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Assessing a firm’s performance under IFRS:

The case of Coca-Cola Hellenic

Maria Dimitriou*, University of Macedonia, Greece

Antonios Stavropoulos, University of Macedonia, Greece

ABSTRACT

The conversion of accounting standards from Greek Generally Accepted Accounting

Principles (GAAP) to International Financial Reporting Standards (IFRS) raises the issue

of the firm’s reported performance. As far as the reported performance is concerned, the

statement of cash flows is an extra regulation for Greek GAAP in accordance with IFRS.

Therefore, in this paper, we put special emphasis on standards IFRS 7, the statement of

cash flows and the usefulness of this standard in assessing a firm’s reported performance.

In this paper, we present the process of assessing a firm’s statement of cash flows or to

adjust its ability to generate and grow earnings and cash flow. Prior to undertaking any

analysis appropriate to the above purpose, we introduce the concepts of the adoption of

IFRS in Greece and then we explore the context of IFRS 7 as the aim, use, and

construction of the cash flow statement (classification and presentation) but also the

accounting handling of it. It may additionally be necessary to use tools and techniques

which facilitate assessment of the firm’s financial and operational data. Concerning that,

we adjust the phase of a firm’s life cycle but also the amounts associated with the

statement of cash flows by creating common size analysis from it and calculating the free

cash flow as well as the ratios suggested by IFRS7. However, in order to achieve the

paper’s purpose, we present the case of Coca Cola Hellenic Bottling Company, including

real reported corporate data, for educational purposes only. For well-supported

conclusions, the application of a firm’s assessing is enhanced by using 5 years of data. At

every stage of assessment, the paper reports the results of the analysis and highlights the

most important aspects of the analysis. Finally, in summary, adjusting a firm’s statement

of cash flows gives a more complete picture of the firm’s financial condition. It shows the

quality of earnings, liquidity, and flexibility. It is apparent that IFRS 7 improves the

relevance, and thereby, the quality, or at least some reported numbers.

Keywords: IFRS, Greek GAAP, Cash Flows statement, Life Cycle, Common-size, FCFF,

FCFE, ratios.

————————————————

* Ph.D. Candidate in Field of Research: Financial Accounting with Information Systems, Department of Applied Informatics, School of Information Sciences, University of Macedonia, N. Egnatia Str. 156, 54006, Thessaloniki, Greece

E-mail: mdimitriou@uom.gr, mdimitriou@uom.edu.gr, maria.d.dimitriou@gmail.com

Website: https://www.linkedin.com/in/maria-dimitriou-1b238b63/, https://www.researchgate.net/profile/Maria_Dimitriou3

Identifiers: Web of Science Researcher ID Y-7232-2019, ORCID 0000-0002-6153-7122 https://publons.com/researcher/3121758/maria-dimitriou/, https://orcid.org/0000-0002-6153-7122/print

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Αξιολόγηση των Επιδόσεων μιας Επιχείρησης βάσει των ΔΠΧΠ:

Η περίπτωση της Coca Cola 3Ε

Μαρία Δημητρίου*, Πανεπιστήμιο Μακεδονίας, Ελλάδα

Αντώνιος Σταυρόπουλος, Πανεπιστήμιο Μακεδονίας, Ελλάδα

ΠΕΡΙΛΗΨΗ

Η μετατροπή των λογιστικών προτύπων από τις Ελληνικές Γενικά Παραδεκτές Λογιστικές Αρχές

(ΓΠΛΑ) στα Διεθνή Πρότυπα Χρηματοοικονομικής Πληροφόρησης (ΔΠΧΠ) θέτει το ζήτημα

της δημοσιευμένης απόδοσης της επιχείρησης. Όσον αφορά τις δημοσιευμένες αποδόσεις, η

κατάσταση των ταμειακών ροών σύμφωνα με τα ΔΠΧΠ είναι μια επιπλέον κατάσταση για τις

Ελληνικές Γενικά Παραδεκτές Λογιστικές Αρχές. Ως εκ τούτου, σε αυτή την εργασία, δίνουμε

ιδιαίτερη έμφαση στο πρότυπο ΔΠΧΠ 7, στην κατάσταση ταμειακών ροών και στη χρησιμότητα

αυτού του προτύπου για την αξιολόγηση της απόδοσης της επιχείρησης. Στην παρούσα εργασία,

παρουσιάζουμε τη διαδικασία αξιολόγησης της κατάστασης ταμειακών ροών μιας επιχείρησης ή

την προσαρμογή της ικανότητάς της να δημιουργεί και να αυξάνει τα κέρδη και τις ταμειακές

ροές. Πριν από οποιαδήποτε ανάλυση κατάλληλη για τον παραπάνω σκοπό, εισάγουμε τις

έννοιες υιοθέτησης των ΔΠΧΠ στην Ελλάδα και στη συνέχεια διερευνάμε το πλαίσιο του ΔΠΧΠ

