Coca-Cola
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Coca-Cola Company Analysis
The Coca-Cola company was founded in 1886 by John Pemberton, a Civil War veteran and Atlanta pharmacist. He was inspired by his curiosity as he stirred up a fragrant, caramel-colored liquid that he brought down to a place called Jacobs Pharmacy. There he added carbonated water and let several customers sample the new concoction. Jacobs Pharmacy put it on sale for five cents a glass and named it Coca-Cola. This “inspired curiosity” has now grown to be the worlds leading manufacturer, marketer, and distributor of nonalcoholic beverage concentrates and syrups. In 1906 Coca-Cola opened bottling plants in Canada, Cuba, and Panama. Today they produce nearly 400 brands in over 200 countries. More than 70% of their income comes from outside the U.S. (1). This paper will focus on an analysis of operations of the statement of cash flow reports and a vertical and horizontal analysis of the consolidated balance sheets. Also an analysis of the global financial condition of the Coca-Cola Company and the value of goodwill and other intangible assets will be discussed.
The statement of cash flows reports a firms major cash inflows and outflows for a period. This statement provides useful information about a companys ability to generate cash from operations, maintain and expand its operating capacity, meeting its financial obligations, and pay dividends. There are three types of activities to look at in this statement, which are cash flows from operating activities, investing activities, and financial activities (3, 2005).
When analyzing Coca-Colas statement of cash flow, the first thing to note is a steady increase in operating activities within the past few years. These transactions affect the net income. From 2001 to 2003 the cash from net income increased from $4.1 million to $5.5 million. The operating activities is often the most important cash flow of a business because it shows the cash from revenue compared to the payments made for expenses (2).
The cash flows from investing activities are cash flows from transactions that affect the investments in non-current assets. Some of these include investments in bottling companies; purchases of property, plant and equipment; and purchases of investments and assets. For the most part, these figures have remained fairly stable. From 2001 to 2003 it went from $1.1 million to $9.3 million, showing a slight decline (2).
The last part of this report is the cash flow from financing activities. These are transactions that affect the equity and debt of the business. Some of these include the issuances of debts, payment of debts, issuances of stock, purchase of stock, and dividends. There has been a steady increase in this section from $2.8 million to $3.6 million from 2001 to 2003. Also, there has been an increase in purchase of stocks and an increase in dividends paid out making this a fairly safe investment prospect (2).
When analyzing Coca-Colas consolidated balance sheet you can compare the assets, liabilities, and owners equity between different years. In this case, I compared 2002 to 2003 and did a vertical and horizontal analysis. In a vertical analysis of the balance sheet, each asset item is stated as a percent of the total assets and each liability and shareholders equity item is stated as a percent of the total liabilities and shareholders equity (3, 2005). There were a few minor percentage changes in Coca-Colas assets but for the most part stayed relatively close. From 2002 to 2003 the changes went as followed: current assets increased .6%, investments and other assets increased .9%, property, plant, and equipment decreased 1.9%, and intangible assets increased .4%. In the Liabilities and Shareholders Equity sections of the balance sheet there were minor changes to all the categories but not a significant amount. Current liabilities decreased by 1.3%, long term and others decreased 2%, common stock decreased .4%, capital surplus increased .3%, and retained earnings increased 3.4%. The total shareholders equity rose from 48.3% to 51.6%, a 3.3% increase (See appendage 1).
When using the horizontal analysis the amount of each item on the most recent statement is compared with the related item on an earlier statement. The amount of increase or decrease in the item is listed along with the percent of increase or decrease (3, 2005). Total assets at the end of year 2003 were $2936M (10.7%) more than at the beginning of the year. In addition, total liabilities were increased by $646 million (4.9%) and shareholders equity increased $2290 million (16.3%) (See appendage 2).
After analyzing these statements, I will move on to the global involvement of Coca-Cola. As stated earlier, nearly 70% of Coca-Colas income comes from outside the U.S. The first international bottling plant opened in 1906 in Canada, Cuba, and Panama. Today, they produce nearly 400 brands in over 200 different countries (1). Germany was the companys first marketing success outside of North America and is now the fifth largest market for the Coca-Cola Company in the world. Coca-Cola developed Mezzo Mix in Germany and their PowerAde product is the number one sports drink in that country (4). Coca-Cola is also prosperous in China, and now employs over 15,000 people and supports 414,000 Chinese jobs. It also contributes $200 million in tax revenues to central and local tax agencies. It has invested about $1.1 billion in China, producing $4 billion in additional economic activity through its multiplier effects (5). Coca-Cola is truly a global corporation that meets the tastes of customers all over the world.
Besides the global involvement of the company, they also have their share of Goodwill assets and other intangible assets. Effective January 1, 2002, Coca-Cola adopted SFAS No. 142, Goodwill and Other Intangible Assets. This required an initial impairment assessment involving a comparison of the fair value of goodwill, trademarks, and other intangible assets to current carrying value. At first they recorded a loss for the cumulative effect of accounting change for SFAS No. 142, net income taxes of $367 million for Company operations and $559 million for equity investors. All goodwill is assigned to reporting units, which are one level below the operating segments. Goodwill is assigned to the reporting unit that benefits from the synergy arising from each business combination. Goodwill is not amortized. They perform tests for impairment of Goodwill annually, or more frequently if events or circumstances indicate it might be impaired. Such tests include comparing the fair value of a reporting unit with its carrying value, including Goodwill.