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Running head: RESEARCH PROJECT- COCA COLA COMPANY 1

RESEARCH PROJECT- COCA COLA COMPANY 9

Introduction

The publicly traded company for this project is Coca Cola, which was started in 1886, when the John Pemberton who was a pharmacist by the time invented the first sample of soda (Brondoni, 2020). The company has been in operation for over century and has increased its volume of production. Coca Cola Company is the largest and the leading producer of non-alcoholic beverages and syrup. The headquarters of the company are based in Atlanta Georgia, United States. The leading brands for the company are Coca-Cola, diet Coke, Fanta, and Sprite. The company has other top brands, which include Minute Maid, Power Ade, and vitamin water. The company is ranked number producer of beverages globally, with a well-established market base spread to more than 200 countries, which means that the company’s products are well consumed in the market. According to the company’s sustainability report, at least 1.8 billion servings a day are dispensed to customers across the globe. The company has also started diversifying their products by considering healthier choices since the year 2011 by promoting healthy living lifestyles. The company launched over 100 low calorie products and brought in the market more than 800 low to no calorie products varieties for their consumers. The company has not been left behind when it comes to business ethics and corporate social responsibility and was among the four companies that established a Global Business Initiative on Human Rights, with the aim of promoting respect for human beings in business systems and across supply chains.

The company is driven by its commitment to expand and engaging in community services in markets where its products are sold. Coca Cola gets involved in various events, human rights acts, establishing various programs, which are building the name of the company by becoming more reputable in various regions of the world.

Investor’s Profile and Strategy

It is important for investors to calculate and compare various financial metrics in addition to assessing other qualitative metrics that are needed to make sound investment decisions (Brigham & Ehrhardt, 2014). Qualitative factors that need to be considered while making investment choices include assessing market reliance on the product, what the percentage of the business is located abroad and their political environment, differentiation strategies, underlying regulations, and prevailing competition. The product portfolio also needs to be diversified to ensure a reduction in risk for the investors. Although the company is a global leader in the soft drinks market, the company has not diversified its product portfolio as compared to its close competitor PepsiCo. However, the company had set in place strategic priorities focused on creation of a long-term sustainable growth and creation of value to its shareholders. The company is focused on becoming a global leader in beverage market, enhanced innovation, engaging in balanced product portfolio, and spearheading company’s system top growth (U.S. Securities and Exchange Commission, 2018). To ensuring the priorities are met within the Coca Cola system, the company focuses on enhancing consumer marketing capabilities, promoting leadership in commercial engagements, and carrying bottling and distribution functions. People who are looking for a sound return on their investment should consider Coca Cola. The company is well financially sound given that the level of debt is lower than the level of assets. This means that in case of liquidation, the company can sell its assets and still have a positive value. The investors should consider investing in the company because it is a low risk investment, which should be considered as a diversifying portfolio because they are assured their investment, will have considerable returns.

Sustainability

Coca Cola Company has well established market, which is distributed to various parts of the globe. The company is faced with various environmental concerns when it comes to the management of the production procedures, especially regarding energy and water use. The company established a sustainability policy that it applies to ensure environmental conservation sustainability by adhering to the USGBC standards for Leadership in Energy and Environmental Design. The company developed high performance sustainability through emphasis on energy and water efficiency by promoting recycling, reusing resources, and reduction in water use. Many people perceive sustainability, in terms of finances, but in real sense sustainability goes beyond what the company generates in terms of profits, accommodating questions of environmental sustainability. An organization that operates without a regard to the implication of its practices and assessing the uniqueness of this implications to the functioning of the organization today and in the future, must be concerned with its operations in the future. According to the 2018 Annual Report, Coca Cola has put in place sustainability measures that are particularly aimed at the protection of the environment. The company has formulated and enacted a policy that promotes the use of environmentally friendly and recyclable materials. As a result, over 90 percent of the by-products can be salvaged, reused or recycled. The company also resolved to using energy sustainable methods of production, which reduces water use and enhancing recycling, and the use of recyclable packaging materials.

Financial Analysis

The quick ratio can be taken as a modified form of current ratio and assesses the quick assets of the company and existing current liabilities of the company. It includes all the elements of the current assets minus the inventory for the current period. In brief, a quick ratio includes all the assets that can be quickly converted into cash divided by the total current liabilities of the company (Kabir, Aripin & Al-Dhamari, 2017). From the below spreadsheet, it can be deduced that the quick ratio for the period 2018, went down 0.19, compared to the same period the previous year.

