Coca-Cola Company Financial Statement 2009-2012

Đề tài: Phân tích báo cáo tài chính của CocaCola. Trong cuốn báo cáo này, nhóm đã thực hiện phân tích bảng cân đối kế toán (balance sheet), income statement và cash flow sau đó rút ra những nhận xét về tình hình tài chính của Coke. Đồng thơi cũng đưa ra những ý kiến riêng để cải thiện những hạn chế hiện tại.

MINISTRY OF EDUCATION AND TRAINING

HOA SEN UNIVERSITY FACULTY OF ECONOMIC AND COMMERCE

PROJECT Subject: Financial Statement Analysis COCA-COLA COMPANY

FINANCIAL STATEMENT 2009 - 2012

2013 MINISTRY OF EDUCATION AND TRAINING

HOA SEN UNIVERSITY FACULTY OF ECONOMIC AND COMMERCE

PROJECT Subject: Financial Statement Analysis COCA-COLA COMPANY

FINANCIAL STATEMENT 2009 - 2012

LECTURER COMMENTS

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ABSTRACT

Those days, financial statement analysis is becoming more and more important in

economic cycle Although each of financial reporting firms has a different statement Therefore, in this research, we would like to analyze the financial statement of Coca-Cola Company - the world’s leading soft drink maker – during four years 2009 - 2012 Then,

we would like to conclude and give opinions about limitations and unsolved problems regarding to this subject

THANKFULNESS

We highly appreciate our dedicated teachers at Hoa Sen University, especially Ms Đặng Thị Thu Hằng, who has assisted us in doing this project Furthermore, we also thank our classmates for their kindness in helping us deal with difficulties

We cannot avoid mistakes due to lacking of experiences, so we hope to get your honest advices for us to improve better

PREFACE

In our report, we would like to mention to analyze the financial statement of The Cola company during 2009 to 2012 Every aspect is a purpose we want to impart to you:

Coca- First purpose: Introduction of Coca-Cola Company

 Second purpose: Steps to analyze the performances

 Third purpose: Conclusion and suggestion of our group

The project was conducted by three members with following distribution of work:

Phạm Nguyên Quỳnh Thi

Complete the power point and writing report

100%

TABLE OF CONTENTS

LECTURER COMMENTS 3

ABSTRACT 4

THANKFULNESS 5

PREFACE 6

TABLE OF CONTENTS 7

CONTENTS 9

1 Introduction to Coca-Cola 9

1.1 Brief Introduction 9

1.2 Mission and Objectives 11

1.2.1 Mission 11

1.2.2 Vision 11

1.3 Past and Present 12

1.4 Products and Competency 15

2 Balance sheet 17

3 Income statement 18

3.1 Reasons for change in Sales 18

3.2 Reasons for change in Net Income 19

4 Cash flow statement 19

4.1 Operating cash flow 20

4.2 Investing cash flow 20

4.3 Financing cash flow 21

5 Ratios analysis 23

5.1 Activity ratios 23

5.1.1 Short-term activity ratios 23

5.1.2 Long-term activity ratios 28

5.2 Liquidity analysis 29

5.3 Long-term debt and solvency analysis 32

5.3.1 Capitalization table and debt ratio 32

5.3.2 Interest coverage ratios 33

5.4 Profitability analysis 34

5.5 Dupont system of analysis 37

5.5.1 Two-component disaggregation of ROE 38

5.5.2 Three- component disaggregation of ROE 38

6 Suggestions 39

CONTENTS

1 Introduction to Coca-Cola

1.1 Brief Introduction

The Coca-Cola Company (Coca-Cola), the world’s leading soft drink maker, operates

in more than 200 countries and sells 400 brands of nonalcoholic beverages Cola is also the most valuable brand in the world Coca-Cola is a globally recognized successful company

Coca-The Coca-Cola was founded in May of 1886 and continues for more than a century through the times of war and peace, prosperity and depression and economic boom and bust As late as the 1990s, Coca-Cola was one of the most respected companies

