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Coca-Cola

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Autor:  anton  19 October 2010
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Coca-Cola Company Analysis

The Coca-Cola company was founded in 1886 by John Pemberton, a Civil War veteran and Atlanta pharmacist. He was inspired by his curiosity as he stirred up a fragrant, caramel-colored liquid that he brought down to a place called Jacobs’ Pharmacy. There he added carbonated water and let several customers sample the new concoction. Jacobs’ Pharmacy put it on sale for five cents a glass and named it Coca-Cola. This “inspired curiosity” has now grown to be the world’s leading manufacturer, marketer, and distributor of nonalcoholic beverage concentrates and syrups. In 1906 Coca-Cola opened bottling plants in Canada, Cuba, and Panama. Today they produce nearly 400 brands in over 200 countries. More than 70% of their income comes from outside the U.S. (1). This paper will focus on an analysis of operations of the statement of cash flow reports and a vertical and horizontal analysis of the consolidated balance sheets. Also an analysis of the global financial condition of the Coca-Cola Company and the value of goodwill and other intangible assets will be discussed.

The statement of cash flows reports a firm’s major cash inflows and outflows for a period. This statement provides useful information about a company’s ability to generate cash from operations, maintain and expand its operating capacity, meeting its financial obligations, and pay dividends. There are three types of activities to look at in this statement, which are cash flows from operating activities, investing activities, and financial activities (3, 2005).

When analyzing Coca-Cola’s statement of cash flow, the first thing to note is a steady increase in operating activities within the past few years. These transactions affect the net income. From 2001 to 2003 the cash from net income increased from $4.1 million to $5.5 million. The operating activities is often the most important cash flow of a business because it shows the cash from revenue compared to the payments made for expenses (2).

The cash flows from investing activities are cash flows from transactions that affect the investments in non-current assets. Some of these include investments in bottling companies; purchases of property, plant and equipment; and purchases of investments and assets. For the most part, these figures have remained fairly stable. From 2001 to 2003 it went from $1.1 million to $9.3 million, showing a slight decline (2).

The last part of this report is the cash flow from financing activities. These are transactions that affect the equity and debt of the business. Some of these include the issuances of debts, payment of debts, issuances of stock, purchase of stock, and dividends. There has been a steady increase in this section from $2.8 million to $3.6 million from 2001 to 2003. Also, there has been an increase in purchase of stocks and an increase in dividends paid out making this a fairly safe investment prospect (2).

When analyzing Coca-Cola’s consolidated balance sheet you can compare the assets, liabilities, and owner’s equity between different years. In this case, I compared 2002 to 2003 and did a vertical and horizontal analysis. In a vertical analysis of the balance sheet, each asset item is stated as a percent of the total assets and each liability and shareholders’ equity item is stated as a percent of the total liabilities and shareholders’ equity (3, 2005). There were a few minor percentage changes in Coca-Cola’s assets but for the most part stayed relatively close. From 2002 to 2003 the changes went as followed: current assets increased .6%, investments and other assets increased .9%, property, plant, and equipment decreased 1.9%, and intangible assets increased .4%. In the Liabilities and Shareholders’ Equity sections of the balance sheet there were minor changes to all the categories but not a significant amount. Current liabilities decreased by 1.3%, long term and others decreased 2%, common stock decreased .4%, capital surplus increased .3%, and retained earnings increased 3.4%. The total shareholders’ equity rose from 48.3% to 51.6%, a 3.3% increase (See appendage 1).

When using the horizontal analysis the amount of each item on the most recent statement is compared with the related item on an earlier statement. The amount of increase or decrease in the item is listed along with the percent of increase or decrease (3, 2005). Total assets at the end of year 2003 were $2936M (10.7%) more than at the beginning of the year. In addition, total liabilities were increased by $646 million (4.9%) and shareholders’ equity increased $2290 million (16.3%) (See appendage 2).

After analyzing these statements, I will move on to the global involvement of Coca-Cola. As stated earlier, nearly 70% of Coca-Cola’s income comes from outside the U.S. The first international bottling plant opened in 1906 in Canada, Cuba, and Panama. Today, they produce nearly 400 brands in over 200 different countries (1). Germany was the company’s first marketing success outside of North America and is now the fifth largest market for the Coca-Cola Company in the world. Coca-Cola developed Mezzo Mix in Germany and their PowerAde product is the number one sports drink in that country (4). Coca-Cola is also prosperous in China, and now employs over 15,000 people and supports 414,000 Chinese jobs. It also contributes $200 million in tax revenues to central and local tax agencies. It has invested about $1.1 billion in China, producing $4 billion in additional economic activity through its multiplier effects (5). Coca-Cola is truly a global corporation that meets the tastes of customers all over the world.

