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Coca-Cola Co. Annual Report Project

Coca-Cola Co. Annual Report Project. Bradford Amidon ACG2021 Sec. 002. Part A: Executive Summary.

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Coca-Cola Co. Annual Report Project

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  1. Coca-Cola Co.Annual Report Project Bradford Amidon ACG2021 Sec. 002

  2. Part A: Executive Summary • Coca-Cola has been a strong company and has maintained stable earnings in the midst of an economic recession. It has shown the ability to shift focus quickly to the dynamics of consumer tastes. An increase in low-calorie beverage production shows that Coca-Cola is aware of the clearly market. After analyzing the long-term debt strategies to decrease the cost of capital, the investors’ growing confidence in 2008, I think it and many other factors will contribute to growth in the future. • Annual Report 2008: http://www.thecoca-colacompany.com/investors/pdfs/form_10K_2008.pdf

  3. Part A: Introduction • In 2008, The Chief Executive Officer was Muhtar Kent, he joined the company in 1978 and was elected the CEO and director of the company in December 2006. • The Coca-Cola headquarters are located in Atlanta, Georgia on a 35-acre commercial property. The company has an 870,000 square foot complex adjacent to another 264,000 square foot plaza. The physical address is 10 Glenlake Parkway, Atlanta, Georgia. • The fiscal year for 2008 ended on December 31, 2008. • Coca-Cola is the world’s largest retailer of non-alcoholic beverages. The company sells products in over 200 countries around the world and owns over 500 brands worldwide (“Coca-Cola” which is deemed the world’s most valuable brand). They also sell concentrates and syrups marketed to wholesalers, retailers and distributors. • The Coca-Cola Company’s main area of operation is North America. Although it is sold in nearly all countries, North America accounted for 25% of its capital expenditures.

  4. Part A: Audit Report • Ernst & Young, LLC. were independent auditors that were used to evaluate consolidated balance sheets and other financial statements for the Coca-Cola Company in for the 2008 fiscal year. • Ernst & Young reported that the balance sheets, income statements, stockholder equity, cash flows and other financial reports accurately and fairly reported the Coca-Cola Company’s financial position. Along with their opinion on the financial statements, they also stated Coca-Cola adequately established proper internal controls over the financial reporting in 2008.

  5. Part A: Stock Market Information • Current Price per share (as of March 2, 2010 at 1:53PM EST): $53.48 per share • The Coca-Cola Company’s current annual range: • 52 week High: $59.45 per share • 52 week low: $37.44 per share • In 2008, The Coca-Cola Company’s dividend per share was $0.38 • As far as an investment, I would buy shares in The Coca-Cola Company, the company has a long-term focus on profitability. The soft drink industry is rapidly changing because of a shift in consumer tastes towards low-calorie, non-carbonated beverages and Coca-Cola is leading the way, which will contribute towards a long-term overall growth in the company.

  6. Part B: Industry Situation and Company Plans • Recently, there has been a link reported between obesity rates and soda in the United States and Worldwide, this news could be catastrophic to an industry that depends so much on consumer tastes and preferences. The outlook looks good for the industry if it can change direction toward more nutrient-rich beverages, Coca-Cola has led the charge providing new beverages such as, Coke Zero and Vitamin Water. In addition to beverage changes, they reported a change in bottling materials. Using plastic that is derived directly from sugar cane and molasses crops, they are going to use bottles with material derived from plant waste to eliminate some costs of raw materials. • Other improvements include further developing their own infrastructure, they have recently announced plans to purchase their largest bottler in North America from Coca-Cola Enterprises. The acquisition of such plants also helps drive long-term value for all shareholders • http://nacsonline.com/NACS/NEWS/daily/pages/ND1119097.aspx • http://www.marketwatch.com/story/the-coca-cola-company-and-coca-cola-enterprises-strategically-advance-and-strengthen-their-partnership-2010-02-25?reflink=MW_news_stmp

  7. Part C: Income Statement • The Coca-Cola Company has a multi-step Income Statement because it includes the Gross Profit amount that is stated after net revenues and Cost of Goods Sold. • Income Statement data as follows: • The data shows overall growth with one large exception, the net income decreased in 2008. After more analysis, I noticed the net equity on the income statement for 2007 was a gain of $668 million. In 2008, due to the recession, they reported a loss of $874 million.

  8. Part C: Balance Sheet • All accounts, total liabilities and total stockholders’ equity led to a decrease of total assets in 2008. • Total Liabilities was the account that had the most change.

  9. Part C: Statement of Cash Flows • In both 2007 and 2008, net income has been greater than the cash flows provided for operating activities. • In 2007, The coca-cola company invested a substantial portion of their cash flows (almost 6 billion dollars!) towards acquiring other bottling companies such as Glaceau. In 2008, displaying a clear retraction in investing activities, The company shifted their focus of investment toward Plant, Property, and Equipment increasing from $1,648 in 2007 to $1,968 in 2008. • The Coca-Cola Company uses Long-Term Loans to lower their costs of overall capital, which allows for a larger return on Stockholder Equity. The changing interest rates can have an adverse effect on their strategy. Their long-term debt was rated A+ by Standard and Poor’s, showing that they are in a good financing position in 2008. • Cash flow has increased in both 2007 with an increase of $1,653 million and in 2008 an increase of $608 million.