Picture 1.1: The Coca-Cola logo’s history Source: http://www.coca-cola.co.uk/

in the world, building and known as a very successful management team

The Coca-Cola Company establishes its firm in the worldwide areas and currently sells its products to over 200 countries The firm operations are divided into several geographies which are Eurasia and Africa, Europe, Latin American, North American and Pacific

The Coca-Cola Company is a beverage company which produces more than 3000 beverage products This Company is also a manufacturer, distributor, bottler, and marketer of non-alcoholic beverage concentrates and syrups Under the implementation of the Coca-Cola system, the Coca- Cola Company has to cooperate with over 300 bottling partners worldwide The company manufactures and sells concentrates, beverage bases and syrups to bottling operations, owns the brands and is responsible for consumer brand marketing initiatives Our bottling partners manufacture, package, merchandise and distribute the final branded beverages to our customers and vending partners, who then sell our products to consumers The company has 92800 worldwide associates around the world live and work in the market the company serves In 2009, The Coca-Cola Company outputted 24.4 billions unit cases products and the sales revenue of The Coca-Cola Company for the year is 30990 millions The company produces the products such as waters, juices and juice drinks, teas, coffees, sports drinks and energy drinks The company has four of the world’s top five nonalcoholic sparkling beverage brands which are Coca-Cola, Diet

Picture 1.2: The Coca-Cola bottle’s history Source: http://www.coca-cola.co.uk/

1.3 Past and Present

1894 … A modest start for a bold idea

In a candy store in Vicksburg, Mississippi, brisk sales of the new fountain beverage called Coca-Cola impressed the store's owner, Joseph A Biedenharn He began bottling Coca-Cola to sell, using a common glass bottle called a Hutchinson Biedenharn sent a case to Asa Griggs Candler, who owned the Company Candler thanked him but took no action One of his nephews already had urged that Coca-Cola be bottled, but Candler focused on fountain sales

1899 … The first bottling agreement

Two young attorneys from Chattanooga, Tennessee believed they could build a business around bottling Coca-Cola In a meeting with Candler, Benjamin F Thomas and Joseph B Whitehead obtained exclusive rights to bottle Coca-Cola across most

of the United States (specifically excluding Vicksburg) for the sum of one dollar A third Chattanooga lawyer, John T Lupton, soon joined their venture

1900-1909 … Rapid growth

The three pioneer bottlers divided the country into territories and sold bottling rights

to local entrepreneurs Their efforts were boosted by major progress in bottling technology, which improved efficiency and product quality By 1909, nearly 400 Coca-Cola bottling plants were operating, most of them family-owned businesses Some were open only during hot-weather months when demand was high

1916 … Birth of the contour bottle

Bottlers worried that the straight-sided bottle for Coca-Cola was easily confused with imitators A group representing the Company and bottlers asked glass manufacturers to offer ideas for a distinctive bottle A design from the Root Glass Company of Terre Haute, Indiana won enthusiastic approval in 1915 and was introduced in 1916 The contour bottle became one of the few packages ever granted trademark status by the U.S Patent Office Today, it's one of the most recognized icons in the world - even in the dark!

1920s … Bottling overtakes fountain sales

As the 1920s dawned, more than 1,000 Coca-Cola bottlers were operating in the U.S Their ideas and zeal fueled steady growth Six-bottle cartons were a huge hit after their 1923 introduction A few years later, open-top metal coolers became the forerunners of automated vending machines By the end of the 1920s, bottle sales of Coca-Cola exceeded fountain sales

1920s and 30s … International expansion

Led by longtime Company leader Robert W Woodruff, chief executive officer and chairman of the Board, the Company began a major push to establish bottling operations outside the U.S Plants were opened in France, Guatemala, Honduras, Mexico, Belgium, Italy, Peru, Spain, Australia and South Africa By the time World War II began, Coca-Cola was being bottled in 44 countries

1940s … Post-war growth

During the war, 64 bottling plants were set up around the world to supply the troops This followed an urgent request for bottling equipment and materials from

