Coca-Cola Amatil: Financial Analysis and Evaluation

This report provides a comprehensive financial analysis of Coca-Cola Amatil, a leading Australian beverage company. It examines the company's ownership structure, key financial ratios, share price performance, required rate of return, weighted cost of capital, debt ratio, and dividend policy. The report concludes with a recommendation for investment based on the findings.

HI5002: Finance for business
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Table of Contents
Introduction......................................................................................................................................3
1. Overview of company..............................................................................................................4
2. Ownership and governance structure of company...................................................................5
5. Research with the help of business publication and internet.................................................11
6. Calculation of required rate of return....................................................................................12
7. Calculation of weighted cost of capital.................................................................................13
8.. Evaluation on basis of debt ratio..........................................................................................15
9. Dividend policy.....................................................................................................................16
10. Letter of Recommendation..................................................................................................17
Conclusion.....................................................................................................................................18
References......................................................................................................................................19
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Introduction
In the carrying out of the activities in business, it is required that all the requirements in respect
of finance shall be met inappropriate manner. For this, the company will have to undertake a
proper analysis in which all the aspects which are related to it will be discussed in this report the
same will be done in context with Coca-cola Amatil. The governance structure will be identified
and also the ratios will be calculated so that evaluation of the financial position of the company
will be made. The graphical presentation of the share price will be made and the cost of capital
and return rate will be calculated. The capital structure of the company will also be checked and
the policy which is followed for the dividend will also be identified.
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1. Overview of company
Coca-cola Amatil is the Australian company which is dealing with the beverages and
manufactures alcoholic as well as non-alcoholic beverages. This is one of top five companies.
The company was founded in 1904and is listed on ASX. The headquarter of the company is in
New South Wales. The areas in which the services of the company are provided include New
Zealand, Australia, Fiji, Indonesia, Samoa and Papua New Guinea (Coca-Cola Amatil, 2017).
There are various products which are provided by it and they are Diet Coke, Fanta, Baked beans
and many others. There are large numbers of consumers which are associated with the company
and it still has the opportunity to expand more.
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2. Ownership and governance structure of the company
i) Main substantial shareholders
Having more than 20% shareholding: It is required that all the substantial shareholders of the
company shall be identified (Coca-Cola Amatil, 2017). They are the ones who hold more than 20
percent of the total shares. In the company, there are two holders who lie in this category and
they involve:
Name No. of shares % of holding
Coca-Cola Holdings (Overseas)
Limited
223,049,276 30.81
HSBC Custody Nominees 176,629,541 24.40
Having more than 5%: The company has some of the shareholders which are having the share
capital of more than 5% and they will have to be disclosed inappropriate manner. The ones
which are present in coca cola Amatil are as follows:
Name No. of shares % of holding
JP Morgan Nominees Australia
Limited
74,989,468 10.36
Citicorp Nominees Pty Limited 70,561,548 9.75
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ii) Main people who are involved in the governance of the firm.
Designation Name
Chairman Ilana Atlas
Managing Director Alison M. Watkins
Director Krishnakumar Thirumalai
Director John Borghetti, Ao
Director Catherine Brenner
Director Julie Coates
Director Martin Jansen
Director Mark Johnson
Director Paul O'Sullivan
All the members who are involved in the governance of the company are not included in those
who have a substantial interest in the company. So, there is no aspect due to which the company
can be treated as the family company.
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3. Calculation of key ratios
Calculation of the ratios depending upon the various categories is as follows:-
In the evaluation of the performance it will be required that all the aspects shall be covered and
for that ratio, the calculation is the best technique. The calculation of the same is provided below:
Particular 2017 ($
Million)
2016 ($
Million)
Total Asset 6056.90 6475.30
Total Liability 4176.60 4201.10
Ordinary Equity 1880.30 2274.20
EBIT 678.40 466.10
NPAT 461.00 257.30
Current Liability 1838.80 1843.10
Net Sales 4933.80 5077.70
Current Asset 2799.60 3104.80
Fixed Asset 1864.80 1948.90
Debt 1929.50 1959.50
Gross profit 1865.90 1911.10
EPS 59.80 32.20
Particulars Formula 2017 2016
Current Ratio Current
Asset/
Current
Liability
1.52 1.68
Debt Equity ratio Debt/
Equity
1.03 0.86
Fixed Asset
Turnover Ratio
sales /
Fixed assets
2.65 2.61
ROA Net
Income /
Total Asset
0.08 0.04
Gross Profit
Margin Ratio
Gross profit
/ Sales
0.38 0.38
Earnings per
share
59.80 32.20
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Current Ratio – The liquidity of the company will be determined with the help of this. In this,
the standard is set at 2:1. By this, the level of the current assets and liabilities is identified. The
ability of the company to meet its liabilities will be determined with the help of it. In the given
case it is at 1.68 and then declined to 1.56.
Debt Equity Ratio – The Company is required to maintain the proper balance between the debt
and equity of the company. By this, the cost of the company can be controlled. There is an
increase in this which has been noted from 0.86 to 1.03. this is within the required level and
company is maintaining its debt position.
