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AN EXECUTIVE SUMMARY
This report is concentrating on the financial position of
THE COCA-COLA COMPANY, based in Atlanta,Georgia, USA First listed on the New York Stock
Exchange in 1986 (NYSE: CCE), our roots go back to the
birth of the Coca-Cola bottling business in the 19th
century.
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THE COCATHE COCA--COLA COMPANY (KO)COLA COMPANY (KO)
The COCA-COLA COMPANY, the world
leading soft drinks maker, operates in more than 200
countries and sell 400 brands of non-alcoholic
beverages. COCA-COLA is also the most valuable
brand in the world. COCA-COLA is a globally
recognized successful company.
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Continue«.Continue«.
CCE first expanded from its North American roots to Europe in 1993
with the purchase of bottling rights in the Netherlands. Our European
reach grew in the late 1990s with the addition of Belgium, France,
Great Britain, and Luxembourg.
In 2010, The Coca-Cola Company acquired our North American
operations, and today, we serve customers and consumers in Belgium,
Great Britain, France, Luxembourg, the Netherlands, Norway, and
Sweden.
In each nation and local community, we strive to be an outstanding
corporate citizen and work in partnership with our constituents at
every level.
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MissionMission
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Our vision target:
People
Portfolio
Partner Planet
Profit
Productivity
People
PortfolioPartners
Planer
Profit
Productivity
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Major BrandsMajor Brands
Coca-Cola
Diet Coca-Cola
Sprite
Fanta
Barq's Root Beer
Glaceau Vitamin Water
Coke Zero
Dasani bottled water
Aquarius sports drinks
Nestea
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Packaging Details:
The Coca-Cola products are available in different packing
24 regular bottle shell
6 bottle pack for 1.5 pets12 bottles in a pack for disposable bottle
24 cans in one pack.
Principal Activities:
The three principal activities of the Coca-Cola business system whichcreate greenhouse gases are:-
1. Manufacturing plants
2. The distribution fleet
3. Cold drink equipment.
Packaging and Principal Activities
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DERIVATIVESDERIVATIVES
Understanding the word itself, Derivatives is a key to mastery of the
topic. The word originates in mathematics and refers to a variable,
which has been derived from another variable. For example, a
measure of weight in pound could be derived from a measure of weight
in kilograms by multiplying by two.
In financial sense, these are contracts that derive their value from
some underlying asset. Without the underlying product and market it
would have no independent existence. Underlying asset can a Stock,
Bond, Currency, Index or a Commodity. Someone may take an
interest in the derivative products. Without having an interest in the
underlying product market, but the two are always related and maytherefore interact with each other.
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CHARACTERISTICS OF DERIVATIVESCHARACTERISTICS OF DERIVATIVES
1. Their value is derived from an underlying
instrument such as stock index, currency,
etc.
2. They are vehicles for transferring risk.
3. They are leveraged instruments
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Some of the characteristics of derivativeSome of the characteristics of derivative
Zero Net Supply
Element of Futurity
Expiration of Derivative Contracts
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TYPES OF DERIVATIVESTYPES OF DERIVATIVES
Forwards:
A forward contract is a customized contract between two entities
where settlement takes place on a specific date in the futures at today¶s
pre-agreed price. Forward contracts offer tremendous flexibility to the
party¶s to design the contract in terms of the price, quantity, quality,delivery, time and place. Liquidity and default risk are very high.
Futures:
A futures contract is an agreement between two parties to buy or sell
an asset at a certain time in the future at a certain price. Futures
contracts are special types of forward contracts in the sense, that theformer are standardized exchange traded contracts.
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Options are two types - Calls and Puts. Calls give the buyer the right
but not the obligation to buy a given quantity of the underlying asset at
a given price on or before a given future date. Puts give the buyer the
right but not the obligation to sell a given quantity of the underlying
asset at a given price on or before a given date.
W arrants:
Longer ± dated options are called warrants and are generally tradedover ± the ± counter. Options generally have lives up to one year, the
majority of options traded on options exchanges having a maximum
maturity of nine months.
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Options:
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L EAPS :
The acronym LEAPS means Long Term Equity
Anticipation Securities. These are options having a
maturity of up to three years.
Baskets:
Basket options are options on portfolios of underlying
assets. The underlying asset is usually a moving average of
a basket of assets. Equity index options are a form of basket options.
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S waps:
Swaps are private agreements between two parties to exchange cash
flows in the future according to a pre-arranged formula. They can be
regarded as portfolios of forward contracts. The two commonly used
swaps are: - I nterest rare swaps:
These entail swapping only the interest related cash flows between the
parties in the same currency.
