Financial Analysis Project: Coca-Cola Amatil Capital Structure Report

This project report analyzes the capital structure of Coca-Cola Amatil, focusing on its financial management and performance. The report evaluates the company's overall cost of capital and risk position using WACC (Weighted Average Cost of Capital) and gearing ratio calculations. It provides an ...Read More

Running Head: Financial Management
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Project Report: Financial Management

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Executive summary
This study has been prepared to evaluate the capital structure position. In the report,
capital structure position has been studied of Coca cola Amatil, the report takes the concern
of overall cost of capital of the organization as well as the company’s risk position. In the
report WACC and gearing ratio has been calculated to identify the performance of the
company. The position of the capital structure of the company is quite competitive and briefs
that the capital structure of the company is quite competitive.

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Contents
Introduction.......................................................................................................................4
Company overview...........................................................................................................4
WACC..............................................................................................................................4
Explanation and Judgment................................................................................................5
Gearing ratio and issues....................................................................................................6
Findings............................................................................................................................6
Recommendation:.............................................................................................................7
Reflection..........................................................................................................................7
References.........................................................................................................................8
Appendix...........................................................................................................................9

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Introduction:
Financial management is a key process of every organization. Financial management
is done by the top level manager of the organization to estimate the company’s performance.
Financial management procedure evaluates all the financial related factors of an organization
to measure the presentation of the company. Capital structure analysis is also a part of
financial management which assists the organization to identify the risk level and total cost
position of the organization. The better the capital structure position of an organization would
be, the better the performance and risk position of the company would be.
In the report, capital structure position has been studied of Coca cola Amatil, the
report takes the concern of overall cost of capital of the corporation as well as the risk place
of the company.
Company overview:
Coca cola Amatil is a beverage corporation which is operating its business in
Australia. The business is registered in the Australian stock exchange. It is one of the largest
non alcoholic beverage companies in Australia. Coca Cola Amatil is the subsidiary company
of coca cola. The company also operates its business in Fiji, Samoa, New Zealand, Papua
New Guinea and Indonesia. The organization offers a huge variety of non alcoholic drinks in
the market (Home, 2017). Annual report (2017) of the company explains about the total
capital (debt and equity) amount of the company and explains that the financial performance
of the company has been better in 2017.
WACC:
For evaluating the capital structure position of an organization, WACC study is one
of the important tool. It explains about the total cost of the company related to the capital.
WACC stands for weighted average cost of capital. This techniques explains that what is the
total cost of the company in terms of various sources which has been used by the company to
finance its resources.
In case of Coca Cola Amatil, it has been found that the company has used the debt
fund and equity fund to raise the total capital of the organization. Total debt amount and
equity amount of the company is $ 1930 million and $ 1549 million, on the basis of book

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value amount of the company and the debt amount and equity amount of the company on the
basis of market value is $ 1930 million and $ 7111 million. The WACC of the company is
WACC calculations of Coca Cola Amatil (Market
Value)
(Amount in million)
Price Cost Weight WACC
Debt 1,930 5.25% 0.21 1.12%
Equity 7,111 5.72% 0.79 4.50%
9,041 Kd 5.62%
(Reuters, 2018)
Explanation and Judgment:
For calculating the WACC amount of the company, cost of debt and cost of equity
(ke) of the company has been measured firstly and it has been multiplied with the sum
portion of debt and equity amount in total capital amount with the cost of debt (kd) and cost
of equity (Ke).
For calculating the cost of debt of the company, tax amount and interest rate has
been required which has been found in the annual report (2017) of the company and it has
been found that the total cost of debt of the company is 5.25%.
Calculation of cost of debt
Outstanding debt 1,930
interest rate 7.50%
Tax rate 30.0%
Kd 5.25%
Further, the cost of equity amount of the company has been calculated. The risk free
rate, market premium rate and the beta figures are required. Risk free rate of the country has
been calculated on the basis of treasury bill , 5 year data (Bloomberg, 2018). Market premium
rate has been chosen 7% and the beta amount of the company has been calculated on the
basis of historical stock price of the company. The beta of the company is 0.721 (Yahoo
Finance, 2018).

