Shawanna Lumsey

Dr. DESSIE, MULUGETA

Financial Management
September 2016

In 1886, a flavored syrup mixed with carbonated water has surpassed

anything imaginable. This simple mixture has become the top selling
beverage in the world. This brand is known as the world renowned Coca
Cola. Coca Cola was invented by Dr. John S. Pendleton. This distinctive
beverage that started out as a syrup, is now sold in over 200 countries. This
flavored syrup mixed with carbonated water has produced millions and
millions of dollars. Coca cola has become the king of the beverage world.
Coca Colas stock has become a ravishing thought for investors. The stocks
have seen significant gains leading observers as one of the best investments
(Levine-Weinberg 2015) Financial factors at Coca cola are usually
communicated during conversations and meetings with management. The
analysis of the financial health purpose is to help the public get an
understanding of the corporation and the business environment. These
choices are to supply all financial statements and the necessary
documentation at the end of the fiscal year.
The fact that Coca Cola is the beverage leader in the world for a vast
amount of years speaks volumes. This stock has been ravishing to investors
including billion-dollar investor Warren Buffett. The perspective investor, can
plainly see that the dividends that Coca Cola accrue can make an investor
very, very wealthy. Although Coca Cola stocks may not garner the attention
of their highly increasing rates, they are unlikely to fail. Their dividends of
2

each quarter and payouts can substantially increase at a rapid rate that any
analyst of investor can process. Coca Cola has more than doubled in positive
earnings during the worst recession they had seen for the last 20 years on
the New York Stock Exchange. (NYSE: KO has been one of the largest holding
stocks. As of today NYSE, is rated on a continued basis as one of the most
sought after beneficial brand. This stock has returned very lucrative returns
for years. It has maintained its buying power and has substantially increased
diligently beating inflation. (Ferrati, 2015)
Since Coca Cola operated in over 200 countries, this puts them in a
unique position to contribute to economic success around the world. Coca
Colas global business stimulates job creation by employing local people,
paying taxes to governments, paying suppliers for goods, services, capital
equipment, and supporting community investment programs. Studies of
economic impact of businesses in Asia, Africa, and Eastern Europe have
shown that every job in the Coca Cola system has an average of ten more
jobs are supported in local communities. (insert cite) Coca Colas has been
the beverage leader of the world for many years. Coca Cola ranks in the top
ten of Fortunes 2015 list of worlds most renowned admired companies.
Coca Cola demonstrates an outstanding global presence. One of the reasons
that Coca-Cola resides in the No. 1 market spot lies in the fact it maintains a
presence all over the globe. The citizens of Mexico drank the most servings
of any country in the world with 745 consumed in 2015. The United States
consumed 401 servings during the same time. Many parts of the world such
3

as India, Indonesia, and China remain vastly underpenetrated in terms of

servings meaning the potential for market expansion still exists. While rival
PepsiCo also maintains a huge global presence, giving Coca-Cola a run for its
money, Dr. Pepper Snapple Group operates mainly in the western
hemisphere allowing both Coca-Cola and PepsiCo to move further ahead.
Coca Cola has a great market focus of comparing Coca-Cola and PepsiCo
equates to comparing apples and oranges. Rival PepsiCo sells snacks in
addition to beverages all over the globe. In fact, snack volume was more
than three times PepsiCo's beverage volume in the most recent quarter
meaning its snack business actually represents its strength and possibly its
saving grace. However, Coca-Cola mainly sells beverages. While this may
represent a negative from a diversity standpoint it also means that CocaCola can focus on its core competency of innovating, selling, and distributing
beverages both carbonated and noncarbonated while PepsiCo has to divide
its attention. Dr. Pepper Snapple Group sells mainly beverages as well;
however, its product portfolio still largely consists of carbonated sodas and
needs more non-carbonated innovation.
As of this writing, Coca-Cola pays its stockholders $1.12 per share per
year in dividends translating into a 2.8% dividend yield, easily exceeding
what you can receive in most savings accounts. The company pays out
roughly 40% of its free cash flow in dividends meaning the income stream
remains relatively safe. PepsiCo also pays out roughly half of its free cash
flow in dividends amounting to $2.27 per share per year which yields 2.8%.
4