7 ως στόχο, χρήση και κατασκευή της κατάστασης ταμειακών ροών (ταξινόμηση και

παρουσίαση) καθώς και τον λογιστικό χειρισμό τους. Ενδέχεται επίσης να είναι απαραίτητο να

χρησιμοποιηθούν εργαλεία και τεχνικές που διευκολύνουν την αξιολόγηση των οικονομικών και

επιχειρησιακών δεδομένων της επιχείρησης. Αναφορικά με αυτό, προσαρμόζουμε τη φάση του

κύκλου ζωής της επιχείρησης, αλλά και τα ποσά που σχετίζονται με την κατάσταση ταμειακών

ροών, δημιουργώντας ανάλυση κοινών μεγεθών από αυτήν και υπολογίζοντας την ελεύθερη

ταμειακή ροή καθώς και τις αναλογίες που προτείνονται από το ΔΠΧΠ 7. Ωστόσο, προκειμένου

να επιτευχθεί ο σκοπός του άρθρου, παρουσιάζουμε την περίπτωση της Coca Cola Ελληνικής

Εταιρείας Εμφιαλώσεως, συμπεριλαμβανομένων των πραγματικών εταιρικών δεδομένων, μόνο

για εκπαιδευτικούς σκοπούς. Για καλά υποστηριζόμενα συμπεράσματα, η εφαρμογή της

αξιολόγησης μιας επιχείρησης βελτιώνεται με τη χρήση δεδομένων 5 ετών. Σε κάθε στάδιο της

αξιολόγησης, η εργασία αναφέρει τα αποτελέσματα της ανάλυσης και επισημαίνει τις

σημαντικότερες πτυχές της ανάλυσης. Τέλος, συνοπτικά, η προσαρμογή της κατάστασης

ταμειακών ροών μιας επιχείρησης δίνει μια πιο ολοκληρωμένη εικόνα της οικονομικής

κατάστασης της επιχείρησης. Δείχνει την ποιότητα των κερδών, τη ρευστότητα και την ευελιξία.

Είναι προφανές ότι το ΔΠΧΠ 7 βελτιώνει τη συνάφεια και, ως εκ τούτου, την ποιότητα ή

τουλάχιστον μερικούς δημοσιευμένους αριθμούς.

Λέξεις – Κλειδιά: ΔΛΠ/ΔΠΧΠ, Ελληνικές ΓΠΛΑ, κατάσταση ταμειακών ροών, κύκλος ζωής,

ανάλυση κοινών μεγεθών, FCFF, FCFE, αναλογίες.

———————————————— * Υπ. Διδ. στο Πεδίο Έρευνας: Χρηματοοικονομική Λογιστική με Πληροφοριακά Συστήματα, Τμήμα Εφαρμοσμένης Πληροφορικής, Σχολή Επιστημών Πληροφορίας, Πανεπιστήμιο Μακεδονίας, Εγνατία 156, 546 36, Θεσσαλονίκη, Ελλάδα

E-mail: mdimitriou@uom.gr, mdimitriou@uom.edu.gr, maria.d.dimitriou@gmail.com

Website: https://www.linkedin.com/in/maria-dimitriou-1b238b63/, https://www.researchgate.net/profile/Maria_Dimitriou3

Identifiers: Web of Science Researcher ID Y-7232-2019, ORCID 0000-0002-6153-7122 https://publons.com/researcher/3121758/maria-dimitriou/, https://orcid.org/0000-0002-6153-7122/print

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1. The conversion of Greek GAAP to IFRS

Concerning the globalized economic environment of today, there was a need for an efficient

common accounting language of reported business information through financial statements. In

practice, this is achieved by the International Financial Reporting Standards (IFRS). In this

conference, we will introduce to the above issue as to highlight the adoption of International

Financial Reporting Standards (IFRS) in Greece and the importance of the statement of cash

flows required by IFRS in assessing a firm’s reported performance.

To begin with, it is a fact that the European Community Regulation 1606/2002, as from 1st of

January in 2005, required companies listed in regulated European markets to adopt international

accounting and financial reporting standards for preparing their consolidated financial statements.

Consequently, almost nine years have passed since the introduction and implementation of IFRS.

Since then, the application of IFRS is compulsory for corporations with listed shares or securities;

and for corporations that are consolidated for accounting purposes with a firm that uses IFRS if it

represents at least 5% of the consolidated turnover, the consolidated assets or consolidated results

(after minority rights). IFRS is optional for all other corporations or limited liability companies

(Deloitte 2011).

Given that, IFRS (International Financial Reporting Standards) are adopted until present by

almost 120 countries around the world. All the listed companies and in some cases, unlisted

companies of these countries are required to construct and publish their financial statements

according to IFRS. Other countries have plans to converge their national GAAP (Generally

Accepted Accounting Principles) with IFRS in the future. Consequently, IFRS has substantially

contributed to uniformity in financial reporting on a global scale.

Concerning Greek GAAP, the legal framework concerning financial reporting, tax law and law

for the economic development of the country provides opportunities for creative accounting. Tax

avoidance and evasion, creative accounting and earnings management are common phenomena,

due to the existence of high taxes and a close relation of taxation and accounting rules (Baralexis

2004). Τhe above corporate scandals drives to an efficient common framework like IFRS.

