Idea Transcript
The Coca-Cola Company (KO) By Daniel Frank Section 00A
http://assets.coca-colacompany.com/c4/28/d86e73434193975a768f3500ffae/2012-annual-reporton-form-10-k.pdf
Introduction • • • •
Chief Executive Officer: Muhtar Kent Location of Home Office: Atlanta, GA End Date of Latest Fiscal Year: 12/31/12 Coca-Cola licenses and markets more than 500 nonalcoholic beverage brands including Coca-Cola, Fanta, and Sprite. • It operates in Eurasia and Africa, Europe, Latin and North America, and the Pacific.
Audit Report • Independent Auditors: Ernst & Young LLP • Ernst & Young reported that each financial statement justly presents the consolidated outcome of cash flows and their operations and is in accordance with the US GAAP accounting rules. • In addition, they reported that The Coca-Cola Company managed to have an internal authority over their financial statements as of December 31, 2012, according to COSO standards.
Stock Market Information
• • • •
Most Recent Stock Price: 41.40 (5/30/13) Twelve Month Trading Range: 35.97 - 43.09 (5/30/12 - 5/30/13) Dividend per Share: 1.53 (12/17/12) In my opinion, Coca-Cola is a good buy. The company has very high returns on investment and is a fairly low-risk stock.
Income Statement
Comprehensive Income Statement
Income Statement • • •
• • • • • • •
The income statement uses a multi-step format. Each year net operating revenues have inclined with a large increase from 2010 to 2011 and a slight increase from 2011 to 2012. Gross profit significantly inclined from 2010 to 2011 but has remained almost the same from 2011 to 2012. Operating income significantly inclined from 2010 to 2011 but very slightly increased from 2011 to 2012. Income before income taxes significantly declined from 2010 to 2011 but very slightly increased from 2011 to 2012. Consolidated net income significantly declined from 2010 to 2011 but slightly inclined from 2011 to 2012. Net income attributable to shareowners of the Coca-Cola Company has significantly declined from 2010 to 2011 but has slightly inclined from 2011 to 2012. Net income per share has declined significantly from 2010 to 2011 but has slightly inclined from 2011 to 2012. Average shares outstanding (assuming dilution or not) has slightly declined quite steadily from 2010 to 2012. In general, total comprehensive income significantly declined from 2010 to 2011 but slightly inclined from 2011 to 2012.
Balance Sheet
Balance Sheet
Balance Sheet • Total cash, cash equivalent, and short-term investments slightly declined from 2011 to 2012. • Total current assets significantly inclined from 2011 to 2012. • Total assets significantly inclined from 2011 to 2012. • Total current liabilities inclined from 2011 to 2012. • Long term debt, capital surplus, and reinvested earnings all inclined from 2011 to 2012. • Total equity inclined in addition to total liabilities and equity. • Accounts that changed the most: – – – –
Cash and cash equivalents declined significantly. Short-term investments inclined significantly. Marketable securities skyrocketed. Loans and notes payable inclined significantly.
Statement of Cash Flows
Statement of Cash Flows
Statement of Cash Flows • For 2011 and 2012, cash flows from operating activities are more than net income. • The company is not growing through investment activities exhibited by an $11.4 billion loss in 2012 and a $2.5 billion loss in 2011 in cash flow from investment. • Primary source of financing: long-term loans and debt issuances • In 2011, there was an $8.5 billion beginning balance which increased by $4.2 billion. • In 2012, there was a $12.8 billion beginning balance which decreased by $4.3 billion.
Accounting Policies •
Revenue Recognition: – When there is proof that a transaction exists, delivery has been accomplished, the price is set, and collection is certain revenue is recognized.
•
Cash Equivalents: – Time deposits and investments that are very liquid and have maturities less than three months are considered cash equivalents.
•
Short-Term Investments: – Time deposits and investments that have maturities of more than three months but less than a year are short-term investments.
•
Investments in Equity and Debt Securities: – Coca-Cola uses the equity method to measure investment in equity securities in which they have majority share but uses the fair value or under the cost method for those that they do not have majority share. – Debt securities are recorded at either amortized cost or fair value.
•
Trade Accounts Receivable: – Coca-Cola recognizes its accounts receivable at net realizable value. They include an allowance for uncollectible accounts to record loss on accounts receivable balances as well.
•
Inventories: – Inventories are held at lower of cost or market values. Inventory cost is made through average cost or first in, first out valuation (FIFO).
•
Property, Plant and Equipment: – Property, plant and equipment are recorded by their costs. Depreciation is recorded by the straight-line method over useful live of the asset.
