Topic: Financial Ratios Analysis of

Coca-Cola 1
 Group Members

Wajid Ali 3335

Haris Riaz 3382

Presented To : Prof. Tahir Mahmood

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 Coca Cola International
The Coca-Cola Company is the world's largest beverage
company.

It is no.1 brand according to fortune 2009 survey.

The company operates a franchised distribution system dating

from 1889.

The Coca-Cola Company is headquartered in Atlanta, Georgia.

With local operations in over 200 countries around the world.

Coca Cola has 150,900 employees worldwide.

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• Assessment of the firm’s past, present
and future financial conditions
• Done to find firm’s financial strengths
and weaknesses
• Primary Tools:
– Financial Statements
– Comparison of financial ratios to past,
industry, sector and all firms

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 Objectives of Ratio Analysis
• Standardize financial information for
comparisons
• Evaluate current operations
• Compare performance with past
performance
• Compare performance against other
firms or industry standards
• Study the efficiency of operations
• Study the risk of operations
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 Types of Ratios
• Financial Ratios:
– Liquidity Ratios
• Assess ability to cover current obligations
– Leverage Ratios
• Assess ability to cover long term debt obligations
• Operational Ratios:
– Activity (Turnover) Ratios
• Assess amount of activity relative to amount of
resources used
– Profitability Ratios
• Assess profits relative to amount of resources used
• Valuation Ratios:
• Assess market price relative to assets or earnings

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 THE COCA-COLA COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 2012 2011

(In millions except par value) As Adjusted

ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 8,442 $ 12,803
Short-term investments 5,017 1,088

TOTAL CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS 13,459 13,891

Marketable securities 3,092 144

Trade accounts receivable, less allowances of $53 and $83, respectively 4,759 4,920
Inventories 3,264 3,092
Prepaid expenses and other assets 2,781 3,450
Assets held for sale 2,973 —

TOTAL CURRENT ASSETS 30,328 25,497

EQUITY METHOD INVESTMENTS 9,216 7,233

OTHER INVESTMENTS, PRINCIPALLY BOTTLING COMPANIES 1,232 1,141
OTHER ASSETS 3,585 3,495
PROPERTY, PLANT AND EQUIPMENT — net 14,476 14,939
TRADEMARKS WITH INDEFINITE LIVES 6,527 6,430
BOTTLERS’ FRANCHISE RIGHTS WITH INDEFINITE LIVES 7,405 7,770
GOODWILL 12,255 12,219
OTHER INTANGIBLE ASSETS 1,150 1,250

TOTAL ASSETS $ 86,174 7

$ 79,974
 BALANCE SHEETS Cont’d
LIABILITIES AND EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 8,680 $ 9,009
Loans and notes payable 16,297 12,871
Current maturities of long-term debt 1,577 2,041
Accrued income taxes 471 362
Liabilities held for sale 796 —

TOTAL CURRENT LIABILITIES 27,821 24,283

LONG-TERM DEBT 14,736 13,656

OTHER LIABILITIES 5,468 5,420
DEFERRED INCOME TAXES 4,981 4,694
THE COCA-COLA COMPANY SHAREOWNERS’ EQUITY
Common stock, $0.25 par value; Authorized — 11,200 shares;
Issued — 7,040 and 7,040 shares, respectively 1,760 1,760
Capital surplus 11,379 10,332
Reinvested earnings 58,045 53,621
Accumulated other comprehensive income (loss) (3,385) (2,774)
(31,304
Treasury stock, at cost — 2,571 and 2,514 shares, respectively (35,009) )

EQUITY ATTRIBUTABLE TO SHAREOWNERS OF THE COCA-COLA COMPANY 32,790 31,635

EQUITY ATTRIBUTABLE TO NONCONTROLLING INTERESTS 378 286

TOTAL EQUITY 33,168 31,921

TOTAL LIABILITIES AND EQUITY $ 86,174 $ 79,9748

 THE COCA-COLA COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Year Ended December 31, 2012 2011

As
Adjuste
(In millions except per share data) d

NET OPERATING REVENUES $ 48,017 $ 46,542

Cost of goods sold 19,053 18,215

GROSS PROFIT 28,964 28,327

Selling, general and administrative expenses 17,738 17,422
Other operating charges 447 732

