Analyse and interpret the financial statements of Coca-Cola Essay

Introduction

COCA-COLA,an American company for the drink industry which retails and do the market for the non-alcoholic drink. Coca-Cola Company was foremost lead by the druggist named John Sbith Pemberton in the beautiful Columbus metropolis which is situated in Georgia in the twelvemonth 1886. Later in the twelvemonth 1889 merely after the three old ages of the physique up the expression of the company along with the trade name was transferred to the Asa Griggs Candler who has incorporated the company in the twelvemonth 1892.

The company owned the assorted types of acquisitions like minute amah which was acquired by the company in the twelvemonth 1960, the biggest Indian trade name which Coca-Cola Company owned in the twelvemonth 1993 is the Thump’s up and so in 1995 is Barq’s. In the twelvemonth 2001 Coca-Cola has acquired the assorted fruit juices, the smoothies and the bars which are of the Odwalla trade name for $ 181 million. Fuze drink founded by the Lance Collins and Castanea Partners was besides subsequently acquired by the Coca-Cola in the twelvemonth 2007 for $ 250 million. The company has the mission of reviewing the universe, make people have the inspiring minutes of optimism and felicity and besides making the value and doing a difference. This company besides has the vision of holding the great topographic point where the people are inspired to make the work. Coca-Cola has sponsored assorted football conferences, FIFA universe cup, PGA circuit, UEFA European Championships and has besides owned the Philippine hoops association. In the media field it has sponsored assorted shows like American Idol and Charlie Rose. As stated of 2011 the company has the cost of advertisement has mounted to $ 3.256 billion.

The list of the Board of Directors of the Coca-Cola company are: –

• Muhtar Kent
• Herbert A. Allen
• Ronald W. Allen
• Ana Botin
• Howard G. Buffett
• Richard M. Daley
• Barry Diller
• Helene D. Gayle
• Evan G. Greenberg
• Alexis M. Herman
• Robert A. Kotick
• Maria Elena Lagomasino
• Sam Nunn
• James D. Robinson III
• Peter V. Ueberroth

The relationship between the two figures is called the ratio. Fiscal statements are evaluated through the fiscal ratios as they are really much used to show the logical dealingss between certain points from one or two fiscal statements. Fiscal conditions are analyzed or are compared with one another by term called Ratio analysis. These ratios helps us to understand the net income degree of the organisation as to where the company belongs. The basic profitableness one can acquire by the ratio analysis is that it confirm whether the peculiar concern is in the province of net income or loss and besides does it has adequate assets to pay off loans, portions of revenue enhancements etc..

LITERATURE REVIEW

The ratios are been classified into assorted classs like: –

• Liquidity ratios
• Solvency ratio
• Profitability ratio
• Ownership ratio

1. Liquidity ratios

The liquidness place of the house or an organisation is revealed or is taken out by ciphering of the liquidness ratio. The ratios that comes under the liquidness ratio are –

• Current ratio
• Quick ratio
• Receivables turnover ratio
• Inventory turnover ratio

1. CURRENT RATIO:

Current ratio is calculated by spliting the current assets with the current liabilities.

Current ratio= current assets/current liabilities

Where

Current Assets=Cash in manus + Cash at bank + B/R + Short term Investments ( Marketable Securities ) + Debtors + Stock + Prepaid disbursals.

Current liabilities= Bank Overdraft + B/P + Creditors + Provision for Taxation + Proposed Dividends + Unclaimed Dividends + Outstanding Expenses + Loans collectible.

1. Current ratio of the Coca-Cola Company is

31-12-2013	Current Assets/ Current Liabilitiess	31,304/27,811 = 1.13 approx.
31-12-2012	Current Assets/ Current Liabilitiess	30,328/27,821 = 1.09 approx.

1. Review

Harmonizing to the fixed criterion of current ratio it is said that it should lie from 0.8:1 to 1.2:1 in the organisation. Harmonizing to the mention of the balance sheet of the twelvemonth 2012 and 2013 dated 31^stDecember, the current ratio of the company increased from 1.09 to 1.13. Therefore, it can be said that the short term fiscal place of the company is more satisfactory and the company is really much in a place to pay its current liabilities in clip.

1. Quick ratio:

The ratio which is used for ciphering the company’s liquidness ratio in more precise mode by excepting the stock lists from current plus is called QUICK RATIO. The speedy ratio is besides known as the acerb trial ratio.

Quick Ratio= ( current assets-inventories ) / Current liabilities

Or

Quick Ratio = ( hard currency + near hard currency assets + receivables ) / current liabilities

The place of the company of paying its current liabilities in a specific period of clip i.e. within a month or instantly is indicated by ciphering the Quick ratio.

1. Quick ratio of the Coca-Cola Company as per the balance sheet are:

31-12-2012	( current assets- stock lists ) / current liabilities	( 30,328-3264 ) / 27821 = 0.97 approx.
31-12-2013	( current assets- stock lists ) / current liabilities	( 31,304-3277 ) / 27811 = 1.01 approx.

