The Coca-Cola Company (KO)
By Daniel Frank
Section 00A
http://assets.coca-colacompany.com/c4/28/d86e73434193975a768f3500ffae/2012-annual-reporton-form-10-k.pdf
Introduction
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Chief Executive Officer: Muhtar Kent
Location of Home Office: Atlanta, GA
End Date of Latest Fiscal Year: 12/31/12
Coca-Cola licenses and markets more than
500 nonalcoholic beverage brands
including Coca-Cola, Fanta, and Sprite.
• It operates in Eurasia and Africa, Europe,
Latin and North America, and the Pacific.
Audit Report
• Independent Auditors: Ernst & Young LLP
• Ernst & Young reported that each financial
statement justly presents the consolidated
outcome of cash flows and their operations
and is in accordance with the US GAAP
accounting rules.
• In addition, they reported that The Coca-Cola
Company managed to have an internal
authority over their financial statements as of
December 31, 2012, according to COSO
standards.
Stock Market Information
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Most Recent Stock Price: 41.40 (5/30/13)
Twelve Month Trading Range: 35.97 - 43.09 (5/30/12 - 5/30/13)
Dividend per Share: 1.53 (12/17/12)
In my opinion, Coca-Cola is a good buy. The company has very
high returns on investment and is a fairly low-risk stock.
Income Statement
Comprehensive Income Statement
Income Statement
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The income statement uses a multi-step format.
Each year net operating revenues have inclined with a large increase
from 2010 to 2011 and a slight increase from 2011 to 2012.
Gross profit significantly inclined from 2010 to 2011 but has remained
almost the same from 2011 to 2012.
Operating income significantly inclined from 2010 to 2011 but very
slightly increased from 2011 to 2012.
Income before income taxes significantly declined from 2010 to 2011
but very slightly increased from 2011 to 2012.
Consolidated net income significantly declined from 2010 to 2011 but
slightly inclined from 2011 to 2012.
Net income attributable to shareowners of the Coca-Cola Company
has significantly declined from 2010 to 2011 but has slightly inclined
from 2011 to 2012.
Net income per share has declined significantly from 2010 to 2011
but has slightly inclined from 2011 to 2012.
Average shares outstanding (assuming dilution or not) has slightly
declined quite steadily from 2010 to 2012.
In general, total comprehensive income significantly declined from
2010 to 2011 but slightly inclined from 2011 to 2012.
Balance Sheet
Balance Sheet
Balance Sheet
• Total cash, cash equivalent, and short-term investments
slightly declined from 2011 to 2012.
• Total current assets significantly inclined from 2011 to 2012.
• Total assets significantly inclined from 2011 to 2012.
• Total current liabilities inclined from 2011 to 2012.
• Long term debt, capital surplus, and reinvested earnings all
inclined from 2011 to 2012.
• Total equity inclined in addition to total liabilities and equity.
• Accounts that changed the most:
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Cash and cash equivalents declined significantly.
Short-term investments inclined significantly.
Marketable securities skyrocketed.
Loans and notes payable inclined significantly.
Statement of Cash Flows
Statement of Cash Flows
Statement of Cash Flows
• For 2011 and 2012, cash flows from operating
activities are more than net income.
• The company is not growing through investment
activities exhibited by an $11.4 billion loss in
2012 and a $2.5 billion loss in 2011 in cash flow
from investment.
• Primary source of financing: long-term loans and
debt issuances
• In 2011, there was an $8.5 billion beginning
balance which increased by $4.2 billion.
• In 2012, there was a $12.8 billion beginning
balance which decreased by $4.3 billion.
Accounting Policies
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Revenue Recognition:
– When there is proof that a transaction exists, delivery has been
accomplished, the price is set, and collection is certain revenue is
recognized.
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Cash Equivalents:
– Time deposits and investments that are very liquid and have maturities less
than three months are considered cash equivalents.
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Short-Term Investments:
– Time deposits and investments that have maturities of more than three
months but less than a year are short-term investments.
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Investments in Equity and Debt Securities:
– Coca-Cola uses the equity method to measure investment in equity
securities in which they have majority share but uses the fair value or under
the cost method for those that they do not have majority share.
– Debt securities are recorded at either amortized cost or fair value.
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Trade Accounts Receivable:
– Coca-Cola recognizes its accounts receivable at net realizable value. They
include an allowance for uncollectible accounts to record loss on accounts
receivable balances as well.
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Inventories:
– Inventories are held at lower of cost or market values. Inventory cost is
made through average cost or first in, first out valuation (FIFO).
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Property, Plant and Equipment:
– Property, plant and equipment are recorded by their costs. Depreciation is
recorded by the straight-line method over useful live of the asset.
