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Coca Cola Financial Statement Analysis

Coca Cola Financial Statement Analysis

Financial Statement Analysis

Financial ratios are tools to help with the interpretation of results. They are used to indicate the financial performance of a company in comparison to its previous years. Parties in an organization can also use ratio analysis as a basis for making decisions. For instance, managers can use them to identify key strengths and weaknesses upon which strategies can be formed. Funders can use them to make comparison between companies and make a judgment on the effectiveness of the management. The various ratios used in analysis include profitability ratios, activity ratios, liquidity ratios, the long-term solvency ratios and the short-term solvency ratio.

Liquidity ratios

They are used to determine if a company will be able to meet its current obligation when it becomes due (Rutkowska-Ziarko, 2015). Current ratio measures the firm’s ability to pay off the short-term liabilities using current assets. Current ratio is an important liquidity ratio since it indicates whether the firm can be able to pay off liabilities that fall due within a year. Current assets represent those assets that the firm can easily convert into cash. They include cash and cash equivalents, marketable securities, and other items. Current ratio is obtained by dividing current assets by the current liabilities.

An ideal current ratio is ‘2’. However, a ratio of 1.5 is also acceptable if the firm has adequate arrangements with its bankers to meet its short-term requirements of funds. It indicates the extent to which the current assets exceed the current liability. A high current ratio shows that funds are not being adequately employed whereas a low current ratio indicates danger to the management. The current ratio of coca cola company has increased meaning the funds are being well utilized. The company should continue utilizing the funds to ensure the ratio increases to a range of between 1.5 and 2.

Related: Coca-Cola Company Organizational Behavior

Profitability ratios

They are used to depict the efficiency in which operations are conducted in a company (Rutkowska-Ziarko, 2015). Gross profit margin, net profit margin and the return on equity are used. The gross profit margin is the ratio of the gross profit to the net sales. It indicates the limit in which a company should manage its operating expenses. The GPM of Coca Cola Company has maintained a percentage of 60-61% in the last three years meaning the sales have remained within the same range. The net operating margin has also remained within the same range whereas the return on equity has improved from last year. This shows there is effective utilization of assets in the company.

Leverage ratios

The ratios indicate the financial position of a company. A company is said to be financially sound if it’s able to meet its short term and long term financial obligation without difficulty. The ratio shows the soundness of the financial policies used by accompany. The debt to equity ratio and debt ratio are used to determine the financial position of a company. The debt to equity ratio is the ratio of total debt to the shareholders equity. It is said to be ideal when the shareholders fund equal to the long-term debt. However, it is also acceptable if the liabilities do not exceed twice the shareholders’ funds. Coca cola company debt to equity ratio has increased from the year 2015 to the year 2016. This means more funds in form of long-term debts have been acquired over the year. The management should not worry, as the debts do not double the amount of the shareholders equity. The debt ratio is the ratio of the sum of the current liabilities and the long-term debt to the total assets.

References

Rutkowska-Ziarko, A. (2015). The influence of profitability ratios and company size on   profitability and investment risk in the capital market. Folia Oeconomica      Stetinensia, 15(1), 151-161. doi:10.1515/foli-2015-0025

https://www.sec.gov/Archives/edgar/data/21344/000002134417000009/a201612310-k.htm

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Coca Cola Company & PepsiCo  Financial Statement and Data Analysis

Question

-Can you please inform the writer to notify me what are the two companies he/she selected before he/she starts doing the assignment.

-Please use Profitability financial ratio if possible.

-Select two companies operating in the same industry and download their latest annual reports
(minimum year ending 2014). YOU MUST NOT select Thorntons plc.