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Figure 1: Return
Calculation of cost of equity
(CAPM)
RF 2.41%
RM 7.00%
Beta 0.721
Cost of equity 5.72%
It leads to a conclusion that the cost of debt and cost of equity of the company is
5.25% and 5.72%. And the weight of debt and equity is 0.21 and 0.79. It leads to the total
WACC of 5.62%. It explains that the current cost of capita of the company is 5.72%. It
explains that the company is required to pay 5.72% in total for the current resources of the
company.
Gearing ratio and issues:
Gearing ratio is a financial ratio which is calculated to identify the total risk of an
organization. It calculates the total long term liabilities of an organization on the basis of total
capital employed of the company. the gearing ratio calculations have been done on Coca Cola
amatil to evaluate that whether the capital structure of the company is optimal or not. The
long term liabilities and the capital employed of the company are $ 2338 and $ 4218.
The gearing ratio of the Coca Cola Amatil is as follows:
Gearing ratio= Long term Liabilities/ capital employed

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Capital Employed = Total assets- current liabilities
Calculation of Gearing ratio
Long term liabilities 2338
Current liabilities 1839
Total assets 6057 4218
Gearing Ratio 55.43%
(Morningstar, 2018)
It explains that the gearing ratio of the company is 55.43%. It explains that the long
term liabilities of the company are 55.43% of total capital of the organization. In calculating
the gearing ratios, no problems have been faced. The financial position of the company is
quite better. It explains that the gearing position of the company is quite strong.
Findings:
According to the evaluation on the company’s capital structure, the WACC of the
business is 5.62%. It has been estimated that the cost of debt and cost of equity of the
company is 5.25% and 5.72%. And the weight of debt and equity is 0.21 and 0.79. It leads to
the total WACC of 5.62%. It explains that the current cost of capital of the company is
5.72%. The company is required to pay 5.72% in total for the current resources of the
company. Further, the risk position of the organization is also lower. It leads to a conclusion
that the capital structure position of the company is quite competitive.
Recommendation:
According to the study, it has been found that the cost of the company is quite lower
as well as the capital structure of the company is also optimal. It leads to a conclusion that
coca cola Amatil is not required to make any alterations into the capital structure position of
the business. The current capital structure position of the business is quite competitive and
the performance of the organization is also better.
Reflection:
For this report, I have found the risk free rate, market premium rate, tax rate, interest
rate and the beta figures. Risk free rate of the country has been calculated on the basis of
Treasury bill, (Bloomberg, 2018). The risk free rate of 5 years has been taken into the context
due to the fact that the stock price of the company has also been taken care of 5 years. Market

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premium rate has been chosen 7% and the beta amount of the company has been calculated
on the basis of historical stock price of the company. The beta of the company is 0.721.
Further, the tax rate and the interest rate have been found in the annual report of the
company.

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References:
Annual report. (2017). Coca cola Amatil. (Online). Retrieved on 14 May 2018 from:
https://www.ccamatil.com/-/media/Cca/Corporate/Files/Annual-Reports/2018/Annual-
Report-2017.ashx.
Bloomberg. (2018). Australian bonds and rates. (Online). Retrieved on 14 May 2018 from:
https://www.bloomberg.com/markets/rates-bonds/government-bonds/australia.
Home. (2018). Coca cola Amatil. (Online). Retrieved on 14 May 2018 from:
https://www.ccamatil.com/.
Morningstar. (2018). Coca cola Amatil. (Online). Retrieved on 14 May 2018 from:
http://financials.morningstar.com/income-statement/is.html?t=CCL&region=aus.
Reuters. (2018). Coca cola Amatil. (Online). Retrieved on 14 May 2018 from:
https://www.reuters.com/finance/stocks/overview/CCL.AX.
Yahoo Finance. (2018). Coca cola Amatil. (Online). Retrieved on 14 May 2018 from:
https://finance.yahoo.com/quote/CCL.AX?ltr=1.

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Appendix:
SUMMARY OUTPUT
Regression Statistics
Multiple R 0.407276
R Square 0.165874
Adjusted R
Square 0.151493
Standard Error 0.050895
Observations 60
ANOVA
df SS MS F
Significance
F
Regression 1 0.029877 0.029877 11.53387 0.001239
Residual 58 0.150239 0.00259
Total 59 0.180116
Coefficients
Standard
Error t Stat P-value Lower 95%
Intercept -0.00166 0.006646 -0.24983 0.803604 -0.01496
X Variable 1 0.720626 0.212189 3.396155 0.001239 0.295884