Comprehensive Financial Analysis and Share Valuation of Coca-Cola

This report provides a comprehensive financial analysis of the Coca-Cola Company, evaluating its performance through various lenses. It begins with an overview of Coca-Cola's background, including its global market presence, core competencies, and customer analysis within its marketing strategy. The study then delves into the factors influencing the company's financial performance, followed by an in-depth examination of financial ratios, including liquidity, efficiency, market value, profitability, and financing ratios. The report also includes a valuation of Coca-Cola's shares, considering fluctuations over several years and employing the dividend growth model to assess current market prices. The analysis concludes with an evaluation of the company's financial health and provides recommendations for investors, highlighting the company's strong brand image but acknowledging its fluctuating financial performance.

Business finance

TABLE OF CONTENTS
Introduction................................................................................................................................3
Financial analysis of Coca Cola.................................................................................................3
Background of the company..................................................................................................3
Mission...............................................................................................................................3
Customer analysis in the Marketing strategy of Coca-Cola...............................................3
Core competencies of the company...................................................................................4
Factors affecting the performance of the company............................................................5
Ratio Analysis........................................................................................................................5
Valuation of the shares of coca cola Amatil..........................................................................7
Share valuation.......................................................................................................................9
Conclusion..................................................................................................................................9
Recommendations......................................................................................................................9
References................................................................................................................................11
Appendices...............................................................................................................................12
Financial ratios.....................................................................................................................12

INTRODUCTION
The present study is based on an evaluation of the financial performance of Coca-Cola.
Initially, the background of the company is assessed by considering their market, competitive
strategies and core competencies. Further, it is followed by computing and interpretation of
financial ratios to assess their financial position. Last part of the study analysis share price
fluctuations of the company over the years with a graphical presentation for better
understanding.
FINANCIAL ANALYSIS OF COCA COLA
Background of the company
Coca-Cola Company is functioning as a foremost soft drink maker and operating in more
than 200 states worldwide. Company advertise and sales several sparkling and still drinks,
and it’s 60% profits and concerning 80% of its functioning income is produced from outside
the United States (Coca-Cola Amatil Limited Annual Report, 2017). The brand is strongly
recognized throughout the world. As per the indoors business observers, around 94% of the
world population is familiar and known about its logo which is presented in the white and red
colour of Coca-Cola.
Mission
Their business proceedings begin with their desired objective which is to provide the standard
products while considering their performance aligned with the choices of customers.
Customer analysis in the Marketing strategy of Coca-Cola
The policy of the company is focused on targeting the mass market. Clients are considering
various factors while moving towards the products for example; low cost of the product, great
flavour, expediency & convenience and diverse alternative to select from (Sinha and Sheth,
2018).
The company is operating in the non-alcoholic beverages market. In this industry, it is always
seen that it is an ever-growing business with the higher amount of opportunities. Moreover
with the start of rising Asian markets & developing nations the utilization will be higher due
to the changing lifestyle and shifts in the choices of the clientele, financial conditions and
varying habits of purchasing (Coca-Cola Amatil Limited Annual Report, 2017). Moreover, in
such business clients have various choices for example from water, tea, coffee and soft

drinks; consequently, there are huge chances for customers to move towards the different
brands and products. Therefore, simple methods to differentiate the brand and retain the
consumers is to build a strong brand image and generate force for the product in the
marketplace.
Core competencies of the company
The Coca-Cola Company is always known as the originator of refreshing drink brands.
Nowadays, our generous collection contains more than 500 brands, for example, sparkling
beverages, fruit drinks and squash drinks, water coffee, tea, energy and enhanced hydration
drinks and sports drinks and so on (Gardner, McGowan and Susan, 2012). Value-added dairy
between such products is 20 that produce more than a billion dollars in yearly retail sales.
An additional core competency is their capability to direct the world’s most complicated
structure of independent bottling associated with producing worth for their retail and
restaurant clientele (Five Strategic Actions, 2015). From many years company has obtained
and directed several Coca-Cola bottling associates, with the objective of getting better
performance, optimizing manufacturing and sharing structure, and eventually refranchising
the bottling countries back to autonomous position.
In terms of functioning, brand portfolio, cost management, Collaborative customer
relationship and, concerted customer association, Coca-Cola has a better competitive edge
more than its competitor.
Operations
In terms of functioning Coca-cola Company has outsourced the bottling process to the
franchise, FEMSA which is the biggest Bottling franchisee of the Coca-Cola brand beverage
in the whole world (Dekhil, Jridi and Farhat, 2017). It assists the corporation in measuring
significant development opportunity in an immature, non-carbonated drink section and in
planned attainment by incoming into agreements to equally obtain corporation with The
Coca-Cola Company.
Cost control
Characteristics of a company such as expanded product portfolio, Outsourcing process
& economies of scale assist them in lowering down their functioning cost & amplify
its productivity.

