LORAS COLLEGE
Coca-Cola Analysis
By: Brian Helling
11/11/2011
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Coca-Cola
Company Overview
The company that I decided to do research on is Coca-Cola. Coca-Cola’s ticker symbol is
KO. They were founded in 1886 by John Pemberton. Their headquarters are currently located in
Atlanta, Georgia. Their products include a wide variety of beverages such as, soft drinks, water,
energy drinks, juices, and sports drinks. The soft drink “Coke,” is Coca-Cola’s number one
product and that is what they are most famous for. Some brands that Coca-Cola own are
PowerAde, Full Throttle, Fuze, Tropicana, Dasani, and Vitamin Water (Coca-Cola, 2011). CocaCola’s main competitor is PepsiCo. Coca-Cola and PepsiCo are the two biggest beverage
companies in the world. The reason that I chose to do research on Coca-Cola is because I enjoy
Coca-Cola’s products over any other beverage distributor. I especially like their sports drink,
PowerAde. I also thought that this would be a good company to do research on because they are
so popular and have been around for a long time. I was able to find a lot of great information
about them. Not only is Coca-Cola very popular in the United States, but they are just as popular
all around the world. Their products are distributed in many countries in South America, Europe,
Eurasia, Africa, and Asia.
When beginning my research on Coca-Cola, their stock price on September 6th was at
$69.43 per share. Their trading volume was at 12,892,300. Their Adjusted close was at $68.46.
At the end of collecting my data on November 11th, Coca-Cola’s stock price was at $68.12. As
you can see the stock price has gone down $1.31 since September 6th. One might think that this
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could potentially be a bad sign for Coca-Cola, but in reality this stock price is about average for
Coca-Cola over the past two months. Coca-Cola’s stock price had fluctuated up and down over
this two month span. It was as high as $71.23 and as low as $63.34. $68.12 is a little above
average for these two months. Coca-Cola’s stock price was at its highest toward the end of
September, and it was at its lowest price at the beginning of October. During the month of
November, Coca-Cola’s stock price had stayed relatively the same. It stayed in the range of
about $68, so it is a positive sign that it has gone up during the month of October and November.
Things might have looked negative during the end of September and the beginning of October,
but since then things are looking positive for Coca-Cola.
SWOT Analysis
My SWOT analysis of the company Coca-Cola is as followed. The strengths of CocaCola are that they have a strong brand portfolio. All around the world Coca-Cola is a well-known
brand and very popular. Another strength of Coca-Cola, that goes along with being well-known,
is the fact that their products are widely distributed outside of the United States. Their products
are distributed in many countries in South America, Europe, Eurasia, Africa, and Asia. A major
weaknesses of Coca-Cola is the fact that they are losing out on a major portion of revenue. CocaCola’s bottling partners, Coca-Cola Enterprises and Coca-Cola Hellenic Bottling, are huge
operations that are worth nearly $9 billion dollars apiece. These companies are taking revenue
away from Coca-Cola because Coca-Cola decided not to bottle their products on their own
(Wilson, 2011). Another weakness of Coca-Cola is the fact that they only sell beverages. CocaCola’s competitors not only sell beverages, but they also have products in the snack market.
Some opportunities that Coca-Cola has are that they can advertise their less popular products.
Coke and Diet Coke are Coca-Cola’s main products. The rest of their products don’t get
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recognized a whole lot, so Coca-Cola should broadcast and advertise those weaker products
more and in order to strengthen their company. A major threat to Coca-Cola is their main
competitor, PepsiCo. PepsiCo has a wide variety of products not only in beverages, but in snacks
as well. PepsiCo owns all Quaker products, as well as all Frito Lay products. If Coca-Cola does
not branch out into other type of products, PepsiCo could potentially end up taking over the
beverage market.
