Analytical Ratios And Various Key Performance Indicators For Coca-Cola

Main Report

Describe about the Analytical Ratios and Various Key Performance Indicators.

The financial structure of the company is been designed in such a way that it reflects the going concern assumption of the enterprise.  This report discusses the financial profile of the world’s renowned and largest beverage company Coca-Cola that are worldwide distribution network managed through independent bottling partners, wholesalers, distributors and other ventures (Kourovskaia and Meenaghan, 2013.). The report addresses the financial performance of the company during the past ten years through the use of analytical ratios, graphical representations and other key performance indicators.

Coca-Cola- At a Glance

Been the world’s largest beverage company, it serves more than 500 non-alcoholic brands that include sports drinks, juices, water, coffees, and a variety of juices. Company’s success depends on its ability to gain customer’s preference over the variety of drinks they desire and commitment of the management to lead innovation consistently.

Company operates in following market segment:

In 2015, the company has expanded its operation to Louisville, Paducah and Pikeville, Ky.; Evansville, Ind.; Cookeville and Cleveland, Tenn.; Norfolk. During the past two years, company’s customer base is been extended to approximately 33 million people in 14 states.

RATIO	Type	2015 ended In million	2014 ended
Profitability Ratio	Gross Profit Ratio = Gross Profit/Sales * 100	= (2306.45-1405.42) * 100/ 2306.45 = 39.07 %	40.38%	(3.2)%
Profitability Ratio	Net Profit Ratio = Net Profit/Sales * 100	=  59.002 *100/ 2306.45 = 2.56 %	1.8 %	42.22%
Liquidity Ratio	Current Ratio = Current Assets/ Current Liabilities	= 436.022/ 326.55 = 1.34 times	1.26	6.35%
Liquidity Ratio	Quick Ratio = Quick assets/ Current Liabilities	= (436.022-89.464) / 326.553 = 1.06times	0.95	11.58%
Efficiency Ratio	Inventory Turnover = Cost of goods sold/ Average Inventory	1405.426 / (70.74+89.464/2) = 17.55	15.69	11.85 %
Efficiency Ratio	Cash conversion cycle	32.93 +20.8-42.07 = 11.66	= 14.06	(17.07%)
Investment Ratio	Return on net assets= NET Income* 100 / Total Assets	= 59.002 * 100 / 0.5( 1433.076+1850.816) = 3.59 %	= 2.31%	55.41%
Investment Ratio	Return on capital Employed= NOPAT * 100/  Average capital	= 64.41 * 100 / (678.32+867.22/2) = 8.33%	= 8.44%	(1.30%)
Gearing Ratio	Debt to Equity = Total Debt/Total Equity	= (7.063+672.6) / 243.056 = 2.8 times	= 2.74	(2.19)%
Gearing Ratio	Interest Coverage Ratio= Operating Income/ Interest expense	NA	2.94

Interpretation:

On the basis of provided computation, the financial performance of Coca-Cola bottling company for the year 2015 and 2014 can be interpreted. Profitability ratio of the company shows that they are earning gross profit between 30-40%. However, in comparison to previous year, this percentage has been reduced. However, overall profits of the company have been increased. This aspect shows that management of Coca-cola is making improvement in their operational performance by enhancing efficiency. They had efficiently attained the point of break even and are earning good profit margins (Consolidated financial statements, 2015).

On the basis of liquidity ratios, it can be said that company is able to meet up requirements of working capital. However, the current ratio is not adequate as per standard ratio but the company is improving this figure by making use of appropriate working capital management techniques. Similar to this, efficiency ratios of the company is also increasing as there is the growth of 11.87% in inventory turnover and cash conversion cycle has been reduced by 17.07%. This aspect shows that company is accomplishing operational activities with higher efficiency. 

By considering the investment ratio of Coca-cola it can be said that company had delivered reduced returns to stakeholders in comparison to previous year. This factor shows that company is overall efficiency has been improved as return on assets has substantially increased by 56% in current year. The gearing ratio shows that company had introduced more debt to cope up with funding requirements of business. However, increasing debt is favourable position as in adverse situations company has to face financial crisis. On the basis of this factor, the company is recommended to generate lucrative returns for capital contributors.

Coca-Cola- At a Glance

Market Performance

Company’s market performance can be assessed by reviewing its stock prices over different years and observing the increasing and decreasing trend (Brigham and Ehrhardt, 2013).

Key metrics to view the trend in company’s common stock can be viewed by calculating PE ratio.

Pe Ratio

Last 10 years PE ratio is tabulated below that show the company’s market performance:

PE ratio = Share Price / Earnings per share

Year	2006	07	08	09	10	11	12	13	14	15
PE Ratio	26.94	27.01	58.92	14.96	15.83	18.95	22.62	24.64	26.2	28.83

Consistent increase in PE ratio of the company is a sign of high market price and the investor’s perception that company will do well in future and has good prospects for future. Year ended December 2015 has brought PE ratio to 28.83 times.