1. Review

Since harmonizing to the criterion of the speedy ratio computation the ideal province of acquiring the ratio is followed as 1:1 and any divergence or decrease in this is the clear indicant of the deficient liquidness of the company which besides states that the company is been non able to use the resources in an efficient mode.

In this instance after ciphering the ratio mentioning to the balance sheet of the company the consequence was that in both the twelvemonth the company’s speedy ratio is fiting the ideal province as in the twelvemonth 2012 the company’s ratio was 0.97:1 and in the twelvemonth 2013 the speedy ratio was 1.01:1. Both the twelvemonth clearly states that company’s speedy ratio is really much near to 1:1 and besides it means that the resources in the Coca-Cola Company are being used really expeditiously and the company is to the full equal to make full its current liabilities within a twelvemonth.

1. Receivabless Ratio

The ratio used as an accounting step in an organisation which measures the effectivity of the company like if the company is really much able to roll up the debts and besides every bit good how the company is in footings of widening credits is called as Receivable Ratio. The receivable ratio is divided in two ratios for the effectual measurement of the liquidness of the receivables entirely. These ratios are:

1. Average aggregation period ratio

The mean figure of yearss for the aggregation of the outstanding receivables of the company is known as the mean aggregation period ratio.

Average aggregation period= ( receivables * figure of yearss in a twelvemonth ) / one-year recognition gross revenues

1. The mean aggregation period of the Coca-Cola Company is

31-12-2012	( Receivables*no. of yearss in a twelvemonth ) / one-year recognition gross revenues	( 4759*365 ) / 8062 = 215.45 = 215 yearss
31-12-2013	( Receivables*no. of yearss in a twelvemonth ) / one-year recognition gross revenues	( 4873*365 ) / 8212 = 216.59= 217 yearss

1. Review

Since the mean aggregation period is really high of the company it states that the liquidness is low and the longer clip will be needed for the recognition to organize into hard currency.

1. Receivable turnover ratio

The company’s size of gross revenues and the ungathered bill’s magnitude are related by a ratio or the relationship between the two is commuted by the ratio called the receivable turnover ratio which defines the aggregation rate that whether it is high or low. It is besides called as the activity ratio.

Receivable turnover ratio = one-year recognition gross revenues / receivables

1. The receivable turnover ratio of the Coca-Cola Company as per mention to the income statement and the balance sheet is

2012	Receivable turnover ratio = one-year recognition gross revenues / receivables	8062 / 4759 = 1.69 approx.
2013	Receivable turnover ratio = one-year recognition gross revenues / receivables	8212 / 4873 = 1.68 approx.

1. Review

Base on the consequences of both twelvemonth the twelvemonth 2013 has the lower grade of the liquidness of the receivables as compared to 2012 which shows the greater liquidness of receivables

1. Inventory turnover ratio

The stock list turnover ratio is really much similar to the receivable ratio because in the receivable ratio we calculate the liquidness of the receivables and likewise in the stock list turnover ratio we calculate the liquidness of the stock lists of the company..

Inventory turnover ratio = cost of goods sold / stock lists

1. Inventory turnover ratio of the Coca-Cola Company is

31-12-2012	Inventory turnover ratio = cost of goods sold / stock lists	5162 / 3264 = 1.58
31-12-2013	Inventory turnover ratio = cost of goods sold / stock lists	5350 / 3277 = 1.63

1. Review

Sing both the instances the 2013 twelvemonth has high stock list ratio which means that company is running out of goods to sell but besides the benefit that there is no indefensible heavy investing in stock lists which are wholly reversible in the 2012 twelvemonth instance.

1. SOLVENCY RATIO

2.1 DEBT- EQUITY RATIO– The relationship between long term debts and the financess of the stockholders of a peculiar company is determined by the debt-equity ratio. The intent of ciphering this ratio is to determine the soundness of the long term fiscal policies of the house

Debt-equity ratio= entire liabilities / entire equity

1. The debt-equity ratio of the Coca-Cola Company is

31-12-2012	Debt-equity ratio= entire liabilities / entire equity	53384 / 32790 =1.63
31-12-2013	Debt-equity ratio= entire liabilities / entire equity	56882 / 33173 = 1.71

1. Review

The basic consideration for the debt-equity ratio is considered to be 2:1 as safe. And while sing the both twelvemonth we conclude that both old ages ratio is about equal to 2:1 hence long term loaners are safe and fiscal place is sound.

2.2 TIMES- Interest EARNED RATIO– The involvement charges which are covered by the financess of an endeavor are measured by the times-interest earned ratio. The other name of this ratio is Interest coverage ratio.