Coca-Cola is a socially responsible company. They have established a fund for saving
polar bears called “Artic Home.” They have pledged two million dollars to start this fund and
have agreed to match up to one million dollars of donations. Coca-Cola is also very involved
when it comes to recycling. They have created a rewards system for all customers who recycle
their products. For every certain amount of weight that is recycled, Coca-Cola will give away
products such as free Coke products, movie tickets, or gift cards (Coca-Cola Live Positively,
2011).
Financial Analysis
There are many different ratios to perform when looking at how a company is doing
financially. Here is a list of ratios that I have put together comparing how Coca-Cola is doing
versus PepsiCo, their main competitor. I received all of these numbers from yahoo finance or
forbes.com. This first table of ratios is the liquidity ratios from 2010, 2009, and 2008.
Liquidity Ratios
Current Ratio
2010
2009
2008
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Coke 1.17x
Pepsi 1.11x
Quick Ratio
Coke 1.02x
Pepsi .89x
1.28x
1.44x
.94x
1.23x
1.11x
1.14x
.77x
.94x
During 2010, Coca-Cola has done better when it comes to liquidity than PepsiCo has. When
looking at the balance sheet for each of these companies, Coca-Cola had about 4 million more in
current assets than PepsiCo, and about $2.6 million in current liabilities. PepsiCo however had
about $700,000 more in inventories. When it comes to the current ratio Coca-Cola and PepsiCo
are about the same. Although Coca-Cola’s ratio is better, it isn’t significantly better. Coca-Cola
had a relatively greater amount of current liabilities than they did current assets. If they want to
improve even more when it comes to their current ratio, then they need to even these out a little
better. If their current liabilities rise faster than their current assets do, then this will lower their
current ratio. When it comes to the quick ratio, Coca-Cola is doing better than PepsiCo. As you
can see PepsiCo had a lot more inventory than Coca-Cola. PepsiCo might have had trouble
collecting on account receivables, therefore they couldn’t have paid off their current liabilities.
Coca-Cola has been up and down when it comes to their quick ratio over the past three years.
There is always room for improvement though. As long as their accounts receivable can be
collected, then they can pay off their current liabilities if they are having trouble disposing of
their inventories. As you will see in the next ratios however, Coca-Cola seems to be doing a
better job than PepsiCo when it comes to disposing of their inventories.
The next sets of ratios are the Asset Management Ratios. These ratios measure how
effectively a firm is managing their assets (Brigham, 2010).
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Asset Management Ratios
Inventory Turnover Ratio
2010
2009
2008
4.25x
4.19x
4.64x
Pepsi 7.23x
7.08x
7.48x
Coke
Days Sales Outstanding
Coke
143.73days
139.23days 111.16days
Pepsi 94.7days
Fixed Asset Turnover
Ratio
91.10days
90.57days
Coke
1.03x
1.22x
1.46x
1.62x
.15x
.20x
.25x
Pepsi .36x
.46x
.52x
.76x
Pepsi 1.28x
Total Asset Turnover
Coke
The first ratio is the inventory turnover ratio. Coca-Cola could do a better job when it came to
their inventory turnover ratio. As you can see PepsiCo had turned over their inventory more
times than Coca-Cola had in 2010. Coca-Cola could be holding too much inventory and these
goods may not be worth their original price. If their inventory is sitting in a warehouse for a long
time then their products could be ruined. I am not sure what the average shelf life is for their
beverages, but turning over their inventory about four times a year isn’t enough. They need to do
a better job of this. When it comes to the day’s sales outstanding, Coca-Cola is doing relatively
poorly when compared to PepsiCo. PepsiCo collected nearly 50 days sooner than Coca-Cola did
in 2010. Also Coca-Cola’s DSO has gone up each year for the past three years. This could end
up hurting Coca-Cola in the long run because PepsiCo is receiving money that they can use for
their company a lot faster than Coca-Cola can. PepsiCo already is in more markets than CocaCola, such as the snack market. Coca-Cola cannot afford for PepsiCo to possibly join even more
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markets and expand their company. Coca-Cola needs to lower their days sales outstanding ratio
if they want to stay competitive with PepsiCo. When it comes to the fixed assets turnover ratio,
Coca-Cola is not doing that great when compared to PepsiCo. PepsiCo had nearly $23 Million
more sales than Coca-Cola did. PepsiCo has many more products than Coca-Cola does so this is
not necessarily a terrible thing. It isn’t a good thing though that Coca-Cola’s fixed asset turnover
is going down. They might be over investing in one of their plants or in their equipment. CocaCola needs to work on making that ratio go up. They need to use their equipment and plants in a
productive manner. They don’t want to lose money in something that can be easily fixed. When
it comes to the total assets turnover ratio, both Coca-Cola and PepsiCo seem to be doing poorly,
but Coca-Cola is doing worse. Coca-Cola did not produce enough sales given the total assets that
they had in 2010. Coca-Cola needs to focus on generating more sales in the coming years.
