Financial Analysis of the Coca-Cola Company

Abstract

A thorough ass essment of Coca-Cola\'s financial stability, performance, and sustainability in the worldwide beverage market is included in the financial study. Key financial measures from recent fiscal seasons are examined in this analysis, including trends in revenue, profitability ratios, liquidity ratios, and solvency ratios. Coca-Cola\'s operational effectiveness and financial stability was evaluated by carefully examining its annual reports, balance sheets, income statements, and cash flow statements. The report provides insights into Coca-Cola\'s market competitiveness and strategic positioning by highlighting the company\'s revenue growth trends, cost management techniques, and profit margins.

Introduction

1. INTRODUCTION

The Coca-Cola company is well established and supplies the product to more than 200 countries and regions (The Coca-Cola Company, 2021). It possesses 500 brands worldwide with a brand value of total of 81.56 billion U.S. dollars (The Coca-Cola Company, 2021). Globally the company has altogether 7,00,000 employees including bottling partners, which fetches more economic opportunities for the local population (The Coca-Cola Company, 2021).

The non-alcoholic beverages brands increased their market share by 24% last year, which is half the size of Coca-Cola’s 49.9% share (Bhushan, 2020). The company released its monetary year 2020 results, which reported the company’s net operating revenue to be $33 billion (Buehler, 2021). The top competitors are Nestle, Pepsi Co. and Unilever with the higher revenues and market share (Figure 1). The two key businesses that assist the company to derive revenue are concentrate and finished product business (Buehler, 2021).

In order to support strategic planning and well-informed decision-making, this financial analysis attempts to give stakeholders—including investors, financial analysts, and corporate managers—a thorough grasp of Coca-Cola's current financial situation and potential future growth. Recommendations for improving long-term growth and financial success in the face of shifting market conditions are provided in the paper's conclusion.

II. RESEARCH METHODOLOGY

1. Data Collection: Gather financial data from Coca-Cola’s annual reports, balance sheets, income statements, and cash flow statements for recent fiscal years.
2. Quantitative Analysis: Calculate and interpret key financial ratios, including profitability, liquidity, solvency, and efficiency ratios.
3. Trend Analysis: Analyze historical financial trends to identify patterns and anomalies in revenue, expenses, and profit margins.
4. Comparative Analysis: Benchmark Coca-Cola’s financial metrics against those of industry peers to assess relative performance.
5. Qualitative Assessment: Review market reports, industry analyses, and recent news to understand the broader economic and competitive context.
6. Risk Evaluation: Examine debt levels, interest obligations, and financial leverage to evaluate the company’s risk profile.
7. Forecasting and Modeling: Use financial models to project future performance based on historical data and current market conditions.

1. Receivable Turnover Ratio: There is an increase in the ratios of Coca-Cola company in the last three years which is positive for the company (Table 5). As compared to the first two consecutive years, the ratio improved in the year 2020 (Table 5). In 2018 and 2019 the company was able to collect its credit sales 2.5 times approximately a year, whereas in 2020 the ratio almost touched 3 times recovery in a year (Table 5). This indicates that the company is efficient in collection of its average receivables (My Accounting Course, 2021). As the company can collect cash from customers sooner, it will be able to use that cash to pay bills and other obligations in time (My Accounting Course, 2021).
2. Average Collection Period: The number of days of collection has reduced from 145 to 124 approximately(Table 5). In 2020, 124 days indicates that customers pay their credit to the company every 124 days on average (Table 5). The collection period has dropped by 16 days year over year showing improvement (Table 5). The company needs to adjust its credit policies to lower the collection period down and be able to meet its short-term obligations (My Accounting Course, 2021). However, it is imperative to check the collection period of this company with the Industrial Standard (My Accounting Course, 2021).
3. Inventory Turnover Ratio: Inventory turnover is a measure of how efficiently and effectively the company can sell the inventory it buys (My Accounting Course, 2021). The change in inventory turnover ratio from 1.66 in 2018 to 1.55 in 2020 is an indication that the company stocks can be sold 1.66times in a year (Table 5). It also implies that it took Coca-Cola approximately 7 months to sell its entire inventory in 2020 (My Accounting Course, 2021). An ideal inventory Turnover Ratio is between 5 – 10 which indicates that you sell and restock your inventory every 1-2 months (My Accounting Course, 2021). Coca Cola Inventory ratio is less than the industry average which shows thatthe company does not have good inventory control (Table 5).
4. Days Sales in Inventory: Number of days the inventory remains in stock has increased from 223 days in 2018 to 235 days in 2020 for Coca-Cola Co (Table 5). This is important to creditors and investors for three main reasons which are value of inventory, liquidity, and cash flows of the company (My Accounting Course, 2021). Older the inventory more obsolete it is and its value will be less than the current fresh inventory (My Accounting Course, 2021). As comparative to ideal industry days, Coca Colas Inventory is blocked for 235 days which is not good for the company (Table 5).

IX. RECENT NEWS ABOUT COCA-COLA

In the second quarter, the sales of Coca-Cola grew above expectations and non-alcoholic beverage maker elevated its revenue forecast for a year (Pulley, 2021). The company’s organic sales showed growth by 37% in the quarter ended in the first week of July (Pulley, 2021).  The business analysts had been expecting 29.3% rise (Pulley, 2021). The result of this is being used as an evidence to reopen the diners and stadiums (Pulley, 2021). In short, all the public venues where the Coca-Cola’s drinks are decanted (Pulley, 2021). 

X. RECOMMENDATIONS

1. Boost Operational Efficiency and Profit Margin: Increase operational efficiency and profit margins by implementing more effective cost control strategies.
2. Improve Debt Management: To save expenses and boost cash flows, concentrate on eliminating high-interest debt.
3. Strategic Investments: To ensure long-term success, set aside a percentage of profits for innovation and investments in high-growth sectors.
4. Optimise Working Capital: To increase liquidity and decrease working capital days, optimise inventory management and collection procedures.
5. Take Advantage of Market Opportunities: To increase revenue and market share, take advantage of new customer preferences and industry trends.
6. Promote Dividend Policy Transparency: To guarantee sufficient money for reinvestment while compensating shareholders, strike a balance between dividend payments and retained earnings.
7. Diversify Your Revenue Streams: Look into and finance new product categories and markets to help offset

Conclusion

The top line of the Coca-Cola company has not been showing any increase in revenue. The turnover has almost remained constant with substantial increase in expenses. The company has adequate coverage of assets over liabilities. It has twice as many assets as liabilities which is an indication of financial strength and stability. However, the company needs to manage its high interest obligations that is impacting its cash flows. The company has not ploughed back its profits in the year 2020 which seems that the shareholders were their priority. This is not a general market practice. Coca-Cola should have retained a certain percentage of its profits forfuture growth and investment opportunities. Also, with interest liabilities that have increased by 50% in 2020, it is better for the company to retain the profits and pay off its debt obligations to reduce the finance cost and increase the margins helping in overall increase in the profits of the company.

References

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Copyright

Copyright © 2024 Dr. Pooja Sharma. This is an open access article distributed under the Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.