Strong Brand Portfolio
The company has a strong brand portfolio as it presents a commanding and wide collection of
drinks to its clientele, and it endlessly discovers the promising drink collection to capture
expansion in the various markets (Kourovskaia and Meenaghan, 2013). In its drinks
collection, it includes bottled water, carbonated soft drinks, orangeades, juices, teas, energy
drinks, iso-tonics, coffee, milk and even beer in the markets of Brazil.
Factors affecting the performance of the company
Financial
Coca-Cola Company should continue the strong financial presentation in the industry for
continuing the spending for the upcoming achievement of its business and deliver sufficient
investors return.
Consumer/marketer
Coca-cola know how to recognize or perceive the quantity of products sale through the
opening of raffles for the variety of products, customers are interested in acquiring the more
of this product if they identify that they are tending to win an award for purchasing the
product (Sauerbronn, Barros and Faria, 2018). This scheme or approach will positively
provide the organisation with an upper edge ahead of their opponents similar to Pepsi.
Operations
For fulfilling the consumer’s needs and generating a cost-efficient industry, the company
have to perform a robust process. The functioning activities are supervised by a huge range of
dimension at an assortment of levels (Brigham and Ehrhardt, 2013). The procedure is being
supervised by the number of manufactured goods shaped in diverse plants of the corporation
worldwide as well as how many manufactured goods are needed by the marketers.
Colleagues
Coca-Cola had identified that to achieve a high performance the commitment of its
employees is needed towards the attainment of the organisation objectives and values (Coca-
Cola Amatil Limited Annual Report, 2017). Along with this, those who are willing to make
the transformation will definitely advance client services. They hire an all-employee private
speak-up investigation to recognise the thoughtfulness. Significant workers views will
absolutely assist the corporation to develop strongly.

Ratio Analysis
Liquidity Ratios 2017 2016
Working Capital Ratio 1.52 1.68
Inventory turnover 4.98 4.96
In accordance with assertions of Ehiedu, (2014) liquidity ratios can be defined as the group of
financial metrics which is utilised to determine the capability of the debtor’s to reimburse
current debt obligation without increasing external capital. After calculating the liquidity
ratios of Coca-Cola Amatil Company, it can be assessed that the working capital turnover
ratio of the year 2017 is less, i.e. 1.52 in comparison to that of the year 2016, i.e. 1.68. The
same signifies that the company is not efficiently and its potential for growth has decreased in
comparison to the previous year. As the company has a ratio between 1.2 and 2.0 in both the
years which is believed to be good working ratio; thus it can be concluded that on an average
company has an appropriate short-term asset in order to cover its short-term liabilities. The
increasing trend of inventory ratio signifies that the company is effectively managing its
inventory.
Efficiency Ratio 2017 2016
Profit Margin 0.09 0.05
Asset Turnover Ratio 0.81 0.78
Efficiency ratio signifies the company’s ability to apply its asset and manage liability in an
effective manner. A significant increase in profit, i.e. $257.3 million to $461.0 million can be
assessed, and same represent that company is efficiently using available resources in an
appropriate manner through achieving a higher rate of return (Coca-Cola Amatil Limited
Annual Report, 2017). The same is represented in the form of an increase in profit margin.
Asset turnover ratio evaluates company revenue generated by deploying its asset for
generating revenue. The increase in asset turnover ratio of Coca-Cola Amatil signifies that
the company is efficiently deploying its asset for a specified purpose.
Market Value ratios 2017 2016

