Financial Analysis
The main purpose of this report is to provide an analysis of the financial performance of Coca-Cola Company Ltd for 2011. This report provides information that has been obtained through a financial analysis concerning the profitability, cost benefit, risk analysis and liquidity of Coca-Cola Company Ltd for the year ending 31 December 2011. This report will pay more attention to the financial ratios of the company such as the liquidity ratios. Also highlighted are the improvements or growth made by the company in terms of performance in comparison to the previous years. The report also highlights some of its financial strengths and weaknesses and comment on its financial stability and some of the observable changes.
For the past few years, Coca-Cola Company Ltd has shown an increased growth except for the year 2009 when economic crisis had hit hard. However, the following years have seen a good growth overall in the company regarding increased revenues and profits. This can be illustrated by the three-year income statement shown below. Revenues have grown by an average of 22.5% for the past three years. Although the revenue has continued to grow, gross profit margin ration has shown a decrease indicating that cost of sales is increasing. The Gross profit margins for the three years starting 2011 are 60.86%, 63.85% and 64.22%. The earnings before interest and tax margin indicates the same trend where the margin has been reducing from 26.56% in 2009, 24.05% in 2010 and to 21.81% in 2011. This indicates an increase in the expenses of the company over the years (forbes.com 2012). Looking at the net operating income before income tax, interests and tax, one can realize a growth. However, in relation to increase in revenues, there is a difference as indicated by the financial ratios.
On the other hand, the balance sheet indicates the financial position of the company as well. Through some of the balance sheet ratios, the financial standing of coca cola can be understood. The current ratio shows that the company is in a position to cover its current liabilities with its current asset. The ratio for 2011 is 1.05, 1.16 in 2010 and a.27 in 2009. This shows that the company is loosing its ability to cover its current liabilities. Additionally, at this standing, the ratio is quite low and need to improve. Additionally, the quick ratio shows that the company has been increasing its current liabilities while its liquid assets have not been increasing the same way. This could also indicate that the company is relying too heavily on inventory among other assets for covering its current liabilities. The ratios for the three years starting with 2011 backwards are 0.78, 0.85 and 0.94. This has been a continuous reduction. To fid out how well revenues are utilized to generate the revenue, the revenue on asset ratio is used, which is 0.58 for 2011, 0.48 in 2010 and 0.63 in 2009. This shows that revenue generation from the assets has improved over the last year but not to regain to its initial position (forbes.com 2012).
In general, the overall performance of Coca-Cola Company has been improving by looking at the revue and profit generated. However, a closer look at its financial ratios indicates a different idea where the ratios show a decrease in performance. It indicates that as the revenues rises, the costs rise by a faster rate to reduce the profit margins. The company’s major risk is foreign currency exchange rates (The Coca Cola Company 76). The company uses derivative instruments to reduce their risk to currency exchange rate fluctuations. The company seeks to offset its exposure through operating on a consolidated basis. This work in favor since when one currency goes down another may be higher. This is possible because the company operates in almost all countries all over the world. Another risk is interest rates. Which the company monitors through a mix of fixed rates as well as variable-rate debts (The Coca Cola Company 76)
Income statement
| 12 months ended | Dec 31, 2011 | Dec 31, 2010 | Dec 31, 2009 |
| Net operating revenues | 46,542 | 35,119 | 30,990 |
| Cost of goods sold | (18,216) | (12,693) | (11,088) |
| Gross profit | 28,326 | 22,426 | 19,902 |
| Selling general & administrative | (17,440) | (13,158) | (11,358) |
| Other operating charges | (732) | (819) | (313) |
| Operating income | 10,154 | 8,449 | 8,231 |
| Interest income | 483 | 317 | 249 |
| Interest expense | (417) | (733) | (355) |
| Equity income (loss), net | 690 | 1,025 | 781 |
| Other income (loss), net | 529 | 5,185 | 40 |
| Income before income taxes | 11,439 | 14,243 | 8,946 |
| Income taxes | (2,805) | (2,384) | (2,040) |
| Consolidated net income | 8,634 | 11,859 | 6,906 |
| Net income attributable to non controlling interests | (62) | (50) | (82) |
| Net income attributable to shareowners of The Coca-Cola Company | 8,572 | 11,809 | 6,824 |
Balance Sheet
| Assets
|
2011 | 2010 | 2009 | |
| Cash & Short Term Investments | 14.04B | 11.34B | 9.213B | |
| Receivables
|
4.92B | 4.43B | 3.758B | |
| Inventory
|
3.092B | 2.65B | 2.354B | |
| Prepaid Expenses | 3.45B | 3.162B | 2.226B | |
| Other Current Assets | ||||
| Total Current Assets | 25.50B | 21.58B | 17.55B | |
| Gross Property, Plant & Equipment | 23.15B | 21.71B | 16.47B | |
| Accumulated Depreciation | 8.212B | 6.979B | 6.906B | |
| Net Property, Plant & Equipment | 14.94B | 14.73B | 9.561B | |
| Long Term Investments | 16.14B | 15.10B | 8.708B | |
| Goodwill & Intangibles | 19.90B | 19.40B | 10.88B | |
| Other Long Term Assets | 3.495B | 2.121B | 1.976B | |
| Total Long Term Assets | 54.48B | 51.34B | 31.12B | |
| Total Assets
|
79.97B | 72.92B | 48.67B | |
| Liabilities
|
2011 | 2010 | 2009 | |
| Current Portion of Long Term Debt
|
2.041B | 1.276B | 51.00M | |
| Accounts Payable
|
9.009B | 8.859B | 6.657B | |
| Accrued Expenses
|
||||
| Deferred Revenues
|
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| Other Current Liabilities | ||||
| Total Current Liabilities | 24.28B | 18.51B | 13.72B | |
| Total Long Term Debt | 13.66B | 14.04B | 5.059B | |
| Deferred Income Tax | 4.694B | 4.261B | 1.58B | |
| Other Long Term Liabilities | 5.42B | 4.794B | 2.965B | |
| Total Long Term Liabilities | 23.77B | 23.10B | 9.604B | |
| Total Liabilities | 48.05B | 41.60B | 23.32B | |
| Shareholder’s Equity | 2011 | 2010 | 2009 | |
| Common Shares Outstanding | 4.526B | 4.584B | 4.606B | |
| Preferred Stock | ||||
| Common Stock, Net | 880.00M | 880.00M | 880.00M | |
| Additional Paid-in Capital | 11.21B | 10.06B | 8.537B | |
| Retained Earnings | 53.55B | 49.28B | 41.54B | |
| Treasury Stock | 31.30B | 27.76B | 25.40B | |
| Other Shareholder’s Equity | 286.00M | 314.00M | 547.00M | |
| Minority Interest | ||||
| Shareholder’s Equity | 31.92B | 31.32B | 25.35B | |
Work cited
Forbes.com. Coca Cola Co (NYSE: KO). forbes.com, 2012. Web. November 3, 2012.
The Coca Cola Company. United States Securities and Exchange Commission Form 10-K. Washington, D.C. 20549. Print.
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