Finance Definition & Meaning

FINANCE

Finance: 1
Contents
Introduction................................................................................................................................2
Coca-Cola...................................................................................................................................2
Short-term financial condition...................................................................................................3
Long-term financial condition....................................................................................................4
Cost of capital............................................................................................................................4
Optimal capital structure............................................................................................................7
Present value..............................................................................................................................9
Conclusion................................................................................................................................10
References................................................................................................................................11

Finance: 2
Introduction
With the dynamic business circumstances, it is quite visible that continuous assessment of
financial reports is an essential chunk of business activities. These fluctuations demand
application of financial techniques, which are utilised to check the financial performance of
organisation. For this study, an analytical assessment will be presented on Coca-Cola with its
comparison with its competitor. The selected competitor for analysis is Pepsico. The report
will discuss the viability of short-term liabilities and long-term liabilities by applying ratio
analysis. This ratio analysis is an instrument, which examines performance of the business.
The short-term obligations uses liquidity ratios for the analysis and for analysing long-term
obligations, debt-equity ratio and interest coverage ratio has been used. For majority if the
long term source of funding of company, the corporate will either collect equity funds or urge
long-term debts to operate the company in an appropriate way (Kwabi, Faff, Marshall, &
Thapa, 2016). Furthermore, there is an in-depth analysis of how efficiently long term funds
has been used and what they actually does to accomplish the appropriate proportion of debt
and equity in the capital proportion.
The report calculates weighted average cost of capital (WACC) to evaluate projected return
on the equity shareholders to the debt holders. weighted average cost of capital (WACC)
represents stockholder`s opportunity cost while pleasing on threat and putting money in
organisation.

Finance: 3
Coca-Cola
Coca-Cola is a carbonated soft beverage, which is a public listed company in US offers Diet
coke, diet coke caffeine, caffeine-free Coca-Cola, cherry, Citra, Coca-Cola life, and mango.
The related products will include Pepsi, Afri-Cola, Kola real, and Cavan Cola. It was
established in 1886. The company manufactures concentrate that is sold to finished products
in bottles with the combination with sweeteners. Profitability ratios indicate that profit
margin of 23.94 percent and operating margin of 28.29 percent (Annual report of Coca-Cola,
2018).
One prominent competitor is known as PepsiCo, which is also a public company. The
company was founded 1898 and it was headquartered in US. PepsiCo offers grain based
snack foods, and beverages. The company generates revenue of US$64.66 billion in 2018,
operating income of US$10.11 billion in 2018, and net income of US$12.51 billion in 2018.
The company has the employee base of 263000. The company generates 10.89 percent of
profit margins and operating margin of 15.97 percent (Annual report of PepsiCo, 2018).
Short-term financial condition
The liquidity ratio determines the ability of organisation to accomplish short-term financial
obligations. The viability of business organisations indicate that appropriate current ratio of
the company 2:1 (Ghoul, Guedhami, Kim, & Park, 2018).

Finance: 4
2017 2018
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
1.6
1.3
0.9
1.513
0.989
Coca-cola
PepsiCo
The current ratio shows the capability to set off current obligations. Greater is ratio then
better is the liquidity (Mari, & Marra, 2018). Current ratio of Coca-Cola determines that it is
1.3 in 2017 and .9 in 2018. On the other hand, current ratio of PepsiCo was determined at
1.51 in 2017 and .98 in 2018.
Coca-Cola does not meet its short-term financial obligations properly because it does not
accomplish 2:1, which is the standard ratio. This shows that there is a need to improve the
current ratio by increasing the current assets and paying off current obligations. The quick
ratio indicates capability of organisation to pay off the debts through the quick assets. Current
assets less inventory is known as quick asset (Lim, Wang, & Zeng, 2018). The ideal ratio for
the quick ratio is 1:1. During 2017, Coca-Cola generates a Quick ratio of 1.2 and in 2018, it
generates quick ratio of 0.8.

Finance: 5
2017 2018
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
1.6
1.2
0.8
1.370
0.848
Coca-cola
PepsiCo
(Refer to excel file)
This shows that in 2017, the company has more than adequate resources to pay off liabilities
(Rodrigues, & Rodrigues, 2018). Then it suddenly reduced the quick ratio to 0.9:1. On the
other hand, the competitor “PepsiCo” generates 1.37 percent of quick assets to set off its
current responsibilities in 2017 and .84 in 2018, where it has less quick assets to pay off its
current accountabilities. In 2018, the quick ratio of the company has not been maintained
well, which needs company to accomplish current liabilities (Zore et al., 2018).
Long-term financial condition
Solvency ratios and the leverage ratios measure the capability of organisation to sustain the
operations and compare the debt level with equity and finally evaluate whether the business is
able to set off its long term requirements. The standard ratio for debt equity is 2:1, and on the
other hand, higher ratio indicate that organisation has been getting more finances as borrowed
fund. High-borrowed fund is subject to more potential risks (Ghoul, Guedhami, Kim, & Park,