Accounting Assignment

Basic Accounting (FNBE0145)

Yo Kai Sen (0310563) Chew Jun Ming (0310173)

Table of content

Content

Pages

History of Coca Cola

Recent Development

Ratio Calculation (Profitability) + Interpretation Ratio Calculation (Financial Stability) + Interpretation

Investment Recommendation

Appendix

6-7

Referencing

Coca- cola history

Coca-Cola history began in May, 1886. Doctor John Pemberton, an Atlanta pharmacist from Atlanta, Georgia. He created a mixture that was combined with carbonate water which namely coca-cola. The name was a suggestion given by a people namely Frank Robinson,

Frank Robinson has the great penmanship, is the one who credited with naming the beverage "Coca-Cola" as well as designing the trademarked, distinct script into the flowing letters which has become the famous logo that is still used today. So, when the product was released, John Pemberton put it on sale for five cents a glass. The soft drink was first sold to the public at the soda fountain in Jacob's Pharmacy in Atlanta on May 8, 1886. During the first year, sales averaged a modest 9 servings per day in Atlanta. The first year sales have an accumulated amount of $50 but the expenses he used to produce coca cola is more than $70.

A century later, The Coca-Cola Company has produced more than 10 billion of cocacola. Unfortunately, Pemberton died in 1888 without realizing the success of the beverage he had created. Prior to his death in 1888, just two years after creating what was to become the top selling sparkling beverage, Dr. Pemberton sold portions of his business to various parties and Asa Candler has gain majority of the interest from Dr. Pemberton and coca cola eventually become one of America's most popular fountain drinks.

Recent Development of Coca Cola

Coca cola is retooling its vending machines. The purpose is to let consumers know the number of calories in the drinks available to buy. This action can be considered as a development because a customer generally refuses to buy a product that without a proper nutrition facts table. This is because there are too many faulty goods release to market without people knowledge. So, it is crucial to reaffirm the validity of the particular products by looking at the nutrition facts table.

This program will add calorie counts and more low-calorie and no-calorie drinks to vending machines. So, what does calories actually means? Calorie is actually a unit of heat energy. Calorie is necessary for our body to produce heat and energy. However, excessive calories will result in unfavorable fat. According to the American Dietetic Association, consuming 100 extra calories a day can cause you to gain 10 extra pounds each year. So, they tend to provide calorie, low-calorie, and no-calorie drinks. This strategy can definitely increase the customers demand because there will be several choice for them thus they are able to buy their drinks depend on the amount of calorie that they desired.

Profitability Ratio
Return on Equity (ROE)

2010

2011

Interpretation
During the period 2010 to 2011, ROE has decrease from 38.25% to 27.29%. Owner has getting less return on his or her return. During the period 2010 to 2011, NPM has decrease from 33.77% to 18.55%. This mean the business controlling the overall expenses is getting worse. During the period 2010 to 2011, GPM has decrease from 63.86% to 60.86%. This mean the business controlling the Cost of goods sold expenses is getting worse. During the period 2010 to 2011, SER has increase from 10.25% to 13.01%. This mean the business controlling Selling Expenses is getting better. During the period 2010 to 2011, GER has increase from 10.25% to 13.01%. This mean the business controlling General Expenses is getting better. During the period 2010 to 2011, FER has decrease from 2.09% to 0.89%. This mean the business controlling the Financial Expenses is getting worse.

38.25%

27.29%

Net Profit Margin (NPM)

33.77%

18.55%

Gross Profit Margin (GPM)

63.86%

60.86%

Selling Expenses Ratio (SER)

10.25%

13.01%

General Expenses Ratio (GER)

10.25%

13.01%

Financial Expenses Ratio (FER)

2.09%

0.89%

Financial Stability

2010

2011

Interpretation
During the period 2010 to 2011, the working capital ratio has decrease from 1.17:1 to 1.05:1. This mean the business ability to pay its current liabilities with using current asset is getting worse. It is still below 2:1 requirement. During the period 2010 to 2011, the total debt has increase from 57.48% to 60.44%. This mean the business carry more and more debt. It is above the 50% minimum limit. During the period 2010 to 2011, the stock turnover has decrease from 72 days to 62 days. This mean the business is selling goods faster. During the period 2010 to 2011, the debt turnover has decrease from 46 days to 38 days. This mean the business is collecting its debt faster. During the period 2010 to 2011, the interest coverage has increase from 17.17 Times to 21.7 Times. This mean the business ability to pay the interest expenses is getting worse

Working Capital

1.17:1

1.05:1

Total Debt

57.48%

60.44%

Stock Turnover

72 days

62 days

Debtor Turnover

46 days

38 days

Interest Coverage

17.17 Times

21.7 Times

Price-Earning Ratio (P/E) = 37.3 1.91 = 19.53 This means that we only can get our money back after 19 years by each unit per share

Investment Recommendation
From the given profitability ratio, it shows that the business overall performance is getting worse excluding the ability to control selling and general expenses. This signals us the business is more able in controlling its selling and general expenses. However, the business is getting less return and become more and more unable in controlling other expenses. So, the profit that generated from 2010 to 2011 is decreasing.

From the data above, it tells us whether the business is stay in a stable or unstable condition. The working capital told us that the ability of the business to pay its current liabilities with using current asset is getting worse. It also carries more and more debt from the past year. The business can collect its due debt and sells its good faster nonetheless. As we mention just now, the ability of the business to control the financial expenses is getting worse, so their ability to pay for the interest expenses is also getting worse at the same time. After calculate the price earning of the company, we found that the share price of the company is 37.32, which is not supposed to be more than 20. In conclusion, we are not going to suggest anyone to buy the share from this company since it is not profitable, not stable and high share price.

References
http://finance.yahoo.com/q;_ylt=AmvmbCQg6mE38IgE0QVUV.PxVax_;_ylu=X3oDMTE4OW thMjRzBHBvcwMxMgRzZWMDeWZpU3ltYm9sTG9va3VwUmVzdWx0cwRzbGsDa28-? s=KO http://www.worldofcoca-cola.com/coca-colahistory.htm (Mary Bellis, 2013)http://inventors.about.com/od/cstartinventions/a/coca_cola.htm http://heritage.coca-cola.com/ http://abcnews.go.com/Health/WellnessResource/story?id=6762725 Glenn,K (2011) According to the American Dietetic Association, consuming 100 extra calories a day can cause you to gain 10 extra pounds each year