In Greece, according to the decision of the Board of the Hellenic Capital Market Commission,

5/204/14-11-00 and 7/732/15-02-06 required companies listed in the Athens Stock Exchange are

obliged to adopt international accounting and financial reporting standards for preparing their

consolidated financial statements.

According to the framework of IFRS, the purpose of financial statements is to provide

information about the financial position, performance, and changes in financial position of the

reporting firm. The financial statements published under IFRS are the balance sheet, income

statement, statement of recognized income and expense, or a statement of all changes in equity,

statement of cash flows, and notes including accounting policies.

The adoption from Greek GAAP to IFRS establishes the cash flows statement is an integral part

of published financial statements under IFRS as it explains the changes that have occurred in the

firm’s cash and cash equivalents during the year by classifying the cash flows in its operating,

investing and financing activities. So, in this paper, we place special emphasis on standard IFRS

7: Statement of cash flows as to assess the firm’s reported performance.

2. IFRS 7: Statement of cash flows to assess a firm’s performance

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The objective of this Standard is to require the provision of information about the historical

changes in cash and cash equivalents of an entity through a statement of cash flow, which

classifies cash flows during the period from operating, investing and financing activities.

An entity shall prepare a statement of cash flow by the requirements of this Standard and shall

present it as an integral part of its financial statements for each period for which financial

statements are presented.

The statement of cash flows prepared under IAS 7 requires classification of cash receipts and

payments into three categories:

1. Operating activities are principal revenue-producing activities of an entity, such as

delivering or producing goods for sale and providing services, and other activities that are

not investing and financing activities. In general, cash flows that relate to, or are the

corollary of, items reported in the income statement are operating cash flows.

2. Investing activities are the acquisition and disposal of property, plant and equipment and

other long-term assets, and debt and equity instruments of other enterprises that are not

considered cash equivalents or held for dealing or trading purposes. Investing activities

include cash advances and collections on loans made to other parties (other than advances

and loans of a financial institution).

3. Financing activities are activities that result in changes in the size and composition of

the contributed equity and borrowings of the entity (obtaining resources from and

returning resources to the owners and creditors).

An entity presents its cash flows from operating, investing, and financing activities in a manner

that is most appropriate to its business. Classification by activity provides information that allows

users to assess the impact of those activities on the financial position of the entity and the amount

of its cash and cash equivalents. This information may also be used to evaluate the relationships

among those activities.

3. Direct and indirect methods of presenting operating cash flows.

The operating activities section of the statement of cash flows can be presented under the direct or

the indirect method. The direct method shows the items that affected cash flow and the magnitude

of those cash flows. Cash received from, and cash paid to, specific sources (such as customers

and suppliers) are presented, as opposed to the indirect method’s converting accrual-basis profit

or loss to cash flow information through a series of add-backs and deductions.

Under the direct method, required by IAS 7, information about major classes of gross cash

receipts and gross cash payments may be obtained either:

(a) from the accounting records of the entity; or

(b) by adjusting sales, cost of sales (interest and similar income and interest expense and similar

charges for a financial institution) and other items in the statement of comprehensive income for:

(i) changes during the period in inventories and operating receivables and payables;

(ii) other non-cash items; and

(iii) other items for which the cash effects are investing or financing cash flows.

Under the indirect method, the net cash flow from operating activities is determined by adjusting

profit or loss for the effects of:

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(a) changes during the period in inventories and operating receivables and payables;

(b) non-cash items such as depreciation, provisions, deferred taxes, unrealized foreign currency

gains, and losses, undistributed profits of associates, and non-controlling interests; and

(c) all other items for which the cash effects are investing or financing cash flows.

The indirect method (sometimes referred to as the reconciliation method) is the most widely used

means of presentation of cash from operating activities, primarily because it is easier to prepare.

However, the direct method of presenting net cash from operating activities is recommended by

the IASB. An important advantage of the direct method is that it permits the user to better

understand the relationships between the entity’s net profit or loss and its operating cash flows.

Table 1 presents under the indirect method, a view of the inflows and outflows of operating,

investing, and financing activities, respectively.

Table 1. The inflows and outflows of operating, investing and financing activities under the

indirect method

Inflows Outflows

Receipts from customers Payments to suppliers

Advance deposits from customers Wages and salaries to employees

Income tax refunds Income tax payments

Interest received on customers’ notes or accounts Other tax payments

Dividends and interest received from investments

and included in determining net income

Interest paid on bank debt or bonds outstanding

and included in determining net income

Inflows Outflows

Cash received from sale of capital assets Payments for purchase of capital assets

Cash from sale of debt or equity investments Cash flows capitalized as intangible assets, such

as:

Collection of principal on loans to others · development costs

Interest and dividends received on investments · start-up costs

and not included in determining net income · capitalized interest

· exploration Costs

Purchase of debt or equity securities of others

Inflows Outflows

Net proceed of issuing debt or equity securities Payment of principal on bonds or bank loans

Cash proceeds received from bank loans Purchase of the entity’s own shares

Interest paid on bank debt or bonds outstanding

and not included in determining net income

Dividends paid to shareholders

Operating Activities

Investing Activities

Loans extended to others

Financing Activities

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4. The usefulness of the Cash Flow Statement to assess firm’s performance

The cash flow statement provides essential usefulness in the case of adjusting the phase of firm’s

life cycle, creating common size analysis, calculating free cash flows as well as calculating

liquidity and flexibility ratios.

