Financial Performance Analysis Of Coca Cola Amatil Limited For Investment Decision-making

Selected Company: Coca Cola Amatil Limited

An investor is the one who invests the money into the business against the dividend amount from the business. Investors always evaluates various factors while making decision about the investment into a particular company. The evaluation on the stock price, intrinsic value financial ratios, changes into the stock price etc are few of the methods to measure the investment level of a business (Higgins, 2012). These financial and stock analysis tools make it way easier for the investors to evaluate more than one company in the same industry and make better decision about the position of the company.

In the report, an Australian company, Coca cola Amatil has been taken into the concern to evaluate and apply the various financial and stock analysis tools in order to measure the performance of the company. The main objectives behind the report are to offer a recommendation to a foreign investors that whether the investment into the Coca cola Amatil would be a good option or not.

Coca Cola Amatil limited is operating its business in the Australian market. The core activities of the business is to manufacture, distribute, marketing and sales the non alcoholic drinks in the Australian market which is ready to drink. The company is among the largest ready to drink beverages selling company in the Australian and Asia pacific region. The company has been founded in the year of 1904. The main operational countries of the company are Australia, New Zealand, Indonesia, Samoa etc (Home, 2018).

Main products of the company includes Coca cola, Direct coke, powerade, Kriks, Cola Zero, Deep Spring etc. the main competitive advantages of the company includes its diversification into different countries and the numerous products offered by the company for different customer segment. The highest share of Coca cola Amatil is owned by Coca Cola limited (Reuters, 2018). The revenue of the company is depicting continuous growth in the position of the business.

Performance ratios are one of the financial evaluation tools and investment analysis tool. This tool takes the concern of final financial statement of the business in order to measure that how the company is performing in the industry and whether the investment into the company is a good option for the investors or not. In order to evaluate the performance of Coca Cola Amatil limited, liquidity position, profitability position, asset utilization position, capital structure position and market value position of the company has been evaluated of last 2 years. The performance ratio and calculations are as follows:

Performance Ratio Calculation and Analysis

Short term solvency position:

Short term solvency position defines that whether the company could manage the short term debts against the short term funds of the business. It basically measures the liquidity risk associated with the business (Titman, Martin, Keown, Martin, 2016). If the short term funds of the business are lowered than the short term debt of the business then the liquidity risk of the business is higher. In case of coca cola limited, the below figures have been calculated:

(Morningstar, 2018)

On the basis of above liquidity ratio calculations, it has been found that the current ratio position and quick ratio position of the company has been lowered from 1.68 and 1.32 in 2016 to 1.52 and 1.16 in 2017. It explains about decrement in the liquidity position of the business. However, the current position of the company is more competitive because of that fact that at this level, the liquidity risk and the cost of the business is minimal.

Long term solvency position:

Long term solvency position defines that whether the company could manage the long term debts against the long term funds of the business. It basically measures the capital structure level of the business and identifies the financial gearing position of the business. If the better level has not been maintained among the debt and share of the business then it could hamper the financial gearing level of the business (Hogarth and Makridakis, 2011). In case of coca cola limited, the below figures have been calculated:

(Morningstar, 2018)

On the basis of above long term solvency ratio calculations, it has been found that the debt ratio level and interest coverage ratio of the company has been improved from 62.72% and -4.43 times in 2016 to 68.96% and -2.62 times in 2017. It explains about better long term solvency position of the company than last year (Annual report, 2017). However, few changes must also be done in the profitability position to make the interest coverage ratio positive and reduce the financial gearing level of the business.

Asset utilization ratio:

Asset utilization position defines that whether a business could utilize the resources in an efficient way to improve the revenue and other operations of the business. It basically measures the total revenue of the business against the available assets (Gibson, 2011). If the asset turnover ratio of the business is higher, it expresses better position of the company.

