Company Profile The Coca-Cola Company was founded in 1886 as a fountain pop beverage sold out of a pharmacy for five cents a glass. Today the enterprise has become a global icon with a wide variety of products sold across 200 nations. Its best selling product is its Coca-Cola Classic beverage, but as of 2010 the firm had over 3300 different products in the marketplace. The enterprise is a multinational firm that employees 92,800 people worldwide. The company estimates that the world consumes 1.6 billion servings of Coca Cola products daily.
The mission of the company is to refresh the world, inspire moments of optimism and happiness, create value, and make a difference (Thecoca-colacompany, 2010). Financial Analysis Coca Cola is a company that has achieved tremendous economic success over the years. The firm has grown and in the process it has benefited its shareholders. The company has endured 48 consecutive years of dividend growth. In fiscal year 2009 Coca-Cola obtained revenues of $30,990 million. In comparison with 2008 the enterprise had a decrease in total sales of 2.98%. Considering the fact that the world during that time span was experiencing one of its worst recessions in modern history the decrease in revenues should not be too surprising.
In 2009 Coca-Cola achieve a net profit of $6824 million and earnings per share of $2.95. Despite the fact the company decrease its revenues the firm was able to increase its profitability. In 2009 Coca Cola’s net income increased by 17.16%. Two of the reasons the firm was more profitable was due to the fact that its cost of goods sold and administrative expense went down.
The net margin of the company was a very impressive 22.67%. The return of equity (ROE) and return on assets (ROA) of Coca in 2009 were 26.92% and 14.02%. In order to determine whether these metrics are good or not an analyst must compare the ratios against the industry standard. A database that provides excellent information regarding industry business ratios is the Dun & Bradstreet database. Appendix A shows a snapshot of the industry ratios illustrated in the Dun & Bradstreet database. The industry average for ROE and ROA are 24.2% and 5.6%.
This means that Coca-Cola performance in both these ratios is better than the industry. In terms of ROA Coca-Cola is doing 2.5 times better than the industry. The net margin ratio of 22.67% is much better than the industry norm of 1.7%. The debt ratio of Coca Cola in 2009 was 2.09. The debt ratio shows the ability of a company to pay of its total debt. The general rule is that the debt ratio should be above 1.0. The position of the company is good because the firm debt ratio is twice the comfortable level.
The average debt ratio in the industry is 0.83 which proves once again that Coca Cola is in a good position. Another ratio that measures the solvency of a company is the current ratio. The current ratio measures the ability of business to pay off its short term debt. The current ratio of Coca Cola in 2009 was 1.28. This ratio is calculated by the following formula: current liabilities / current assets. The same 1.0 rule applies to the current ratio which implies Coca Cola is in a favorable position.
Despite having a current above 1.0 in comparison with the industry norm of 1.6 Coca Cola is not doing as well as the industry. A ratio that further tests the liquidity of a company is the acid test or quick ratio. The acid test is calculated similar to the current ratio except in the numerator the inventory is subtracted. The quick ratio of Coca Cola in 2009 was 1.10. Coca-Cola’s inventory composes only 13.41% of its current assets. The quick asset test proves the company is in a good position to pay off its short term debts.
The working capital of the company which is another metric that measures a company’s ability to pay off its short term debt is $3830 million. The inventory turnover of Coca Cola in 2009 was 4.71. The inventory turnover provides information regarding how many times the company sold its inventory during a year. The average inventory turnover of the industry is 20.7. The discrepancy in this metric does not have too much significance due to the fact that each company establishes its inventory cycle.
The industry norm includes a lot of small companies that cannot hold large inventory due to cash flow requirements. The debt to equity ratio of Coca Cola in 2009 was 0.92. The company has a good balance of usage of debt and equity since 48% of its operation has been financed by debt, while the remaining 52% was financed through equity. The industry norm is a debt to equity ratio of 1.41. In comparison with the industry Coca-Cola is doing well because it has not relied too much on debt to grow.
Recommendation At first glance a person that does not know much about financial analyses might say that Coca Cola had a bad year in 2009 because it its revenues decreased in comparison with the previous year. In reality the truth is completely different. The Coca Cola Company had an excellent financial year. One of its most impressive stats was the fact that the company increased net revenue by 17.16%. The bottom line also referred to as profitability is much more important that total sales.
The company has paid good attention to its leverage position. The financial analysis proved that the company is able to pay both its short term and long term responsibilities. Due to the size of the company and its proliferation worldwide the inventory cycle of the company is bit slower than the industry. Since the firm does not have any type of cash flow problem this metric is not a concern at all. Coca Cola was able to perform extremely well in the middle of a global recession.
My recommendation as a financial analyst is that the common stocks of Coca-Cola are a good investment. References Dun & BradStreet Database. Key Business Ratios: Retrieved May 15, 2010 from Dun & Bradstreet database. Thecoca-colacompany. com (2010). Growth, Leadership, and Sustainability. Retrieved May 15, 2010 from http: //www. thecoca-colacompany. com/ourcompany/index. html Appendix A: Industry Ratios (Dun & Bradstreet, 2010) Appendix B: Coca Cola Income Statement (2009) (Thecoca-colacompany, 2010) Appendix C: Coca Cola Balance Sheet (2009) (Thecoca-colacompany, 2010)