1. Times- involvement earned ratio for Coca-Cola

31-12-2012	Net incomes before Interest and taxes/ Interest Expense	837 / 94 = 8.90
31-12-2013	Net incomes before Interest and taxes/ Interest Expense	103 = 7.82

1. Review

The ratio indicates that the net incomes has been decreased in 2013 as compared 2012 twelvemonth. It besides indicates that in the twelvemonth 2013 involvement disbursal has been increased which is besides a ground behind the lessening in ratio.

1. PROFITABIITY RATIO

The efficiency of the operation executed in a company is indicated by the profitableness ratio which is shown in relation to gross revenues or assets. The ratios that come under the profitableness ratio are

3.1 Net income border

It is calculated by spliting the current liabilities with the net gross revenues

Net income border = current liabilities / net gross revenues

1. The net income border of the Coca-Cola Company is

2012	Net income border = current liabilities / net gross revenues	27821 / 8062 = 3.45
2013	Net income border = current liabilities / net gross revenues	27811 / 8212 = 3.38

1. Review

Percentage of the net income as compared to the gross is more of 2012 as its net income border ratio is 3.45:1 which more than the 2013 = 3.38 is: 1

3.2 Return on equity

This ratio is really helpful when one wants to analyse the ability of an organisation that whether it can recognize an equal return on capital invested which is done by the stockholder on their equity.

Tax return on equity= net income after revenue enhancement / equity

1. Tax return on equity ratio for the Coca-Cola Company is

2012	Tax return on equity= net income after revenue enhancement / equity	9086 / 32790 = 0.27
2013	Tax return on equity= net income after revenue enhancement / equity	8626 / 33173 = 0.26

1. Review

Base on the end products of both the twelvemonth the latest 2013 twelvemonth shows that company’s ability on the equal return on the capital invested by stockholder is somewhat low whereas the twelvemonth 2012 has little more return toward the stockholders.

3.3 Gaining power ratio

The ability of an organisation in accomplishing the after revenue enhancement return on the beginnings is measured by the gaining power ratio.

Gaining power ratio = net income after revenue enhancement / assets

1. The gaining power ratio of the Coca-Cola Company is

2012	Gaining power ratio = net income after revenue enhancement / assets	9086 / 86174 = 0.105
2013	Gaining power ratio = net income after revenue enhancement / assets	8626 / 90055 = 0.095

1. Review

As comparing both the old ages result the twelvemonth 2012 as compared to 2013 has the more chance for the company in the accomplishment of the after revenue enhancement return on the beginnings.

1. OWNERSHIP RATIO

The ratio which assists the stockholders with the analyzing of their hereafter every bit good as the present investing. These are of three types

4.1 Net incomes per portion

Net incomes per share= net net incomes for equity shareholders/ no. of equity portions outstanding

1. Net incomes per portion for Coca-Cola Company

2012	Net incomes per share= net net incomes for equity shareholders/ no. of equity portions outstanding	9086 / 4469 = 2.033
2013	Net incomes per share= net net incomes for equity shareholders/ no. of equity portions outstanding	8626 / 4402 = 1.95

1. Review

As comparing both the old ages the twelvemonth 2012 has been affluent for the investors as the net incomes per portion ratio is high as compared to the 2013 twelvemonth. Therefore twelvemonth 2012 shows the lifting tendency in the EPS so besides increasing investor’s wealth.

4.2 Price net incomes ratio

Price net incomes ratio= market monetary value of portion / net incomes per portion

1. Price net incomes ratio of Coca-Cola Company

2012	Price net incomes ratio= market monetary value of portion / net incomes per portion	3/ 2.033 = 1.47
2013	Price net incomes ratio= market monetary value of portion / net incomes per portion	3/ 1.95 = 1.53

1. Review

As compared to both the old ages the company has its portion undervalued in the twelvemonth 2012 as compared to 2013 where there are high multiple denotes overvalued portions.

4.3 Capitalization rate

The reciprocal of the monetary value net incomes ratio is called capitalisation rate.

Capitalization rate = net incomes per portion / market monetary value of portion

1. Capitalization rate for Coca-Cola Company

2012	Capitalization rate = net incomes per portion / market monetary value of portion	2.033 / 3 = 0.67 = 67 %
2013	Capitalization rate = net incomes per portion / market monetary value of portion	1.95 / 3 = 0.65 =65 %

1. Review

Since the capitalisation rate of the Coca-Cola Company in the twelvemonth 2012 is 67 % and in the twelvemonth 2013 is 65 % therefore it is clearly stated that the company is gaining 67 % in 2012 and 65 % in 2013 value of the equity portions but more value in 2012.

Decision

The ratio analysis is a important factor for the company’s selling programs that are carried out in the current scenario and besides in approaching twelvemonth. These ratios are like a tool for a director or the caput of the company in analysing or look intoing and measuring whether those fiscal statements are favourable or are unfavourable for the company and so harmonizing to it he/she can put to death his programs for the approaching twelvemonth. These fiscal readings besides carries out the employee’s accomplishments and direction ability along with sing the experience and judgement on the portion of the analyst.