INTRODUCTION

The Coca-Cola Company is the world’s leading owner and marketer of nonalcoholic
beverage brands and the world’s largest manufacturer, distributor and marketer of
concentrates and syrups used to produce nonalcoholic beverages. It owns or licenses and
market more than 500 nonalcoholic beverage brands, primarily sparkling beverages but
also a variety of still beverages such as waters, enhanced waters, juices and juice drinks,
ready-to-drink teas and coffees, and energy and sports drinks. It is produced by The
Coca-Cola Company in Atlanta, Georgia, and is often referred to simply as Coke (a
registered trademark of The Coca-Cola Company in the United States since March 27,
1944). Originally intended as a patent medicine when it was invented in the late 19th
century by John Pemberton, Coca-Cola was bought out by businessman Asa Griggs
Candler, whose marketing tactics led Coke to its dominance of the world soft-drink
market throughout the 20th century.

The Cola-Cola Company sold its products for the first time in the United States in 1886.
Now it is selling products in more than 200 countries. The Coca-Cola Company was
incorporated in New York Stock Exchange in September 1919 under the laws of the State
of Delaware and succeeded to the business of a Georgia Corporation with the same name
that had been organized in 1892. Of the approximately 54 billion beverage servings of all
types consumed worldwide every day, beverages bearing trademarks owned by or
licensed to the Coca-Cola Company and its subsidiaries account for approximately 1.6
billion.

Muhtar Kent is the President, Chief Executive Officer and Chairman of the Board of
Directors of the Company. The Company’s operating structure is the basis for our
internal financial reporting. As of December 31, 2009, the operating structure included
the following operating segments, the first six of which are sometimes referred to as
‘‘operating groups.’’

• Eurasia and Africa

• Europe
• Latin America
• North America
• Pacific
• Bottling Investments
• Corporate

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FINANCIAL PERFORMANCE ANALYSIS:

(i) Liquidity Ratios:

Liquidity ratios attempt to measure a company's ability to pay off its short-term debt
obligations. The analysis of these ratios is done by comparing a company's most liquid
assets (those easily convertible to cash) to its short-term liabilities.

The greater the coverage of liquid assets to short-term liabilities the better as it is for that
company as it can pay its debts that are coming due in the near future and still fund its
ongoing operations. On the other hand, a company with a low coverage rate will have
difficulty meeting running its operations, as well as meeting its obligations.

Liquidity Ratios 2007 2008 2009

Current Ratio 0.92 times 0.94 times 1.28 times
Quick Ratio/ Acid 0.75 times 0.77 times 1.11 times
Test Ratio

Table 1: Liquidity Ratios of Coca-Cola Company Limited

a. Current Ratio
The current ratio is used to test a company's liquidity (also referred to as its current
or working capital position) by deriving the proportion of current assets available to
cover current liabilities.

Interpretation
• In the year 2009, the Coca-Cola had 1.28 times higher current assets than current
liabilities.
• Company is improving year by year.
• Both current liabilities and assets were increased by the time but assets increased
in greater proportion.

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 b. Quick Ratio

The quick ratio or the acid-test ratio is a liquidity indicator that further refines the current
ratio by measuring the amount of the most liquid current assets there are to cover current
liabilities. The quick ratio excludes inventory and other current assets, which are more
difficult to turn into cash.

Interpretation:

• The company’s current assets excluding inventories are higher than the current
liabilities in the year 2009.
• Year by year the ratio is increasing which is favorable.
• Inventories dropped off in a small amount in the year 2008 and slightly raised in
2009, that is why core liquidity has increased.

1.2
(ii)Asset Management Ratios:

1.0 3
Asset management ratios measure profitability that is affected by the way that the assets
of a business are used. These ratios which are also known as efficiency ratios help us to
overcome these problems of in efficient use of assets. The ratios are used to ensure that
production targets are met efficiently.

Asset Management Ratios 2007 2008 2009

Inventory turnover Ratio 4.69 times 5.20 times 4.71 times
Days in Inventory 78 days 70 days 77 days

Total asset Turnover Ratio 0.67 times 0.79 times 0.64 times
Fixed assets Turnover Ratio 0.93 times 1.13 times 1.01 times

Table 2: Asset Management Ratios of Coca-Cola Company Limited

a. Inventory Turnover Ratio

The ratio is regarded as a test of Efficiency and indicates the rapidity with which the
company is able to move its merchandise

Interpretation:
• In the year 2009, the Coca-Cola sold out and restocked its inventory 4.69 times.
• In 2008, the ratio rose up to almost 5 times but has decreased slightly in 2009.
• After 2007, Coca-Cola started to manage higher level of inventories because sales
were favorable. In 2008, sales were increased and because of high demand they
stocked more inventories which eventually caused lower sales.

