Strategic decision Making

Discussion Forum

Go to the end of Chapter 8 and do Exercise 8C "Determine the Cash Value of Coca-Cola Company" Steps 1 thru 3.  Submit your calculations for the Net Worth Method and the Net Income Method, Price-Earnings Ratio, and the outstanding shares method along with your determination of Coca-Cola cash value for the  fiscal year, in the discussion forum.  After submitting the assignment, work with your peers and come to an agreement about Coca-Cola cash value.

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Fred R David, F. R. (2019). Strategic Management: A Competitive Advantage Approach, Concepts and Cases, 17th edition. Pearson.

Chapter 8: Marketing, Finance/Accounting, R&D, and MIS Issues

Chapter 9: Strategy Review, Evaluation, and Control

Answer the question in APA format, NO plagiarism, need two peer responses

Student – 1

Exercise 8C Determine the Cash Value of Coca-Cola

The Net Worth Method

            For the net worth method, the equation is: Shareholders’ Equity – Goodwill – Intangibles (David et al., 2020).  As of December 31, 2017, shareholders’ equity was $18.977 billion, goodwill was $9.401 billion, and intangibles was $368 million.  Placing those numbers into the formula we arrive at $18.977B – $9.401B – $368M = $9.208 billion.  Therefore, using the net worth method, the value of Coca-Cola would be $9.208 billion. 

The Net Income Method

            When using the net income method, the equation would be: Net Income x 5 (David et al., 2020).  As of December 31, 2017, net income for Coca-Cola was $1.248 billion.  Multiplying $1.248 billion by 5 results in a total of $6.240 billion.  Therefore, using the net income method, the value of Coca-Cola would be $6.240 billion. 

The Price-Earnings Ratio Method

            The formula for the price-earnings ratio method is: (Stock Price ÷ EPS) x Net Income (David et al., 2020).  For the stock price, I used the stock price given in exercise 8A of $45.54.  To get EPS, the formula is net income/number of shares outstanding.  Again, I found the number of shares outstanding in exercise 8A (4.255 million).  To get EPS, the formula would be $1.248B/4.255B = $0.2933.  Then I would place all the numbers into the formula for price-earnings ratio: ($45.54 ÷ $0.2933) x $1.248 billion = $193,774,019,774.97 or $193.774 billion.   Therefore using the price-earnings ratio method the value of Coca-Cola would be $193.774 billion. 

Outstanding Shares Method

            The formula for the outstanding shares method is Number of shares Outstanding x Stock Price.   Placing the numbers in the formula, it would be 4.255B x $45.54 = $193.773 billion.  Therefore, using the outstanding shares method, the value of Coca-Cola would be $193.773 billion. 

Average of the Methods – Coca-Cola’s Value

            Taking the average of the four methods would be: $193.773B + $193.774B + $6.240B + $9.208B = $402.995B ÷ 4 = $100.749B. 

References

David, F., David, F., & David, M. (2020). Concepts & Cases Strategic Management A Competitive Advantage Approach. Pearson.

Student – 2

Step One

Based on the four approaches according to David, David, and David (2020), “(1) the net worth method, (2) the net income method, (3) the price-earnings ratio method, and (4) the outstanding shares method” (pg. 264). Through being aware and constant of financial values of a business, such as the cash value, also known as the corporate valuation, businesses similar and alike to Coca-Cola, it is an ethical and smart decision to stay on top of financial items such as the items listed above. Coca-Cola is a corporation with vast and ever-changing aspects such as international affairs, business deals, and other daily operations that have a major financial implication of financial worth. Through Coca-Cola expanding into various new endeavors and markets, Coca-Cola must be aware and have high amounts of knowledge of the daily financial operations and statements. Below is the proposes financial worth of Coca-Cola based on the four approaches listed above:

Cash Value of Coca-Cola (in millions)

The net worth method is calculated by taking the shareholders equity which is the total assets minus the total liabilities, minus goodwill and then subtract the intangibles from that number as well leaving us with $9,208 (in millions). The net income method is calculated by taking the net income and multiplying it by the interest rate given of 5%, giving us a total of $62.4 (in

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millions). The price-earnings ratio is calculated by taking the stock price of $45.54 and dividing that by the earnings per share and then multiply that number by the net income of $1,248 (in millions) giving us a total of $10,908.62 (in millions. Lastly, the outstanding shares method is calculated by taking the number of shares outstanding that is given to us and multiplying it by the given stock price which gives us a total of $193,772.70 (in millions)

Step Two

The average of the four methods is (in millions) is as follows. You must take the Net worth method, the net income method, the price-earnings ratio method and the outstanding shares method and add those together to get the sum of $213,951.72. From there we have four methods. Therefore, we must divide that number by four to give us an average of $53,487.93.

($9,208+$62.4+$10,908.62+$193,772.70)/3= $53,487.93

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References

David, F. R., David, F. R., and David, M. E. (2020). Strategic Management Concepts and Cases,

            Seventeenth Edition. Pearson. pg(s). 264.