Coke Cola: Evaluate the Financial Statements
Introduction
The Coca Cola drink was invented by John Pemberton in the 19 th Century as a carbonated drink.
Its current headquarters is in Atlanta Georgia. The drink is manufactured by the Coca Cola
Company in the US but several countries manufacture the drink under license from main
company. Its main competitor in the US market is Pepsi.
In the year 2014, Coca-Cola made a net income of $7.098 Billion, a reduction of 17% from the
previous trading period in the year 2013. In the same year the total revenues earned by Coca-
Cola amounted to $45.998Billion in the year 2014 while for the year 2013 and 2012 the total
revenues collected amounted to $46.854 Billion and $48.017 Billion for the years 2013 and 2012
respectively. The company had long term debts amounting to $19.063 billion in 2014
representing a reduction of 5% from the previous $19.154 billion in 2013 but in 2012 the total
long term debts were $14.736. Selling and distribution expenses account for 40% of the total
turnover in 2014. The income tax accounted for $2.2 billion while interest expenses accounted
for 483 million in the same year (Bodie, Kane & Marcus, 2008).
The major assets that Coca-cola has are the property, plant and equipment which account for
16% of the total assets of the company while goodwill and long term investments account for
13% and 15% respectively. Intangible assets also account for 16% of the total assets.
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The income statement generally deals with revenue expenses and income including taxes and
interest expenses. The difference between the total revenues earned and the total expenses
incurred are added back to equity as retained earnings less the dividends to minority
shareholders. In 2014, the minority shareholders interest amounted to $26 million. The balance
sheet balances all the total assets and the current liabilities (Garrison, Noreen & Brewer, 2009).
Coca-Cola Financial Summary
2014 2013 2012
Coca Cola 000,000 000,000 000,000
GP 28109 28433 28964
Net Profit 7098 8584 9019
EAT 7098 8584 9019
Share holders Equity 30320 33173 32790
Total Assets 92023 90055 86174
Total Liabilities 61703 56882 53384
Inventories 3100 3277 3264
Cost of Goods 17889 18421 1053
Average inventory 3214 3214 3214
Debt 61703 56882 53384
EBIT 9808 11940 12206
Sales 45998 46854 48017
TT Assets-
Inventories
29886 28027 27064
Interest Expense 483 463 397
Average Receivables
Current Assets 32986 31304 30328
Current Liabilities 32374 27811 27821
Average total assets 89417 89417 89417
Net assets 30320 33173 32790
Net profit margin % 15.43111 18.32074 18.78293
The total assets include the long term investments that account for 15% of the total assets while
property, plant and equipment account for 16%. Goodwill and intangible assets account for 13
and 15% respectively of the total assets.
6a Coke Cola: Evaluate the Financial Statements 3
References
Bodie, Z., Kane, A., & Marcus, A. J. (2008) Investments (7th International Ed.) Boston:
McGraw-Hill. 303
Garrison, R., Noreen, W. & Brewer, P. (2009) Managerial Accounting , McGraw-Hill Irwin.
1). 6a Coke Cola: Financial Statements and how they are linked
6a Coke Cola: Evaluate the Financial Statements 3
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Introduction
The income statement deals in revenue expenditures and expenses. The total expenses are
deducted from the total revenues to arrive at the net income. The income taxes and the minority
interest are also deducted to get the income after taxes and minority interest less any dividends
payable. The resulting amounting is transferred to the balance sheet as retained earnings and also
as part of the total equity capital. For example the retained earnings from the 2014 amounted to
$63.408 billion. The statement of equity reflects how the retained earnings has been utilized in
by the company’s management.
Note 7 describe all the non-current assets that Coca-Cola Company owns.
Property, Land and Equipment ‘ 0000
2014 2013
Land 972 1011
Buildings and improvements 5539 5605
Machinery, Equipments & Vehicles 18225 17551
Construction in Progress 522 865
25258 25032
Less accumulated depreciation 10625 10065
Property, plant and equipment net 14633 14967
This note explains at how the figures that were entered as Plant, property and equipment were
derived from. It also shows the accumulated depreciation and all the plants, property and
equipment that the company owns. The notes explain how the figures on the final financial
statements were calculated and also provides a summary of the all the non-current assets in the
current as well as from the last financial year (Williams, Haka, Bettner & Carcello, 2008).
In note 8, the company describes all the indefinite intangible assets and how they have been
valued. The total indefinite Asset amounted to $25492 dollars as at the end of the year 2014.