Inven
5.4
Days in Inventory:

4
Days in Inventory gives the number of days the stock was in the inventory.

Interpretation:
• Days in inventory is increasing, progressively.
• The company is maintaining more stocks and sales.

b. Total Asset Turnover Ratio

The total asset turnover illustrates how much of sales have been generated from the total
D
assets used.

Interpretation:
• In the year 2009, Coca-Cola’s every $1 worth of assets is generating $0.64 worth
of sales.

80
• It was increased in 2008 but again decreased in greater proportion in 2009.
• In three years sales amount was average but total assets fluctuated more, that is
why ratio has changed randomly.

78
76 78
74 5
 c. Fixed Asser Turnover Ratio

The fixed asset turnover means how much of sales have been generated by using the
fixed assets.

Interpretation:
• In the year 2009, Coca-Cola has generated $1.01 of sales for every $1 worth of
fixed assets.
• Ratio has increased in 2008 but declined in 2009 slightly.
• In 2008 sales gone up also assets gone down to increase the ratio. But in 2009,
sales gone down slightly and assets were greater than previous year, which caused
the ratio to decrease.

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 d. Average Collection Period (Day’s Sales Outstanding):
Day’s outstanding ratio determines on an average how much time is taken to collect the
money from the collectors.

e. Average Payment Period:

Average payment period distinguishes on an average how many days are needed to pay
back the creditors.

Average Collection 42 days 35 days 44 days

Period (Days Sales
Outstanding)
Average Payment Period 243 days 199 days 219 days

Interpretation:
• On an average Coca-Cola took 44 days to collect its account receivable from the
customers.
• On an average Coca-Cola took 219 days to clear its account payable to its
creditors.
• We can see from these two ratios that Coca-Cola gets much time to pay its
creditor after collecting money from customer. The time difference is quite
favorable for the company.

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 (iii) Debt Management Ratios

Debt management ratios give users a general idea of the company's overall debt load as
well as its mix of equity and debt. Debt ratios can be used to determine the overall level
of financial risk a company and its shareholders face. In general, the greater the amount
of debt held by a company the greater the financial risk of bankruptcy.

Debt Management 2007 2008 2009

Ratios
Debt to Asset 49.75% 48.51% 47.92%
Debt to Equity 49.75% 48.51% 47.92%
Times Interest Earned 15.90 times 19.28 times 23.19 times

Table 3: Debt Management Ratios of Coca-Cola Company Limited

a. Debt to asset ratio

The debt-to-asset ratio tells us how much of the total assets are financed by the overall
liability of the company.

Interpretation:
• In the year 2009, Coca-Cola’s 47.92% of total assets were financed by the debt.
• For every $1 of total assets $0.47 is financed by total debt.
• The Debt to asset ratio is decreasing every year which is good for the company.

Debt to Asset

50.00%
b. Debt to equity ratio
8
49.75%
49.50%
The debt-to-equity ratio is a leverage ratio that compares a company's total liabilities to
its total shareholders' equity. This is a measurement of how much suppliers, lenders,
creditors and obligors have committed to the company versus what the shareholders have
committed.

Interpretation:
• In the year 2009, the capital structure of Coca-Cola consists of 47.92% debt and
52.08% owners’ equity.

Debt to EquityRa

50.00%
c. Times Interest earned

49.75%
The interest coverage ratio is used to determine how easily a company can pay interest
expenses on outstanding debt. The lower the ratio, the more the company is burdened by
49.50%
debt expense.

• In the49
Interpretation:
.0
year 0%
2009, Coca-Cola had an operating profit that is 23.19 times higher
than the interest expenses.
• From 4 8
the .5 0
record %
it is clearly seen that because of debt going down, interest gone
down, that caused times interest earn gone up.
48
48.00%
47.50%
47.00%
2007 2008

(iv) Profitability Ratios

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Profitability ratios distinguish the different measures of corporate profitability and
financial performance. These ratios give a good understanding of how well the company
utilized its resources in generating profit and shareholder value.

The long-term profitability of a company is vital for both the survivability of the
company as well as the benefit received by shareholders. It is these ratios that can give
insight into the all important "profit".

Profitability Ratios 2007 2008 2009

Gross Profit Margin 63.94% 64.39% 64.22%
Net Profit Margin 20.73% 18.18% 22.02%
Return on Asset 13.82% 14.33% 14.02%
Return on Equity 27.51% 28.37% 27.52%

Table 4: Profitability Ratios of Coca-Cola Company Limited

a. Gross Profit Margin

The gross profit margin is used to analyze how efficiently a company is using its raw
materials, labor and manufacturing-related fixed assets to generate profits. A higher
margin percentage is a favorable profit indicator.