Accounting Policy Topics
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Basis of Presentation
Principles of Consolidation
Assets and Liabilities Held for
Sale
Risks and Uncertainties
Revenue Recognition
Deductions from Revenue
Advertising Costs
Shipping and Handling Costs
Net Income Per Share
Cash Equivalents
Short-Term Investments
Investments in Equity and
Debt Securities
Trade Accounts Receivable
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Inventories
Derivative Instruments
Property, Plant & Equipment
Goodwill, Trademarks and Other
Intangible Assets
Contingencies
Stock-Based Compensation
Pension and Other Postretirement
Benefit Plans
Income Taxes
Translation and Re-measurement
Hyperinflationary Economies
Recently Issued Accounting
Guidance
Financial Analysis
Liquidity Ratios
• Working Capital: Current Assets - Current Liabilities
– 2011: 25,497 - 24,283 = 1,214
– 2012: 30,328 - 27,821 = 2,507
– Comments: From 2011 to 2012, working capital increased,
which shows that assets increased over liabilities.
• Current Ratio: Current Assets/Current Liabilities
– 2011: 25,497 / 24,283 = 1.05
– 2012: 30,328 / 27,821 = 1.09
– Comment: The ratio increased from 2011, meaning that in
2012, there are more current assets to current liabilities.
• Receivable Turnover: Net Sales/Average Accounts Receivable
– 2011: 46,542 / ((2,650 + 3,092) / 2) = 16.2
– 2012: 48,017 / ((3,092 + 3,264) / 2) = 15.1
– Comment: From 2011 to 2012, receivables turnover decreased.
• Average Days’ Sales Uncollected: 365/Receivable Turnover
– 2011: 365 / 16.2 = 22.5
– 2012: 365 / 15.1 = 24.2
– Comment: From 2011 to 2012, average days’ sales uncollected
increased.
Financial Analysis
Liquidity Ratios
• Inventory turnover: Cost of Goods Sold/Average Inventory
– 2011: 18,215 / ((2,650 + 3,092) / 2) = 6.34
– 2012: 19,053 / ((3,092 + 3,264) / 2) = 6.00
– Comment: In 2012, inventory was sold and replaced 6.00
times compared to 6.34 in 2011.
• Average Days’ Inventory on Hand: 365/Inventory Turnover
– 2011: 365 / 6.34 = 57.57
– 2012: 365 / 6.00 = 60.83
– Comment: In 2012, the amount of days it took to replace
inventory was 57.57 days compared to 60.83 days.
• Operating Cycle: Days Inventory on Hand + Average
Receivable Collection Period
– 2011: 57.57 + 39 = 96.57
– 2012: 60.83 + 36 = 96.83
– Comment: The days for the operating cycle to occur
remained approximately the same from 2011 to 2012.
Financial Analysis
Profitability Ratios
• Profit Margin: Net Income/Net Sales
– 2011: 8,646 / 46,770 = 0.185
– 2012: 9,086 / 48,070 = 0.189
– Comment: From 2011 to 2012, profit margins increased.
• Asset Turnover: Net Sales/Average Total Assets
– 2011: 46,770 / ((72,921 + 79,974) / 2) = 0.612
– 2012: 48,070 / ((79,924 + 86,174) / 2) = 0.579
– Comment: From 2011 to 2012 asset turnover decreased.
• Return on assets: Net Income/Average Total Assets
– 2011: 8,646 / ((72,921 + 79,974) / 2) = 0.113
– 2012: 9,086 / ((79,924 + 86,174) / 2) = 0.109
– Comment: Return on assets decreased from 2011 to 2012.
• Return on Equity: Net Income/Total Shareholders’ Equity
– 2011: 8,646 / 31,921 = 0.271
– 2012: 9,086 / 33,168 = 0.274
– Comment: Return on equity increased slightly from 2011 to
2012.
Financial Analysis
Market Strength Ratios
• Price/Earnings per Share: Market Value per
Share/Earnings per Share
– 2011: 34.59 / 1.89 = 18.30
– 2012: 38.45 / 2.02 = 19.03
– Comment: From 2011 to 2012, the P/E ratio of
Coca-Cola increased, which means the stock is
now a safer and more lucrative buy.
• Dividend Yield: Total Dividends/Market
Capitalization
– 2011: (0.235 x 4 x 2,284) / 289,410 = 0.007
– 2012: (0.255 x 4 x 4,504) / 307,860 = 0.015
– Comment: From 2011 to 2012 dividend yield
doubled.
Financial Analysis
Solvency Ratios
• Debt to Equity: Total Liabilities/Total
Shareholders’ Equity
– 2011: 48053 / 31,921 = 1.51
– 2012: 53,006 / 33,168 = 1.60
– Comment: From 2011 to 2012, debt to equity
increased.