6a Coke Cola: Evaluate the Financial Statements 3
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Intangible Assets’000
2014 2013
Trademarks 6533 6744
Bottlers Franchise rights 6689 7415
Goodwill 12100 12312
Other 170 171
Indefinite-lived intangible assets 25492 26642
Note 8 assists in comparing the current intangible and the last intangible assets from the last
financial year.
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To make financial and investments decisions based on the financial reports then the use of ratio
analysis in utilized to compare the current and past performance of the company to gauge
whether the company’s financial performance is improving or deteriorating. The following are
examples of ratio analysis that can be derived from the financial statements of Coca-Cola
Company. These ratios reveal the status of the company’s financial statements (Bodie, Kane &
Marcus, 2008).
Coca-Cola Ratio Analysis
Coca Cola 2014 2013 2012
Current Ratio Total Current Assets/Total current liabilities 1.02 1.13 1.09
Quick Ratio TT C/ Assets – inventories /TT/ C Liabilities 0.92 1.01 0.97
Inventory Turnover Cost of goods sold/Average inventory 5.57 5.73 0.33
Asset turnover Sales/Average total assets 0.51 0.52 0.54
Net assets turnover Net assets / total sales 0.66 0.71 0.68
Times interest earned EBIT/Annual Interest Expense 20.31 25.79 30.75
Debt to total Asset Debt/Assets 0.67 0.63 0.62
Interest cover EBIT/Annual Interest Expense 20.31 25.79 30.75
Profit margin on sale GP/sales % 61.11 60.68 60.32
R.R return on assets EAT/Total Assets 0.08 0.10 0.10
R.R com stock equity Profit after taxes/Shareholders equity 0.23 0.26 0.28
ROE Return On Equity (ROE) 0.23 0.26 0.28
ROA Return on average Assets 0.08 0.10 0.10
The analysis on Coca-Cola’s liquidity status can be reflected on the current and quick ratio
analysis of the current assets. It shows that the liquidity of the company declined from 1.13 in
2013 to 1.02 in 2012. Also the standard average current asset ratio is mostly 2:1. The current
assets should double the current liabilities while the quick ratio should be at least the same as the
current liabilities. The quick ratio should be 1:1 (Garrison, Noreen & Brewer, 2009).
Leverage ratios indicate how much the company is utilizing debts to finance its operations or
investments. The total debts to assets ratio was about 67% in 2014 and it has being increasing
6a Coke Cola: Evaluate the Financial Statements 3
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steadily from the year 2012. The rate is a bit high and as its trend is worrying hence it should be
controlled so as not to be so high. Companies need debts to grow but they should manageable as
debts can lead to insolvency.
The interest cover is also encouraging. It means that the company has enough resources to pay
20.31 times more the interest accruing from the loans the company owes. But the trend for the
interest cover is decreasing rapidly as compared from the previous years and it should be
controlled (Ehrhardt and Brigham, 2008).
The inventory turnover also reflects the company’s efficiency and they indicate how the assets of
a company are being used to generate wealth. The inventory turnover for Coca-Cola was 5.57 in
2014 while in 2013 it was 5.73. It means that on average the stock turns were slightly higher in
2013 than in 2014. The inventory turned 5.57 times to generate sales in the year 2014 compared
to 5.73 in 2013 (Hermanson, Edwards & Invacevich, 2011).
The profitability ratios are also high. The gross margin in 2014 was 61.11 in 2014 compared to
60.68 in 2013. The trend is good and more investors would be attracted to invest in the company.
The return on assets has reduced to 8% in 2014 from 10% in the previous years. Its either the
company is buying more assets or the net profit margin is decreasing. But from the financial
statements the assets are reducing hence the profit margin is declining. The investors would be
worried about this trend.
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References
Bodie, Z., Kane, A., & Marcus, A. J. (2008) Investments (7th International Ed.) Boston:
McGraw-Hill. 303
Ehrhardt, M., Brigham, E. (2008) Corporate Finance: A Focused Approach (3rd ed.) p.131
Garrison, R., Noreen, W. & Brewer, P. (2009) Managerial Accounting , McGraw-Hill Irwin.
Hermanson, R.H., Edwards, J.D., & Invacevich, S.D. (2011) Accounting Principles: A Business
Perspective. First Global Text Edition, Volume 2 Managerial Accounting, 37-73.
Williams, J. R., Haka, S.F., Bettner, M.S. & Carcello, J.V. (2008) Financial & Managerial
Accounting, McGraw-Hill Irwin, p. 40.
6a Coke Cola: Evaluate the Financial Statements
