Financial Management In Coca Cola

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Added on 2019-12-03

Financial Management In Coca Cola

Added on 2019-12-03

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FINANCIAL MANAGEMENT

TABLE OF CONTENTSINTRODUCTION ..........................................................................................................................1TASK ..............................................................................................................................................1Critical analysis of the gearing ratio and dividend policy of Coca-Cola as against to theircorporate objectives................................................................................................................1CONCLUSION................................................................................................................................4REFERENCES................................................................................................................................5APPENDIX......................................................................................................................................6

INTRODUCTION Financial management places more emphasis upon the effective and optimum utilizationof money. Effective management of financial resources enables the organization to accomplishtheir objectives in an efficient manner (Moyer, McGuigan and Rao, 2014). For this projectreport, Coca-Cola is selected which is the multinational manufacturer, marketer and retailer ofnon-alcoholic beverages. Company is known for its flagship product and recognized as thefamous brand. The present report will discuss the solvency aspect of Coca-Cola with the help ofgearing ratio. It also provides a deep insight about the dividend policy of company upon whichthe investment decision of stakeholders is highly dependent. TASK Critical analysis of the gearing ratio and dividend policy of Coca-Cola as against to theircorporate objectivesCoca-Cola is the leading organization in the food and beverages sector which enjoys thecustomer’s loyalty towards the brand. Customer base of Coca-Cola is very wide which providesseveral benefits to the firm in terms of high productivity and profitability. Financial health andperformance of organization is sound in all the financial years. Nevertheless, in the presentscenario, Coca-Cola faces cut throat competition in the food and beverages sector. It is one of thedominating companies in this sector but due to their rivals, profitability aspects of the firmdecreases as compared to the previous years (McKinney, 2015). One of the main competitors ofCoca-Cola is Pepsi and other international firms which directly impacts the market share andbrand image of the organization. It is one of the main causes due to which profit margin ofcompany is decreased in the financial year 2014 as compared to 2013. Before analyzing the solvency aspects and dividend policy of Coca-Cola, it is required tounderstand these terms. Gearing ratio of company provides more assistance not only to but alsoto the shareholders about the financial leverage and solvency aspects of an organization. Itentails the ratio of fund which is borrowed by the firm from equity source as well as from theother long term debt sources of fund (Gearing Ratio, 2015). Ideal debt equity ratio of company is0.5:1 which entails that firm needs to meet their financial needs from equity sources as comparedto the debt sources of fund (Situm, 2014). In addition to this, dividend policy of company states

the amount of dividend paid by the organization to build and maintain faith of the investors. It isone of the main aspects upon which the investment decisions of stakeholders highly depend. Debt equity ratio of Coca-Cola is continuously increasing in each of the financial yearwhich is not fruitful for the organization. In the financial year 2010, debt equity ratio of Coca-Cola is .45 which is very near to the ideal ratio. It states that company raises their fund from theequity sources in against to the other long term debt sources. However, in the FY 2013, it is .58which is highly increased from the previous years. In contrary to this, in 2014, debt equity ratioof company is .63 which states that long term borrowing aspect of the firm is very high(Financial statements of Coca cola, 2015). It places a negative impact upon the shareholdersbecause if borrowing of an organization is high then company is unable to pay high rate ofdividend to their shareholders (Murto and Terviö, 2014). Gearing ratio of Coca-Cola reflects that company is suffering from lots of problems dueto which debt equity ratio of the firm is continuously increasing. In the financial year 2011,gearing ratio of an organization is .43 which states that Coca-Cola issued number of shares tomeet their financial requirements as compared to the long term debt sources. However, it is to becritically evaluated that in the next financial years, Coca-Cola has taken long term debt sourcesto meet their financial needs. One of the main causes behind the increment in long term debt isthe changes in economical aspects such as policies and economic condition like inflation anddeflation. Besides this, changes in the exchange rate and tax rate also affect the financial practicesand decisions of an organization. In addition to this, these changes reflect that company hasundertaken the expansion strategies and policies to build a strong presence. It may also be one ofthe causes behind the high gearing ratio. In the business downturn, high gearing ratio createsfinancial difficulties in front of company (Ali, Sharif and Jan, 2015). In this situation,organization is not in the position to repay the debt amount which may turn into bankruptcy.High gearing ratio also creates a negative image in the minds of different stakeholders towardsbusiness practices, operations and functions of Coca-Cola. Thus, company needs to undertakeeffectual measures to improve its financial leverage. Through this, organization is able to attractlarge number of investors towards the business organization. Coca-Cola needs to framestrategies and policies to improve its solvency aspects and thereby, makes contribution in theorganizational success.

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