Coca-Cola Analysis
Below you will find financial data for Coca-Cola for the years 2006 and 2016. This data includes the following:
1. Raw numbers for the balance sheet and income statements
2. Common-size balance sheets (all entries expressed as a percent of Total Assets)
3. Common-size income statement (all entries expressed as a percent of Total Sales)
4. Ratios—including liquidity, profitability, leverage, asset management, and market ratios
5. DuPont equations
6. Working Capital
7. Cash Conversion Cycle
Your assignment is to analyze this data. Your analysis should include the following:
1. An 'eye-ball' assessment of the changes in Coke's financial statements between 2006and 2016—e.g., overall growth in assets, revenues, equity, debt, etc.
2. Analysis of the Common-size statements—i.e., what changed and why. That is, describe the changes in these statements and analyze the cause of the changes. Include: a) mix of assets, b) split between current assets and fixed assets, c) mix of debt, d) split between current liabilities and LT liabilities, capital structure (i.e., debt and equity), e) profitability at all levels, f) changes in expenses, etc. This section must include evidence of research indicating what events had substantive effects on Coke's financial profile during the 10 year period. In other words, profitability may have increased due to introduction of new product lines, leverage may have increased due to the issuance of bonds, and assets may have increased due to acquisitions. These are offered as examples, and your research should indicate what occurred and how it affected Coke from a financial perspective.
3. Analysis of the ratios by category—include in this an explanation of the cause of the change—e.g., liquidity increased due to the increase in CAs and decrease in CLs. In addition to discussing each of the individual ratios, this section must include an overall conclusion regarding the direction of the four major categories of ratios. In other words, you must draw conclusions regarding the overall trends in 1) liquidity, 2) efficiency, profitability, and 4) leverage over the 10 year period. You must also provide industry averages where available so that you can compare Coke's ratios to those of its industry competitors.
4. Analysis of the DuPont equation and discussion of the underlying reasons for the changes in ROI (ROA) and ROE.
5. Analysis of working capital and discussion of the implication of a positive or negative WC level. Is Coke's WC policy conservative, moderate, aggressive? Why?
6. Analysis of the Cash Conversion Cycle and discussion of its implications.
7. Summary and conclusion concerning the major changes in Coke's financial situation.
Coca-Cola Common-Size Statements of Income and Retained Earnings for December 2006 and 2016
All Amounts in Millions
| 2006 | % | 2016 | ||
| Revenue | 24,088 | 100% | $ 41,863 | 100% |
| Cost and Expenses | ||||
| Cost of Sales | $8,164 | 34% | $16,465 | 39% |
| Gross Profit | $15,924 | 66% | $ 25,398 | 61% |
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S, G, and A | $9,616 | 40% | $16,772 | 40% |
| Interest Charges | $220 | 1% | $ 733 | 2% |
| Other Income/Expenses (net) | ($490) | -2% | ($243) | -.5% |
| Total Cost and Expenses | $17,510 | 73% | $ 33,727 | 81% |
| Income before Income Taxes | $6,578 | 27% | $ 8,136 | 19.4% |
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Provision of Income Taxes | $1,498 | 6% | $ 1,586 | 4% |
| Other Income | ($23) | -0.4% | ||
| Net Income | 5,080 | 21% | $ 6,527 | 15.6% |
| Dividends (% of NI) | 57% | 83.6% | ||
| Adjustments to Retained Earnings | $0 | $0 | ||
| Retained Earnings, Beginning Balance | $28,388 | $ | 65,018 | |
| Retained Earnings, Ending Balance | $33,468 | $ | 65,502 |
Coca-Cola Common Size Balance Sheets for December 2006 and 2016
All amounts in Millions
| 2006 | % | 2016 | % | |
| Assets | ||||
| Current Assets | ||||
| Cash and Equivalents | $2,440 | 8% | $22,201 | 25.4% |
| Receivables | $2,704 | 9% | $3,856 | 4.4% |
| Inventory | $1,641 | 5.5% | $2,675 | 3.1% |
| Other | $1,656 | 5.5% | $5,278 | 6.1% |
| Total Current Assets | $8,441 | 28% | $34,010 | 39.0% |
| Productive Assets | ||||
| Property, Plant, and Equipment (net) | $6,903 | $10,635 | ||
| Net Productive Assets | $6,903 | 23% | $10,635 | 12.2% |
| Other Assets | $14,619 | 49% | $42,625 | 48.8% |