4.1 Adjusting the phase of a firm’s life cycle

It is helpful to understand which portion of the life cycle a focus-firm is in and which financial

pitfalls it is, therefore, most likely to face, before assessing its financial performance.

Figure 1. The business life cycle in terms of sales and earnings growth over time

Figure 1 depicts the business life cycle in terms of sales and earnings growth over time.

-Revenues build gradually during the start-up phase, during which time the firm is just organizing

itself and launching its products.

-Growth and profits accelerate rapidly during the emerging growth phase, as the firm’s products

begin to penetrate the market, and the production reaches a profitable scale.

-During the established growth period, growth in sales and earnings decelerates as the market

nears saturation.

-In the mature industry phase, sales opportunities are limited to the replacement of products

previously sold, plus new sales derived from growth in the population. Price competition often

intensifies at this stage, as companies seek sales growth through increased market share (a larger

piece of a pie that is growing at a slower rate).

-The declining industry stage does not automatically follow maturity, but over long periods some

industries do get swept away by technological change. Sharply declining sales and earnings,

ultimately resulting in corporate bankruptcies, characterize industries in decline.

According to Martin Fridson and Fernando Alvarez, 2002 (see “Financial Statement Analysis”,p.

29-118), the characteristic growth patterns of firms at various stages in the firm life cycle

correspond to typical patterns of cash generation and usage.

4.2 Creating common size analysis from the Cash Flow Statement

Common - size analysis involves expressing financial data, including entire financial statements,

in relation to a single financial statement item, or base. Items used most frequently as the bases

are total assets or revenue. In essence, common - size analysis creates a ratio between every

financial statement item and the base item. The common-size analysis of cash flow statement

shows the impact on performance, highlights the net increase or decrease in percentage terms of

cash and cash equivalents. (see ”International Financial Statement Analysis”, Chapter 7, p. 270)

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4.3 Calculating the free cash flow from the statement of Cash Flows

Free cash flow indicates discretionary cash flow (cash left to invest or expand) to make additional

investments, to retire the debt, or to add to the liquidity. It is a criterion to measure a firm’s

performance. The most prevalent measures free cash flows are two:

▪ Free cash flow to the firm (FCFF) is the cash flow available to all capital providers (debt

and equity).

▪ Free Cash Flow to Equity (FCFE) is the cash flow available to the firm’s common equity

holders after all operating expenses, interest, and principal payments have been paid, and

necessary investments in working and fixed capital have been made.

Analysts frequently use cash flow from operations (CFO), taken from the statement of cash flows,

as a starting point to compute free cash flow because CFO incorporates adjustments for noncash

expenses (such as depreciation and amortization) as well as for net investments in working

capital. So, to estimate FCFF by starting with CFO, we must recognize the treatment of interest

paid. FCFF can be estimated (see “Equity Asset Valuation”, p. 155) as follows:

Free cash flow to the firm = Cash flow from operations

Plus: Interest expense × (1 − Tax rate)

Less: Investment in fixed capital

or

FCFF = CFO + Int(1 − Tax rate) – FCInv

FCCF represents the net cash flows that are available not only to shareholders but also to lenders.

This is a measurement of a firm’s profitability after all expenses and reinvestments. It's one of the

many benchmarks used to compare and analyze financial health.

A positive value would indicate that the firm has cash left after expenses. A negative value, on

the other hand, would indicate that the firm has not generated enough revenue to cover its costs

and investment activities. In that instance, it could be a sign that the firm may have some more

profound problems.

FCFF minus interest paid to debt holders and any net increase in borrowing (subtract any net

decrease in borrowing) gives FCFE. FCFE can be estimated (see “Equity Asset Valuation”, p.

163) as follows:

Free cash flow to equity = Free cash flow to the firm

Less: Interest expense × (1 − Tax rate)

Plus: Net borrowing

or

FCFE = FCFF − Int(1 − Tax rate) + Net borrowing

This is a measure of how much cash can be paid to the equity shareholders of the firm after all

expenses, reinvestment, and debt repayment. Positive FCCE indicates that the firm has cash

surplus which is available for future investment and loan repayments.