On the other hand, current ratio shows that the company is capable of meeting its short-term financial obligations as indicated by a current ratio greater than 1. It is also important to note that the company should only be concerned about a balance between the current assets and current liabilities because a difference will mean that opportunity cost of holding assets in current form will be ignored because the excess assets will not be utilized economically for the benefit of the company. The current ratio for the company declined to 1.05 from 1.34 registered in the previous year, which could be attributed as a strategy to utilize the asset capacity of the company but still maintaining the balance between the current assets and current liabilities.

The earning per share improved in 2018 compared to 2018. Earnings per share is the amount that is entitled to the shareholders subject to their investment in the company. Due to the increase in net earnings of the company, the earning per share increased in 2018, by registering an EPS of $1.50 in 2018 as compared to $0.29, in 2017, which shows an improvement.

PROFITABILITY	2018	2017
ROA	7.73%	1.42%
EBITDA MARGIN	27.31%	21.46%
LIQUIDITY RATIO
QUICK RATIO	0.37	0.56
CURRENT RATIO	1.05	1.34
NET CURRENT ASSETS %TA	36.81%	41.58%
DEBT MANAGEMENT
LT DEBT TO EQUITY	1.33	1.83
TOTAL DEBT TO EQUITY	3.72	4.15
ASSET MANAGEMENT
TOTAL ASSET TURNOVER	37.23%	40.29%
INVENTORY TURNOVER	4.34	5.0

Price per earnings is the market value per share divided by the earnings per share. This is a comparison of the market price of the share to earnings per share. The share price of a company changes on a daily basis to reflect both the present and future prospects of the company under consideration. A rise in the demand and the price is an indication that the company has high future prospects. Price per earnings ratio increase boosts the confidence of the investors with the company. The prevailing ratio for Coca Cola indicates that the Price per earnings ratio increased from 19.00 in 2017 to 19.54 in 2018.

		Dec 31, 2018	Dec 31, 2017
	P/E Ratio, Comparison to Industry
	Coca-Cola Co.	19.54	19.00
	Industry, Consumer Goods	18.41	19.82

Gross margin is obtained by dividing gross profit by the net revenue. Over the three years that have been under consideration in the annual report of 2018, gross margin for the Coca Cola Company has been increasing; in 2016 it was 0.61, 0.62 in 2017, and 0.63 in 2018. The gross profit is obtained when the cost of goods sold is subtracted from the total sales. Gross profit also does not include operations costs, administrative costs, and selling costs when calculating gross margin. The data obtained from the 2018 annual report indicates that Coca Cola has a high gross margin of 63 percent. The level of gross margin has been consistent over the three years that indicates that the costs and prices have been consistent. This makes the company have a competitive edge over competitors such as PepsiCo because it is generating competitive profitability as compared to them. A comparison between PepsiCo and Coca Cola Co, indicates that there is no price competition for similar products and there are other strategies like cost leadership strategy. However, the high profit margin for Coca Cola indicates the costs are fewer for the available products compared to the competitor, PepsiCo, which suggests that the company has a favorable cost management strategy unlike its competitors.

An Overview of the Ratios

An overview of the financial ratios indicates that the company has a broad market presence and also has good financial health. An analysis of the risk of the company as depicted by the current and the quick ratios shows that the company is sustainable. Besides, the company is profitable and could be liquidated and still the investors in a sound financial position. Earnings per share though not very high are likely to increase because the company has put in place measures aimed at strengthening its brand and growth initiatives. Further this is supported by the fact that the price earnings ratio for Coca Cola is increasing.

Prevailing Risks

Coca Cola is global company with its presence in more than 200 countries, which means that is exposed to so many risks that cannot be overlooked. The operating activities of the company in foreign countries expose it foreign currency risks those results when there are adverse changes when the exchange rates of other currencies in relation to US dollar changes (DwumfourS & Addy, 2019). The company has embraced cultural integration in its product development strategy enabling the company to innovate products that suit the needs of different areas with diverse cultures. However, there are markets that the company has not been able to penetrate due to factors such as regulations and hostile political environments.

Another important risk that faces the company is liquidity risk; however, the company is managing its prevalence to this risk by retaining minimum cash reserve in their balance sheet, and the same time maintaining a balance between current assets and current liabilities. The company’s EPS is also rising, which is an indication that profit margins are high. This is the reason that the company is capable of attracting and keeping investors. Investors seeking a risk-free investment portfolio will consider the company because it is well established and has loyal customers.

Profitability of a company is usually threatened by high levels of competition. Coca Cola is faced by the largest competitor in the soft drink market PepsiCo, which is a multinational corporation selling its products in close to 200 countries across the globe. PepsiCo’s size and global presence means that it is a threat in the market for Coca Cola Company. Besides, PepsiCo has diversified it product portfolio with 22 brands, and is the second largest food and beverage company in the world. The popularity of Coca Cola has emanated from it taking advantage over the beverage by including healthier products and water. Nonetheless, though Coca Cola has not diversified its products as much as its largest competitor Pepsi, its product portfolio still dominates the beverage market.