Short Term Solvency Position

(Morningstar, 2018)

On the basis of above asset utilization ratio calculations, it has been found that the sales turnover of the company has been improved against the total assets of the company from last year to 0.81. And in case of fixed asset turnover, it has been reduced from 1.52 to 1.50. It explains about average asset utilization position of the business (Halili, Saleh and Zeitun, 2015). However, on the basis of the current position of the company, it is recommended to improve the turnover level and maximum utilization of the available resources of the business.

Profitability ratios:

Profitability ratio position defines that how much profits could be generated by the company against the available turnover, resources, equity etc. It basically measures the profitability level and profit generation capabilities associated with the business. If the profitability position of the business has been improved, it expresses improved capabilities of the business (Kaplan and Atkinson, 2015). In case of coca cola limited, the below figures have been calculated:

(Morningstar, 2018)

On the basis of above profitability ratio calculations, it has been found that the overall profitability position of the company has been improved from the last year. The company has made enough changes to improve the profitability level of the business. It explains about better position of the business (Annual report, 2017). However, few changes are also required to be done to make the operating profit margin positive through reducing the operating expenses level of the business.

Market value ratios:

Market value ratios position defines that whether the company could manage the position of the business in the market in an effective way. It basically measures the market stock price, book value price, earnings per share of the shareholders etc. It identifies that whether the company is able to pay enough return to the shareholders of the business (Kaplan and Atkinson, 2015). In case of coca cola limited, the below figures have been calculated:

(Morningstar, 2018)

On the basis of above market value ratio calculations, the price earnings ratio of the company has been lowered at great level and the market to book ratio has  also been lowered but the decrement rate if quite lower. It explains about decrement in the market position of the business. However, the current position is still better and the few changes into the overall position of the company could improve the market level.

In order to evaluate the investment position of coca cola Amatil, further study has been done on the stock price movement of the company in last 2 years. Yahoo Finance (2018) explains that the various changes have occurred into the stock position of the company in last 2 years. Against the stock price of all ordinary shares, it has been found that the fluctuations in the coca cola Amatil stock are higher. The average changes into the stock price of coca cola Amatil are 0.67% whereas the total stock price changes into the AORD stocks are 0.93% (Yahoo Finance, 2018). It explains that the return from the stock of CCL is lower than the stock of AORD.

Long Term Solvency Position

The volatility of both the stock has been measured further and it has been found that the volatility in the stock price of coca cola Amatil us higher than the stock of AORD. The highest stock price and lowest stock price of coca cola Amatil limited is $ 10.02 and $ 7.24 whereas the highest stock price and lowest stock price of AORD stock is $ 6167.30 and $ 4947.9. It explains that the stock price interval of Coca cola Amatil limited is higher (AFR, 2018).

Further, the beta coefficient of the business explains 1.34 beta factor of the company. It explains that the fluctuations of coca cola Amatil are not fluctuated on the basis of the stock price of AORD. Both the stocks are running individually in the stock exchange. Further, the study has been done on the correlation among both the stocks and it has been measured that the correlation among the CCL and AORD is 0.53 which explains that the relation among the stocks are positive (Higgins, 2012). On the basis of the overall study on the stock performance of CCL, it has been measured that the performance of stock position of Coca cola limited is better.

After the evaluation on the financial statement and the stock price of coca cola Amatil, the share worth of the business has been studied further. The stock price of a business in the market is always different than the actual worth of the business. CAPM, DGM, DCF, Net assets value etc are the few methods to measure the actual worth of the stock of the business. In case of coca cola Amatil, the constant dividend growth model has been applied on the business to measure the intrinsic value of the business (Madura, 2014).

Constant dividend growth model method measures the present value of the stock price on the basis of the dividend offered by the company, growth rate of the dividend and the required rate of return of the business (Kurth, 2013). In case of coca cola Amatil, it has been found from yahoo finance (2018) that the expected dividend of the company is $ 0.49. The growth rate and the required rate of return of the business is 4% and 9% respectively.