Revenue

Company’s revenue for the last ten years is been tabulated below:

Year ended December	2006	07	08	09	10	11	12	13	14	15
Revenue ($Million)	1431	1436	1464	1443	1515	1561	1614	1641	1746	2306

Observing the previously mentioned increasing trend of revenue of the company, reasonable conclusions can be drawn about the going concern assumption of the company and growth rate. Its revenue has risen from $1431 million in 2006 to $2306 million thereby showing a net increase of 37.94 % which is a sign of favourable prospects of the company in the future.

Operating Income

Company’s operating income for the last ten years is been tabulated below:

Year ended December	2006	07	08	09	10	11	12	13	14	15
Income ($Million)	85	82	59	95	96	88	89	74	86	98

The increase in revenue has led to a similar trend in operating income and margin of the company eventually. Observing the tabulated increasing trend of operating income of the company, reasonable conclusions can be drawn about the operating profitability of the company and its growth rate. Its operating income has risen from $85 million in 2006 to $98 million thereby showing a net increase of 15.29 %, which is a sign of favourable prospects of the company in the future.

Earnings Per share

Company has generated the following earnings per share during the past ten years:

Year ended December	2006	07	08	09	10	11	12	13	14	15
EPS $	2.55	2.18	0.99	4.16	3.93	3.11	2.95	2.99	3.38	6.35

Investors are keen to infuse additional funds in the company in view of the constant increase in earnings per share of the company. Since 2006, there has been an increase of 149% in the year 2015 to 6.35 per share.

Dividend

Similarly like earning per share, a lucrative earning in the form of a cash dividend or bonus shares attracts investors to maintain their capital contribution in the long run and do not withdraw funds despite having low returns in the short run (Yelkikalan and Köse, 2012). Coca-Cola has been consistently providing dividend per share of $1 per share past 10 years. As per recent dividend trends are concerned, bottling company’s dividend per share for the three months for the year ended in March 2016 was $0.25.

Market Segment

Stock price

Market capitalization

Market capitalization is the total market value of the company and indicates the price that is the least price to buy the concerned company. In analytical terms, it is equal to the share price multiplied by the number of shares outstanding (Gardner, McGowan and Susan 2012). Coca-Cola bottling’s share price for the recent quarter ended in March 2016 was $159.76. The company has consolidated shares outstanding (EOP) for the quarter ended in Mar. 2016 amounting to 9 Million. Therefore, market capitalization for the quarter ended in Mar. 2016 was $1,484 Mil.

Year ended December	2006	07	08	09	10	11	12	13	14	15
Market cap	623	537	420	495	511	539	614	677	816	1696

Capital structure

This is been represented by undermentioned parameters.

Long-term debt to Asset Ratio:

Year ended December	2006	07	08	09	10	11	12	13	14	15
LT debt to Asset	0.49	0.52	0.37	0.47	0.44	0.35	0.36	0.34	0.35	0.36

The company is been substantially financed by debt whose average comes to 35% during the past ten years.

Leverage

Financial leverage is indicated by the following ratio: EBIT /EBT

= 128.037/99.122

= 1.29 times

The company has sufficient funds to meet the tax interest expense and do not lead to dilution of earnings per share.

Stock price

Year ended December	2006	07	08	09	10	11	12	13	14	15
Share price at year end $	47.88	59	42.72	54.25	62.85	67.53	37.24	37.82	41.17	42.92

By considering the stock price of the company it can be noticed that in initial five years there were high fluctuations but in later part financial performance of the company is stable and they had maintained steady growth.

Conclusion

Based on discussions and interpretation made as to the financial profile of the company through the use of analytical ratios and various key performance indicators, it is been said that company has substantially improved its operations during the past 10 years and eventually its market capitalization. As far as the going concern assumption of the company is concerned, the parent company and its subsidiaries (listed) are doing well in business. On an overall basis, the investors can maintain their capital contribution till the long-run as market capitalization has been increased from $623million in 2006 to $1696million in 2016 and eventually led to wealth maximisation of capital contributors.

References

Books and Journals

Kourovskaia, A.A and Meenaghan, T., (2013). Assessing the financial impact of sponsorship investment. Psychology & Marketing, 30(5), Pp.417-430.

Wolf, R., (2014). Corporate Social Responsibility: Contribution to All. Journal of Empowering Organizations through Corporate Social Responsibility, Pp.255.

Brigham, E.F and Ehrhardt, M.C., (2013). Financial management: Theory & practice. Cengage Learning.

Akhter, N., Rafique, A and Usman, M., (2016). Organization Structure and Firm Performance in Financial Development for Perspective in Coca-Cola Beverages in Pakistan. International Review of Management and Business Research. 5(2). Pp.494.

Gardner, J.C., McGowan, C.B and Susan Jr, E.M., (2012). Valuing Coca-Cola using the free cash flow to equity valuation model. Journal of Business & Economics Research (Online). 10(11). Pp.629.

Yelkikalan, N and Köse, C., (2012). The effects of the financial crisis on corporate social responsibility. International Journal of Business and Social Science. Pp. 3(3).

Online

Consolidated financial statements. 2015. [Pdf]. Available through < file:///C:/Users/Prateek%20porwal/Desktop/bhumika/20%20july/2015%20Annual%20Report%20-%20FINAL%20from%20Classic.pdf>. [Accessed on 21^st July 2016].