Besides the global involvement of the company, they also have their share of Goodwill assets and other intangible assets. Effective January 1, 2002, Coca-Cola adopted SFAS No. 142, ‘‘Goodwill and Other Intangible Assets.’’ This required an initial impairment assessment involving a comparison of the fair value of goodwill, trademarks, and other intangible assets to current carrying value. At first they recorded a loss for the cumulative effect of accounting change for SFAS No. 142, net income taxes of $367 million for Company operations and $559 million for equity investors. All goodwill is assigned to reporting units, which are one level below the operating segments. Goodwill is assigned to the reporting unit that benefits from the synergy arising from each business combination. Goodwill is not amortized. They perform tests for impairment of Goodwill annually, or more frequently if events or circumstances indicate it might be impaired. Such tests include comparing the fair value of a reporting unit with its carrying value, including Goodwill. Impairment assessments are performed using a variety of methodologies, including cash flow analyses, estimates of sales proceeds and independent appraisals. The following table (see appendage 3) will summarize and reconcile net income before cumulative effect of accounting change for the three years ended December 31, 2003, 2002 and 2001, adjusted to exclude amortization expense recognized in such periods related to trademarks, bottlers’ franchise rights, Goodwill, other indefinite-lived intangible assets that are no longer amortized (6).

After reviewing all the sections of the Coca-Cola Company, I would say that they have a very strong financial standing all around the world. They provide abundant jobs to over 200 countries, they offer over 400 products, and there is a steady increase in profit. If you use free cash flow to measure the financial strength of this company, then Coca-cola’s free cash flow is approximately 45% of cash flow from operations. This is by using the consolidated statements of cash flow found on their website (6) and using the formula: Cash flow from operating activities ($5456 million) less cash used to purchase property, plant, and equipment ($812 million) less cash for dividends ($2166 million) (3, 2005). What started out as mire “inspired curiosity”, has now grown to be the world’s leading manufacturer, marketer, and distributor of nonalcoholic beverage concentrates and syrups.

Appendage 1 (2, pg. 52)

Vertical Analysis

Coca-Cola Company

Comparative Balance Sheet

December 31, 2003 and 2002

2003 (in millions) 2002

Amount Percent Amount Percent

Assets

Current assets…………………… 8396 30.7% 7352 30.1%

Investments and other assets…… 8860 32.4% 7685 31.5%

Property, Plant, & Equipment…... 6097 22.3% 5911 24.2%

Intangible assets………………… 3989 14.6% 3458 14.2%

Total assets……………………… 27,342 100% 24,406 100%

Liabilities

Current liabilities……………….. 7886 28.8% 7341 30.1%

Long term & other……………… 5366 19.6% 5265 21.6%

Total liabilities………………….. 13,252 48.4% 12,606 51.7%

Shareowners’ Equity

Common stock, .25 par………… 874 3.2% 873 3.6%

Capital surplus…………………. 4395 16.1% 3857 15.8%

Retained earnings………………. 8821 32.3% 7070 28.9%

Total shareholders’ equity……… 14,090 51.6% 11,800 48.3%

Total liabilities and

Shareholders’ equity………….. 27,342 100% 24406 100%

Appendage 2 (2, pg. 52)

Horizontal Analysis

Coca-Cola Company

Comparative Balance Sheet

December 31 2003 and 2002

Increase (Decrease)

(in millions) 2006 2002 Amount Percent

Assets

Current assets……………………. 8396 7352 1044 12.4%

Investments and other assets…….. 8860 7685 1175 13.3%

Property, Plant, & Equipment…… 6097 5911 186 3.1%

Intangible assets…………………. 3989 3458 531 13.3%

Total Assets……………………… 27,342 24,406 2936 10.7%

Liabilities

Current liabilities………………… 7886 7341 545 6.9%

Long term & other……………….. 5366 5265 101 1.9%

Total liabilities 13,252 12,606 646 4.9%

Shareholders’ Equity

Common stock, .25 par………….. 874 873 1 .1%

Capital surplus…………………… 4395 3857 538 12.2%

Retained earnings………………… 8821 7070 1751 19.9%

Total shareholders’ equity……….. 14,090 11,800 2290 16.3%

Total liabilities and

Shareholder’ equity…………… 27,342 24,406 2936 10.7%

Appendage 3 (6, pg. 71)

Year Ended December 31, 2003 2002 2001

Reported net income before cumulative effect

of accounting change $ 4,347 $ 3,976 $ 3,979

Add back after-tax amounts:

Trademarks amortization — — 30

Bottlers’ franchise rights amortization — — 7

Goodwill amortization — — 3

Other indefinite-lived intangible amortization — — 4

Equity method investees’ intangibles amortization — — 110

Adjusted net income before cumulative effect of

Accounting change $ 4,347 $ 3,976 $ 4,133

Basic and diluted net income per share before accounting change:

Reported net income $ 1.77 $ 1.60 $ 1.60

Trademarks amortization — — .01

Bottlers’ franchise rights amortization — — —

Goodwill amortization — — —

Other indefinite-lived intangible amortization — — —

Equity method investees’ intangibles amortization — — .05

Adjusted basic and diluted net income per share

Before accounting change $ 1.77 $ 1.60 $ 1.66

References

1. http://www2.coca-cola.com/ourcompany/enduringstory.html

2. http://media.corporate-ir.net/media_files/irol/94/94566/reports/ko_022704.pdf

3. Warren, C.S., Reeve, J.M., & Fess, P.E. (2005). Accounting (21st ed). U.S.:

South-Western.

4. http://www2.coca-cola.com/ourcompany/cfs/cfs_germany.html

5. http://www2.coca-cola.com/ourcompany/cfs/cfs_china.html

6. http://www2.cocacola.com/investors/annualandotherreports/2003/pdf/TCCC_form10k.pdf



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