• Financing Gap: Total Interest Accruing
Assets/Total Interest Accruing Liabilities
– 2011: (1,088 + 144 + 7,233 + 1,141) / (12,871 +
2,041 + 13,656) = 0.336
– 2012: (5,017 + 3,092 + 9,216 + 1,232) / (16,297 +
1,577 + 14,736) = 0.569
– Comment: From 2011 to 2012, the financing gap
increased significantly.
Industry Situation &
Company Plans
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In the past, the soft beverage industry has been largely dominated
by brand loyalty. Classic beverages such as Coca-Cola, Sprite, and
Fanta have remained their flagship brands for decades. In this
realm, Coca-Cola has the advantage with a volume of 51% of the
market share of the carbonated soft drink industry as of 2012.
However, trends have been showing that consumers are drinking
less sugary sodas and are consuming healthier alternatives. That is
why Coca-Cola is pushing for a healthier drink portfolio of waters,
ready-to-drink teas, coffees, and fruit beverages which are likely to
see steady growth as soda sales slowly decline.
Coca-Cola is changing their marketing strategies and has begun to
embrace more web-based content. They revamped their website
and online status with greater social media presence and one-onone target marketing. Their global recognition is strong, and will
remain so as they garner a larger online audience.
Lastly, Coca-Cola has struggled to maintain a good balance of
investment in its bottlers. In 2010, in order to compete with Pepsi’s
decision to buy its bottlers to slash costs and improve efficiency,
Coca-Cola bought up many of its 69 total independent bottlers,
owning 80% share in total. Unfortunately, the move was
disorganized and short-sighted, so they sold them back. However,
Coca-Cola plans to continue improving this relationship.
Executive Summary
• Coca-Cola has seen steady inclines in stock over the past few
decades with increasing dividends making the company a
strong investor’s pick that shows steady growth.
• However, their primary soda brands’ sales are declining and
being substituted by healthier drink alternatives. To cope with
changing consumer demands, Coca-Cola must adapt to
market information in its various global sectors.
• Through analysis of its income statement, balance sheet, and
key ratios, there is reason to believe that its investment in its
bottlers has caused their income to slide making them sell
their bottlers’ assets to gain a slightly higher income. There is
certainly room for improvement in cost cutting and efficiency
but this movement must be made in decisively and effectively
and in due time without compromising growth.
• Overall, Coca-Cola is on the right track to further success in
the beverage industry as long as it sufficiently adapts to the
rapidly changing demands of the consumers in the future.
Citations
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Slide 2: Introduction
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Slide 3: Audit Report
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http://assets.coca-colacompany.com/c4/28/d86e73434193975a768f3500ffae/2012-annual-report-on-form-10k.pdf
Slide 19: Financial Analysis Solvency Ratios
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http://assets.coca-colacompany.com/c4/28/d86e73434193975a768f3500ffae/2012-annual-report-on-form-10k.pdf
Slide 18: Financial Analysis Market Strength Ratios
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http://assets.coca-colacompany.com/c4/28/d86e73434193975a768f3500ffae/2012-annual-report-on-form-10k.pdf
Slide 17: Financial Analysis Profitability Ratios
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http://assets.coca-colacompany.com/c4/28/d86e73434193975a768f3500ffae/2012-annual-report-on-form-10k.pdf
Slide 15 & 16: Financial Analysis Liquidity Ratios
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http://assets.coca-colacompany.com/c4/28/d86e73434193975a768f3500ffae/2012-annual-report-on-form-10k.pdf
Slide 14: Accounting Policies
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http://www.coca-colacompany.com/investors/investors-info-stock-information
http://ir.thecoca-colacompany.com/phoenix.zhtml?c=94566&p=irol-dividends
Slide 5, 6, 7, 8, 9, 10, 11, 12, & 13: Financials
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http://assets.coca-colacompany.com/c4/28/d86e73434193975a768f3500ffae/2012-annual-report-on-form-10k.pdf
Slide 4: Stock Market Information
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http://www.coca-colacompany.com/our-company/board-of-directors-muhtar-kent
http://www.coca-colacompany.com/
http://assets.coca-colacompany.com/c4/28/d86e73434193975a768f3500ffae/2012-annual-report-on-form-10k.pdf
http://www.reuters.com/finance/stocks/companyProfile?symbol=KO
http://www.musclemakergrill.com/images/food/Coke%20Products.jpg
http://assets.coca-colacompany.com/c4/28/d86e73434193975a768f3500ffae/2012-annual-report-on-form-10k.pdf
Slide 21: Industry Situation & Company Plans
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http://bigstory.ap.org/article/coca-colas-profit-comes-above-expectations
http://www.forbes.com/sites/siliconangle/2013/06/18/coca-cola-leveraing-social-to-drive-leadership-in-socialmedia-marketing/
http://www.bloomberg.com/news/2013-02-12/coca-cola-fourth-quarter-profit-advances-as-north-americagains.html