The next ratios are debt management ratios. I only have one of the ratios and that is the
debt ratio.
Coke
Pepsi
Debt Management Ratios
Debt Ratio
2010
2009
44.64%
38.59%
52.66%
40.54%
2008
38.92%
46.24%
In 2010 Coca-Cola and Pepsi seemed to have a high debt ratio. PepsiCo seemed to have a higher
ratio though. Even though Coca-Cola did better than PepsiCo, Coca-Cola should still work on
lowering their debt ratio because it could potentially hurt them if it goes any higher. Creditors of
Coca-Cola might be reluctant to lend them anymore money.
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The last set of ratios is the profitability ratios. These ratios measure the combined effects
of liquidity, asset management, and debt on operating results (Fundamentals 108).
Coke
Pepsi
Coke
Pepsi
Coke
Pepsi
Coke
Pepsi
Coke
Pepsi
Profitability Ratios
Operating Profit Margin
2010
2009
133.12%
94.41%
37.50%
45.75%
Profit Margin
104.97%
69%
25.94%
32.10%
Return on Total Assets
16.19%
14.02%
9.27%
14.92%
Basic Earning Power
20.54%
19.11%
13.40%
21.27%
Return on Common Equity
38.09%
27.52%
29.71%
35.38%
2008
77.64%
38.95%
57.23%
27.25%
14.33%
14.29%
19.44%
20.42%
28.37%
42.47%
The first ratio is the operating profit margin which measures operating income per dollar of sales
(Brigham, 2010). As you can see Coca-Cola’s profitability ratios over the past three years are
much higher than PepsiCo’s. This is a great sign for Coca-Cola. When it came to the operating
profit margin, Coca-Cola did outstanding. With this ratio being so high, they should have easily
been able to pay back debt investors and equity investors. The profit margin ratio measures net
income per dollar of sales (Brigham, 2010). Once again Coca-Cola’s ratio is much higher than
PepsiCo’s. This is because of the high operating costs for Coca-Cola. This ratio also reflects the
amount of debt being used. Coca-Cola had a decent debt ratio when compared to PepsiCo, so it
is not all that surprising that Coca-Cola’s profit margin ratio is higher than PepsiCo. In 2010
Coca-Cola had much more revenue than PepsiCo. For return on total assets, once again CocaCola’s ratio is higher than PepsiCo. Coca-Cola is receiving a higher return on their assets than
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PepsiCo is. This is great for Coca-Cola and they need to keep this up for the coming years. For
return on common equity Coca-Cola had a higher percentage than PepsiCo had in 2010. CocaCola’s stockholders should be happy with this because they are getting a nice rate of return on
their investments. Lastly is the basic earnings power ratio. Again Coca-Cola’s ratio is higher than
PepsiCo’s. This is reflected by the fact that PepsiCo had a very poor profit margin ratio when
compared to Coca-Cola.
Stock Analysis
There are many different things to compare when it comes to analyzing stock prices for a
company. The first graph that is displayed below is comparing Coca-Cola’s adjusted close price
versus the volume of trades during that specific day.