Sample paper

Coca Cola Company & PepsiCo  Financial Statement and Data Analysis

Industry Overview

Coca Cola Company and PepsiCo are both in the beverage sector since they produce ready-to-drink beverages. The beverage industry is one of the fastest growing industries in the world and among the earliest industries. This sector includes companies that manufacture both alcoholic and non-alcoholic drinks. The alcoholic segment includes spirits, wine and beer. On the other hand, the non-alcoholic segment includes soft drinks, coffee, bottled pure water, fresh fruit juices and tea (Wells, 2000). Due to the competitiveness in this industry, most companies turn to producing variety of products, improving their distribution channels as well as their marketing strategies in order to expand their businesses.

Although many of the beverages such as tea, wine and beer have existed for centuries, the beverage industry has only evolved over the past few centuries. The beverage sector is one that is highly fragmented as is evident through the numerous manufacturers, different packaging methods, production processes and even the end products. From the 1990s, beverage companies have evolved from local production to corporate giants that serve international markets. The development in this industry was brought about by the adoption of mass production technique that allowed for expansion into international markets (Nolan, 2007). Other factors also brought about development in the industry such as advancements in product packaging and processes that helped increase the shelf-life of products. Other advancements such as refrigerators helped products such as beers to brewed in plenty without the fear of suffering losses.

Company Profile

Coca Cola

The Coca Cola Company was founded and in operation in 1886 in Atlanta, Georgia as a manufacturer, retailer and marketer of syrups and non-alcoholic beverages. One of the best known products of the company is its flagship product Coca-Cola commonly known as Coke. Since 1889, the company has operated as a franchised distribution system within the industry; it is invoked in the production of syrup concentrates and sells it to various bottlers with sole territorial areas all over the world. However, the Coca-Cola Company has its anchor bottler situated in North America.

Coca Cola Company is the owner and marketer of four of the world’s best seller’s top five non-alcoholic beverage brands which are: Fanta, Coca-Cola, Diet Coke and Sprite (Armus, 2005). According to the 2015 annual report, the company now sells beverage products with their trademark to over 200 countries. These beverages account for over 1.9 billion sales of the estimated 58 billion beverage servings consumed all over the world on a daily basis. The company operates on the belief that its success greatly depends on their ability to associate with its consumers by ensuring they provide products that meet their needs and lifestyles.

PepsiCo

PepsiCo Inc is one of the American multinational beverages Company that also manufactures snacks and has its headquarters in Purchase, New York. The company was commenced in 1965 after the merger of two major companies; Pepsi-Cola Company and Frito-Lay. Since then, expansion has occurred within the company from Pepsi to a company providing products that range from beverages to grain-based snacks. Its expansion included the acquisition of two companies Tropicana and Quaker Oats Company in 1998 and 2001 respectively; it saw Pepsi add the Gatorade brand to its portfolio. By 2012, retail sales of PepsiCo brands generated revenue over $ 1 billion for every piece with the products being distributed to over 200 countries. The bottling and distribution is done by PepsiCo together with other licensed bottlers in other parts of the world. The company has developed and grown to be the second largest catering and Beverage Company in the world.

Competition

Over the years, Coca Cola and Pepsi have been great competitors in the beverage industry. Historically, Coca Cola has been considered Pepsi’s major competitor until the year 2005 in December when PepsiCo beat Coca Cola for the first time ever in 112 years in terms of market value. However, in 2009, tables turned with Coca Cola holding a higher market share within the US than Pepsi in sales of carbonated soft drinks. Through mergers, partnerships and acquisitions done by PepsiCo in the year 1990 and 2000, the company’s business has expanded with the inclusion of a wider product base inclusive of snacks, foodstuffs and beverages (McKelvey, 2006). These products have seen the company make a lot to an extent that the mainstream of the revenue has shifted from the sale and production of carbonated drinks.

Corporate Social Responsibility

In an effort to support the wellbeing of its consumers, Coca Cola ensures that it offers reduced, low or completely calorie-free options in over 191 markets in which it operates. In 2014 alone, the company was able to support more than 300 programs for healthy living in over 112 markets. In that same year, Coca Cola foundation together with the company itself gave back to the community $126 million which is approximately 1.3% of its operating income. Through this efforts, the company has managed to support women, children and communities in general lead better, healthier lives.