| Total non-current assets | $21,522 | 71.8% | $53,260 | 61.0% |
| Total Assets | $29,963 | 100% | $87,270 | 100% |
| Liabilities And Shareholders' Equity | ||||
| Liabilities | ||||
| Current Liabilities | ||||
| Accounts Payable | $5,622 | 19% | $2,682 | 3.1% |
| Current Debt Due | $3,268 | 11% | $16,025 | 18.4% |
| Other | $0 | 0% | $7,825 | 9.0% |
| Total Current Liabilities | $8,890 | 30% | $26,532 | 30.5% |
| Long-Term Liabilities | ||||
| LT Debt | $1,314 | 4% | $29,684 | 34.0% |
| Other LT Liabilities | $2,231 | 7% | $3,753 | 4.3% |
| Deferred Income Taxes | $ 608 | 2% | $4,239 | 4.9% |
| Total LT Liabilities | $4,153 | 13% | $37,676 | 43.2% |
| Total Liabilities | $13,043 | 43% | $64,208 | 73.6 % |
| Shareholders' Equity | ||||
| Common Stock | $878 | 3% | $1,760 | 2.0% |
| Treasury Stock | ($22,118) | -74% | ($47,988) | -55.0% |
| Retained Earnings | $33,468 | 112% | $65,502 | 75.1% |
| Equity Adjustments | ($1,291) | -5% | ($11,205) | -12.8% |
| Capital Surplus | $ 5,983 | 20% | $14,993 | 17.2% |
| Total Shareholders' Equity | $16,920 | 57% | $23,062 | 26.5% |
Total Equity + Liabilities $29,963 100% $87,270 100%
Ratio Analysis for Coco-Cola: 2006 and 2016
| Ratio | Definition | 2006 | 2016 |
| Liquidity |
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| 1. Current ratio | current assets current liabilities | .9 | 1.28 |
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| 2. Quick ratio (acid test) | current assets - inventories current liabilities | .76 | 1.18 |
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| Asset Management |
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| 3. Average collection period | accounts receivables credits sales/ 365 | 41 | 33.6 |
| Total Rev. = Cr. Sales |
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4. Inventory turnover | cost of sales average inventory | 5 | 5.64 |
| INO = AVE INV |
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5. Fixed asset turnover | sales fixed assets | 3.5 | 3.94 |
| FIXED ASSETS = NET |
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| 6. Total asset turnover | sales total assets | .8 | 0.48 |
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| Financial Leverage Management |
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| 7. Debt Ratio | total debt total assets | .44 | 0.735 |
| ST+LT= Total Debt |
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| 8, Debt-to-equity | total debt total equity | .77 | 2.78 |
| ST+LT |
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| Profitability |
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| 9. Gross profit margin | sales - cost of sales sales | 66.1 | 60.7 |
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| 10. Net profit margin | earnings after taxes (EAT) sales | 21.1 | 15.6 |
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| 11. Return on investment | earnings after taxes (EAT) total assets | 17.0 | 7.5 |
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| 12. Return on Stockholders' equity | earnings after taxes (EAT) stockholders' equity | 30.0 | 28.3 |
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Dividend Payout 57% 83.6%
Du Pont Model
ROI or ROA:
| ROI | = | Profit Margin | x | Asset Turnover | = | Net Profit | x | Net Sales | ||||||||
| Net Sales | Total Assets | |||||||||||||||
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| ROI (2006) | = | $5,080 | x | $24,088 | = | 21.1% | x | ,80 | = | 17% | ||||||
| $24,088 | $29,963 | |||||||||||||||
| ROI (2016) | = | $6,527 | x | $41,863 | = | 15.6% | x | 0.48 | = | 7.5% | ||||||
| $41,863 | $87,270 | |||||||||||||||
| ROE:
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| ROE | = | Profit Margin | x | Asset Turnover | x | Leverage |
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Where Leverage = Total Assets/Equity
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ROE (2006) = 21.1% X .8 X 1.77 = 29.9%
ROE (2016) = 15.6% X 0.48 X 3.78 = 28.3%
Working Capital
Working Capital = Current Assets – Current Liabilities
2006 Working Capital: 8441 – 8890 = -449
2016 Working Capital: 34,010 – 26,532 = +7478
Cash Conversion Cycle
2006 2016
Accounts Receivable Days: 41 33.6
Inventory Days: 73 59.4
Accounts Payable Days: 251 59.5
CCC -137 33.6
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