  10. Part D: Accounting Policies • Revenue Recognition: Coca-Cola recognizes revenue when the title of the company’s products are transferred to Partners, resellers, retailers, and other customers. Customer incentives are deducted from revenue. • Cash and Equivalents: Marketable Securities that are highly liquid and reach maturity in less than 3 months from purchase are considered equivalent to cash. • Plant, Property, and Equipment: All Plant, Property, and Equipment are stated at cost. The Depreciation is recorded using the straight-line method. The company generally follows such guidelines: Buildings and improvements 40 years or less, Machinery and Equipment 15 years or less, Containers 10 years or less. • Inventories: The inventories consist of mostly raw materials, packaging and finished goods. • Cost Calculations: Cost is calculated on the average cost method and the First in First out Method (FIFO), Inventories are valued at lower of cost or market.

  11. Part D: Accounting Policies Page 2 Topics in Notes to Financial Statements: BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES INVENTORIES BOTTLING INVESTMENTS PROPERTY, PLANT AND EQUIPMENT GOODWILL, TRADEMARKS AND OTHER INTANGIBLE ASSETS SHORT-TERM BORROWINGS AND CREDIT ARRANGEMENTS LONG-TERM DEBT COMPREHENSIVE INCOME FINANCIAL INSTRUMENTS HEDGING TRANSACTIONS AND DERIVATIVE FINANCIAL INSTRUMENTS FAIR VALUE MEASUREMENTS COMMITMENTS AND CONTINGENCIES NET CHANGE IN OPERATING ASSETS AND LIABILITIES STOCK COMPENSATION PLANS PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS INCOME TAXES RESTRUCTURING COSTS SIGNIFICANT OPERATING AND NONOPERATING ITEMS ACQUISITIONS AND INVESTMENTS OPERATING SEGMENTS

  12. Part E: Financial Analysis and Liquidity Ratios • Average Days Sales Uncollected: • 2007: 37.3 days • 2008: 36.5 days • These averages are related to Receivable turnover, the company can collect payments every 36.5 days on average. • Inventory Turnover: • 2007: 5.4 times • 2008: 5.2 times • Inventory Turnover in 2008 decreased slightly compared to 2007, but is still the industry’s leader. • Average Days Inventory on hand: • 2007: 67.7 days • 2008: 70.7 days • Working Capital (in millions): 2007: -$1,120 2008: -$812 Working capital is smaller in 2008 then 2007, it is in the negatives because they operate on long-term debt. • Current Ratio: 2007: 0.9153 2008: 0.9375 Coca-Cola’s Current Ratio is below 2 for both years but its ratio increased from 2007 to 2008. They are more able to pay back their short term debts. • Receivable Turnover: 2007: 9.8 times 2008: 10.0 times There is a small difference in turnover, an increase means it takes less time for the company to collect outstanding payments. In relation to the Inventory turnover, the average days the inventory was in the hands of the company increased in 2008 compared to 2007.

  13. Part E. Financial Analysis Profitability Ratios • Return on Assets • 2007: 16.3% • 2008: 13.6% • In 2008, Coca-Cola’s return on assets decreased nearly 3% clearly showing a decrease in their ability to turn investments into income. Comparatively, Pepsi faired the same losing 3% of their return on assets as well. • Return on Equity: • 2007: 34.46% • 2008: 34.83% • From 2007 to 2008, there has been a slight increase in the company’s return on equity, showing that Coca-Cola was better able to take the investment made by stockholders’ and turn it into earnings. • Gross Profit Margin: • 2007: 63.9% • 2008: 64.4% The increase in the gross profit margin was attributable to favorable price and product mix across the majority of our operating segments. The sale of Remil and Coca-Cola Pakistan also increase gross profit. • Asset Turnover: • 2007: 0.79 • 2008: 0.76 The Asset turnover decreased from 2007 to 2008 it has a low asset turnover but that is related to their higher-than-average gross profit margin.

  14. Part E. Financial Analysis Solvency Ratio • In 2007, The Coca-Cola Company had a debt to equity ratio of 0.998 or 99.8% • In 2008, The company had a decrease of debt-to-equity with 0.979 or 97.9% With knowledge of Coca-Cola’s long-term debt strategy it doesn’t surprise me to see that their total stockholder’s equity matches their total liabilities nearly 1 for 1.

  15. Part E. Financial Analysis Market Strength Ratios • Price Earnings Ratio: • 2007: 14.37 times the earnings reported. • 2008: 22.73 times the earnings reported. Data comes from reported EPS and Market prices as of December 31, 2007 and 2008. It shows the increase from 2007 to 2008 in investor confidence in Coca-Cola to deliver a profit in the future. • Dividend Yield: • 2007: 2.2% • 2008: 3.3% An increase in the dividend yield shows that coca-cola shares gained more value per share as compared to 2007.

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