Interpretation:
• In the year 2009, the gross profit margin of Coca-Coca was 64.22%. That means
they are generating profit more than the double of the cost price.
• It rose in 2008 efficiently but slightly went down in 2009.
• Sales rose more than gross profit that is why the ratio got slightly down in 2009.
And the situation was just the opposite in 2008.

b. Net Profit Margin

G
10
Investors can easily see from a complete profit margin analysis that there are several
income and expense operating elements in an income statement that determine a net
profit margin. It allows investors to take a comprehensive look at a company's profit
margins on a systematic basis.

Interpretation:
• In the year 2009, the net profit margin was 22.02%
• It went down slightly in the year 2008 and then again rose up efficiently by the
year 2009.
• Because of high interest rate it went down in 2008 but in 2009, low interest and
high sales help it to rise.

c. Return on Assets
The Return on Total Assets, also called return on investment measures the overall
N
effectiveness of management in generating profits with its available assets. The higher
the firm’s return on total assets, the better it is considered.

Interpretation:
• In the year 2009, every $100 worth of assets of Coca-Cola are generating $14.02

25.00%
of net income.
• Slightly got down in 2009 after increasing in 2008.
• However, the company efficiently using their assets. And both increase/decrease
in net income and total assets are responsible.

20.00%
R
2
15.00% 11
 d. Return on equity

The return on common equity measures the return earned on the common stockholders
investment in the firm. Generally, the higher the return, the better it is for the owners.

Interpretation:
• In the year 2009, shareholders of this company had earnings of $27.52 for every
$100 investment.
• Increased in 2008 again decreased slightly in 2009.

(v) Stock Market Ratios

Stock Market ratios attempt to simplify the evaluation process by comparing relevant
data that help users gain an estimate of valuation. When looking at the financial
statements of a company, many users can suffer from information overload as there are

28.60%
so many different financial values. Stock Market ratios help to evaluate easily.

Stock Market Ratios 2007 2008 2009

Earnings Per Share 2.58 2.51 2.96
Market to Book Value 6.54 5.11 5.29

28.40%
Price to Earnings Ratio 23.79 18.04 19.26

Table 5: Stock Market Ratios of Coca-Cola Company Limited

a. Earnings Per Share

28.20% 12
Earnings per Share are the most frequently used of all the ratios and are generally felt to
give the best view of performance. It indicates how much of a company’s profit can be
attributed to each ordinary share in the company.

Interpretation:
• In the year 2009, common shareholders have earned $2.96 per share.
• Per share earnings slightly decreased in 2008 but increased efficiently in 2009.
• Because of changes in common shareholders income the ratio changed
respectively.

Earnings Per Shar

3.0
b. Market to Book value ratio

2.8
The Market to Book value of the share compares the book value of the share which is the
internal or face value of the share with the market price of the share.

Interpretation:
2.6
• In the year 2009, market price per share was 5.29 times higher than the book
value per share.

2.58
• Ratio decreased in 2008 but slightly increased in 2009.
• Because of changes both in market value per share and total common share
holders equity ratio has changed.
2.4 2.51

2.2

c. Price earnings Ratio

2007
Mar
2008

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The price/earnings (P/E) ratio is the best known of the investment valuation indicators.
The P/E ratio has its imperfections, but it is nevertheless the most widely reported and
used valuation by investment professionals and the investing public.

Interpretation:
• In the year 2009, the company’s shareholders were willing to pay $19.26 for
every $1 of reported earnings.
• Slightly decreased in 2009 but decreased in a greater proportion in 2008.
• Market price per share was actually responsible for changing the ratios.

Du Pont Equation:
Price
Return on Asset = Net Profit Margin * Total Asset Turnover Ratio

Net Income = Net Profit * ___Sales___

Total Asset Sales Total Asset

Du-Pont Equation
2007 25.0
Return on Asset
= 13.89%
Net Profit Margin
20.73%
Total Asset Turnover
0.67

2008 = 14.39% 18.18% 0.79

2009

Interpretation:
= 14.09%

20.0
22.02% 0.64

23.79
In the year 2009, Coca-Cola’s ROA was 14.09% which is less than the previous year, but
net profit margin has increased to 22.02% from 18.18%. Asset turn over ratio has
decreased to 0.64 from 0.79. So there is a problem in Total Asset Turnover. Expense has

15.0
decreased from the from the previous year.