For the case of PepsiCo, through its vision to deliver top notch financial performance, it has managed to reduce its operational water use by 23% per unit of production which shows great effort in conservation of water. In addition, the company has also recorded 1 billion liter reduction in absolute water use. Due to its high values portrayed in its business operations, Pepsi has been ranked among the World’s Most Ethical Companies by Ethisphere for ten consecutive years (2007-2016) which is a proof of just how much Pepsi value the community which it serves by maintaining high business standards at all times.

Financial Aspects

Revenue Outlook

        The Coca-Cola Company recognizes revenue when the transfer of product to the bottling partners, through a resale or to its direct consumers. The relationship between the parties exists as an agreement where the delivery has been made and price is either fixed or determinable and finally collectability is rationally guaranteed.  The financial year 2015 saw the sales capacity and unit sales case size both grow with a margin of 2 % in comparison with the previous year. Although having had a 2% growth on sales of case the Coca- Cola net profit revenue decreased by a 4% margin which was a $ 1,704 million loss (Cola, 2015).It attributed the loss to the unfavorable impacts on the foreign exchange fluctuations. The United States dollar was at a stronger position than most currencies with the company operations. The gross profit with the company also decreased to 60.5 percent in 2015 a 0.6 decrease from the previous year 2014. It was also I attribute to the foreign exchange loss, although offset by the lower prices on commodity as well as a positive price mix in its areas of operations.

        PepsiCo net revenue as at 2015 stood at 63,056 million a 5 % decrease from the previous year. The total operating profit decreased by 13 % while the operating margin decreased 1.2 percent (PepsiCo, 2015). Unlike the competitor, PepsiCo had a certain operating cost increase. It also acknowledged that unfavorable foreign exchange was a risk factor to the decrease in operating margin. Unlike the Coca-Cola Company its marketing mix did not work for its revenue growth, PepsiCo has an increased cost on advertisement and marketing.

 

Marketing and risk factor

        PepsiCo acknowledges offering of incentives and discounts on various products as a means of marketing. Most of its incentives arrangement is not more than a year, with only incentives such as fountain pouring rights, extending a year. The company advertising and other related marketing expenses increased with $ 0.1 billion and stood at $2.4 billion. PepsiCo also have part marketing as deferred expenses, which are expensed with the ear once utilized. They include media contribution and personal services, promotional materials and production costs of future media advertising. Deferred advertising incurred by PepsiCo is $40 million. The distribution cost which included cost of shipping and handling activities was $ 9.4 billion (PepsiCo, 2015)

         Coca-Cola Company had an increase in its marketing and advertising cost attributed to the investment in strengthening the companies brand and partially offsetting the foreign exchange impact. Selling and distribution expenses with Coca-Cola also reduced in 2015, attributing the reduction on acquisitions and divestitures impacts within the business operations.  The Coca-Cola Company also focused more on marketing spending on consumers facing promotional overheads as well as saving on output and initiatives towards reinvestments. The high risk factor facing both companies if the foreign exchange fluctuations against the constant U.S Dollar, causing losses on both companies on international operations. 

Profitability ratio

The ratio measures the company ability to utilize its resources in the generation of profitable sale within its operations. The ratios include Gross profit Margin, Net Profit Margin, Operating Profit Margin, Return on Equity (ROE) and Return on Assets (ROA). The gross profit margin is an indicator of the percentage of income available to cover both operative and other outflows. The gross profit margin for Coca-Cola stood at 60.53 %, which was a deterioration from the previous year (Cola, 2015). PepsiCo stood at 54.99%, lower than Coca- Cola although an improvement from the previous year.