4.4 Calculating the ratios suggested by IFRS7: statement of Cash Flows

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The cash flow statement provides essential information about a firm’s financial liquidity and

flexibility. According to IFRS 7 (see also “Διεθνή Λογιστικά Πρότυπα 2007”, chapter 40), major

financial indicators that can be extracted from the statement of cash flow are:

a) Quality of Earnings ratio

Earnings quality, in accounting, refers to the overall reasonableness of reported earnings. It is an

assessment criterion for how "repeatable, controllable and bankable" firm's earnings are, among

other factors, and has variously been defined as the degree to which earnings reflect underlying

economic effects, are better estimates of cash flows, are conservative, or are predictable.

A quality of earnings ratio helps determine how a firm has earned reported high earnings and

whether income reported is legitimate or creative accounting methods have helped to determine

this number.

According to IFRS 7, one way to calculate a quality of earnings ratio is to subtract taxable income

from reported income. The difference will then be divided by the reported income. Another way

to calculate the quality of earnings is to divide net income by the cash received from operations,

as follow:

Quality of Earnings ratio=Net Cash from Operating Activities

Earnings from Operating Activities

A healthy firm usually must have a quality of earnings ratio close to 1. When the ratio is lower

than 1, it means that the firm has accounting profits that cannot be converted to cash.

b) Dividend and interest coverage ratio

According to IFRS 7, another major financial indicator that can be extracted from the statement

of cash flow is Dividend and interest coverage ratio. This ratio is calculated as follow:

Dividend and interest coverage ratio = Net Cash from Operating Activities

Dividend and interest

A healthy firm usually must have a high dividend and interest coverage ratio over 3-4. When the

ratio is close to 1, then it indicates that the firm is not generating enough profit from operating

activities to remunerate investors.

5. Assessing Coca-Cola Hellenic‘s performance under IFRS

Having clarified the purpose and context of the analysis of this paper, we select the techniques

that will best assist in making the assessing of a firm’s reported performance in the case of

Coca-Cola Hellenic Bottling Company S.A. and were discussed in more details in an earlier part

of this paper. The primary focus of this part is on assessing relevant aspects of the business

context (environment) as well as its financial and operational data according to IFRS7.

Our focus firm in this paper is Coca-Cola Hellenic Bottling Company S.A.. It is one of the

leading players in the sparkling category in east and west Europe but also in West Africa.

Coca-Cola Hellenic is the second-largest bottler of products of The Coca-Cola Company in terms

of volume. Its unique portfolio of world-leading brands, mix of geographies (operations across 28

countries), and market execution capabilities make Coca-Cola Hellenic a leader in the

alcohol-free beverage industry.

5.1 Assessing Coca-Cola Hellenic‘s performance under IFRS 7: Statement of Cash flows

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In this stage, we examine and assess Coca-Cola Hellenic’s Cash flows statement. It is important

to note that Coca Cola Hellenic reports in accordance with International Financial Reporting

Standards (IFRS) translated to Euro at the exchange rate.

Because the income statement (see Appendix) is prepared under the accrual basis of accounting,

the revenues reported may not have been collected. Similarly, the expenses reported on the

income statement might not have been paid. You could review the balance sheet changes (see

Appendix) to determine the facts, but the cash flow statement (see Appendix) already has

integrated all that information.

For an effective storyline and well-supported conclusions and recommendations are normally

enhanced by using 5years of data as well as for analytic techniques appropriate to the purpose of

the paper. Here are a few ways the statement of cash flows is used.

The following table shows analytically the computation of the total net cash flow for Coca-Cola

Hellenic Bottling Company S.A. respectively, from 2009 to 2013 (All numbers in thousands €)

for assessing the firm’s ability to generate sufficient cash to pay for operating expenses, capital

improvements, and currently maturing obligations.

We begin by entering on the spreadsheet the annual cash for each account on the comparative

statement of cash flows. The total net cash flow is the sum of cash flows that are classified in

three areas: Operational cash flows, Investment cash flows, and financing cash flows. The

changes columns will be used later to explain the increase or decrease in each account balance.

Table 2. Cash and cash equivalents (2009-2013)

Consolidated Cash Flow Statement

Period Ending Dec 31,

2009

Dec 31,

2010

Dec 31,

2011

Dec 31,

2012

Dec 31,

2013 All numbers in thousands €

Operating activities

Net cash from operating activities 997,2 987,9 845,7 751,3 784,9

Investing activities

Net cash used in investing activities -342,9 -365,5 -336,4 -403,7 -330,8

Financing activities

Net cash used in financing activities -1143,3 -527,7 -353,3 -358,5 -154,6

Net increase / (decrease) in cash and cash

equivalents -489 94,7 156 -10,9 299,5

Movement in cash and cash equivalents

Cash and cash equivalents at 1 January 724,6 232 326,1 447,4 439,1

Net increase / (decrease) in cash and cash equivalents -489 94,7 156 -8,6 299,5

Effect of changes in exchange rates -3,6 -0,6 1,6 0,9 -4,1

Effect of consolidation of CCHBC — — — — 1,8

Hyperinflation impact on cash — — -7,6 -0,6 1,2

Cash and cash equivalents at 31 December 232 326,1 476,1 439,1 737,5

At a glance at the above table, the (total) net cash flow of Coca-Cola Hellenic over the period

from 2009 to 2013 increases (more cash becomes available). It is a fact that the change in cash

balance in the year 2009 and 2011 decreases the cash balance. However, it does not affect the

(total) net cash flow of Coca-Cola Hellenic in the above years. Coca-Cola Hellenic generates

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large amounts of cash because of its strong market positions in 28 countries with different levels

of growth, margin, and risk.