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Extended Du Pont Equation:

Return on Equity = Net Profit * Total Asset Turnover Ratio * Equity Multiplier

Net Income___ = Net Profit * ___Sales___ * Total Asset_

Total Common Sales Total Asset Total Equity
Stock Equity

Extended Du- Return on Net Profit Margin Total Asset Equity Multiplier
Pont Equation Equity Turnover
2007 = 27.64% 20.73% 0.67 1.99

2008 = 27.86% 18.18% 0.79 1.94

2009 = 27.06% 22.02% 0.64 1.92

Interpretation:

In the year 2009, Coca-Cola’s ROE was 27.06% which is less than the previous year, but
net profit margin has increased to 22.02% from 18.18%. Asset turn over ratio has
decreased to 0.64 from 0.79 and equity multiplier also has decreased from the previous
year. So there is a problem in Total Asset Turnover.

Du-Pont Equation Extended Du

-Pont Equation
14.40% 28.00%
14.36% 27.80%
14.20% 27.86%
27.60%
27.64%
27.40%
14.00% 14.09%
27.20%
13.80% 13.89% 27.00%
27.06%
26.80%
13.60% 26.60%
2007 2008 2009 2007 2008 2009

FINDINGS:

1) Liquidity ratios are increasing year by year, which means they are having more
current assets with time.
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 2) In the asset management ratios, there are a bit of ups and downs but the company
gets much time to pay its debt.

3) Company’s owner’s equity portion is still greater than their debt and the ratio of
times interest earned is also increasing year by year in the company’s favor.

4) Net profit margin increased by 2% but other profitability ratios have decreased
slightly from last year.

5) EPS is quite favorable for the company but other stock market ratios are not
historically sound.

CONCLUSION AND RECOMMENDATIONS

After evaluating all the ratios we have prepared some recommendations for the Coca-
Cola Company Limited and also for the current and probable investors in this
organization.
Recommendation to Coca-Cola:
1) They should try to reduce the liabilities by reducing current liabilities, accrued
expense etc. so that their liquidity ratios will improve.

2) They should look into inventory management and selling. They can advertise
more or put some potential marketing officer in action.

3) They can increase their profit margins by reducing the operating cost.

4) As their earning per share is enough, they can give more dividend to attract new
investors.

Recommendation to potential and existing investors:

Existing investors should be happy with the company’s present situation because the
dividend exceeds their expectation. Coca-Cola should be concentrating more into
shareholders equity than into retained earnings. Considering the current market share,
attentiveness to shareholder and as it is one of the biggest in beverage industry; new
investor should be interested in investing in Coca-Cola.

APPENDIX

Ratios Formula 2007 2008 2009

Current Current asset/ 12105 / 13225 12176 / 12988 17551 / 13721

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 current liabilities
Quick ratio (Current assets – (12105-2220) / (12176-2187) / (17551-2354) /
Inventories )/ 13225 12988 13721
Current liabilities
Inventory Sales/ Inventories 10406 / 2220 11374 / 2187 11088 / 2354
Turnover
Total assets Sales/ Total assets 28857 / 43269 31944 / 40519 30990 / 48671
turnover
Fixed Assets Sales/ Net fixed 28857 / 31164 31944 / 28343 30990 / 31120
Turnover assets
Days sales (Receivable* 365)/ (3317 *365) / (3090 *365) / (3758 *365) /
outstanding Sales 28857 31944 30990
Average (Payable* 365)/ (6195 *365) / (6205 *365) / (6657 *365) /
payment Purchase 10406 11374 11088
period
Debt to Assets Total debt/ Total 21525 / 43266 19657 / 40519 23325 / 48671
assets
Debt to Total debt/Total 21525 / 19657 / 23325 /
Equity Debt +Total equity 21525+21744 19657+20862 23325+25346
Time Interest EBIT/ Time 7252 / 456 8446 / 438 8231 / 355
Earned interest expense
Gross Profit Gross profit/ sales 18451 / 28857 20570 / 31944 19902 / 30990
Margin
Net Profit Net profit/ Sales 5981 / 28857 5807 / 31944 6824 / 30990
Margin
Return on Net profit/ Total 5981 / 43269 5807 / 40519 6824 / 48671
Assets assets
Return on Net profit/ Total 5189 / 21744 5807 / 20472 6824 / 24799
Equity equity
Earnings Per Net profit/ Total 5981 / 2318 5807 / 2312 6824 / 2303
Share number of
common shares
Market to Market value per 61.37 / 45.27/ 57.00 /
Book value share/ Book value (21744/2318) (20473/2312) (24799/2303)
per share
P/E Ratio Price per share/ 61.37 / 2.58 45.27 / 2.51 57.00 / 2.96
EPS
*In millions except per share value.

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