         The operating profit margin is a representation as operating income divided by revenue. It measures the proportion of companies’ revenue left after expensing on its valuable costs of production. PepsiCo operating profit stood at 13.25 %, while Coca- Cola stood at 19.70% both companies highlighting a decrease from the previous year. Coca-Cola has a higher proportion on income left as compared to PepsiCo.

        The Net profit margin which is an indicator of company profitability margin is a representation of net income against the revenue. It highlights the percentage of revenue within the company after all the expenses have been deducted from the sales. Standing at 16.60% Coca-Cola Company highlighted a slight improvement from the previous year. PepsiCo net profit was at 8.65%, with Coca-Cola almost doubling it figure which was a decrease from the previous year.

        Both companies had an increase in the Return of Equity, PepsiCo stood at 45.73% while Coca-Cola stood at 28.77%. The return on Equity is computed as net revenue against shareholders equity. It is a highlight of the amount of net income returned as a percentage of the shareholders equity. It effectively measures the profit within the corporation though a highlight on how much profits is in generation with the money invested by the shareholders.

 The Return on Assets which is the net income against total company assets for Coca- Cola stood at 8.16 % while that of PepsiCo was at 7.83%, which was a decrease from the previous year. The Return on Asset for Coca- Cola was a slight increase from the previous year. The Return on Assets provides a vivid idea on how most of the managers are effective in utilization of assets in generation of earning. It is clear that both companies Return on Asset falls on the same level although PepsiCo is lower with a slight margin.   

References

Armus, S. (2005). Coca-Cola Company. France and the Americas: Culture, Politics, and History: a Multidisciplinary Encyclopedia, 273.

Cola, C. (2015). Annual financial Report 2015. Form 10-k.

McKelvey, S. M. (2006). Coca-Cola vs. PepsiCo-A” Super” Battleground for the Cola Wars? Sport Marketing Quarterly, 114.

Nolan, P. Z. (2007). The Beverage Industry. In The Global Business Revolution and the Cascade Effect. Palgrave Macmillan UK.

PepsiCo. (2015). Annual Financial Report 2015. Form 10-k.

Wells, B. H. (2000). Carbonated-Beverage Industry. Journal (American Water Works Association), 860-864.

 

Appendices

 

Gross profit margin

Coca-Cola

Gross profit margin = Gross profit ÷ Net operating revenues * 100
= 100 × 26,812 ÷ 44,294 = 60.53%

PepsiCo.

Gross profit margin = Gross profit ÷ Net revenue * 100
= 100 × 34,672 ÷ 63,056 = 54.99%

 

Operating Profit Margin

Coca-Cola

Operating profit margin = Operating income ÷ Net operating revenues * 100
= 100 × 8,728 ÷ 44,294 = 19.70%

PepsiCo.

Operating profit margin = Operating profit ÷ Net revenue * 100
= 100 × 8,353 ÷ 63,056 = 13.25%

 

 

Net Profit Margin

Coca-Cola

Net profit margin = Net income attributable to shareowners of The Coca-Cola Company ÷ Net operating revenues * 100
= 100 × 7,351 ÷ 44,294 = 16.60%

 

PepsiCo

Net profit margin = Net income attributable to PepsiCo ÷ Net revenue * 100
= 100 × 5,452 ÷ 63,056 = 8.65%

 

Return on Equity

Coca-Cola

ROE = Net income attributable to shareowners of The Coca-Cola Company ÷ Equity attributable to shareowners of The Coca-Cola Company * 100
= 100 × 7,351 ÷ 25,554 = 28.77%

 

PepsiCo

ROE = Net income attributable to PepsiCo ÷ Total PepsiCo shareholders’ equity * 100
= 100 × 5,452 ÷ 11,923 = 45.73%

 

Return on Assets

Coca-Cola

ROA = Net income attributable to shareowners of The Coca-Cola Company ÷ Total assets * 100
= 100 × 7,351 ÷ 90,093 = 8.16%

