Financial Analysis of Coca-Cola Amatil Limited

This paper analyzes the financial position of Coca-Cola Amatil Limited using WACC, CAPM model, debt and equity instruments, capital structure, and dividend policy. It provides an overview of the company, its current business activities, and conclusion.

Accounting

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Contents
Introduction......................................................................................................................................2
Overview of the company................................................................................................................2
Current Business activities..............................................................................................................3
Company’s Capital Structure...........................................................................................................3
Debt and Equity Instrument.............................................................................................................4
Analysis of past and present dividend policy..................................................................................5
Capital Asset Pricing Model............................................................................................................6
Weighted Average Cost of Capital -100..........................................................................................7
Conclusion.......................................................................................................................................7
References........................................................................................................................................9

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Introduction
The main aim of this paper is to understand the concept of analyzing or evaluating the
financial position of the company. There are several techniques or methods that have been used
by the organization to evaluate the financial position by analyzing the financial statements such
as WACC method, ratio analysis, CAPM model and the others. It is required for the company to
analyze the financial statements to evaluate the financial position in the market. In this report,
Coca-Cola Amatil has been taken into consideration to examine the financial statement of the
organization. WACC, CAPM modela have been used to analyze the financial position of the
organization.
In the beginning of this report, overview about the company will be discussed. After that,
the discussion is made on the capital structure of the organization. Further the discussion has
been made on debt and equity instrument of thee company. Past and Present dividend policy of
the company will also evaluated. At the end of the report, CAPM (Capital Asset Pricing Model)
and WACC (Weighted Average Cost of Capital) methods are used to assess the financial
situation of the organization.
Overview of the organization
Coca-Cola Amatil Limited is one of the largest bottlers companies that provide the non-
alcoholic ready to drink beverages in the Asia-Pacific region. It is also one of the bottler of Coca-
Cola Amatil into the five major bottlers. It operates in six countries such as Papua New,
Australia, Indonesia, Fiji, New Zealand and Samoa (Coca-Cola Amatil Limited, 2018).
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Current Business activities
The company works with the diverse group of operations, across six countries. The
organization has large number of consumers everywhere those provides the non-alcoholic
beverages, coffee and also ready to eat food. The company operates in beverage industry in order
to provide the services in the market. The company operates the business as brand partners and
brand owners across the dynamic mix of market. All the services and designs of bottles are
different or unique from the others (Coca-Cola Amatil Limited, 2018).
.
Company’s Capital Structure
By examining the annual report of Coca-Cola Amatil, it has been found that equity plus net
debt is capital of the company. The company evaluates net debt by addition of borrowings and
debt related derivatives less long term deposits, cash assets and other financial liabilities. The
company manages the capital in order to make sure the assessment to funding to maintenance the
organization activities (Coca-Cola Amatil Limited, 2016). It maximizes the returns to
shareholders through the optimization of equity balances and net debt.
As per the analysis of table from the annual report of the company, it is observed that the
amount of capital is increasing from the previous year 2017. It has been found that the amount of
equity is increasing and the amount of net debt is decreasing in 2018 from 2017. The company

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raises the funds for smooth operation from equity which is beneficial as the borrowing amount is
decreasing. It is beneficial for the company to raise the funds through equity instead of
borrowing of funds as the organization have less risk in equity because the amount of returns is
decided on the basis of profit. If the company suffers with the loss then it is not liable to provide
the returns or dividend that is why; it is beneficial to increase the capital through equity instead
of borrowing money (Berger, Chen, & Li, 2018).
The capital structure of Coca-Cola Amatil is regularly reviewed by the board of director in
order to ensure its appropriateness in the business. It is essential for the company to provide the
maximize shareholder returns with the sufficient funds to support the requirements of the
company (Coca-Cola Amatil Limited, 2017). The organization has to sustain or adjust capital
structure by undertaking the certain activities such as adjustment of dividends paid to
shareholders, issues new shares, return equity to shareholders and the other activities. It has been
noticed that the organization reviews the capital structure by analyzing the activities such as
sufficient finance for business, distribution to shareholders, sufficient funds are available and the
others. It is observed that the company reviews the activities in regular basis in order to maintain
the capital structure (Coca-Cola Amatil Limited, 2015).
Debt and Equity Instrument
Debt instruments are the assets which are acquired on fixed payment to the holder which
is usually with interest. An equity instrument defines the document which is used as a legally
applicable evidence of the ownership right in the organization ( Mamouni Limnios, Watson,
Mazzarol, & Soutar, 2016).