Dr. Pepper Snapple Group pays its shareholders $1.52 per year in dividends
giving them a yield of 3.2%. Dr. Pepper Snapple Group pays out 44% of its
free cash flow, but shareholders should worry about the dividend's safety
considering the companies low cash balance. Coca-Cola's future lies in
emerging markets expansion and non-carbonated beverages such as Honest
Tea and Minute Maid Juice. PepsiCo's continued focus on snacks may cause it
to drop the ball on its beverage segment further enhancing Coca-Cola's
strategic position in beverages. A major snack acquisition on Coca-Cola's
part to mimic PepsiCo's snack strategy may deter Coca-Cola from its core
competency of selling beverages. Dr. Pepper Snapple Group barely makes a
dent in Coca-Cola's dominance and even relies on Coca-Cola for some of its
distribution. With that said Coca-Cola isn't going anywhere anytime soon.
(The Motley Fool, 2015)
There are financial ratios that help one conclude the financial health of an
organization and they include the following:
Current Ratio
The current ratio of a company is used to examine the liquidity of the company as well as its
ability to pay its short term liabilities or debts and payables using its short term assets which are
cash, inventories and receivables.
This ratio provides the prospective investors with business clues concerning the efficiency of the
companys operating cycle and its ability to monetize its products. A higher ratio is good because
it indicates that the company is able to pay off its obligations. The ratios as calculated from the
above table shows there is a good financial performance of the company. They also provide
5

necessary incentive to analysts to advise prospective investors to buy shares of stock in the
company.
EPS
The earnings per share of the company indicate the profits allocated for every outstanding
share of the companys common stock. The earnings per share indicate the companys
profitability.
2015
(Fiscal Year)

2015
(Fiscal Year)

2015
(Fiscal Year)

March
Revenue
EPS
Dividends

$10,576(m)
0.36 (3/28/2015)
0.305

$11,035(m)
0.39 (3/29/2015)
0.28

$11,137(m)
0.45 (3/30/2015)
0.255

June
Revenue
EPS
Dividends

$12,574(m)
0.59 (6/27/2015)
0.305

$12,749(m)
0.59 (6/28/2015)
0.28

$13,085(m)
0.6 (6/29/2015)
0.255

September
Revenue
EPS
Dividends

$11,976(m)
0.47 (9/26/2015)
0.305

$12,030(m)
0.54 (9/27/2015)
0.28

$12,340(m)
0.51 (9/28/2015)
0.255

December (FYE)
Revenue
EPS
Dividends

$10,872(m)
0.18 (12/31/2015)
0.305

$11,040(m)
0.38 (12/31/2015)
0.28

$11,455(m)
0.41 (12/31/2015)
0.255

$45,998(m)
1.6
1.22

$46,854(m)
1.9
1.12

$48,017(m)
1.97
1.02

Fiscal Quarter

Totals
Revenue
EPS
Dividends
Source: Nasdaq.com

The diluted EPS of a company on the other hand expand the EPS by including the shares of the
convertibles or warrants outstanding in the outstanding shares number. The EPS are considered
6