General Eisenhower's base in North Africa Many of these war-time plants were later converted to civilian use, permanently enlarging the bottling system and accelerating the growth of the Company's worldwide business

1950s … Packaging innovations

For the first time, consumers had choices of Coca-Cola package size and type the traditional 6.5-ounce contour bottle, or larger servings including 10-, 12- and 26-ounce versions Cans were also introduced, becoming generally available in 1960 1960s … New brands introduced

Following Fanta® in the 1950s, Sprite® , Minute Maid® , Fresca® and TaB® joined brand Coca-Cola in the 1960s Mr Pibb® and Mello Yello® were added in the 1970s The 1980s brought diet Coke® and Cherry Coke® , followed by POWERADE® and DASANI® in the 1990s Today hundreds of other brands are offered to meet consumer preferences in local markets around the world

1970s and 80s … Consolidation to serve customers

As technology led to a global economy, the retailers who sold Coca-Cola merged and evolved into international mega-chains Such customers required a new approach In response, many small and medium-size bottlers consolidated to better serve giant international customers The Company encouraged and invested in a number of bottler consolidations to assure that its largest bottling partners would have capacity

to lead the system in working with global retailers

1990s … New and growing markets

Political and economic changes opened vast markets that were closed or underdeveloped for decades After the fall of the Berlin Wall, the Company invested heavily to build plants in Eastern Europe And as the century closed, more than $1.5

1.4 Products and Competency

Coca-Cola originated as a soda foundation beverage in 1886 to one of the most popular beverage over the world due to few main causes:

 Adoption of strong bottling system 

Picture 1.2: Brands of Coca-Cola Source: http://www.coca-cola.co.uk/

Fanta® in the 1950s, Sprite® , Minute Maid® , Fresca® and TaB® joined brand Cola in the 1960s Mr Pibb® and Mello Yello® were added in the 1970s The 1980s brought diet Coke® and Cherry Coke® , followed by POWERADE® and DASANI® in the 1990s Today hundreds of other brands are offered to meet consumer preferences in

2 Balance sheet

As you can see from THE COCA-COLA COMPANY AND SUBSIDIARIES

CONSOLIDATED COMMON SIZE OF BALANCE SHEET The composition of assets, liabilities, and shareholders’ equity accounts changed from 2009 to 2012 Notable changes occurred for intangible assets (26.4% in 2009 versus 31.% in 2012), loans and notes payable (13.9% in 2009 versus 18.9% in 2012), long-term debt (10.4% in 2009 versus 17.1% in 2012), retained earnings (86.5% in 2009 versus 67.8% in 2012), and treasury stock (52.2% in 2009 versus 40,6% in 2012)

The first thing we noticed is that Coca-Cola has a nearly identical composition of current versus noncurrent assets (30/70) by years However, cash and cash equivalents of Coke’s assets decreases by years along with marketable securities increases by years It could mean that Coke keeps less cash and tranfers it into more marketable securities Another thing is the composition of coke’s accounts receivable slightly decreases by years It could also mean that Coke has become more aggressive in terms of the conditions by which it will offer credit to customers

The next observation is Coca-Cola’s capital structures Coke’s liabilities over equity has a split percentage nearly identical by years (40/60) Interestingly, Coke’s short-term debt, specially, loans and notes payable strongly increase by years This could just be an

indication that Coke relies more heavily on commercial papers to fund its short term operations; It could also mean that Coke has a significantly amount of long term debt increases, and that explain why the shareholder’s equity composition, specially, retained earning has been greatly decreased by year

3 Income statement

3.1 Reasons for change in Sales

Though the economy has been doing better than it has in the past years, prices for certain things are still increasing (ex: Higher Education, Health Insurance, etc.) and the population is far less able and willing to make purchases that are not necessary Also, increases in health awareness regarding soft drinks, sugar, etc may have also resulted in people being more hesitant to purchase Coca-Cola products due to fear of health risks and obesity This

causes a decrease in demand

and therefore a decrease in

sales

The rate of COGS increases

over the years and the highest

is in 2012, gross profits also

increased over the years, There were 3% increases for both cost of goods sold and net operating revenues from