Coca Cola will be a great investment opportunity for risk averse investors, but for risk takers requires diversifying their investment portfolio. The responsiveness of the market to Coca Cola products is positive, which is why they have a well-established brand, and is also growing. The company also invests in research and development to ensure they are aware of the market trends. This has been the reason why the company’s brand has grown globally because they are aware of the needs of the market in different parts of the globe, in addition to their focus on products that promote healthier lifestyles. The company has a proper management strategy for baseline products unlike their close competitors like PepsiCo, which divide their products to enhance stability. Amid all the risks that face the company, it is still the largest global industry in serving the soft drinks market.

Executive Compensation

The executive compensation information is contained in the company’s annual proxy statement. The chart is a demonstration of top executives’ compensation. Cash compensation for the executive directors indicates both annual base pay as well as other accrued bonuses. This compensation statement is filed on an annual basis with the Security Exchange Commission system. Most of these documents are found in the Def 14a documents. The aggregate equity determines the fair value of stock and option awards and incentives on a long-term basis during the year. However, some of the compensations do not fit in these categories, and some of the figures unreported in this case include the change in pension value and non-qualified deferred compensation earnings.

Executive Compensation 2018
NAME	FEES EARNED	STOCK AWARDS	OTHER	TOTAL COMPENSATION
Alexis M. Herman	$70,000	$200,000	$22,592	$292,592
Ana Botín	$50,000	$200,000	$5	$250,005
Barry Diller	$70,000	$200,000	$1,054	$271,054
Caroline J. Tsay	$40,000	$160,000	$805	$200,805
Christopher C. Davis	$40,000	$160,000	$5	$200,005
David B. Weinberg	$50,000	$200,000	$632	$250,632
Helene D. Gayle	$50,000	$200,000	$105	$250,105
Herbert A. Allen	$70,000	$200,000	$5	$270,005
Marc Bolland	$50,000	$200,000	$5	$250,005
Maria Elena Lagomasino	$70,000	$200,000	$7,647	$277,647
Richard M. Daley	$50,000	$200,000	$5	$250,005
Robert A. Kotick	$50,000	$200,000	$5	$250,005
Ronald W. Allen	$70,000	$200,000	$2,743	$272,743
Sam Nunn	$70,000	$200,000	$37,720	$307,720

Recommendations and Conclusion

From the analysis of the Coca Cola Company’s competitiveness, it is clear that its products are not as diversified as those of its close competitors and has employed a strategy that is focused on the main product. The value of the company’s brand is strong, which enables it to hold a competitive advantage over any new entrants into the beverage market. The company also concentrates on using equity method of measuring investments in equity securities, where they have majority shares, although they still use fair value or under cost method where the company does not have a majority share.

Coca Cola Company is committed to offering products that suits the specified market. This is the reason the company has diversified its products to include healthier products choices to cover all segments of the market. The company has strong financial performance, which is indicated in the analysis of the financial ratios of the company. The company is committed to enhancing sustainability in all areas of its business such as financial sustainability as well as environmental sustainability by engaging in healthy production techniques. Investors who would like to invest in low risk portfolio should consider Coca Cola portfolio. However, it is important to ensure effective strategies to operate in the midst of the prevailing risks as a result of its internal presence. Besides, the company needs to diversify its product profile to make it easier to accommodate uncertainties in the future.

References

Brigham, E. F., & Ehrhardt, M. C. (2014). Financial Management. Mason: Cengage Learning.

Brondoni, S. M. (2020). Shareowners, Stakeholders & the Global Oversize Economy. The Coca-Cola Company Case. Symphonya. Emerging Issues in Management, (1), 16-27.

Dwumfour, R. A., & Addy, N. A. (2019). Interest Rate and Exchange Rate Exposure of Portfolio Stock Returns: Does the Financial Crisis Matter?. Journal of African Business, 20(3), 339-357.

Kabir, M. U., Aripin, N., & Al-Dhamari, R. A. A. (2017). Financial ratio analysis: decision usefulness for potential shareholders’ benefit. Journal of Business Management and Accounting, 7(2), 51-59.

U.S. Securities and Exchange Commission. (2018, December 31). 2018 Annual Report Form 10-K. Retrieved from coca-colacompany.com: http://www.annualreports.com/HostedData/AnnualReportArchive/c/NYSE_KO_2018.pdf