Accounting Policy Topics • • • • • • • • • • • •
•
Basis of Presentation Principles of Consolidation Assets and Liabilities Held for Sale Risks and Uncertainties Revenue Recognition Deductions from Revenue Advertising Costs Shipping and Handling Costs Net Income Per Share Cash Equivalents Short-Term Investments Investments in Equity and Debt Securities Trade Accounts Receivable
• • • • • • • • • • •
Inventories Derivative Instruments Property, Plant & Equipment Goodwill, Trademarks and Other Intangible Assets Contingencies Stock-Based Compensation Pension and Other Postretirement Benefit Plans Income Taxes Translation and Re-measurement Hyperinflationary Economies Recently Issued Accounting Guidance
Financial Analysis Liquidity Ratios • Working Capital: Current Assets - Current Liabilities – 2011: 25,497 - 24,283 = 1,214 – 2012: 30,328 - 27,821 = 2,507 – Comments: From 2011 to 2012, working capital increased, which shows that assets increased over liabilities.
• Current Ratio: Current Assets/Current Liabilities – 2011: 25,497 / 24,283 = 1.05 – 2012: 30,328 / 27,821 = 1.09 – Comment: The ratio increased from 2011, meaning that in 2012, there are more current assets to current liabilities.
• Receivable Turnover: Net Sales/Average Accounts Receivable – 2011: 46,542 / ((2,650 + 3,092) / 2) = 16.2 – 2012: 48,017 / ((3,092 + 3,264) / 2) = 15.1 – Comment: From 2011 to 2012, receivables turnover decreased.
• Average Days’ Sales Uncollected: 365/Receivable Turnover – 2011: 365 / 16.2 = 22.5 – 2012: 365 / 15.1 = 24.2 – Comment: From 2011 to 2012, average days’ sales uncollected increased.
Financial Analysis Liquidity Ratios • Inventory turnover: Cost of Goods Sold/Average Inventory – 2011: 18,215 / ((2,650 + 3,092) / 2) = 6.34 – 2012: 19,053 / ((3,092 + 3,264) / 2) = 6.00 – Comment: In 2012, inventory was sold and replaced 6.00 times compared to 6.34 in 2011.
• Average Days’ Inventory on Hand: 365/Inventory Turnover – 2011: 365 / 6.34 = 57.57 – 2012: 365 / 6.00 = 60.83 – Comment: In 2012, the amount of days it took to replace inventory was 57.57 days compared to 60.83 days.
• Operating Cycle: Days Inventory on Hand + Average Receivable Collection Period – 2011: 57.57 + 39 = 96.57 – 2012: 60.83 + 36 = 96.83 – Comment: The days for the operating cycle to occur remained approximately the same from 2011 to 2012.
Financial Analysis Profitability Ratios • Profit Margin: Net Income/Net Sales – 2011: 8,646 / 46,770 = 0.185 – 2012: 9,086 / 48,070 = 0.189 – Comment: From 2011 to 2012, profit margins increased.
• Asset Turnover: Net Sales/Average Total Assets – 2011: 46,770 / ((72,921 + 79,974) / 2) = 0.612 – 2012: 48,070 / ((79,924 + 86,174) / 2) = 0.579 – Comment: From 2011 to 2012 asset turnover decreased.
• Return on assets: Net Income/Average Total Assets – 2011: 8,646 / ((72,921 + 79,974) / 2) = 0.113 – 2012: 9,086 / ((79,924 + 86,174) / 2) = 0.109 – Comment: Return on assets decreased from 2011 to 2012.
• Return on Equity: Net Income/Total Shareholders’ Equity – 2011: 8,646 / 31,921 = 0.271 – 2012: 9,086 / 33,168 = 0.274 – Comment: Return on equity increased slightly from 2011 to 2012.
Financial Analysis Market Strength Ratios • Price/Earnings per Share: Market Value per Share/Earnings per Share – 2011: 34.59 / 1.89 = 18.30 – 2012: 38.45 / 2.02 = 19.03 – Comment: From 2011 to 2012, the P/E ratio of Coca-Cola increased, which means the stock is now a safer and more lucrative buy.
• Dividend Yield: Total Dividends/Market Capitalization – 2011: (0.235 x 4 x 2,284) / 289,410 = 0.007 – 2012: (0.255 x 4 x 4,504) / 307,860 = 0.015 – Comment: From 2011 to 2012 dividend yield doubled.
Financial Analysis Solvency Ratios • Debt to Equity: Total Liabilities/Total Shareholders’ Equity – 2011: 48053 / 31,921 = 1.51 – 2012: 53,006 / 33,168 = 1.60 – Comment: From 2011 to 2012, debt to equity increased.