Coca-Cola Hellenic’s pattern of positive cash flows from operating activities, and negative cash

flows from investing and financing activities year after year indicates that is a healthy firm that

generates sufficient operating cash flows to fund day-to-day activities, some investment in

expansion, and settlement of debt. These are the characteristics of a mature, successful and

moderately growing firm.

We can see from this analysis that Coca-Cola Hellenic is able to generate consistently strong

positive cash flows from operations (the only source of cash and cash equivalents is from

Coca-Cola Hellenic’s operating activities). This cash is directed to purchase new assets and

repayment of long-term obligations, repurchase of own shares, and payment of dividends.

Further on, information about the specific components of historical cash flows by category of

activities is useful, in conjunction with other information, in assessing the firm’s ability to

generate cash flows in the future.

To achieve this, we analyze sources (proceeds) and uses (payments) of cash flows from each

category of activities. To do so, the related historic data from 2009 to 2013 were extracted from

Coca-Cola Hellenic’s annual reports (see Coca-Cola Hellenic’s annual report 2010, 2011, 2013)

on a spreadsheet needed to assess cash flows (see the following tables). Here is the statement of

cash flows prepared using the direct method.

Table 3. Net cash from operating activities (2009-2013)

Consolidated Cash Flow Statement

Period Ending Dec 31,

2009

Dec 31,

2010

Dec 31,

2011

Dec 31,

2012

Dec 31,

2013 All numbers in thousands €

Operating activities

Profit after tax 421,6 434,9 272,8 193,4 221,2

Total finance costs, net 72,8 75,7 94,1 90,7 91,5

Share of results of equity method investments 1,9 -2,5 -1,2 -11,6 -11,9

Tax charged to the income statement 142,5 136,9 102,7 65,2 72,9

Depreciation of property, plant and equipment 360,7 387,8 374,7 375,3 355,8

Impairment of property, plant and equipment — — 21 33 19,3

Employee stock options 6,4 6,7 8,1 6,3 6,3

Amortisation of intangible assets 4,7 7,1 3,2 3 1

Other items 8,7 — 1,3 2,3 —

1019,3 1046,6 876,7 755,3 756,1

(Gains) / Losses on disposals of non-current assets 10,5 13,2 2,7 6,9 -13,6

Decrease / (increase) in inventories 39,1 -41,4 15,9 -10,4 6,4

Decrease / (increase) in trade and other receivables 30,1 -24 -3,8 67,2 95,2

(Decrease) / increase in trade and other payables -12,5 134,5 43,8 27,3 -3,1

Tax paid -89,3 -141 -89,6 -95 -56,1

Net cash from operating activities 997,2 987,9 845,7 751,3 784,9

To start with, the above table of cash flows from operating activities, analyzing its components,

indicates that the cash from operating activities is consistently greater than the net income. The

firm's net income or earnings (profit after tax) are said to be of "high quality".

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This relationship still holds true as for a mature firm like Coca Cola Hellenic, would expect

operating cash flow to exceed net profits, because profits from the income statement include

non-cash flows (e.g. depreciation of fixed assets and/or intangible assets). The figure below

illustrates the relationship between net profit and operating cash flows.

Figure 2. The relationship between net profit and operating cash flows

Afterward, the following table shows the analysis of cash flows arising from investing activities

respectively, from 2009 to 2013.

Table 4. Net cash used in investing activities (2009-2013)

The above table indicates that the firm invests in growth (e.g. through the expansion of facilities

or acquisitions).

Lastly, as cash flows from financing activities are concerned, the following table shows the

analysis of these cash flows, respectively from 2009 to 2013.

Consolidated Cash Flow Statement

Period Ending Dec 31,

2009

Dec 31,

2010

Dec 31,

2011

Dec 31,

2012

Dec 31,

2013 All numbers in thousands €

Investing activities

Payments for purchases of property, plant and

equipment -384,4 -392 -370,8 -395,5 -380,2

Proceeds from sales of property, plant and equipment 18,2 12 10,9 5 24,5

Net receipts from/(payments for) investments -4,7 7,2 3 -21,1 15,2

Interest received 10,5 7,3 9,9 7,9 9,7

Net receipts from disposal of subsidiary — — 13,1 — —

Net payments for acquisition of joint arrangement 17,5 — -2,5 — —

Net cash used in investing activities -342,9 -365,5 -336,4 -403,7 -330,8

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Table 5. Net cash used in financing activities (2009-2013)