Book Share price 12.03 9.02
Market Share Price 10.26 9.85
P/ B Ration (Market price/ Book value) 0.85 1.09
A comparison of book value and market value of share represents that whether the value of a
share is underpriced or overpriced (Henderson, Peirson and Howieson, 2015). The same
assertion assists in making an investment decision in appropriate manner (Narayanaswamy,
2017). From the above specification, it can be concluded that at the end of the year 2016
shares were overvalued the position, however, is not the same at the end of the year 2017. As
contradiction exists at the end of each year, thus it appropriate to use other methods of stock
valuation in order to remove the discrepancy in options.
Profitability Ratios 2017 2016
Return on Equity 0.16 0.15
Return on Assets 0.05 0.05
Gross Profit 0.378 0.376
Net Profit 0.09 0.05
Financing Ratio 2016 2015
Debt to Equity Ratio 1.03 0.86
Interest Coverage 6.50 4.06
Profitability and Financing ration can be referred as a key ratio as one provides detail relating
to the performance of the company in financial metrics and other provides detail relating to
the ability of the company to pay off its debts (Brigham and Ehrhardt, 2013). Thus, as profit
ratio of Coca-Cola Amatil are having enhanced in comparison to the performance of the
previous year in term of gross profit, net profit and return of equity. It means that company is
incrementing in term of profitability which is beneficial for an investor too. Further, as the
company has an effective interest coverage ratio in both the years which signifies that
company has sufficient profit to cover its interest expenses. As debt to equity ratio signifies

the leverage of a company, i.e. the extent to which it is dependent on finance. It present case
it can be concluded that the company is having a satisfactory debt-equity ratio as it is
approximately around idol ratio that is 1:1 in both the years.
Valuation of the shares of coca cola Amatil
Year Share price
June 2014 9.292
June 2015 9.430
June 2016 8.531
June 2017 9.134
June 2018 9.068
2014 2015 2016 2017 2018
9.292
9.43
8.531
9.134 9.068
Share price
Share price
On the basis of the evaluation, it has been seen that the price of the shares of coca cola was
very fluctuating. In the year 2014, the price was 9.292, while in the year 2016 the price was
8.531 and in the year 2018 was 9.068 (ASX Coca-Cola, 2018). It means after the downfall
suffered in the year 2016, the value of the share again increased. This may be due to the
changes in the strategy of the company, which leads to the improvement in the financial
performance of the company. However, in the above five years, the company achieved the
maximum price of the share in the year 2015, which were 9.430.

The aggressive investor will be attracted towards the investment in the company. Since the
prices of the company were fluctuating, therefore, it may be possible that the company
through its better strategy can achieve the better result. However, on the other aspect, it may
also be possible that the company may not achieve the desired result. The aggressive investor
wants to achieve the maximum return by taking the higher risk; therefore they can invest in
the company by taking the risk of the fluctuation of the share price of the company.
Moreover, the moderate investor and the balance investor will not show the interest in
investing in the company, because the risk of the enhancing the share price of the company is
very high.
Share valuation
Dividend growth model
Value of share as dividend growth model
P=D1/(k-g)
.21*1.04/ (9%-4%)
=$4.368
Actual market price
$9.063
The analysis shows that currently share price is overvalued. Therefore investors should sell
the share. The difference in price is due to the consideration of other factors in actual market
price such as future project, current profits, change in historical performance etc.
CONCLUSION
In accordance with the present study, the conclusion can be drawn that Coca-Cola is having
the strong brand image all over the world but having fluctuating financial performance. The
company is constantly engaged in improvising their overall performance by ensuring
innovation and implementation of new technologies by considering the taste and preferences
of customers. However, constant fluctuation of share prices makes it aggressive investment
option which has the potential of huge return but associated with high risk.

RECOMMENDATIONS
By considering the present study, the company is required to consider the following
recommendations: Product diversification: Company should expand their product portfolio by
introducing other beverages such as energy drink, tea and beer to expand their
customer base and increase their profits. Advertising: Company should increase emphasis on advertisement to attract more
customers towards the product. Advertisements must highlight the changes in the
product to aware customers. New designing: Instead of sticking on traditional designs company should modify
their designing to be catchy and to encourage customers to provide preference to their
brands over the other options available.
By incorporating these recommendations, company will be able to enhance their profits and
stabilise their financial position.