(Yahoo finance, 2018)

It explains that the intrinsic value of the Coca cola Amatil is $ 9.78 whereas the current share price of the company is $ 9.89. It explains that the stock price of the company is higher than the actual worth of the business. It explains that the stock price of the company is overvalued and the current position. Though the changes among both the stock price (the intrinsic value and the market value) of the company, it has been found that the changes among the stock price of the company are not higher. It represent that the current position is better in terms of sell the stock in the market and get higher return. The foresting process explains that the future performance of the stock price would be much better but the associate risk is higher. Thus investors could make the decision on the basis of the nature and the requirements.

Asset Utilization Ratio

Conclusion:

On the basis of the study on coca cola Amatil limited for the purpose of investment, it has been found that there are various changes which have been occurred into the financial position, stock price position and the stock value of the business. Some of the changes define about better position whereas at some of the places, the performance of the business has been decreased. The performance ratio analysis expresses about better position of the company and few changes into some of the financial strategies would make it better for the business to improve the overall position in the market.

In addition, on the basis of the changes into the stock price, it has been recognized that the returns are positive from the business and the risk factors of the business could also be managed. Further, the stock value analysis also explains that there is little difference among the actual price and the intrinsic value of the business. It concludes about better performance of the business.

In order to offer a recommendation about the investment into the Coca cola Amatil, various financial tools have been applied on the business and it has been recognized that the overall position of the business has been improved from the last year. The liquidity ratios, profitability ratios, capitals structure ratios, market value and asset utilization position of the company, as whole, explains that the investment into the company is a better choice for the purpose of investment as it would offer higher return to the business and the future forecast also explains about better performance of the company in future.

The stock price evaluation expresses that the returns from the stock of CCL are positive and the risk factors of the business are average against the return from the business. Further, the stock value analysis also explains that there is little difference among the actual price and the intrinsic value of the business. It concludes about better performance of the business. And thus, it is recommended to the investors to invest into the CCL stock to get higher return.

References:

AFR, 2018,Coca Cola Amatil Limied . Viewed September 2018, https://www.afr.com/street-talk/last-drinks-for-cocacola-amatil-staff-20180219-h0wc5l

Annual report, 2017,Coca Cola Amatil Limied . Viewed September 2018, https://www.ccamatil.com/-/media/Cca/Corporate/Files/Annual-Reports/2018/Annual-Report-2017.ashx

Gibson, C.H., 2011. Financial reporting and analysis. South-Western Cengage Learning.

Halili, E, Saleh, A and Zeitun, R. 2015. ‘Governance and Long-Term Operating Performance of Family and Non-Family Firms in Australia’, Studies in Economics and Finance, 32 (4), pp.398-421.

Higgins, R. C., 2012. Analysis for financial management. McGraw-Hill/Irwin.

Hogarth, R.M. and Makridakis, S., 2011. Forecasting and planning: An evaluation. Management science, 27(2), pp.115-138.

Home, 2018,Coca Cola Amatil Limied . Viewed September 2018, https://www.ccamatil.com/

Kaplan, R.S. and Atkinson, A.A., 2015. Advanced management accounting. PHI Learning.

Kurth, S. 2013. Critical Review about Implications of the Efficient Market Hypothesis. GRIN Verlag.

Madura, J. 2014. Financial Markets and Institutions. Cengage Learning.

Morningstar, 2018,Coca Cola Amatil Limied . Viewed September 2018, https://financials.morningstar.com/income-statement/is.html?t=CCL&region=aus

Reuters, 2018,Coca Cola Amatil Limied . Viewed September 2018, https://www.reuters.com/finance/stocks/overview/CCL.AX

Titman, S., Martin, T., Keown, A.J., Martin, J.D, Financial Management: principles and applications, 7th Edition, Pearson Education, Melbourne, 2016, Australia.

Yahoo Finance, 2018,Coca Cola Amatil Limied . Viewed September 2018, https://finance.yahoo.com/quote/CCL.AX/history?period1=1506507505&period2=1538043505&interval=div%7Csplit&filter=div&frequency=1d

Yahoo Finance, 2018,Coca Cola Amatil Limied . Viewed September 2018, https://finance.yahoo.com/quote/ccl.ax?ltr=1

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