OPERATING INCOME 10,779 10,173

Interest income 471 483
Interest expense 397 417
Equity income (loss) — net 819 690
Other income (loss) — net 137 529

INCOME BEFORE INCOME TAXES 11,809 11,458

Income taxes 2,723 2,812

CONSOLIDATED NET INCOME 9,086 8,646

Less: Net income attributable to noncontrolling interests 67 62

NET INCOME ATTRIBUTABLE TO SHAREOWNERS OF THE COCA-COLA COMPANY $ 9,019 $ 8,584

BASIC NET INCOME PER SHARE1 $ 2.00 $ 1.88

DILUTED NET INCOME PER SHARE1 $ 1.97 $ 1.85
AVERAGE SHARES OUTSTANDING 4,504 4,568
Effect of dilutive securities 80 78
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AVERAGE SHARES OUTSTANDING ASSUMING DILUTION 4,584 4,646
 Liquidity Ratios
Current Ratio:
Current Assets $30,328
Current Ratio : 1.09
Current Liabilitie s $27,821

Years 2011 2012

Current Ratio 1.05 1.09

In 2011, the firm’s ability to cover its current liabilities with its current assets
was 1.05. In 2012, the ratio goes up to 1.09 as compared to 2011, which means
that the company has the ability to pay its liabilities, as the definition says that
higher the ratio, greater the ability of the firm to pay its bills. This tells that
Coca-Cola is improving their liquidity and efficiency, because their current ratio
is improving.

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Quick/Acid Test Ratio:

Current Assets- Inventory $27,064

Quick Ratio : 0.97
Current Liabilitie s $27,821

Years 2011 2012

Quick Ratio 0.92 0.97

According to the definition of Acid Test Ratio, the company should have the ability
to pay its liabilities through its most liquid assets. The table shows that in 2011, the
firm has the ratio 0.92 cents. Then we observe a slight improvement in 2012. So we
can figure out from the ratios that Coca-Cola still cannot pay its debts without its
inventory. This leads us to believe that Coca-Cola is a somewhat risky business,
even though it is the largest in the nonalcoholic beverage industry.

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 Activity (Turnover) Ratios
Total Asset Turnover Ratio:

Sales $48,017
Total Asset Turnover : 0.55
Total Assets $86,174

Years 2011 2012

Assets Turnover 0.58 0.55

The ratio is supposed to be high. Here we can see that the coca-cola
company’s total asset turn over ratio in 2011 was 0.58, which means that
the company generated more revenue per dollar of asset investment. The
ratio then comes slightly down in 2012.

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Inventory Turnover Ratio:

Cost of goods sold $19,053

Inventory Turnover : 5.8
Inventory $3,264

Years 2011 2012

Inventory Turnover 5.90 5.80

The Coca-Cola’s Inventory turnover ratios deteriorated from 2011 to 2012,

which means that its ability to sell inventory has relatively come down. In 2011
Coca-Cola had a ratio of 5.90 and in 2012 has a ratio of 5.80. These ratios are not
what we expected; we assumed that the ratios would be much higher because
Coca-Cola sell its syrup to bottling partners around the world so it does not need
to deal with the storing of the bottled product.

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Average Collection Period:

365 365
Avg. Collection Period : 36.17days
Receivables Turnover 10.09

Years 2011 2012

Avg. Collection Period 38.60 36.17

The ability of the firm of collecting the receivables in the specific time. Here
in the year 2011 the turnover in days was almost 39, but the collection days
decrease in the year 2012 and the collection period of approximately 36 days
is well within the 60 days allowed in the credit terms. This shows that the
collection is faster as compared to the previous year.

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Average Payment Period:

365 365
Avg. Payment Period : 14.96 days
Payable Turnover 24 .39

Years 2011 2012

Avg. Payment Period (days) 17 15

Coca-Cola’s average period for payment has reduce to 15 days in 2012 which
was 17 days in 2011. This reduction in average payment period shows that how
efficiently company is paying back their creditors and also assuring that
payments are being made in a prompt manner by Coke to its creditors. This
period should remain low as much as possible.