PepsiCo

ROA = Net income attributable to PepsiCo ÷ Total assets * 100
= 100 × 5,452 ÷ 69,667 = 7.83%

 

COCA-COLA

Balance Sheet

USD $ in millions

Dec 31, 2015 Dec 31, 2014 Dec 31, 2013 Dec 31, 2012 Dec 31, 2011
Cash and cash equivalents 7,309  8,958  10,414  8,442  12,803 
Short-term investments 8,322  9,052  6,707  5,017  1,088 
Cash, cash equivalents and short-term investments 15,631  18,010  17,121  13,459  13,891 
Marketable securities 4,269  3,665  3,147  3,092  144 
Trade accounts receivable, less allowances 3,941  4,466  4,873  4,759  4,920 
Inventories 2,902  3,100  3,277  3,264  3,092 
Prepaid expenses and other assets 2,752  3,066  2,886  2,781  3,450 
Assets held for sale 3,900  679  2,973 
Current assets 33,395  32,986  31,304  30,328  25,497 
Equity method investments 12,318  9,947  10,393  9,216  7,233 
Other investments 3,470  3,678  1,119  1,232  1,141 
Other assets 4,207  4,407  4,661  3,585  3,495 
Property, plant and equipment, net 12,571  14,633  14,967  14,476  14,939 
Trademarks with indefinite lives 5,989  6,533  6,744  6,527  6,430 
Bottlers’ franchise rights with indefinite lives 6,000  6,689  7,415  7,405  7,770 
Goodwill 11,289  12,100  12,312  12,255  12,219 
Other intangible assets 854  1,050  1,140  1,150  1,250 
Noncurrent assets 56,698  59,037  58,751  55,846  54,477 
Total assets 90,093  92,023  90,055  86,174 79,974

 

Current Liabilities               26,930  32,374  27,811  27,821  24,283 
Long-term debt,excluding current maturities 28,407  19,063  19,154  14,736  13,656 
Other liabilities 4,301  4,389  3,498  5,468  5,420 
Deferred income taxes 4,691  5,636  6,152  4,981  4,694 
Noncurrent liabilities 37,399  29,088  28,804  25,185  23,770 
Total liabilities 64,329  61,462  56,615  53,006  48,053 
Common stock, $0.25 par value 1,760  1,760  1,760  1,760  880 
Capital surplus 14,016  13,154  12,276  11,379  11,212 
Reinvested earnings 65,018  63,408  61,660  58,045  53,550 
Accumulated other comprehensive loss (10,174) (5,777) (3,432) (3,385) (2,703)
Treasury stock, at cost (45,066) (42,225) (39,091) (35,009) (31,304)
Equity attributable to shareowners of The Coca-Cola Company 25,554  30,320  33,173  32,790  31,635 
Equity attributable to noncontrolling interests 210  241  267  378  286 
Total equity 25,764  30,561  33,440  33,168  31,921 
Total liabilities and equity 90,093  92,023  90,055  86,174 79,974

 

 

Income statement

USD $ in millions

12 months ended Dec 31, 2015 Dec 31, 2014 Dec 31, 2013 Dec 31, 2012 Dec 31, 2011
Net operating revenues 44,294  45,998  46,854  48,017  46,542 
Cost of goods sold (17,482) (17,889) (18,421) (19,053) (18,216)
Gross profit 26,812  28,109  28,433  28,964  28,326 
Selling, general and administrative expenses (16,427) (17,218) (17,310) (17,738) (17,440)
Other operating charges (1,657) (1,183) (895) (447) (732)
Operating income 8,728  9,708  10,228  10,779  10,154 
Interest income 613  594  534  471  483 
Interest expense (856) (483) (463) (397) (417)
Equity income, net 489  769  602  819  690 
Other income (loss), net 631  (1,263) 576  137  529 
Income before income taxes 9,605  9,325  11,477  11,809  11,439 
Income taxes (2,239) (2,201) (2,851) (2,723) (2,805)
Consolidated net income 7,366  7,124  8,626  9,086  8,634 
Net income attributable to non-controlling interests (15) (26) (42) (67) (62)
Net income attributable to shareowners of The Coca-Cola Company 7,351  7,098  8,584  9,019  8,572

