Financial Assessment – Coca-Cola Company
Mata Diarra
Bowie State University
Overview
Coca-Cola Company has over 500 nonalcoholic brands including juices, energy drinks, and water, among others. It is undisputed the largest beverage firm globally. The firm started operations in the year 1886 in the United States, but currently, the company operates in over 200 countries ("Form 10-K", 2017). The firm prides itself on globally recognized nonalcoholic brands such as Coca-Cola, Fanta, Sprite and Diet Coke. One of the critical successes factors of the company is its efficient distribution system that makes it possible to distribute the products to every part of the world. The company has a network of companies controlled or owned
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They help to establish the performance and state of a firm’s operations that would otherwise not be reflected by individual item in the financial statements (Ittelson, 2009). The ratios help in identifying different aspects of a firm’s performance including profitability, liquidity, and financial leverage of a firm among others. This article determines the profitability, liquidity and the financial leverage of Coca-Cola Company.
Coca-Cola Company Profitability
This ratio determines the ability of the firm to generate profit by utilizing resources at its disposal. For instance, a firm can be assessed in determining the extent to which it uses the assets in making income.
Return on Assets
This ratio shows the ability of a firm to optimally utilize the assets in generating income. A high value indicates the firm optimally uses assets in generating income and vice versa.
Return on assets = Income / Total
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This indicates PepsiCo optimally utilizes the assets in generating income. On this metric, PepsiCo operates profitably compared to Coca-Cola.
Return on Sales
Year 2014: $6,558m / $66,683m = 0. 098 = 9.8%
Year 2015: $5,501m / $63,056 = 0.087 = 8.7%
Year 2106: $6,379m / $62,799 = 0.102 = 10.2%
From the analysis, the return on sales has increased over the recent three years. This indicates that the firm demand of the firm’s products has a positive trend. This is contrary to the return on sales for Coca-Cola which is relatively constant. Thus, the PepsiCo sales are on a positive trend.
PepsiCo Liquidity Analysis
Current ratio = Current assets/ Current liabilities
Year 2014: $20,663 / $18,092 = 1.142
Year 2015: $23,031/ $17,578 = 1.31
Year 2016: $27,089 / $21,135 = 1.282
The current ratio over the three years shows that the firm has no difficulties in paying short-term liabilities in time. At every year under consideration, the current ratio is above 1 (one) indicating the firm can pay the current liabilities with the current assets without using other sources such as debt
Ratio analysis are useful tools when judging the performance of a company by weighing and evaluating the operating performance (Block-Hirt). There are 13 significant ratios that can separate by four main categories, profitability, asset utilization, liquidity and debt utilization ratios. The ratio analysis covered here consists of eight various ratios with at least one from each of these main categories. These ratios were used to compare and contrast the performance of Verizon versus AT& T over the years 2005 and 2006.
The purpose of financial ratio analysis is to evaluate several aspects of a company’s operational and financial economy. Ratios are
Coca –Cola (KO) is one of the world’s largest beverage companies. Company was incorporated in September 1919 under the State of Delaware law and headquarters is located in Atlanta Georgia. But from 1886, company established its brand in US (Coca-Cola, 2012, p. 1). Currently company is providing for more than 500 varieties of non-alcoholic sparkles to the customers around the world. Apart from this, company also serve for still beverages that includes enhanced water, water, ready-to-drink, juices, energy drink, sport drinks and so on.
Before beginning an analysis of a company it is necessary to have a complete set of financial statements, preferably for the pas few years so that historical trends can be obtained. Ratios are a way for anyone to get an idea of the financial performance of a company by using the information contained in the financial statements. Ratios are grouped into four basic categories, liquidity, activity, profitability, and financial leverage. This document will use a variety of these ratios to analyze the firm, Sample Company, as of December 31,2000.
In regards to the corporation’s balance sheet, it is necessary to place an importance on liquidity ratios to demonstrate the company’s ability to pay its short term obligations such as accounts payable and notes that have a duration of less than one year. These commonly used liquidity ratios include the current ratio, quick ratio, and cash ratio. All three ratios are used to measure the liquidity of a company or business. The current ratio is used to indicate a business’s ability to meet maturing obligations. The quick ratio is used to indicate the company’s ability to pay off debt. Finally the cash ratio is used to measure the amount of capital as well short term counterparts a business has over its current liabilities.
The purpose of this report is to compare financial reports from the two largest soft drink manufacturers in the world. The Pepsi Co. and Coca Cola have been the industry's leaders in their market since the early 1900's. I will use relevant figures to determine profitability, and break down key ratios in profitability, liquidity, and solvency. By breaking down financial statements, and converting them to percentages and ratios, comparisons can be made between competitors regardless of size.
Monea, M. (2009). Financial ratios – Reveal how a business is doing? Annals of the University Of Petrosani Economics, 9(2), 137-144. Retrieved from http://www.upet.ro/eng
Ratios traditionally measure the most important factors such as liquidity, solvency and profitability, as well as other measures of solvency. Different studies have found various ratios to be the most efficient indicators of solvency. Studies of ratio analysis began in the 1930’s, with several studies of the concluding that firms with the potential to file bankruptcy all exhibited different ratios than those companies that were financially sound.
Lastly, profitability ratio measures the effectively of the company in managing its resources to generate income, identifies the capacity of a company in making profit and provides insight to investor regarding the company performance. Thus, return on assets and return on equity will be computed.
Ratios analysis also makes possible comparison of the performance of different divisions of the firm. The ratios are helpful in deciding about their efficiency or otherwise in the past and likely performance in the future.
A relatively high current ratio is an indication that the firm is liquid and has the ability to pay its current obligations in time. Other hand a low current ratio represents that the liquidity position of the firm is not good and the firm shall not be able to pay its current liabilities in time. A ratio equal or near to the rule of thumb of 2:1 i.e, current assets double the current liabilities is considered to be satisfactory.
These ratios measure the aspects of profitability like rate of profit on sales, whether the profits are increasing or decreasing.
Financial ratios which would be used in this study are profitability ratios, activity turnover ratios, turnover ratios etc. These are found out from the financial statements prepared and presented by the company every year. These help us in speaking about the financial stability and profitability of the company. These also tell about the creditability of the company which help the outsider in taking important decisions.
The Coca-Cola Company is the world’s largest beverage company and is the leading marketer and producer of soft drinks. Today, Coca-Cola is consumed globally at the rate of over 600 million times per day. Nevertheless, Coca-Cola doesn’t live on its past achievements, instead it looks to the future as a challenge and continually seeks new markets and ideas of increasing its market share in locations where it presently has a strong company. This company is the world’s largest producer and distributor of concentrates and syrups for soft drinks. Products developed by the Company are sold through fountain wholesaler, bottlers, and distributors globally (Business Case Studies, 2017).
Based on the year of 2015, its quick ratio of 0.632 indicate in short term with quick assets available to meet every RM1.00 of current liabilities, a short of RM0.378.