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 Debt Ratios
Debt Ratio:
Total Liabilitie s $53,006
Debt Ratio : 61 .51 %
Total Assets $86 ,174

Years 2011 2012

Debt Ratio % 60.09 61.51

The ratio shows the company’s ability to cover its debts through its total
assets. The ratio was 60.09% in 2011, then goes up in 2012. The ratio has to be
low. So we can interpret that in the year 2012, the risk of the firm is getting
higher as the ratio goes up.

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Times Interest Earned Ratio:

EBIT $11,809
Times Interest Earned Ratio : 25.07
Interest $471

Years 2011 2012

T.I.E Ratio 23.72 25.07

In 2012 Coca-Cola has a ratio of 25.07 which is a large increase from 2011
when their ratio was 23.72. This means that they have a comfortable
coverage of interest, and that the coverage has increased from the previous
year.

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 Profitability Ratios
Gross Profit Margin:
Gross Profits $28,964
Gross Profit Margin : 60 .32 %
Sales $48,017

Years 2011 2012

Gross Profit Margin % 60.90 60.32

The ratio should be high according to the definition. Because higher the ratio,
higher will be the firm’s ability to produce goods and services at low cost with
high sales. Here in this table there is small difference between the ratios in two
years, but its still high, which means it is favorable.

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Operating Profit Margin:

EBIT $11,809
Operating Profit Margin : 24.59%
Sales $48,017

Years 2011 2012

Operating Profit Margin % 21.80 24.59

Coca-Cola’s operating profit margin has increased in 2012 than the margin in
2011 by approximately 3%. This increase in Operating Profit Marin is mainly due
to growth of net revenue, good cost control and strong productivity in company in
2012. This higher margin reflects that the Coca-Cola is more efficient cost
management or the more profitable business.

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Net Profit Margin:

Net Income $9, 019

Net Profit Margin : 18.78%
Sales $48,017
Years 2011 2012
Net Profit Margin % 18.40 18.78

According to the definition, higher the ratio, higher will be the firm’s ability to
pay its taxes. In the year 2011, the margin was little low but in 2012 the margin
increases by 0.4%. For the company, roughly 0.38 cents out of every sales dollar
consists of ‘After Tax Profit'. Coca-Cola is more efficient at converting sales into
actual profit and its cost control is good.

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Return on Assets (ROA):

Net Income $9,019

ROA 10.46%
Total Assets $86,174

Years 2011 2012

ROA % 10.70 10.46

The decrease in Return on Assets indicates that the company is generating

less profits from all of its resources in the year 2012 as compared to the year
2011. The higher of this ratio is, the better for the company. Therefore this
decrease in Coca-Cola’s ratio is indicating that the company is not that much
prospering.

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Return on Equity (ROE):

Net Income $9,019

ROE 27.51 %
Total Common Equity $32,790

Years 2011 2012

ROE % 27.10 27.51

The ratio should be higher. Here starting from 2011, the ratio was 27.10% and
goes up in 2012 to 27.51%. This increase in Return on Equity is a good thing
for stockholders and indicates that Coca Cola is using the equity provided by
stockholders during this specific year effectively and using it to generate more
equity for the owners.

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 Market Ratios
Price/Earning Ratio:
Market price/share of C.S $36 .25
P/E Ratio 18 .40 times
Earning Per share $1.97

Years 2011 2012

P/E Ratio 19.00 18.40

Coca-Cola’s price-earnings ratio has decreased 0.6 times in 2012, because in

2011 the ratio was 19.00 times but in 2012 it become 18.40 times which
suggests that investors may be looking less favorably at the Coca-Cola. This
ratio should be high, because the higher the P/E ratio, the higher will be the
investors confidence in company.

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Market/Book Ratio:

Market price/share of C.S $36 .25

M/B Ratio : 4.93
Book value /per share of C.S $7.34

Years 2011 2012

M/B Ratio 5.00 4.93

We can say that Coca-Cola’s future prospects are being viewed favorably by
investors. Because still, investors are willing to pay more for stocks than
their accounting book value as M/B ratio’s fluctuation is negligible in 2012
against 2011.

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 Conclusion
After applying all the ratios we got an idea that
the Coca Cola Company is a profitable firm.
Because through out the analysis of two years, we
found that the company is getting profitable
return on short term and long term investment,
their profit margin has been increased as well
and they are in the position to pay their debts
with in their resources.

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 Thank you!

Presented By :

Wajid Ali 3335

Haris Riaz 3382
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