 

PEPSICO

Income Statement        (Figures in thousands)

Revenue 12/26/2015 12/27/2014 12/28/2013
Total Revenue 63,056,000 66,683,000 66,415,000
Cost of Revenue 28,384,000 30,884,000 31,243,000
Gross Profit 34,672,000 35,799,000 35,172,000
Operating Expenses
Research Development
Selling General and Administrative 24,885,000 26,126,000 25,357,000
Non Recurring 1,359,000 1,359,000 1,359,000
Others 75,000 92,000 110,000
Total Operating Expenses
Operating Income or Loss 8,353,000 9,581,000 9,705,000
Income from Continuing Operations
Total Other Income/Expenses Net 59,000 85,000 97,000
Earnings Before Interest and Taxes 8,412,000 9,666,000 9,802,000
Interest Expense 970,000 909,000 911,000
Income Before Tax 7,442,000 8,757,000 8,891,000
Income Tax Expense 1,941,000 2,199,000 2,104,000
Minority Interest 107,000 110,000 110,000
Net Income From Continuing Ops 5,452,000 6,513,000 6,740,000
Non-recurring Events
Discontinued Operations
Extraordinary Items
Effect Of Accounting Changes
Other Items
Net Income
Net Income 5,452,000 6,513,000 6,740,000
Preferred Stock And Other Adjustments
Net Income Applicable To Common Shares 5,452,000 6,513,000 6,740,000

 

 

 

Balance Sheet     (Figures in thousands)

Period Ending 12/26/2015 12/27/2014 12/28/2013
Current Assets
Cash And Cash Equivalents 9,096,000 6,134,000 9,375,000
Short Term Investments 2,913,000 2,592,000 303,000
Net Receivables 6,437,000 6,651,000 6,954,000
Inventory 2,720,000 3,143,000 3,409,000
Other Current Assets 1,865,000 2,143,000 2,162,000
Total Current Assets 23,031,000 20,663,000 22,203,000
Long Term Investments 2,311,000 2,689,000 2,623,000
Property Plant and Equipment 16,317,000 17,244,000 18,575,000
Goodwill 14,177,000 14,965,000 16,613,000
Intangible Assets 13,081,000 14,088,000 16,039,000
Accumulated Amortization
Other Assets 750,000 860,000 1,425,000
Deferred Long Term Asset Charges
Total Assets 69,667,000 70,509,000 77,478,000
Current Liabilities
Accounts Payable 13,507,000 13,016,000 12,533,000
Short/Current Long Term Debt 4,071,000 5,076,000 5,306,000
Other Current Liabilities
Total Current Liabilities 17,578,000 18,092,000 17,839,000
Long Term Debt 29,213,000 23,821,000 24,333,000
Other Liabilities 5,887,000 5,744,000 4,931,000
Deferred Long Term Liability Charges 4,959,000 5,304,000 5,986,000
Minority Interest 107,000 110,000 110,000
Negative Goodwill
Total Liabilities 57,744,000 53,071,000 53,199,000
Stockholders’ Equity
Misc. Stocks Options Warrants -145,000 -140,000 -130,000
Redeemable Preferred Stock
Preferred Stock
Common Stock 24,000 25,000 25,000
Retained Earnings 50,472,000 49,092,000 46,420,000
Treasury Stock -29,185,000 -24,985,000 -21,004,000
Capital Surplus 4,076,000 4,115,000 4,095,000
Other Stockholder Equity -13,319,000 -10,669,000 -5,127,000
Total Stockholder Equity 12,068,000 17,578,000 24,409,000
Net Tangible Assets -15,190,000 -11,475,000 -8,243,000

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