20010 to 2011 Over the past

two years the company has

stayed relatively even as far as

profit, costs and revenue This’s how that the company is stable and still able to make sales despite the world’s current economic condition but the percentage fell backwards because the COGS increased more than the profit Although operating income increase gradually and the highest in 2012, but percentage of operating income decreased gradually and the operating of 2012 had increased, in compared with 2010 Interest expense strongly decreased due to fewer loans and interest rates higher than a year ago

Income before income taxed are lower than 2010's, because the expense and COGS

of 2011 and 2012 suddenly increased, that lead to the same results on gross profit and

Chart 3.1: Revenue and operating income of CoCa-Cola from

2008 to 2012 Source: https://www.google.com/finance?fstype=ii&q=NYSE:KO

after deducting the minority interest (Less: Net income attributable to noncontrolling interests) was the highest in 2010 and 2012's has increased again after 2011's decreased

3.2 Reasons for change in Net Income

Certain factors affecting net

income were high costs for sugar

and aluminum, bad debt, and an

overall weak US economy

Fortunately, in the recent years

there has been evidence that the

economy is on its way to recovery,

hence why the Net Income in

20012 may have been higher than

the Net Income in 2011 Slowly,

the economy is working more in

favor of the food and beverage

industry which is why Net Income seems to be increasing at Coca-Cola as well as companies such as Tyson Foods, and Pepsi Co Fluctuation of foreign currency exchange rates can affect Sales and Net Income

Rate of the stock remains relatively positive, but it's still lower than the rate of first two years, that led to the declining of stock values, although there has been a breakthrough after 2009 with is the weighting is nearly 200%

4 Cash flow statement

Total Cash Flow from Operating Activities was the lowest in 2009 (8,186 million) and the highest in 2012 (10,645 million) Total Cash Flows from Investing Activities was also the lowest in 2009 (4,149 million) and the highest in 2012 (11,404 million) Total Cash Flows from Financing Activities was the lowest in 2011 (2,234 million) and the highest

in 2010 (3,465 million) It was according that the net cash flow during the year of 2012 was negative in comparison with past three years was positive It indicated in 2012 Coca-

Chart 3.2: Revenue and net income of CoCa-Cola from 2008 to

2012 Source: https://www.google.com/finance?fstype=ii&q=NYSE:KO

Cola was develing about investment strongly After looking back over Coca-Cola’s cash flow history, I found that the numbers for investing and financing activities alternate every year For example, in 2009 2010, more money was spent in investing as opposed to financing In 2011, more money was spent in financing and less was spent in investing In

2012, more money was spent in investing activities than financing activities Judging by this pattern, they go back and forth

between financing and investing as

their main focus for the year

4.1 Operating cash flow

As you can see from this

analysis, there was an

approximately 500,000 dollar

increase in the Net Income of this company after decreasing rapidly in 2011 (3 million) This is an 6.25% change from the year before and is a promising sign for the company Net Revenues, however,

increased gradually year by year

since 2009(highest is in 2012 not

2010) Although, Coca-Cola is

earning more money per year according to the analysis on Sales, they were able to increase their expenses for the year (including cost of goods sold) and greatly impact their net income for each year in order to increase their earnings

Striking thing here is the expenses and liabilities, taxes payable fell sharply compared

to the previous year but the net income still the highest caused by the sharp change in amounts earned

4.2 Investing cash flow

The purchase of short-term investments increased sharply but Proceeds from disposals of short-term investments are equivalent, because investment is not effective

Chart 4.1: Cash flow statement of CoCa-Cola from 2008 to 2012 Source: https://www.google.com/finance?fstype=ii&q=NYSE:KO

It’s notable that the purchase of other investments increased strongly Proceeds from disposals of bottling companies and other investments also increased sharply in 2012, that lead to investment ratio in 2012 increased by about 6 times in 2011 and increased