C urrency swaps:
These entail swapping both the principal and interest between the
parties, with the cash flows in one direction being in a different
currency than those in opposite direction.
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Advantage of derivatives Advantage of derivatives
Flexibility:
Derivatives can be used with respect to commodity price, interest and
exchange rates and equity price. They can be used in many ways.
Risk Reduction:
Derivatives can protect your business from huge losses. In fact,
derivatives allow you to cut down on non-essential risks.
Stable Economy:
Derivatives have a stabilizing effect on the economy by reducing the
number of businesses that go under due to volatile market forces.
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Disadvantage of derivativesDisadvantage of derivatives
Credit Risk:
While derivatives cut down on the risks caused by a fluctuating
market, they increase credit risk. Even after minimizing the credit risk
through collateral, you still face some risk from credit protection
agencies. Crimes:
Derivatives have a high potential for misuse. They have been the
caused the downfall of many companies that used trade malpractices
and fraud.
Interest Rates:
Wrong forecasts can result in losses amounting to millions of dollars
for large companies; it can wipe out small businesses. You need to
accurately forecast the long term and short term interest rates,
something that many businesses cannot do.
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H ow derivatives traded in Singapore market H ow derivatives traded in Singapore market
Securities
- Turnover fell 21% year on year to $30 billion, in line with global
markets, due to economic and fiscal uncertainties. Securities daily
average value was $1.4 billion, down 25% from a year earlier.
Derivatives
- Total volume increased 33% year on year to 7.2 million contracts;
derivatives daily average volume was 349,378 contracts.
Commodities and Clearing
- SICOM rubber futures trading rose 62% year on year to 24,512contracts following the migration of the contracts onto the SGX
platform in May.
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Capital Asset Pricing ModelCAPM )
It is used to determine a theoretically appropriate
required rate of return of an assetif that asset is
to be added to an already well-diversified portfolio,
given that assets non-diversifiable risk.
Financial Assess: CAPM
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Formula E (Ra) = Rf + (E (Rm) - Rf )
E (Ra) is the expected return on the capital asset
Rf is the risk-free interest rate
Beta Coefficient is the sensitivity of the expected excess asset returns to theexpected excess market returns.
E (Rm) is the expected return of the market
(the expected market rate of return is usually estimated by measuring
the Geometric Average of the historical returns on a market portfolio)
Financial Assess: CAPM
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Risk free rate of interest 3.0%
Beta coefficient of KO: 0.55
We used SP&500 to estimate the expected return of market, itequals to 14%.
Financial Assess: CAPM
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expected return on the capital asset:
E (Ra) = 3% + 0.55(14% -3%) = 9.6%
If the expected rate is higher than our
required rate, then it should be taken
If it is lower, then, it should be given up
Financial Assess: CAPM
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Advantage:
divided all the securities risk into three pieces.
(Risk free rate of return, risk and price risk unit risk )
Usefulness.
It allows investor assess and select the financial assets based
on the absolute risk instead of overall risk
Financial Assess: CAPM
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Limitations:
the model assumes the market is a perfect competition.
the model assumes investors have same investing time limit
and not take the later period of investment into consider.
the model assumes investors can get loan with an unlimited,stable and risk free rate.
the model assumes market is frictionless
the model assumes all the investor are rational
Financial Assess: CAPM
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Discussion on result finding
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SML
Security Market Line
SML says
about
the fair
value
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SML
Point A: with same Beta
Return is higher than SML
Expected return > Required return
Low price
Worth buying
Point B: with same Beta
Return is lower than SML
Expected return < Required return
High price
Not worth
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Result captured
E (Ra) = 3% + 0.55(14% -3% ) = 9.6%
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Discussion
To decide whether we take the investment,
we should focus on:
If the expected return is higher than
required rate, then it should be taken.
If the expected return is lower than requiredrate, then the investment should be given
up
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Discussion
Depends on the research, usually,
the CAPM value for othercompanies will be around 10%-
15%. As a result, Coca cola is not
good enough for investment.
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ConclusionConclusion
Coke combination of people's taste and production of the
appropriate "derivatives."
From only focus on the business of Coca-Cola beverage
derivatives, Coca-Cola is innovative a variety of methods
of communication with consumers, which will help
increase consumer brand loyalty for Coca-Cola
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Feasibility for the financial derivatives
market development
Risks and regulatory issues should not be
underestimated,in order to use credit
derivatives to better manage credit risk.
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