Consolidated Cash Flow Statement

Period Ending Dec 31,

2009

Dec 31,

2010

Dec 31,

2011

Dec 31,

2012

Dec 31,

2013 All numbers in thousands €

Financing activities

Return of capital to shareholders -546,3 — -181,5 -123,4 —

Payments of expenses related to the share capital

increase -6 — -6 — —

Payments for the buy-out of non-controlling interest of

Coca-Cola Hellenic — 33 — — —

Bottling Company SA -16,6 -42,3 — — -1

Payment for purchase of own shares — — — — -1,6

Purchase of shares held by non-controlling interests — -3,7 -114 -13,9 -18,1

Proceeds from shares issued to employees exercising

stock options 1,8 5,7 4,7 0,1 16,4

Dividends paid to owners of the parent -102,3 -102 — — -123,7

Dividends paid to non-controlling interests -5,3 -7 -6,5 -1 -4,5

Proceeds from external borrowings 1199,8 927,1 1494,8 1088,2 1596,7

Repayments of external borrowings -1508 -1191 -1387,6 -1186,2 -1488,6

Principal repayments of finance lease obligations -85,3 -75,2 -48,1 -21,8 -16,5

Interest paid -75,1 -72,3 -109,1 -100,5 -113,7

Net cash used in financing activities -1143,3 -527,7 -353,3 -358,5 -154,6

The above table indicates that the firm is able to increase its dividend, buy back some of its stock,

reduce debt, or acquire another firm. All of these are perceived to be good for stockholder value.

However, the level of cash flow is not necessarily a good measure of performance, and vice

versa: high levels of cash flow do not necessarily mean high or even any profit, and high levels of

profit do not automatically translate into high or even positive cash flow. It may additionally be

necessary to use tools and techniques which facilitate assessment of firm’s financial and

operational data.

Concerning that, we adjust the phase of the firm’s life cycle but also the amounts associated with

the statement of cash flows by creating common size analysis from it and calculating the free cash

flow as well as the ratios suggested by IFRS7.

5.2 Coca-Cola Hellenic’s life cycle and cash flows

Concerning its position in the industry, Coca-Cola Hellenic is located in the phase of maturity in

its life cycle, as the 45 year’s active in the industry and the wider environment.

The balance of Coca-Cola Hellenic’s geographical market allows its to: minimize external facing

of its long-term growth and limit its exposure to the effects of potential economic or political

instability in some of the Group territories.

Coca-Cola Hellenic’s main growth drivers are both cost leadership - being the lowest cost

producer while offering products comparable to those of other companies, so that products can be

priced at or near the industry average; and differentiation - offering unique products or services

that are widely valued by buyers so that the firm can command premium prices.

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From the above mentioned, the firm is located in a very strong position (stable financial position

10 thousand € in 2013) and is expected to dominate a dominant position. Coca-Cola Hellenic is a

mature, successful and moderately growing firm. The Group ensures future cash generation.

Figure 3.

5.3 Common-size Analysis from Coca Cola Hellenic’s cash flow statement

The creating common-size analysis of cash flow statement for Coca-Cola Hellenic, prepared by

computing each category of cash flow statement as a percentage of the total cash and cash

equivalents on 31 December in five time periods, from 2009 to 2013. The table shows the impact

on performance, highlights the net increase or decrease in percentage terms of cash and cash

equivalents.

Table 6. The Common Size Analysis of CCH's Cash Flow Statement (2009-2013)

Period Ending Dec 31,

2009

Dec 31,

2010

Dec 31,

2011

Dec 31,

2012

Dec 31,

2013 All numbers in % of total Cash and cash equivalents

at 31 December

Net cash from operating activities 430 303 178 171 106

Net cash used in investing activities -148 -112 -71 -92 -45

Net cash used in financing activities -493 -162 -74 -82 -21

Net increase / (decrease) in Cash and cash equivalents -211 29 33 -2 41

Cash and cash equivalents at 1 January 312 71 68 102 60

Cash and cash equivalents at 31 December 100 100 100 100 100

Based on the above common size analysis of Coca-Cola Hellenic’s cash flow statement, it is

obvious the increase almost every year from 2010 to 2014 as well as the decrease in cash balance

in the year 2009 and 2011, -211% and -2% respectively. This amount is a key indicator of the

extent to which the operations of the firm have generated sufficient cash flows to repay loans,

maintain the operating capability of the firm, pay dividends and make new investments without

recourse to external sources of financing. However, it does not affect the (total) net cash flow of

Coca-Cola Hellenic in the above years.

5.4 Free Cash Flows from Coca Cola Hellenic’s cash flow statement

Now, Free Cash Flows to the Firm and Free Cash Flows to Equity can be calculated from 2009 to

2013 for Coca Cola Hellenic from its cash flow statement. The following table shows the

computation of FCFF using CFO.