3 times compared with 2 years, the main reason is from buying of investors

4.3 Financing cash flow

In 2012 was also the year's biggest issue debt leading to repayment most

The issuance of stock fell despite a lot of investment Besides, the payable dividend has increased over the years

The company paid dividend increase steadily for customer The cash dividends accounted for more than 50% of the net income The company has paid over 4.400 million in dividends over each of the past three years The net income has stayed relatively the same so this means that the company normally pays about half of their net income to dividends

The company pays

dividends so that they

can keep their investors

happy and continue to

be given money by

them

Net cash provided by

(used in) financing

activities increased and

decreased steadily over

the years

Only net Cash Flows Year In 2012 is negative, because the strong investment cost so much compared with 3 years before (so there was no profit) The overall cash flow for the 2011 year is highest But it decrease strongly in 2012 (30%) These numbers

Chart 4.2: Cash and cash equivalent of CoCa-Cola

show that Coca-Cola’s sales and production has increased in 2012 and also that the price of these things may have also increased due to the recession The decrease of next cash flow from 2011 to 2012 most likely pushed Coca-Cola to invest more, as you can see from the nearly 4 billion dollar increase in cash from investing activities from 2011 to 2012

Loss is also the general problem of subsidiaries Although there are still many late cash in liquidation, even flow fell 30% compared to 2011

In conclusion, in the future, the investment will promote efficiency IPS 2013/2014 significantly increased because of short-term investments and acquired more investments Profit will return in 2013

5 Ratios analysis

Although reviewing trends and using common-size analysis provides an excellent starting

point for analyzing financial information, managers, investors, and other stakeholders

also use various ratios to assess the financial performance and financial condition of

organizations

Each ratio is explained the meaning, provided the formula, calculated the ratio for

Coca-Cola for 4 years, and compare some ratios for Coca-Coca-Cola to PepsiCo’s ratio and industry

averages1

5.1 Activity ratios

To carry out operations, a firm needs to invest in both short-term and long-term

assets Activity ratios give the relationship between the firm’s level of operations and

the assets needed to sustain the activity Activity ratio can also be used to forecast a

firm’s capital requirements

5.1.1 Short-term activity ratios

1 Inventory turnover

The inventory turnover ratio indicates the efficiency of the firm’s inventory

management Its benchmark is 6 This ratio for Coca-Cola for 2010 is calculated as

follows:

1

Source: Stock Analysis on Net (www.stock-analysis-on.net)

Copyright © 2012 EBIT Financial Analyses Center

Long-term activity ratios

Inventory turnover =

The inventory turnover ratio indicates Coca-Cola sold and restocked inventory 4.79

times during 2010 (substantially lower than PepsiCo’s 8.87 times) This ratio

increased steadily from 2009 to 2012 and is Coca-Cola’s is well lower the industry

average of 10.105 times In addition, it is lower than 6 during for year, that means the

Coca-Cola has managed the inventory inefficient Inventory languishes in warehouse

or on the shelves but not rather “turns over” rapidly as it doesn’t move quickly from

time of acquisition to sale

2 Days of inventory on hand

The Days of inventory on hand for Coca-Cola for 2010 is calculated as follows:

DOH (Days of inventory on hand) =

~ 76 days

The DOH indicates Coca-Cola sold its inventory in 76 days in 2010 (substantially

higher than PepsiCo’s 35 days), on average The number of days decreased by 14

days from 2009 to 2012 Coca-Cola is also above the industry average of 49 days

“Retail grocery stores turn inventory over every 22 days, meaning that shelves are

emptied and restocked about every three weeks In addition to extremely fast

Dec 31, 2012 Dec 31, 2011 Dec 31, 2010 Dec 31, 2009 Trends

Inventory Turnover, Comparison to Industry

Dec 31, 2012 Dec 31, 2011 Dec 31, 2010 Dec 31, 2009 Trends

Days of inventory on hand