ANALYSIS OF THE ANNUAL REPORT AND THE FINANCIAL

STATEMENTS OF THE COMPANY COCA-COLA

INTRODUCTION

The Coca-Cola Company is a beverage company. The Company owns or licenses and
markets non-alcoholic beverage brands, primarily sparkling beverages and a range of still
beverages, such as waters, flavoured waters and enhanced waters, juices and juice drinks, ready-
to-drink teas and coffees, sports drinks, dairy and energy drinks. The Company's segments
include Europe, Middle East and Africa; Latin America; North America; Asia Pacific; Bottling
Investments, and Corporate. The Company owns and markets a range of non-alcoholic sparkling
beverage brands, including Coca-Cola, Diet Coke, Fanta and Sprite. The Company owns or
licenses and markets over 500 non-alcoholic beverage brands. The Company markets,
manufactures and sells beverage concentrates, which are referred to as beverage bases, and
syrups, including fountain syrups, and finished sparkling and still beverages.

Hereby we have selected the company “COCA-COLA” to analyze the annual report for
this assignment.

INCOME STATEMENT

2015 (31/12) 2016 (31/12)

Total Revenue 44294 41863
Cost of Revenue, Total 17482 16465
Gross Profit 26812 25398
Total Operating Expenses 36572 34494
Operating Income 7722 7369
Interest Income (Expense), Net Non-Operating 2031 461
Gain (Loss) on Sale of Assets - -
Other, Net -148 306
Net Income Before Taxes 9605 8136
Provision for Income Taxes 2239 1586
Net Income After Taxes 7366 6550
 Minority Interest -15 -23
Equity In Affiliates - -
U.S GAAP Adjustment - -
Net Income Before Extraordinary Items 7351 6527
Total Extraordinary Items - -
Net Income 7351 6527
Total Adjustments to Net Income - -
Income Available to Common Excluding
7351 6527
Extraordinary Items
Dilution Adjustment - -
Diluted Net Income 7351 6527
Diluted Weighted Average Shares 4405 4367
Diluted EPS Excluding Extraordinary Items 1.67 1.49
DPS - Common Stock Primary Issue 1.29 1.38
Diluted Normalized EPS 2.11 1.92

BALANCE SHEET

2015 (31/12) 2016 (31/12)

Current Assets
Cash and Cash Equivalents $7,309,000 $8,555,000
Short-Term Investments $12,591,000 $13,646,000
Net Receivables $3,941,000 $3,856,000
Inventory $2,902,000 $2,675,000
Other Current Assets $6,652,000 $5,278,000
Total Current Assets $33,395,000 $34,010,000
Long-Term Assets
Long-Term Investments $15,788,000 $17,249,000
Fixed Assets $12,571,000 $10,635,000
Goodwill $11,289,000 $10,629,000
Intangible Assets $12,843,000 $10,499,000
Other Assets $4,110,000 $4,248,000
Deferred Asset Charges $0 $0
Total Assets $89,996,000 $87,270,000
Current Liabilities
Accounts Payable $9,991,000 $9,797,000
Short-Term Debt / Current Portion of Long-Term
$15,805,000 $16,025,000
Debt
Other Current Liabilities $1,133,000 $710,000
Total Current Liabilities $26,929,000 $26,532,000
Long-Term Debt $28,311,000 $29,684,000
Other Liabilities $4,301,000 $4,081,000
Deferred Liability Charges $4,691,000 $3,753,000
Misc. Stocks $0 $0
Minority Interest $210,000 $158,000
Total Liabilities $64,442,000 $64,208,000
Stock Holders Equity
Common Stocks $1,760,000 $1,760,000
Capital Surplus $14,016,000 $14,993,000
Retained Earnings $65,018,000 $65,502,000
Treasury Stock ($45,066,000
($47,988,000)
)
Other Equity ($10,174,000
($11,205,000)
)
Total Equity $25,554,000 $23,062,000
Total Liabilities & Equity $89,996,000 $87,270,000
1. PROFITABILITY RATIOS:

a. Gross Profit Percentage of Sales

Gross profit margin is calculated by subtracting cost of goods sold (COGS) from total
revenue and dividing that number by total revenue. The top number in the equation, known as
gross profit or gross margin, is the total revenue minus the direct costs of producing that good or
service.