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Coca-Cola Amatil uses the debt and equity instruments to raises the funds for smooth
operation in the market. In equity, stockholders equity instrument has been used to raise the fund
for operating the business in the activities. Share capital, reserves, treasury shares and
accumulated losses are the instruments of equity that have been used by the company from the
five financial years. These instruments help the organization to raise the funds when it required
to operate the business activities smoothly.
In debt, there are two instruments that help to raise the debts such as short tern or long
term. In short term debt, the company can pay the amount within the one year but the long term
debt, it can pay the amount in more than one year. In long term liabilities, the company uses the
deferred tax liabilities, borrowings, employee benefits provisions and derivatives as instruments
from the last five financial years. It is observed that these instruments also help to raise the funds
in the organization. It helps the company to operate the business but it has been found that it also
face the challenges due to raising the funds by borrowing the money on debt. The issues that the
company face while raising the funds from borrowing is that it has to pay the amount which is
taken by borrowers with the interest whether it suffered with the heavy losses (Valta, 2016). It
has been evaluated that the amount of borrowing is increasing from previous year instead of
decreasing which arise the issues for the company as it has to face the challenges while paying
the amount.
Analysis of past and present dividend policy
Dividend policy defines the value of dividends paid out the organization to its
shareholders and the frequency in which the amount of dividends are paid out. The organization
generates the profit in every year due to which it is required to make the decision whether it is

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retained the profit in the balance sheet or it can allocate the money (profit) to shareholders which
is considered as the dividend. The amount of paying to shareholders in return is called the
dividend. There are three types of dividend policies such as irregular dividend, stable dividend
and regular dividend (Attig, Boubakri, El Ghoul, & Guedhami, 2016).
Coca-Cola Amatil Limited implements the stable dividend policy in which it pays
dividend amount according to 80% of payout ratio. As per the analysis of annual report of five
years, it is observed that the company pays the dividend amount to shareholders as the return. In
the year 2017, the organization implements the same policy but with the 70% of payout ratio
(Coca-Cola Amatil Limited, 2015). By comparing the annual report of five years, it has been
evaluated that the company past and present dividend policy is similar which helps to maintain
the uniformities in collection of data. The only difference among the analysis of annual report of
the company is that it changes the percentage of dividend payout ratio. The annual report of five
years from 2015-2019, the dividend policy of the company is effective. Stable dividend policy
defines the payout ratio in which the organization has to pay the amount to shareholders on the
annual basis (Baker, & Weigand, 2015). In the stable dividend policy, the percentage of profit
paid out as dividends is fixed. This dividend policy of the company is effective. As the company
does not change its dividend policy in the five years due to which the chances of maintaining of
amount of dividend paid is maintained (Coca-Cola Amatil Limited, 2015).
Capital Asset Pricing Model
Capital Asset Pricing Model defines the connection among expected return of assets and
systematic risk (Rossi, 2016). CAPM is the model which is widely used by the company
throughout the finance for pricing risky securities and creating predictable returns in the

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exchange of assets given the risk for those assets and cost of capital (Elbannan, 2015). It is
required for the company to evaluate the expected return of assets as it helps to operate the
business smoothly in the market. The formula of calculating of Capital Asset Pricing Model
(CAPM) is given below:
ERi= Rf + Bi (ERm- Rf)
Expected Return= Risk Free Rate+ (Beta*Market Risk Premium)
The calculation of CAPM of Coca-Cola Amatil:
Particulars
Risk free rate of return 0.95%
Beta value 0.78
Expected rate of return 6.25%
Cost of equity 5.08%
Weighted Average Cost of Capital
Weighted Average Cost of Capital defines the rate that the organization is estimated to
pay to all its security holders on average with the objective to finance its assets. The WACC is
commonly refers to the organization cost of capital. This method helps the organization to
evaluate the minimum returns on the existing assets to satisfy its owners, creditors and others. It
is observed that it is necessary for the companies to evaluate the return in order to purchase the
new assets. The organizations raise the money from the difference causes such as convertible
debt, common stock, warrants, straight debt, pension liabilities, exchangeable debt and preferred
stock. Different securities present the different source of finance that is probable to make the
different returns (Frank, & Shen, 2016).