Coca-Cola Adjusted Close vs. Volume
75
25000000
70
Adj Close Price
65
20000000
60
55
15000000
50
45
10000000
40
Volume
Adj Close
35
5000000
30
9/6/2011
9/9/2011
9/14/2011
9/19/2011
9/22/2011
9/27/2011
9/30/2011
10/5/2011
10/10/2011
10/13/2011
10/18/2011
10/21/2011
10/26/2011
10/31/2011
11/3/2011
11/8/2011
0
11/11/2011
25
Volume
The adjusted close price has stayed about the same over the past couple of months. There are a
couple days however that stick out compared to the others when it comes to the amount of shares
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being traded. These dates are September 9th, September 16th, September 22nd, October 3rd, and
October 11th. The date that sticks out the most is October 3rd. The adjusted close is very low
being at $64.95, when compared to the most shares being trading during the two month span of
19,235,600. I am not real sure why the adjusted close sank so low, yet there were so many trades
being performed. A few days before this Coca-Cola announced that they would enter a one
billion dollar buyback program that they would perform over the next year (Yahoo Finance,
2011). My thoughts on this would be that investors saw this as a great opportunity and a great
time to invest. That could explain why there is such a high volume of trading going on. I am not
sure the reason for the low price though. Another date that stood out to me was October 11th,
because the volume is very low compared to other days. There were only 5,580,500 trades that
went on this day, but the adjusted close price stayed about the same. The second graph displayed
below is a comparison of Coca-Cola and the S&P 500 when it comes to their adjusted close
Coca-Cola Adjusted Close vs. S&P 500
75
1300
1250
65
60
1200
55
50
1150
45
1100
40
35
1050
30
price.
1000
11/11/2011
11/7/2011
11/1/2011
10/26/2011
10/20/2011
10/14/2011
10/10/2011
10/4/2011
9/28/2011
9/22/2011
9/16/2011
9/12/2011
9/6/2011
25
Adj Close for S&P
Adj Close for Coca-Cola
70
Adj Close
S&P 500
10
For the most part whatever happened for the S&P 500 happened for Coca-Cola. Whenever the
adjusted close for S&P increased or decreased then so did Coca-Colas. The S&P just has a more
severe increase of decrease.
Summary
As you can see Coca-Cola is not a bad company to invest in, but they might not
necessarily be the best company to invest in either. Not a whole lot has happened with them over
the past couple of months when it comes to their stock price. If you are someone who does not
want there to be a whole lot of risk involved when investing, then I believe Coca-Cola would be
good to invest in. I learned my freshman year in my MOI class that it is sometimes important to
invest into a socially responsible company, and Coca-Cola is. They are doing a lot to help the
world, by promoting recycling and establishing an “Artic Home” fund that is to help save polar
bears (Coca-Cola Live Positively, 2011).
I believe that Coca-Cola is doing extremely well when compared to PepsiCo. They are
made an extreme amount of profit in 2010. I think that if they branch out into other markets,
such as snacks, then they would give PepsiCo a run for their money. I personally would not
invest into Coca-Cola, but that is because I would want to make a riskier investment and possibly
receive a higher rate of return. Coca-Cola all in all would be good, non-risky, investment for
others.
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Works Cited
Coca-Cola. (2011). Retrieved from Coca-Cola: http://www.coca-cola.com/en/index.html
Coca-Cola Live Positively. (2011). Retrieved from Coca-Cola:
http://www.livepositively.com/?wt.mc_id=CCSLP
Forbes. (2011). Retrieved from Forbes: http://www.forbes.com/
Yahoo Finance. (2011). Retrieved from Yahoo Finance:
http://finance.yahoo.com/q?s=COKE&ql=0
Brigham, E. (2010). Fundamentals of Financial Management. South-Western Cengage Learning.
Wilson, J. (2011). Academic Authorings. Retrieved from seven-thirty.blogspot: http://seventhirty.blogspot.com/2011/04/coca-cola-current-strategic-alliances.html