Gross profit expressed as a percentage of your company's revenue is referred to as the

gross profit margin. Similar margins are calculated comparing your operating profit with revenue
and net profit with revenue. All of the numbers used in these margin ratio computations are
found on your company's income statement.

Gross profit margin is an indication of the financial success and viability of a particular
product or service. The higher the percentage, the more the company retains on each dollar of
sales to service its other costs and obligations.

Gross Profit Percentage of Sales

March 31, 2015 61.69%
June 30, 2015 60.94%
Sept. 30, 2015 59.95%

Dec. 31, 2015 59.46%

March 31, 2016 60.43%
June 30, 2016 61.25%
Sept. 30, 2016 61.15%
Dec. 31, 2016 59.68%

b. Net profit percentage of sales

 The net profit percentage is the ratio of after-tax profits to net sales. It reveals the
remaining profit after all costs of production, administration, and financing have been deducted
from sales, and income taxes recognized. As such, it is one of the best measures of the overall
results of a firm, especially when combined with an evaluation of how well it is using its
working capital. The measure is commonly reported on a trend line, to judge performance over
time. It is also used to compare the results of a business with its competitors.

Net profit is not an indicator of cash flows, since net profit incorporates a number of non-
cash expenses, such as accrued expenses, amortization, and depreciation.

The formula for the net profit ratio is to divide net profit by net sales, and then multiply
by 100. The formula is:

= (Net profit ÷ Net sales) x 100

NET
MARGIN %

DEC 2015 16.60

DEC 2016 15.59

c. Return on Capital employed

Return on capital employed or ROCE is a profitability ratio that measures how efficiently
a company can generate profits from its capital employed by comparing net operating profit to
capital employed. In other words, return on capital employed shows investors how many dollars
in profits each dollar of capital employed generates.

ROCE is a long-term profitability ratio because it shows how effectively assets are
performing while taking into consideration long-term financing. This is why ROCE is a more
useful ratio than return on equity to evaluate the longevity of a company.

This ratio is based on two important calculations: operating profit and capital employed.
Net operating profit is often called EBIT or earnings before interest and taxes. EBIT is often
reported on the income statement because it shows the company profits generated from
operations. EBIT can be calculated by adding interest and taxes back into net income if need be.

Return on capital employed formula is calculated by dividing net operating profit or

EBIT by the employed capital.

Return on Capital Employed

If employed capital is not given in a problem or in the financial statement notes, you can
calculate it by subtracting current liabilities from total assets. In this case the ROCE formula
would look like this:

Return on Capital Employed Formula

2. Liquidity Ratios:

a. Current ratio

The current ratio is a liquidity ratio that measures a company's ability to pay short-term
obligations or those due within one year. It tells investors and analysts how a company can
maximize the current assets on its balance sheet to satisfy its current debt and other payables.

The Formula for the Current Ratio is:

Current Ratio = Current liabilities ÷ Current assets

Date Current Assets Current Liabilities Current Ratio

2015-03-31 $32.12 B $26.12 B 1.23
2015-06-30 $32.80 B $28.85 B 1.14
2015-09-30 $36.59 B $31.55 B 1.16
 2015-12-31 $33.40 B $26.93 B 1.24
2016-03-31 $36.51 B $30.99 B 1.18
2016-06-30 $35.87 B $29.54 B 1.21
2016-09-30 $37.96 B $27.79 B 1.37
2016-12-31 $34.01 B $26.53 B 1.28

b. Acid test ratio

In finance, the quick ratio, also known as the acid-test ratio is a type of liquidity ratio
which measures the ability of a company to use its near cash or quick assets to extinguish or
retire its current liabilities immediately. Quick assets include those current assets that
presumably can be quickly converted to cash at close to their book values. It is the ratio between
quickly available or liquid assets and current liabilities.

A normal liquid ratio is considered to be 1:1. A company with a quick ratio of less than 1
cannot currently fully pay back its current liabilities. This ratio is considered to be much better
and reliable as a tool for assessment of liquidity position of firms.

