Valuation of Coca-Cola Company: Financial Analysis Report

This report provides a comprehensive analysis of the Coca-Cola Company's valuation, focusing on its cash value. It utilizes four distinct methods: Net Worth, Net Income, Price-Earnings Ratio, and Outstanding Shares. The report meticulously calculates the company's value using data from Coca-Cola's 2018 annual report, including shareholders' equity, net income, stock price, and outstanding shares. It then computes an average value to provide a more realistic assessment. The analysis includes a discussion of each method's strengths and weaknesses, along with a conclusion highlighting the importance of company valuation in investment decision-making. The report emphasizes the role of financial facts and figures, market value, and the significance of considering average values for informed investment choices, and also includes peer discussions and references.

Running head: STRATEGIC MANAGEMENT CASE AND CONCEPT
Strategic Management Case and Concept
Name of the Student:
Name of the University:
Author’s Note:

2STRATEGIC MANAGEMENT CASE AND CONCEPT
Table of Contents
Solution to Exercise 8C:.............................................................................................................3
Step 1: Computation of Net Worth of Coca Cola using four methods:.................................3
Step 2: Computation of Average Cash Value of the Coca Cola:...........................................5
Step 3: Conclusion:................................................................................................................6
Working with peers and agreement about Coca Cola’s Cash Value:........................................6
References and bibliography:.....................................................................................................8

3STRATEGIC MANAGEMENT CASE AND CONCEPT
Solution to Exercise 8C:
Step 1: Computation of Net Worth of Coca Cola using four methods:
Corporate value or the cash value of a company means the net worth of the company
which is considered for purchase or acquisition of the said company. Various merger and
acquisitions takes place in reality to increase the volume of business or to grow the business
and the cash valuation of company is important in such a context. Corporate value or the cash
value is the perceived dollar amount which is negotiated for acquisition of the net assets of a
company (Berzkalne and Zelgalve 2014).
The value of the company depends on certain financial facts and figures. Sometimes
the earning capacity is considered for valuation or sometimes the market capitalisation is
considered as the value of the company. Based on such perceptions the valuation of
corporation can be done using four methods, which are Net Worth Method, Net Income
Method, the Price-Earnings Ratio Method and the Outstanding Shares Method. Taking the
information from the 2018 annual report of Coca Cola Company the cash value of the Coca
Cola can be computed as follows.
Input Data:
Shareholders' Equity $ 19,058
Net Income $ 6,476
Stock Price $ 46.57
EPS $ 1.51
Number of shares outstanding 4,259
Goodwill $ 10,263
Intangibles $ 7,007
Source: (Coca-colacompany.com 2019)
Information has been taken from the 2018 annual report of the Coca Cola Company.
The basic EPS and the basic outstanding shares outstanding as at December 31, 2018 have

4STRATEGIC MANAGEMENT CASE AND CONCEPT
been considered. To keep parity in calculations the closing market price of shares as at
December 31, 2018 has been taken into consideration. All the amounts are in millions except
EPS.
Computation of Cash Value of the Coca Cola Company
Methods Formula Amount (m)
Net Worth Method Stockholders Equity-(Goodwill +
Intangibles)
= 19,058-(10,263+7,007) $ 1,788
Net Income Method Net Income ×5
= 6,476×5 $ 32,380
Price-Earnings Ratio
Method
(Share Price/EPS) × Net Income
= (46.57/1.51) × 6,476 $ 1,99,727
Outstanding Shares Method Number of shares outstanding × Share Price
= 4,259 × 46.57 $ 1,98,342
It can be observed from the above results that, in net worth method the value of the
Coca Cola Company is only $1,788 million and it is $32,380 million in the net income
method. Whereas, in Price-earnings method the value of the Coca Cola Company is
$1,99,727 million. The Outstanding share method uses the market price of the shares, which
is a reflection of the price - earnings ratio, and hence, the value of the Coca Cola Company as
has been computed above under the outstanding shares method comes very close to the value
as computed in the price-earnings method.
Total equity is equal to the net assets of the company and the net assets include both
the tangible and intangible assts. To find out the net worth of the corporation under the net
worth method the value of total individual assets including the goodwill is deducted from the
total equity. Under the net income method, the profitability or the current earning capacity of
the company is projected as the future earning capacity and multiplied by five to get the value
of the company. In this method, it is assumed as per the general rule of thumb that the five
years’ earnings can be considered as the value of the company. In price-earnings method, the

