FINANCIAL ANALYSIS

Financial Analysis

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Executive summary

This report created from the financial statements of The Coca-Cola Company (KO) provides an analysis and evaluation of the actual and the prospective liquidity, profitability and the financial stability of the company. The methods that have been used in the analysis include trend analysis, the vertical analysis and the horizontal analysis. Also we have used certain analysis such as Quick ratio, debt ratio, and the current ratios. More calculations that have been used includes the returns on the owners equity, the earning per share, net operating working capital, total operating capital, net operating capital, net operating profit after taxes, operating cash flow and free cash flow. A result from the data reveals that, all the company ratios are above the industries averages. Comparative performance is good in the area of the liquidity, credit control and inventory management.

The report finds that the tidings for the company are positive in the near future. The major areas of weakness highlighted require further investigation and immediate action by management. The recommendations that were provided include;

· Improving the average accounts receivable collection period,

· Raising/ increasing the inventory turnover and reduction of prepayments in order to have enough operating cash for the subsequent periods.

The investigation in this report also had its shortcomings that arose and are highlighted as;

The forecasted figures used are estimates that sometimes maybe arbitrate; we also cannot fully provide data on the position of other companies with the data limitation we have experienced. The monthly details would have given us more information from which we could base a proper in year trend analysis, rather than the blanket whole year analysis provided. Though we had the above mentioned strain in preparation of this report, we still great belief that the analysis provided is best suited to show the standing of the Coca-Cola Company (KO).

In the financial report below, the strengths, weakness, opportunity and threats have been highlighted as we analyze the various financial sub segments.

Identify your company, its industry, and analyze the important segments (percentage of sales or subsidiaries) of your company compared to its industry and its overall business

The Coca-Cola Company (KO) is a multinational American Company that has its headquarters at Atlanta Georgia. The company has got its branches in more than 200 countries in the world and majority of its sales is in America, amounting to 40% of the total sales. The company operates in the non alcoholic beverage industry made up of the following companies as the main rivals, Dr Pepper Snapple Group, Inc, Nestle and Pepsi Inc. the company is the best performer in market capitalization compared to competitors with a capitalization of 169.49billion, higher than the industry’s market capitalization of 123.49billion (Clement, 2013).

The company reported a worldwide volume climb of 1% in the fourth quarter and a climb of 2% overall in the whole financial year ended 31st December 2013. The majority of the sales arose from the main product line with majority of sales being revenue from America at 43%.

The only company that has been able to match the flirtatious margins by the coca-cola is Pepsi. This development must be watched to avoid the company slipping into a deep competition for sales with their main soft drink rival.

Perform a complete financial analysis of your chosen company's financial statements—horizontal, vertical (Percentage of Sales and Common-Size), and changes in ratios—for the last two years.

In the income statement the revenue of 46.85 billion is an increase as compared to the financial year ended 31st December 2012 where it was at 44.45billion, which is a 5.3% increase. Such a positive increase is encouraging though it’s not the best for company since it was raised against the increased net receivables. Such a situation is a weakness to the company since growth in sales with increased net receivables will have a negative impact in the future. Net receivables increase is a potential for increased bad debt which will be a threat to the long term operation of Coca Cola Company. The revenue per share is 10.57 which is higher than previous year but lower than the revenue per share in nestle stands at 11.57. The negative revenue growth of -3.60 is a weakness to the company since decreased growth will mean that the net profits will reduce (Duncan, 2010).

The gross profit of 28.43 billion is n increase from the previous year. The earning before interest and taxes of 13.10 billion is higher than the markets EBITDA but lower than nestles. The amount being higher than that of the market is strength but it being lower than that of nestle is a weakness. The balance sheet show the earning per share of 1.9 that is below the market, more so its the list EPS in the whole industry. Such a case is a weakness that must be analyzed by the board. It can be corrected by the board increasing the amount that is attributable for dividends and reducing the investment.

Compare all ratios to industry averages. Evaluate the company's ratios against the industry averages

The ratios provided for the market and the specific companies that are provided are the operating margin, gross margin, earning per share and price per earning. The gross margin of 0.6 is the highest for the year and for the industry. The margin being higher than that of the market means that the company has a greater cushion in terms of profitability and the amount of loss that can be accommodated is quite large. This is one of the strength of the company that is highly regarded in terms of boosting long term earnings.

The earning per share is market low which is a weakness that the management must analyze and make changes in terms of the amount attributed to shareholder. The levels of comparison show that the company is operating below the market rates and therefore are at a risk threat of loosing the shareholders (Duncan, 2010).

Compare all ratios to industry averages. Evaluate the company's ratios against the industry averages.

The company’s ratios are quite higher than the market ratios in vital ratios such as the gross margin and the operating margin of 0.61 and 0.24 as compared to industries of 0.53 and 0.21. The only ratio where the company performed below the industry is in the EPS where they showed a weakness at 1.9 against the markets 2.44

Analyze the company's cash flows.

The net cash flows for the year end period to December 2013 was at negative 704000 meaning that the company ended the year with a negative outflow. The company also showed some form of laxity in changing the debtor’s period and the creditor’s period in order to better their cash in hand. This is a weakness that will threaten the performance of the company in the next financial year. The financial year returns from investment activities were all negative returns meaning that either most of the investments were at the early development with opportunity that the inflow will be positive in the future (Martin, 2011).

Assess the overall financial health of your company based on this financial analysis.

The company is financially healthy since they can be able to meet their current obligations when they arise. The total current assets stand at 31304 against the current liability of 27, 343. From this data we can say that the company in the short term is financially healthy. This is an opportunity for the company to gain fro the operations of the year and invest more to increase liquidity. Further more in the long-term the company is still solvent with assets of 90000 against the liability of 45900. This is another strong point and an opportunity to counter the competitors with lower assets to cover for the liability like the Pepsi

The company has been faced by the threat of contingency liabilities that affects the operation of the business. Contingencies though not recorded in the statement are potential source of cash outflow if those cases are ruled against the company. The law suits include those filed in relation to monopolistic and discriminatory practices. Some of those cases that have been settled out of court have ended up costing the company a lot of money. Such situations affect the company’s cash flow and also the long term position of the state.

The emergence of nestles as a strong competitor is worrying for the company and is also a big threat too. The nestles has had a market capitalization of 243 which is higher than the markets and that of coca- cola. Such emergence is a threat to the market share of sales and the oversea market strategy (Martin, 2011).

References

http://finance.yahoo.com/q/bs?s=KO

Martin, D.(2011). Financial Accounting, New Jersey NJ: Prentice Hall

Duncan, J.(2010). An introduction to financial accounting, New York NY: McGraw-Hill

Clement, W.Y, (2013). Financial Analysis, New York NY: McGraw-Hill