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Table 7. The computation of FCFF using CFO (2009-2013)

Free Cash Flow

Period Ending Dec 31,

2009

Dec 31,

2010

Dec 31,

2011

Dec 31,

2012

Dec 31,

2013 All numbers in thousands €

FCCF = CFO + Int (1-Tax rate) – FCInv CFO = net cash flow from operating activities 997,2 987,9 845,7 751,3 784,9

Less: FCInv = Investment in fixed capital 384,4 392,0 370,8 395,5 380,2

Plus: Int (1-Tax rate) = The financial expenses after taxes

have been paid 56,3 54,2 81,8 75,4 85,3

Free Cash flow to Firm (FCFF) 669,1 650,1 556,7 431,2 490,0

Based on our FCFF computing, we see positive FCFF. This indicates that the firm has cash left

after expenses.

As FCFE is concerning, the following table illustrates the calculation of FCFE using CFO.

Table 8. The computation of FCFE using CFO (2009-2013)

Cash and cash equivalents at 31 December 232 326,1 476,1 439,1 737,5

Free Cash Flow

Period Ending Dec 31,

2009

Dec 31,

2010

Dec 31,

2011

Dec 31,

2012

Dec 31,

2013 All numbers in thousands €

FCFE = FCFF − Int(1 − Tax rate) + Net borrowing

FCFF =Free cash flow to the firm 669,1 650,1 556,7 431,2 490,0

Less: Int (1-Tax rate) = The financial expenses after

taxes have been paid

56,3 54,2 81,8 75,4 85,3

Plus: Net borrowing 1508,0 1191,0 1387,6 1186,2 1488,6

Free Cash flow to Equity (FCFE) 2120,8 1786,9 1862,5 1542,0 1893,3

Positive FCCE indicates that the firm has a cash surplus that is available for future investment

and loan repayments.

5.5 Liquidity and flexibility ratios from Coca-Cola Hellenic’s cash flow statement

Using liquidity and flexibility ratios from Coca-Cola Hellenic’s cash flow statement, we result in

the following assessment:

Figure 4.

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Coca Cola Hellenic’s Quality of Earnings from 2009 to 2013 is high. Dividing Profit before tax

(221,2 thousand € in 2013) by the net cash from operating activities (784,9 thousand € in 2013)

gives Quality of Earnings ratio 3,55 (221,2€/784,9€) in 2013. The above indicates that Coca-Cola

Hellenic is a healthy firm with cash liquidity.

Figure 5.

In addition to this, its Dividend and interest coverage ratio is high, 3,24 (784,9€/241,9€) in 2013,

which indicates its flexibility for new investments, pay loans and dividends except for the period

2011-2012. Financial flexibility, as captured above, indicates that the firm is very well placed to

avoid damage to the firm’s long-term health as well as to leverage the opportunities ahead.

6. Summary and Results

Taking everything into account, firms have been enabled to produce IFRS financial statements

that allow them to adopt a global financial reporting language as well as to be evaluated in a

global marketplace. The importance of this paper comes from the importance of the statement of

cash flows itself that is required by IFRS. The cash flow statement does more than enrich the

assessment of firms that the income statement and balance sheet are not designed to portray. The

case of Coca Cola Hellenic Bottling Company describes the use of a statement of cash flow

analysis in assessing its historical performance. The conclusion based on the above financial and

operational analysis shows that Coca Cola Hellenic is a healthy firm that generates sufficient

operating cash flows to fund day-to-day activities, some investment in expansion, and settlement

of debt. To increase the accuracy of paper’s result, tools and techniques have been used.

Determining the FCFE and FCFF of Coca Cola Hellenic the firm has cash surplus which is

available for future investment and loan repayments. In this paper, ratios have been used in order

to calculate the liquidity and flexibility of the firm. All in all, under IFRS, a firm’s statement of

cash flow clearly shows its use in assessing the ability of the entity to generate cash and cash

equivalents as well as the liquidity and flexibility of a firm. Summarizing, a firm presents its cash

flows from operating, investing and financing activities in a manner that is most appropriate to its

business. Classification by activity provides information that allows users to assess the impact of

those activities on the financial position of the firm and the amount of its cash and cash

equivalents. This information may also be used to evaluate the relationships among those

activities. The Appendixes show Coca Cola Hellenic’s historical data used in the above analysis.

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ACKNOWLEDGMENT

This research was published, presented, and discussed at the 5th International Conference on

Accounting and Finance. It is a postprint. The implementation of the Ph.D. thesis or related

research papers was supported by the State Scholarships Foundation-IKY (seventeen months).

The participation with research paper to the scientific conference was supported by the University

of Macedonia’s Unit of Special Account for Research Funds-ELKE followed by the decision of

the Faculty Assembly. The planning and presentation of the Ph.D. Thesis supervised by 3-faculty

member advisory committee (1. assoc. professor Stavropoulos A.-supervisor, 2. assist. professor

Dassilas A. who replaced professor Negakis C. who replaced professor Vazakidis A., 3. professor

Refanidis I.) with four annually and five more quarterly progress reports. Participants at the

international conference (professor Christos Negakis - University of Macedonia, Greece who

indicated the attendance of the Conference entitled "13th HFAA" with special panel sessions:

"Improving research in finance and accounting", Participants), provided the discussions on the

author’s previous research paper.

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