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WELCOME TO OUR PRESENTATION

Topic: Financial Ratios Analysis of Coca-Cola

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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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Financial Analysis• 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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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 $ 79,974

THE COCA-COLA COMPANY AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETS

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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)

Treasury stock, at cost — 2,571 and 2,514 shares, respectively (35,009)(31,304

)

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 $ 79,974

BALANCE SHEETS Cont’d

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Year Ended December 31, 2012 2011

(In millions except per share data)

As Adjuste

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

AVERAGE SHARES OUTSTANDING ASSUMING DILUTION 4,584 4,646

THE COCA-COLA COMPANY AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF INCOME

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Liquidity RatiosCurrent Ratio:

09.127,821$

30,328$

sLiabilitieCurrent

AssetsCurrent :RatioCurrent

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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97.027,821$

064,72$

sLiabilitieCurrent

Inventory-AssetsCurrent :RatioQuick

Quick/Acid Test Ratio:

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:

55.086,174$

48,017$

Assets Total

Sales :TurnoverAsset Total

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:

8.53,264$

19,053$

Inventory

sold goods ofCost :TurnoverInventory

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:

days17.3609.10

365

Turnover sReceivable

365 :Period Collection Avg.

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:

days 4.96139.24

365

Turnover Payable

365 :PeriodPayment Avg.

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 RatiosDebt Ratio:

%51.61174,86$

006,53$

Assets Total

sLiabilitie Total :RatioDebt

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:

07.25471$

809,11$

Interest

EBIT :Ratio EarnedInterest Times

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 RatiosGross Profit Margin:

%32.60017,48$

28,964$

Sales

Profits Gross :MarginProfit Gross

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:

24.59%48,017$

11,809$

Sales

EBIT :MarginProfit Operating

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:

18.78%48,017$

0199,$

Sales

IncomeNet :MarginProfit Net

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):

.46%0186,174$

9,019$

Assets Total

IncomeNet ROA

Years 2011 2012

ROA % 10.70 10.46

The decrease in Return on Assets indicates that the company is generatingless 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):

%51.7232,790$

9,019$

EquityCommon Total

IncomeNet ROE

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 RatiosPrice/Earning Ratio:

times40.1897.1$

25.36$

sharePer Earning

C.S of eprice/sharMarket Ratio P/E

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:

93.434.7$

25.36$

C.S of share/per Book value

C.S of eprice/sharMarket :Ratio M/B

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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ConclusionAfter 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 Ali3335Haris Riaz 3382