Evaluation Of Financial Performance Of Coca-Cola

Background of the Company

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.

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.

Market and Competitive Strategies

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.

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.

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.

Financial Performance Assessment through Ratios

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.

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 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.

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.

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.

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 3^rd 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 3^rd 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 3^rd 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.217-22

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