The Coca-Cola Company
The Coca-Cola Company is the largest leading marketer and owner of non-alcoholic beverage brands, and the largest distributor, manufacturer, and marketer of syrups and concentrates used in the production of non-alcoholic beverages. The firm owns or license and market 500 or more non-alcoholic beverage brands, majorly sparkling beverages but also several still beverages such as enhance waters, waters, juice and juice drinks, energy and sports drinks, and ready-to-drink coffees and teas. Finished beverage products that portray the companies mark, sold in the United States from 1886, are currently sold in more than 200 nations. Coca-Cola Company markets and owns four of the greatest five non-alcoholic sparkling beverage brands, including Diet Fanta, Sprite, and Coke.
Coca-Cola Corporation is the most biggest-selling and popular soft drinks in history and the best-known product worldwide. The company was created in Atlanta, Georgia, United States by Dr. John S. Pemberton, and first offered as a fountain beverage by mixing carbonated water with Coca-Cola syrup. It was started in 1886, presented in 1887, registered as a trademark in 1893, and by 1885, it was already sold in every territory and state in the United States. In 1899, the firm started franchised bottling activities in the United States.
The aggregate sales of Coca-Cola Company have declined over the years. These are derived from services rendered, insurance premiums, goods sold, and other activities that constitute the firm's earning process. The company's sales decline from 2013 to 2014 and from 2014 to 2015. With large amounts of sales and earnings coming from outside the United States, the firm's sales are being affected by the recent weakening of the emerging currencies against the U.S dollar.
Inflation affects the way the corporation operates in the world. The company needs to increase the prices to counteract the inflationary of increasing costs and to generate sufficient cash flows to increase its productivity. Therefore, persistent increase in the prices of goods and services affects the firm since it needs to produce high price goods to control inflation. Business cycle conditions such as recession and boom affect the firm both positively and negatively.
Industry Analysis
The three main leaders in the industry are Coca-Cola Company, Cadbury Schweppes, and PepsiCo. U.S based Coca-Cola employs more than 140,000 people and sells more than 3500 products in more than 3500 countries. PepsiCo has 19 leading brands that create over $1 billion in annually retail sales and several other brands with annual sales of between $250 million and $ 1 billion.
The soft drink industry spans concentrates, sparkling drinks, juices ready to drink tea and coffee, smithies and functional drinks. Soft drinks do not often contain alcohol although a small amount of 0.5 % alcohol. Packaging is the key in the industry with over 1500 patents filled in the U.S for bottle closures such as caps lids and corks.
Management of Coca-Cola Company
Coca-Cola Company has a centralized structure of management where major divisions such as finance, marketing, and manufacturing along with corporate staff make several decisions. All the strategic decisions are made in the departments. The international divisions of the company are making essential decisions. The top management is elected by the shareholders after five years of service, and they may re-elect them or elect new management. The management of Coca-Cola Company is doing a great job in ensuring that the firm is productive and maintains its top level in the world.
Ratio Analysis
Liquidity ratios
These ratios measure the ability of the company to meet its short term financial obligations.
Current Ratio: This ratio is given by dividing the current assets by the current liabilities i.e. Current Assets/ Current Liabilities
= 33395/26930
= 1.24
In 2015, the ability of the company to cover the current liabilities using the current assets it had stood at 1.24. In 2014, the ratio went to 1.02. This is in comparison to that of 2015.This clearly shows that the Coca-Cola Company is improving in terms of its efficiency and liquidity. This is because the current ratio of the firm is increasing (The Coca-Cola Company (KO) Balance Sheet, 2015).
Acid test ratio: This ratio is given by Current Assets- Inventory / Current Liabilities
= 23841/26930
= 0.89
In 2015, the company had the ratio of 0.89 and in 2014, it recorded a ratio of 0.81. There is a reduction in the ratio, and thus, the company is risky on its inventories.
Total Asset Turnover Ratio
This ratio is given by Sales/ Total Assets
= 48017/86174
= 0.55
Ideally, the above ratio should be high. The Company's ratio in 2014 was 0.55 meaning the firm generated more income per an investment of one dollar.
Inventory turnover
This ratio is given by dividing the Cost of Goods Sold by the Company’s Inventory as shown below
= 44294/3941
= 11.24
The company's inventory turnover increased from 2014 to 2015. It means that the ability of the firm to sell its inventory has raised up.
Debt Ratios
Debt Ratio
This ratio is given by dividing the Total Liabilities by the Total Assets as shown below
= 53066/8617
= 61.51%
The above ratio depicts the firm's ability to meet its the debts using the assets at its disposal.
Times interest earned ratio
This ratio is given by diving the EBIT by the Interest as shown below;
= 11809/472
= 25.07
The ratio obtained above shows that The Coca-Cola Company has comfortable coverage interest since it has increased the year before.
Profitability Ratios
One of the profitability ratio is the Gross Profit Margin
It is given by Gross Profit/ Sales as shown below
= 28964/ 48017
= 60.32%
The gross profit margin needs to be high as per the definition since a high ratio shows the ability of the company to produce services and goods at low costs and high sales.
Operating Profit margin
This ratio is given by EBIT/ Sales
= 11809/48017
= 24.59%
The company' operating margin has gone up from the year 2014 to 2015. This is primarily attributed to the growth of the company’s net revenue (The Coca-Cola Company (KO) Income Statement, 2015).
Return On Assets
This ratio is given by Net Income/ Total Assets as shown below;
= 9019/86174
= 10.46%
The above decrease in the company’s return on assets ratio means that the company generates less income from the resources. The higher the ratio, the greater productivity of the company.
Return On Equity
This is given by Net income/ Total Equity
=9019/32790
= 27.51%
The ROE should always be higher since an increase in equity ratio means the company is utilizing the shareholders money well towards generation of more equity.
Market Ratios
P/E Ratio
This ratio is given by Market price/Share of C.S/ Earnings per share
= 36.25/1.97
This gives a value of approximately 18 times
The ratio above should be high since the higher this ratio, the higher the confidence of the investors on this company.
Market/ Book Ratio
This ratio is given by Market Price/ Share of C/S / Book value / per share of C.S
= 36.25/ 7.34
This gives a value of 4.93
Market Beta
The market Beta for Coca-Cola Company is 0.80 as per Yahoo!Finance. In the NASDAQ, the company’s beta is at 0.52. On the other hand, the market Beta for its competitor, Pepsi is at 0.69. Coca-Cola’s other competitor, Nestle’s S.A is at 0.72. Finally, the beta for Dr Pepper Snapple Group, Inc. is at 0.61.
Conclusion
After analysis of all the above ratios, Coca-Cola Company is seen as being a profitable company. This is because the firm is profitable on long term and short term investment over the period under analysis. Their management is efficient in its operations, and that is the cause for the continuous growth of the organization.
Works Cited
The Coca-Cola Company (KO). Income Statement, December 31, 2015. Yahoo!Finance. Retrieved from https://finance.yahoo.com/q/is?s=KO+Income+Statement&annual
The Coca-Cola Company (KO). Balance Sheet, December 31, 2015. Yahoo!Finance. Retrieved from https://finance.yahoo.com/q/bs?s=KO+Balance+Sheet&annual