5STRATEGIC MANAGEMENT CASE AND CONCEPT
price-earnings ratio is multiplied with the net income to find the value of the corporation. In
outstanding shares method the market capitalisation is computed by multiplying the
outstanding number of shares with the current market price of the shares.
Step 2: Computation of Average Cash Value of the Coca Cola:
It can be observed from the calculations in step one that value of the corporation or
the cash value of the company is different in four of the different methods because different
parameters are used in each of those methods. Some of them consider the current earnings
and some of them consider the value of net tangible assets (Enever Isaac and Daley 2014). As
all those methods gives different results, to make a conscious decision about the acquisition
or the negotiation for the value of company the average of those four methods can be
considered as the best alternative. Therefore, taking the results of those four methods the
average value of the Coca Cola Company can be computed as follows.
Methods Value (m)
Net Worth Method $ 1,788
Net Income Method $ 32,380
Price-Earnings Ratio Method $ 1,99,727
Outstanding Shares Method $ 1,98,342
Average Value = (1,788+32,380+1,99,727+1,98,342)/4 $ 1,08,059
In the above table the results of the four method have been taken first and then to find
the cash value of the Coca Cola Company the average of the four values have been
computed. The average value of the Coca Cola Company comes to $1,08,059 million. It
implies the net assets of the Coca Cola Company can be negotiated and acquired for a dollar
amount of 1,08,059 million. The average value of the four methods can give a more realistic
approach to make a conscious investment decision based on the value of the company. It
takes into consideration both the earnings approach as well as the net identifiable tangible

6STRATEGIC MANAGEMENT CASE AND CONCEPT
assets approach because the final result is computed taking the average of the results of the
four methods.
Step 3: Conclusion:
Company valuation or the cash valuation of the company is an important step in
making any investment decision when a potential investment opportunity is available with a
company. There are certain situations when the cash value of the company is needed to be
calculated and taken into consideration, such as lending finance to a company, investing in
securities or shares of a company or acquiring shares of a company and so on. It helps in
measuring the net worth of the company and a conscious investment decision can be taken
based on such an analysis (Berzkalne and Zelgalve 2014). In this case study the cash value
of the Coca Cola Company has been computed taking financial facts and figures about the
financial results and financial positions of the Coca Cola Company. It can be observed from
the analysis that, the net worth is very of the Coca Cola Company and the based on the
earnings capacity a moderate value can be assigned as the cash value for the Coca Cola
Company. The market value or the market capitalisation of the company is quite high due to
its financial performance and brand value in the market. The net worth is a reflection of the
intrinsic value of the company and on the other hand the market value is the market perceived
value of the company. It is a common parlance that the market value tends to the intrinsic
value, hence for conscious investment decision the average value should be considered for
important investment decision making (Berzkalne and Zelgalve 2014).
Working with peers and agreement about Coca Cola’s Cash Value:
After working with my peers and comparing the above computations with their
results, it can be commented that, if the same data is used for the computation and the same
methods are followed, then all the results of the computations would be matching with the

7STRATEGIC MANAGEMENT CASE AND CONCEPT
results as has been computed in this case study. Working with my peers, I have come to an
agreement that, the cash value computation depends on certain financial facts and figures of
the company and there are various methods of such calculation. The average value method
gives a better result than the other method and hence it can be used for investment decision
successfully. Lastly, it can be concluded that, the use of more current financial information
with the most recent stock prices can give a more realistic calculations and projection of the
cash value of the company.

8STRATEGIC MANAGEMENT CASE AND CONCEPT
References and bibliography:
Berzkalne, I. and Zelgalve, E., 2014. Intellectual capital and company value. Procedia-Social
and Behavioral Sciences, 110, pp.887-896.
Coca-colacompany.com. (2019). [online] Available at:
https://www.coca-colacompany.com/content/dam/journey/us/en/private/fileassets/pdf/2019/
annual-shareholders-meeting/2018-Annual-Report-on-Form-10-K.pdf [Accessed 3 Aug.
2019].
Coca-colacompany.com. (2019). [online] Available at:
https://www.coca-colacompany.com/content/dam/journey/us/en/private/fileassets/pdf/
investors/2016-AR-10-K.pdf [Accessed 3 Aug. 2019].
Coca-colacompany.com. (2019). [online] Available at:
https://www.coca-colacompany.com/content/dam/journey/us/en/private/fileassets/pdf/
2015/02/2014-annual-report-on-form-10-k.pdf [Accessed 3 Aug. 2019].
Enever, N., Isaac, D. and Daley, M., 2014. The valuation of property investments. Estates
Gazette.
Fernandez, P., 2015. How to value a seasonal company discounting cash flows. Available at
SSRN 406220.
Finance.yahoo.com. (2019). Yahoo is now part of Oath. [online] Available at:
https://finance.yahoo.com/quote/KO/financials?p=KO [Accessed 3 Aug. 2019].
Martin-Barrera, G., Zamora-Ramirez, C. and Gonzalez-Gonzalez, J.M., 2016. Application of
real options valuation for analysing the impact of public R&D financing on renewable energy

9STRATEGIC MANAGEMENT CASE AND CONCEPT
projects: A company′ s perspective. Renewable and Sustainable Energy Reviews, 63, pp.292-
301.
Popovic, S., Majstorovic, A. and Grubljesic, Z., 2015. Valuation of facilities in use and
application of international accounting standards. Актуальні проблеми економіки, (3),
pp.379-387.
Rojo-Ramírez, A.A., 2014. Privately held company valuation and cost of capital. Journal of
Business Valuation and Economic Loss Analysis, 9(1), pp.1-21.