to be one of the most single important variables in determination of the share price. As seen from
the table above, the earnings per share of the company may not have been increasing in literal
form but the fact that they are still very well above 150 is an indication of the good financial
health and performance of the company and they provide enough confidence to prospective
investors as well analysts to recommend for investment in the company.
Quick Ratio
The quick ratio of a company gives a perfect indicator of short term liquidity in terms of the
business. The ratio measures the ability of the company to meet its short term obligations
especially with most of its liquid assets. It is expressed mathematically as;
Quick Ratio = (Current Assets Inventory)/Current Liabilities
This ratio also measures the dollar amount of the companys liquid assets available for every
dollar of the current liabilities but excludes inventory since they are not current.
Cost of Capital
To understand the cost of capital of NYSE: KO, we also need to use the cost of debt and cost
of equity so that an effective weighted average cost of capital can help investors understand the
extent to which shareholders of the company expect in return for any investment over the long
term and how much the company needs in return to break even on their investments.
According to the information gathered from Google, the risk free rate of coca cola is 2.74%, the
beta for the company is 0.42 while the rate of return is 7%. Using the capital assets pricing
model,
At return on equity of 0.0453 it means that investors in the company can expect a return of
4.53% on average per year over the long term on their investments in coca cola to compensate
for their risk they undertake by investing in the company.

Cash Ratio
The cash ratio that determined as a ratio of total cash equivalents to total current liabilities is
used to determine the speed by which the company can repay its short term debt. A strong cash
ratio is useful to creditors because they can use it to determine how much in terms of debt if any
the company would be willing to extend to the company in case they need to get a loan facility.
From the information as provided from the table, we see that the cash ratio for the coca cola
company is well over one for the last four financial years from 2011 through to 2015. It is an
indication that the company is financially healthy and therefore recommended for prospective
investors because they can easily capitalize whenever need arises. As can be realized from the
table, the cash ratio of the company is good enough to entice any prospective investors in the
shares of the company to do so.
Price Earnings Ratio (P/E)
This is a valuation of the companys share price as compared to the per share earnings. It is
expressed as the ratio market value per share / earnings per share. According to information from
table 1 in appendix page, the price earnings ratio of the coca cola company changed from 0.47 in
2011 to 1.02 a significant increase. It then changed to 1.12 in 2015 and finally to 1.22 in 2015
which are significantly positive changes and these enhance trust that investors may want before
they put their dollars of investment in the company.

Table 1: Coca-Cola Company (KO) Income Statement

8

The Coca-Cola Company (KO)

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All numbers in thousands

Period Ending

Dec 31, 2015

Dec 31, 2015

Dec 31, 2015

Total Revenue

45,998,000

46,854,000

48,017,000

Cost of Revenue

17,889,000

18,421,000

19,053,000

Gross Profit

28,109,000

28,433,000

28,964,000

Operating Expenses
Research Development
Selling General and Administrative

18,401,000

18,205,000

18,185,000

Non Recurring

Others

Total Operating Expenses

9,708,000

10,228,000

10,779,000

1,110,000

608,000

9,808,000

11,940,000

12,206,000

483,000

463,000

397,000

Income Before Tax

9,325,000

11,477,000

11,809,000

Income Tax Expense

2,201,000

2,851,000

2,723,000

Operating Income or Loss

Income from Continuing Operations
Total Other Income/Expenses Net
Earnings Before Interest And Taxes
Interest Expense

Minority Interest
Net Income From Continuing Ops

(669,000)

(26,000)

(42,000)

(67,000)

7,867,000

9,186,000

9,838,000

Discontinued Operations

Extraordinary Items

Effect Of Accounting Changes

Other Items

Non-recurring Events

Net Income

7,098,000

8,584,000

9,019,000

7,098,000

8,584,000

9,019,000

Preferred Stock And Other Adjustments

Net Income Applicable To Common Shares

Source: YAHOO! FINANCE

Table 2: The Coca-Cola Company (KO) Balance Sheet

The Coca-Cola Company (KO)