REFERENCES
ASX Coca Cola, 2018. [Online]. Available through <https://www.asx.com.au/asx/share-
price-research/company/CCL>. [Accessed on 3rd October 2018].
Brigham, E.F and Ehrhardt, M.C., 2013. Financial management: Theory & practice.
Cengage Learning.
Brigham, E.F. and Ehrhardt, M.C. 2013. Financial management: Theory & practice.
Cengage Learning.
Coca-Cola Amatil Limited Annual Report. 2017. [PDF]. Available through <
https://www.ccamatil.com/-/media/Cca/Corporate/Files/Annual-Reports/2018/Annual-
Report-2017.ashx>. [Accessed on 3rd October 2018]
Dekhil, F., Jridi, H. and Farhat, H., 2017. Effect of religiosity on the decision to participate in
a boycott: The moderating effect of brand loyalty–the case of Coca-Cola. Journal of Islamic
Marketing, 8(2), pp.309-328.
Ehiedu, V.C., 2014. The impact of liquidity on the profitability of some selected companies:
The financial statement analysis (FSA) approach. Research Journal of Finance and
Accounting, 5(5), Pp 81-90.
Five Strategic Actions, 2015. [Online]. Available through <https://www.coca-
colacompany.com/stories/five-strategic-actions>. [Accessed on 3rd October 2018].
Gardner, J.C., McGowan, C.B and Susan Jr, E.M., 2012. Valuing Coca-Cola using the free
cash flow to equity valuation model. Journal of Business & Economics Research (Online).
10(11). Pp.629
Henderson, S., Peirson, G and Howieson, B., 2015. Issues in financial accounting. Pearson
Higher Education AU.
Kourovskaia, A.A and Meenaghan, T., 2013. Assessing the financial impact of sponsorship
investment. Psychology & Marketing, 30(5), Pp.417-430.
Narayanaswamy, R., 2017. Financial accounting: a managerial perspective. PHI Learning
Pvt. Ltd..
Sauerbronn, F.F., Barros, D.F. and Faria, A., 2018. Coca-Cola and strategic CSR. In The
Dark Side 3 (Vol. 55, No. 64, pp. 55-64). ROUTLEDGE in association with GSE Research.
Sinha, M. and Sheth, J., 2018. Growing the pie in emerging markets: Marketing strategies for
increasing the ratio of non-users to users. Journal of Business Research, 86, pp.217-224.

APPENDICES
Financial ratios
Year 2017 2016
Liquidity Ratios
Working Capital Ratio 2799.6/1838.8 3104.8/1843.1
(Current Assets/ Current
Liabilities) 1.52 1.68
Inventory turnover 5024.2/(670.3+676.4/2)
5180.1/
(676.4+733.9/2)
(Revenue/ Average inventory) 4.98 4.96
Efficiency Ratio 2017 2016
Profit Margin 461.0/4933.8 257.3/5077.7
(Profit / revenue) 0.09 0.05
Asset Turnover Ratio 4933.8/6056.9 5077.7/6475.3
Total revenue/ Total Assets) 0.81 0.78
Market Value ratios 2017 2016
Book Share price 12.03 9.02
Market Share Price 10.26 9.85
P/B Ratio 0.85286783 1.092017738
Profiablity Ratios 2017 2016
Return on Equity 296.9/1880.3 334.7/2274.2
(Profit after tax / net worth ) 0.16 0.15

Return on Assets 296.9/6056.9 334.7/6475.3
Net profit/ Total Assets 0.05 0.05
Gross Profit 1865.9/4933.8 1911.1/5077.7
Gross profit / Sales *100 0.378187199 0.376371192
Net Profit 461.0/4933.8 257.3/5077.7
Net Profit/ Sales *100 0.09 0.05
Financing Ratio 2016 2015
Debt to Equity Ratio 1929.5/1880.3 1959.5/2274.2
(Debt / Equity) 1.03 0.86
Interest Coverage 678.4/104.4 466.1/114.8
(EBIT/ Interest Expenses) 6.50 4.06