm. These ratios are used to examine the efficiency with which the firm can use its assets like inventories.
- Asset Turnover = sales / Average Total Assets
=46,854/90,055
=0.52
=48,017/86,174
=0.56
- Inventory Turnover: COGS/ Average Inventory
=18,421/3,277
=5.6
=19,053/3,264
=5.8
The inventory turnover in both fiscal years is high which is better because the firm with a high turnover need a small investment in inventory compared to the one with a lower inventory turnover. The company’s management has managed to maintain inventory at a strategic level to match sales. Likewise, asset turnover, which is greater than 5 indicate the company’s efficiency in managing assets. This is so because a high ratio indicates that sufficient assets are being used to generate sales and should be increased for more efficiency.
Financial results
In order to demonstrate the financial position of Coca-Cola Company, we will analyze the solvency ratios of fiscal year 2013 and 2012 respectively. Solvency ratios demonstrate the ability of the firm to meet long-term obligations. These ratios also demonstrate the financial health of the company to stand the uncertainties in the future.
- Debt to assets ratio: Total Liabilities/ Total Assets
= 56615/ 90,055
=0.63
33,440/ 86,174
= 0.62
- Debt to equity: Total Liabilities/ Total equity
=56615/33,440
=1.69
=33,440/33,168
1.02
The two ratios are the main indicator of the amount of leverage Coca-Cola company is using. They indicate the company is in a better position to fund its long-term obligations and pay interest on its debts. The solvency ratios indicate the company can attract potential investors because of its financial stability. For instance, the debt to equity of 1.69 and 1.02 in 2013 and 2012 respectively indicates the company overall financial performance is healthier due to its effective management and growth despite stiff competition in the soft drinks industry. Therefore, the financial situation of the company is currently stable and any liquidity crisis can be resolved because the company is financially healthy.
Outlook of the Future
Profitability ratios are in a better position to demonstrate the outlook of the company. This is so because they are used to indicate the ability of the firm to retain earnings or create growth after covering costs. Likewise, the market ratios can reflect the ability of a firm to make future investments in growth. We will analyze various profitability ratios such as ROA and ROE of fiscal year 2013 and 2012 respectively.
Profitability Ratios:
- Gross Margin Percentage: Gross Margin
Sales
=28,433/ 46,854
=0.61
28,964/ 48,017
=0.60
- Profit Margin: Net Income
Revenues
=8,584/ 46,854
=0.18
=9,019/ 48,017=0.19
- ROA: Net Income/Total Assets
= 8,584/ 90,055
= 0.10
=9,019/ 86,174
=0.11
- ROE: Net Income-Preferred dividends
Average Common Equity
8,584/33,440
=0.26
9,019/33,168
=0.27
Market ratios:
P/E: Share price
EPS
=32/33,440
=9.57
The profitability ratios of Coca-Cola Company show that its management is very effective. This is so because the profit margins are positive, which indicate it is running its business effectively. The ROA and ROE above indicate the company’s ability to return to its investors because the company is generating profit. It also demonstrates the company’s overall efficiency in generating returns for its shareholders. The P/E ratio also indicates the company’s strength in the market because its shares are not undervalued (“The Coca-Cola Company”). Therefore, the profitability ratios indicate the outlook of the company.
Works Cited
The Coca-Cola Company. "Archive of Annual and Other Reports : The Coca-Cola Company."The Coca-Cola Company. N.p., n.d. Web. 19 May 2014. <http://www.coca- colacompany.com/investors/annual-other-reports>.
The Coca-Cola Company. “10-K Annual Report.” The Coca-Cola Company. N.p., n.d. Web. 19 May 2014.