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All numbers in thousands

Dec 31, 2015

Dec 31, 2015

Dec 31, 2015

8,958,000

10,414,000

8,442,000

12,717,000

9,854,000

8,109,000

Net Receivables

4,466,000

4,873,000

4,759,000

Inventory

3,100,000

3,277,000

3,264,000

Other Current Assets

3,745,000

2,886,000

5,754,000

Total Current Assets

32,986,000

31,304,000

30,328,000

Long Term Investments

13,625,000

11,512,000

10,448,000

Property Plant and Equipment

14,633,000

14,967,000

14,476,000

Goodwill

12,100,000

12,312,000

12,255,000

Intangible Assets

14,272,000

15,299,000

15,082,000

4,407,000

4,661,000

3,585,000

92,023,000

90,055,000

86,174,000

Period Ending

Assets
Current Assets
Cash And Cash Equivalents
Short Term Investments

Accumulated Amortization
Other Assets
Deferred Long Term Asset Charges
Total Assets

10

Liabilities
Current Liabilities
Accounts Payable

9,634,000

9,886,000

9,151,000

22,682,000

17,925,000

17,874,000

58,000

796,000

Total Current Liabilities

32,374,000

27,811,000

27,821,000

Long Term Debt

19,063,000

19,154,000

14,736,000

Other Liabilities

4,389,000

3,498,000

5,468,000

Deferred Long Term Liability Charges

5,636,000

6,152,000

4,981,000

241,000

267,000

378,000

61,703,000

56,882,000

53,384,000

Misc Stocks Options Warrants

Redeemable Preferred Stock

Preferred Stock

Short/Current Long Term Debt

Other Current Liabilities

Minority Interest
Negative Goodwill
Total Liabilities
Stockholders' Equity

Common Stock

1,760,000

1,760,000

1,760,000

Retained Earnings

63,408,000

61,660,000

58,045,000

Treasury Stock

(42,225,000)

(39,091,000)

(35,009,000)

Capital Surplus

13,154,000

12,276,000

11,379,000

Other Stockholder Equity

Total Stockholder Equity
Net Tangible Assets

(5,777,000)

(3,432,000)

(3,385,000)

30,320,000

33,173,000

32,790,000

3,948,000

5,562,000

5,453,000

Source: YAHOO! FINANCE

11

Table 3: Extract from the Cash Flow Statement

The Coca-Cola Company (KO)

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All numbers in thousands

Period Ending

Dec 31, 2015

Dec 31, 2015

Dec 31, 2015

Net Income

7,098,000

8,584,000

9,019,000

Depreciation

1,976,000

1,977,000

1,982,000

Adjustments To Net Income

1,954,000

871,000

657,000

Changes In Accounts Receivables

Changes In Liabilities

Changes In Inventories

Operating Activities, Cash Flows Provided By or Used In

Changes In Other Operating Activities

Total Cash Flow From Operating Activities

(439,000)
10,615,000

(932,000)
10,542,000

(1,080,000)
10,645,000

Investing Activities, Cash Flows Provided By or Used In

Capital Expenditures

(2,406,000)

(2,550,000)

(2,780,000)

Investments

(4,814,000)

(1,991,000)

(7,033,000)

(286,000)

327,000

(1,591,000)

(7,506,000)

(4,214,000)

(11,404,000)

Dividends Paid

(5,350,000)

(4,969,000)

(4,595,000)

Sale Purchase of Stock

(2,630,000)

(3,504,000)

(3,070,000)

Net Borrowings

4,712,000

4,711,000

4,218,000

(363,000)

17,000

100,000

(3,631,000)

(3,745,000)

(3,347,000)

(934,000)

(611,000)

(255,000)

Other Cash flows from Investing Activities

Total Cash Flows From Investing Activities
Financing Activities, Cash Flows Provided By or Used In

Other Cash Flows from Financing Activities

Total Cash Flows From Financing Activities
Effect Of Exchange Rate Changes
Change In Cash and Cash Equivalents

(1,456,000)

1,972,000

(4,361,000)

Source: YAHOO! FINANCE

12

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References
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Retrieved 27 February 2015, from http://www.coca-cola.co.uk/about-us/coca-cola-missionvision-statement.html
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Levine-Weinberg, A. (2015). Coke Stock: One of Warren Buffett's Biggest Investments Might Be
His Worst (BRK-B, KO). Fool.com. Retrieved 28 February 2015, from
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