Fixed Asset Turnover ratio – this is the ratio by the help of which it will be ascertained that
company is earning the proper value on the fixed assets or not. It can be noted that there is the
good value which is made with the help of them and the company is utilizing the assets in best
possible manner.
Gross profit margin ratio – The profit which is company earns from its operations is identified
under this and then the ratio of that is calculated (Basu, 2018). In this given case it is 0.38 and
this is same for both the years (Coca-Cola Amatil, 2017). Company
ROA – The earnings which are made with the help of the total assets is determined under this.
There shall be proper earnings which are to be made. There is an increase in this which is from
0.04 to 0.08 which is positive for any company.
EPS – The company makes the earnings and then they are to be properly allocated. This is the
ratio which is calculated by making the allocation of the earnings in all the shares so that the
return on each share can be determined. This has also risen from 32.2 in 2016 to 59.8 in 2017
(Coca-Cola Amatil, 2017).
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4. Presentation of share price on a graph and then its interpretation by comparing with
index
(i) The share price of the Company for 2 Years
Figure: Market price of shares for two years)
(Source: Reuters, 2018)
Comparison of the share price with All Ords Index
(Figure – Share price comparison of Company with All Ords Index)
(Source – Market index, 2018)
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Introduction
The share price of any company keep on changing and it is required that they shall be properly
evaluated so that the deviation in them can be calculated. This will be covered in the report
below.
Content
This can be noted from the graphs which are presented above that there is the change in the share
price and this is regularly fluctuating. In the April 2017, there was highest share price in the
company and after which the decline started. The prices kept on falling at a fast pace and there
was the low level which was faced by the company. The least prices were noted in December
after which the company again started to make the improvements and prices started to rise. In
comparison to the all ordinaries index there are very much deviations and so it can be said that
the volatility in the company will be more. The prices of the shares in the company are very
much lower than that of the index as they are above the price chart of the company.
Conclusion
In the report above the relation among the price of the company and the all ordinary index have
been ascertained and on the basis of that volatility is determined. All of the changes are
identified which took place in the company.
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5. Research with the help of business publication and internet.
In the company, there are various announcements which are made and it will be required that
they are taken into account. They shall be noted so that all the changes are identified. Some of
the major among them are as follows:
 The announcement was made on 16th may 2018 in relation to the election of the Jorge
Garduno in the board of the company. He was appointed as the president of the Coca-cola
Japan. He is also the representative director of this branch. He has worked for over a
period of 25 years in this and now he is interested in engaging in the board decisions
(Coca-Cola Amatil, 2017). He was involved in the leadership roles from the 1992 and so
was experienced in this field. They will be managing various functions such as planning,
commercial leadership, and many others.
 On 21 February 2018, there was appointment which was made to the board of the
company and the name is Julie Coates. She was appointed as the non-executive director
of the company. She is currently in the Goodman Fielder and is working as the Managing
director. There are various other companies also in which she was involved in the past.
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6. Calculation of required rate of return
i) In the company rate of return is required to be calculated and for that, it is necessary that the
company shall identify the beta which is involved as by that the risk which is involved is
ascertained. In the present case, it is at 0.83.
ii) The company uses various sources of capital and one of them is equity on which it is required
that proper return shall be made. This is to be determined so that the investors which are
interested can make the decisions on the basis of that (Fama & French, 2014). Due to this capital
asset pricing method will be used as that provides the best results. The formula which will be
used in this is as follows:
Rate of return = Rf + (β) (Rm-Rf)
Rate of return = 4% + 0.83 *6%
=8.98%
iii) In the company, there are various investments which are made and it shall be identified that
whether they are conservative or not. The ones in which there is less amount of the risk involved
are considered as the conservative in nature. For that risk which is involved is required to be
taken into consideration. In the company, there is the rate of return which is 8.98 and as this is
low so it can be said that the risk which will be present will also be low and due to that this is
taken as the conservative investment.
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7. Calculation of weighted cost of capital
The company will have to calculate the WACC so that the cost of the company on its total
capital can be determined and then the decision on the basis of that can be taken by the company.
They will be deciding that more cost shall not be incurred and for that there shall be less amount
of the borrowings which shall be made by the company in its business (Krüger, et. al., 2015).
They will be calculated by the use of the specified formula which is as follows:
WACC = E x Re + D x Rd (1 – T)
V V
Where,
Re = Rate on equity
Rd = Cost of Debt
V = Equity + Debt
D = Debt
E = Equity
T = Tax Rate
WACC = 1880.3 x 0.0898 + 1929.5 x 0.05 (1 – 0.30)
3809.8 3809.8
WACC = 0.0443 + 0.0178
WACC = 0.0621
WACC = 6.21%
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ii) The higher WACC is not the good indicator as by that is considered that company will have to
incur the huge amount if cost which is not good. By this the company’s profitability is affected
and so it needed that pore decision in this respect shall be made and it shall be determined that
there is a proper balance which shall be maintained among them. The amount of the debt shall be
in control as the interest will have to be paid on this and this increase the cost to the company
will have to provide the consideration to this fact.