Quick ratio (Acid Test) = Liquid Assets ÷ Quick Liabilities

Current Assets -
Date Current Liabilities Quick Ratio
Inventory
2015-03-31 $28.90 B $26.12 B 1.11
2015-06-30 $29.58 B $28.85 B 1.03
2015-09-30 $33.68 B $31.55 B 1.07
2015-12-31 $30.49 B $26.93 B 1.13
2016-03-31 $33.46 B $30.99 B 1.08
2016-06-30 $32.87 B $29.54 B 1.11
2016-09-30 $35.21 B $27.79 B 1.27
2016-12-31 $31.34 B $26.53 B 1.18
3. Efficiency ratios:

a. Debtor's payment period

In accounting the term Debtor Collection Period indicates the average time taken to
collect trade debts. In other words, a reducing period of time is an indicator of increasing
efficiency. It enables the enterprise to compare the real collection period with the
granted/theoretical credit period.

b. Creditor's payment period

The Creditor (or payables) days’ number is a similar ratio to debtor days and it gives an
insight into whether a business is taking full advantage of trade credit available to it. Creditor
days estimates the average time it takes a business to settle its debts with trade suppliers. The
ratio is a useful indicator when it comes to assessing the liquidity position of a business.

Trade Payables
Creditor Days =
Cost of Sales
× 365

c. Rate of stock turnover

The inventory turnover ratio is calculated by dividing the cost of goods sold for a period
by the average inventory for that period. Average inventory is used instead of ending inventory
because many companies' merchandise fluctuates greatly throughout the year.

Stock Turnover = Cost of Sales ÷ Average Stock Held

This ratio is important because total turnover depends on two main components of
performance. The first component is stock purchasing. If larger amounts of inventory are
purchased during the year, the company will have to sell greater amounts of inventory to
improve its turnover. If the company can’t sell these greater amounts of inventory, it will incur
storage costs and other holding costs.
INVENTORY
TURNOVER
DEC 2015 5.83
DEC 2016 5.90
 Inventory turnover is a measure of how efficiently a company can control its
merchandise, so it is important to have a high turn. This shows the company does not overspend
by buying too much inventory and wastes resources by storing non-salable inventory. It also
shows that the company can effectively sell the inventory it buys.

RATIO ANALYSIS

2015 (31/12) 2016 (31/12)

Liquidity Ratios
Current Ratio 124% 128%
Quick Ratio 113% 118%
Cash Ratio 74% 84%
Profitability Ratios
Gross Margin 61% 61%
Operating Margin 20% 21%
Pre-Tax Margin 22% 19%
Profit Margin 17% 16%
Pre-Tax ROE 38% 35%
After Tax ROE 29% 28%

CASH FLOW PROBLEMS

2015 (31/12) 2016 (31/12)

Net Income $7351000 $6527000
Cash Flows-Operating Activities
Depreciation $1,970,000 $1,787,000
Net Income Adjustments $1,349,000 $680,000
Changes in Operating Activities
Accounts Receivable $0 $0
Changes in Inventories $0 $0
Other Operating Activities ($157,000) ($225,000)
 Liabilities $0 $0
Net Cash Flow-Operating $10,528,000 $8,792,000
Cash Flows-Investing Activities
Capital Expenditures ($2,553,000) ($2,262,000)
Investments ($1,752,000) $1,216,000
Other Investing Activities ($1,881,000) $42,000
Net Cash Flows-Investing ($6,186,000) ($1,004,000)
Cash Flows-Financing Activities
Sale and Purchase of Stock ($2319000) ($2247000)
Net Borrowings $2,696,000 $1,666,000
Other Financing Activities $251,000 $79,000
Net Cash Flows-Financing ($5,113,000) ($6,545,000)
Effect of Exchange Rate ($878,000) ($5,000)
Net Cash Flow ($1,649,000) $1,238,000

A cash flow problem arises when a business struggles to pay its debts as they become
due. Note that a cash flow problem is not necessarily the same as experiencing a cash outflow. A
business often experiences a net cash outflow, for example when making a large payment for raw
materials, new equipment or where there is a seasonal drop in demand.

However, when cash flow is consistently negative and the business uses up its cash
balances, then the problem becomes serious. The main causes of cash flow problems are:

Low profits or (worse) losses

There is a direct link between low profits or losses and cash flow problems. Remember -
most loss-making businesses eventually run out of cash

Over-investment in capacity

This happens when a business spends too much on production capacity. Factory
equipment which is not being used does not generate revenues – so is often a waste of cash

Too much stock

 Holding too much stock ties up cash and there is an increased risk that stocks become
obsolete (i.e. it can't be sold)

Allowing customers too much credit

Customers who buy on credit are called "trade debtors" Offering credit to customers is a
good way to build revenue, but late payment is a common problem and slow-paying customers
put a strain on cash flow

Overtrading (growing too fast)

This occurs where a business expands too quickly, putting pressure on short-term finance.
For example, a retail chain might try to open too many stores too quickly before each starts to
generate profits

Seasonal demand

Predictable changes in seasonal demand create cash flow problems – but because they are
expected, a business should be able to handle them.