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The calculation of WACC of Coca-Cola Amatil:
Cost of Equity 5.08%
Cost of debt
Interest expenses 89.1
Long term liabilities 2248
3.96%
Market value of Equity 1900.00
Market value of Debt 1327.80
Total value 3227.80
Calculation of WACC 4.13%
Conclusion
From the above analysis, it is concluded that the Coca-Cola Amatil have a strong financial
position in the market. In this paper, the different terms has been discussed by examining the
annual report of the Coca-Cola Amatil Limited such as debt and equity instrument, capital
structure, dividend policy, CAPM, WACC. According to analysis of capital structure of the
organization, it is observed that the organization raises the funds from equity and net debt. The
analysis has been done on the last five years due to which it can be said that the amount of net
debt and equity is increasing from the previous year 2017. But in 2018, the debt amount is
decreasing and amount of share capital is increasing which directly affects the financial position
but also the capital of the company has been increases. As per the dividend policy, it is observed
that the company present and past dividend policy is similar as they pay the dividend amount on
fixed percentage in every year. The company implements the stable dividend policy while paying

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the amount of dividend to shareholders. In 2018, the organization pays the value of dividend to
shareholders in 80% of payout ratio.

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References
Attig, N., Boubakri, N., El Ghoul, S., & Guedhami, O. (2016). The global financial crisis,
family control, and dividend policy. Financial Management, 45(2), 291-313.
Baker, H. K., & Weigand, R. (2015). Corporate dividend policy revisited. Managerial
Finance, 41(2), 126-144.
Berger, P. G., Chen, H. J., & Li, F. (2018). Firm specific information and the cost of equity
capital. Feng, Firm Specific Information and the Cost of Equity Capital (April 2, 2018).
Coca-Cola Amatil Limited. (2015). Annual Report of Coca-Cola Amatil Limited 2015.
Retrieved From:
http://www.annualreports.com/HostedData/AnnualReportArchive/c/ASX_CCL_2015.pdf
Coca-Cola Amatil Limited. (2016). Annual Report of Coca-Cola Amatil Limited 2016.
Retrieved From: https://www.ccamatil.com/-/media/Cca/Corporate/Files/Annual-
Reports/2017/CCA181-Annual-Report-2016-low-resolution.ashx
Coca-Cola Amatil Limited. (2017). Annual Report of Coca-Cola Amatil Limited 2018.
Retrieved From: https://www.ccamatil.com/-/media/Cca/Corporate/Files/Annual-
Reports/2018/Annual-Report-2017.ashx
Coca-Cola Amatil Limited. (2018). Annual Report of Coca-Cola Amatil Limited 2017.
Retrieved From: https://www.ccamatil.com/-/media/Cca/Corporate/Files/Annual-
Reports/2019/2018-Annual-Report.ashx
Coca-Cola Amatil Limited. (2018). Our Company. Retrieved From:
https://www.ccamatil.com/our-company

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Elbannan, M. A. (2015). The capital asset pricing model: an overview of the theory.
International Journal of Economics and Finance, 7(1), 216-228.
Frank, M. Z., & Shen, T. (2016). Investment and the weighted average cost of capital.
Journal of Financial Economics, 119(2), 300-315.
Mamouni Limnios, E. A., Watson, J., Mazzarol, T., & Soutar, G. N. (2016). Financial
instruments and equity structures for raising capital in co-operatives. Journal of
Accounting & Organizational Change, 12(1), 50-74.
Rossi, M. (2016). The capital asset pricing model: a critical literature review. Global
Business and Economics Review, 18(5), 604-617.
Valta, P. (2016). Strategic default, debt structure, and stock returns. Journal of Financial and
Quantitative Analysis, 51(1), 197-229.