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8.. Evaluation on basis of debt ratio
i)
the capital structure of the company is the aspect which describes the ratio in which the capital of
the company is maintained. There are two sources such as debt and equity by which all the funds
of the company are acquired and it is required that they shall be maintained in appropriate
manner (Dalal, 2013). The debt ratio of the company provides the idea of the same. For that
gearing ratio is to be calculated and that is provided below:
The Gearing ratio of the company is below:-
Calculation of Gearing Ratios
Particular 2017 2016
Total Shareholder's Equity 1880.30 2274.20
Total Debt
1929.50 1959.50
Gearing Ratio 1.03 0.86
There is the increase in the gearing ratio which can be noted and this shows that the ratio of the
debt in comparison to the equity is rising. By this, it is identified that investment of the company
in debt is increasing but it is not that much which will be adverse.
ii)
The amendment in the gearing ratio is made to bring it to that level at which it will be possible
for the company to make the maximum amount of the profits. For that, the equity will have to be
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increased as there is no cost which is to be made by the company on the same. There will the
reduction of the debt by which the overall cost which is made by the company also reduces.
9. Dividend policy
The payment of the dividend is the most important aspect of the business as this is the return
which is providing to the investors. The investment which will be made in the company depends
on it. There will be various options with the company in which they can use the earnings that are
made and out of them it is to be decided that how much of the portion is to be distributed so that
investors are satisfied. There are various methods in which dividends are made (Panigrahi &
Zainuddin, 2015). The company may make the regular payment of the amount which will be
done on the regular interval of the time. In this, the amount will be calculated as per the policy
which may be to pay the fixed amount or the payment can be made as per the earnings which are
made that is the specified percent. Sometimes the time at which payment are to be made is not
certain.
In the given company also the payment of the dividend is made to the investors and for the study,
it has been determined that company is following appropriate policy in this respect (Coca-Cola
Amatil, 2017). Under this, there are the timely payments which are made by the company to all
the investors and the amount depend on the earning of the company.
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10. Letter of Recommendation
The company is to be considered for the investment as from the analysis it can be said that the
company maintains the appropriate position which is necessary for the investors. There are
earnings which are made in the company and so the investors will not have to fear for the risk of
the losses. There are proper payments which are made by the company to them in form of the
dividends which is considered as their earning. The company will be required to make the proper
disclosures about all the aspects so that no fact is hidden from the investors. The rate of return is
also satisfactory and the company will be earning the proper amount. The cost which has been
calculated is also in the limit which shows that there are not much of the costs which the
company will have to incur.
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Conclusion
From the report that has been provided above, it can be said that the company is maintaining its
position. The structure involved in the company is determined and also the several stakeholders
are identified. The company has calculated the ratios by which its performance is determined.
There is the presentation of the graph which is made by which the share price is appropriately
considered. The company has also made the announcements which are also identified. All of the
cost of the capital and the return is also calculated by which the earrings and cost of the company
can be evaluated. The dividend policy which is followed by the company is also taken into
consideration with the gearing ratio that identifies the capital structure of the company.
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References
 Basu, C., (2018). Four Basic Types of Financial Ratios Used to Measure a Company's
Performance. Chron. [Online]. Also available at http://smallbusiness.chron.com/four-
basic-types-financial-ratios-used-measure-companys-performance-25299.html.
[Accessed on 23-05-2018]
 Coca-Cola Amatil. (2017). Annual Report 2017. Coca-Cola Amatil. [Online]. Available
at: https://www.ccamatil.com/-/media/Cca/Corporate/Files/Annual-Reports/2018/Annual-
Report-2017.ashx [Accessed 23-05-2018]
 Coca-Cola Amatil. (2017). Our Company. Coca-Cola Amatil. [Online]. Available at:
https://www.ccamatil.com/en/our-company [Accessed 23-05-2018]
 Dalal, G. (2013). Optimal capital structure. International Journal of Education and
Management Studies, 3(1), 138.
 Fama, E. F., & French, K. R. (2014). A Five-Factor Asset Pricing Model. Booth School of
Business, 2-53.
 Krüger, P., Landier, A., & Thesmar, D. (2015). The WACC fallacy: The real effects of
using a unique discount rate. The Journal of Finance, 70(3), 1253-1285.
 Market Index, (2018). Coca-Cola Amatil Chart. Market Index. [Online]. Available at:
https://www.marketindex.com.au/asx/ccl. [Accessed on 23-05-2018]
 Panigrahi, S. K., & Zainuddin, Y. (2015). Dividend Policy Decisions: Theoretical Views
and Relevant Issues. Reports on Economics and Finance, Vol. 1, 2015, no. 1, 43 – 58
 Reuters, (2018). Coca-Cola Amatil Ltd (CCL.AX). Reuters. [Online]. Available at:
https://www.reuters.com/finance/stocks/chart/CCL.AX. [Accessed on 23-05-2018]
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