FINANCIAL PERFORMANCE AND POSITION OF COCA-COLA

The most popular way to analyze the financial statements is computing ratios. It is an
important and widely used tool of analysis of financial statements. While developing a
meaningful relationship between the individual items or group of items of balance sheets and
income statements, it highlights the key performance indicators, such as, liquidity, solvency and
profitability of a business entity. The tool of ratio analysis performs in a way that it makes the
process of comprehension of financial statements simpler, at the same time, it reveals a lot about
the changes in the financial condition of a business entity.

Analysis and interpretation of financial statements is an important tool in assessing

company’s performance. It reveals the strengths and weaknesses of a firm. It helps the clients to
decide in which firm the risk is less or in which one they should invest so that maximum benefit
can be earned. It is known that investing in any company involves a lot of risk. So before putting
up money in any company one must have thorough knowledge about its past records and
performances. Based on the data available the trend of the company can be predicted in near
future. This project of financial analysis & interpretation in the production concern is not merely
a work of the project but a brief knowledge and experience of that how to analyze the financial
performance of the firm. The study undertaken has brought in to the light of the following
conclusions.

Coca cola do not satisfy the ideal current ratio of 2:1 indicating lack of liquidity and
shortage of working capital. The company need to improve their current ratio in order to meet
their current liabilities. In the year 2015 and 2016 the company have quick ratio greater than 1
which means they have sufficient quick assets to meet their current liabilities.

The company do not satisfy the ideal absolute liquid ratio of 1:2. Hence the company’s
liquidity position is not good. The overall liquidity position of the company is quite satisfactory
but the company is still need to work on improving their current ratio and absolute liquid ratio as
liquidity is a prerequisite for the survival of any company. Debt equity ratio shows an increasing
trend.

Coca cola has high proprietary ratio indicating a strong financial position of the business.
The higher the ratio, the better it is. This indicates more use of earnings in making payments for
fixed interest on debt funds which is risky and constitutes a strain on profits. The low inventory
turnover ratio of the coca cola compared indicates that it will impact the liquidity of the coca
cola’s business.

GP ratio of Coca cola is higher which indicates that the product pricing and cost control
is better. Also the operating profit ratio of coca cola is higher in the three consecutive years.
Higher the ratio better it is.

CONCLUSION
 Coca Cola’s leadership and management structure and the overall organization now
focuses on revamping the organizational structure and the strategies. Their primary objectives
are to promote Coca Cola’s historical strengths such as innovation, motivation, training and
development, knowledge management and blow-up the bureaucracy that has long been existing
in the company in order to achieve sustainable growth and competitiveness. Coca Cola has got
sound risk management policies that have enabled it to remain stable given the high foreign
currency fluctuation, interest rate risks and political instability in view of the wide operation in
over 200 countries.

In particular, introduction, revision and implementation of effective marketing strategies,

quick-decision-making, effective asset utilization, overall asset management policies and the
dividend payout policies need immediate management action in view of the competitive nature
of the beverage industry. Otherwise Coca-Cola may lose more grounds to its competitors. The
overall financial position of Coca Cola is fantastically sound.

REFERENCES
 https://en.wikipedia.org/wiki/Coca-Cola

 https://investinganswers.com/dictionary/g/gross-profit-margin

 https://www.nasdaq.com/symbol/ko/financials?query=ratios

 https://www.accountingtools.com/articles/2017/5/5/net-profit-ratio

 https://www.myaccountingcourse.com/financial-ratios/return-on-capital-employed

 https://www.investopedia.com/terms/c/currentratio.asp

 https://www.macrotrends.net/stocks/charts/KO/coca-cola/current-ratio

 https://en.wikipedia.org/wiki/Quick_ratio

 https://www.gurufocus.com/term/netmargin/KO/Net%252BMargin/Coca-Cola%2BCo

 https://www.tutor2u.net/business/reference/creditor-payables-days

 https://www.myaccountingcourse.com/financial-ratios/inventory-turnover-ratio

 https://www.tutor2u.net/business/reference/finance-causes-of-cash-flow-problems