• Financing Gap: Total Interest Accruing Assets/Total Interest Accruing Liabilities – 2011: (1,088 + 144 + 7,233 + 1,141) / (12,871 + 2,041 + 13,656) = 0.336 – 2012: (5,017 + 3,092 + 9,216 + 1,232) / (16,297 + 1,577 + 14,736) = 0.569 – Comment: From 2011 to 2012, the financing gap increased significantly.
Industry Situation & Company Plans •
•
•
•
In the past, the soft beverage industry has been largely dominated by brand loyalty. Classic beverages such as Coca-Cola, Sprite, and Fanta have remained their flagship brands for decades. In this realm, Coca-Cola has the advantage with a volume of 51% of the market share of the carbonated soft drink industry as of 2012. However, trends have been showing that consumers are drinking less sugary sodas and are consuming healthier alternatives. That is why Coca-Cola is pushing for a healthier drink portfolio of waters, ready-to-drink teas, coffees, and fruit beverages which are likely to see steady growth as soda sales slowly decline. Coca-Cola is changing their marketing strategies and has begun to embrace more web-based content. They revamped their website and online status with greater social media presence and one-onone target marketing. Their global recognition is strong, and will remain so as they garner a larger online audience. Lastly, Coca-Cola has struggled to maintain a good balance of investment in its bottlers. In 2010, in order to compete with Pepsi’s decision to buy its bottlers to slash costs and improve efficiency, Coca-Cola bought up many of its 69 total independent bottlers, owning 80% share in total. Unfortunately, the move was disorganized and short-sighted, so they sold them back. However, Coca-Cola plans to continue improving this relationship.
Executive Summary • Coca-Cola has seen steady inclines in stock over the past few decades with increasing dividends making the company a strong investor’s pick that shows steady growth. • However, their primary soda brands’ sales are declining and being substituted by healthier drink alternatives. To cope with changing consumer demands, Coca-Cola must adapt to market information in its various global sectors. • Through analysis of its income statement, balance sheet, and key ratios, there is reason to believe that its investment in its bottlers has caused their income to slide making them sell their bottlers’ assets to gain a slightly higher income. There is certainly room for improvement in cost cutting and efficiency but this movement must be made in decisively and effectively and in due time without compromising growth. • Overall, Coca-Cola is on the right track to further success in the beverage industry as long as it sufficiently adapts to the rapidly changing demands of the consumers in the future.
Citations •
Slide 2: Introduction – – – – –
•
Slide 3: Audit Report –
•
http://assets.coca-colacompany.com/c4/28/d86e73434193975a768f3500ffae/2012-annual-report-on-form-10k.pdf
Slide 19: Financial Analysis Solvency Ratios –
•
http://assets.coca-colacompany.com/c4/28/d86e73434193975a768f3500ffae/2012-annual-report-on-form-10k.pdf
Slide 18: Financial Analysis Market Strength Ratios –
•
http://assets.coca-colacompany.com/c4/28/d86e73434193975a768f3500ffae/2012-annual-report-on-form-10k.pdf
Slide 17: Financial Analysis Profitability Ratios –
•
http://assets.coca-colacompany.com/c4/28/d86e73434193975a768f3500ffae/2012-annual-report-on-form-10k.pdf
Slide 15 & 16: Financial Analysis Liquidity Ratios –
•
http://assets.coca-colacompany.com/c4/28/d86e73434193975a768f3500ffae/2012-annual-report-on-form-10k.pdf
Slide 14: Accounting Policies –
•
http://www.coca-colacompany.com/investors/investors-info-stock-information http://ir.thecoca-colacompany.com/phoenix.zhtml?c=94566&p=irol-dividends
Slide 5, 6, 7, 8, 9, 10, 11, 12, & 13: Financials –
•
http://assets.coca-colacompany.com/c4/28/d86e73434193975a768f3500ffae/2012-annual-report-on-form-10k.pdf
Slide 4: Stock Market Information – –
•
http://www.coca-colacompany.com/our-company/board-of-directors-muhtar-kent http://www.coca-colacompany.com/ http://assets.coca-colacompany.com/c4/28/d86e73434193975a768f3500ffae/2012-annual-report-on-form-10k.pdf http://www.reuters.com/finance/stocks/companyProfile?symbol=KO http://www.musclemakergrill.com/images/food/Coke%20Products.jpg
http://assets.coca-colacompany.com/c4/28/d86e73434193975a768f3500ffae/2012-annual-report-on-form-10k.pdf
Slide 21: Industry Situation & Company Plans – – –
http://bigstory.ap.org/article/coca-colas-profit-comes-above-expectations http://www.forbes.com/sites/siliconangle/2013/06/18/coca-cola-leveraing-social-to-drive-leadership-in-socialmedia-marketing/ http://www.bloomberg.com/news/2013-02-12/coca-cola-fourth-quarter-profit-advances-as-north-americagains.html