coco cola ratio analysis final (ii)
TRANSCRIPT
Assignment # 2 Ratio Analysis Business Finance
Balance sheet of Coca-Cola Company :FISCAL YEAR ENDING
Dec 2005 Dec 2006 Dec 2007 Dec 2008 Dec 2009
Assets
Current AssetsCash 3744.0 2,440.0 4,093.0 4,701.0 9,151.0
Net Receivables
2998.0 2,587.0 2,587.0 3,317.0 3,758.0
Inventories 2016.0 1,641.0 2,220.0 2,187.0 2,354.0
Other Current Assets
2148.0 1,773.0 2,475.0 2,198.0 2288.0
Total Current Assets
10907.0 8,441.0 12,105.0 12,176.0 17,551.0
Net Fixed Assets
7907.0 6,903.0 8,493.0 8,326.0 9,561.0
Other Non current Assets
19102.0 14,619.0 22,671.0 20,017.0 2,421.0
Total Assets 37917.0 29,963.0 43,269.0 40,519.0 $ 48,671.0
Liabilities and Shareholder's EquityCurrent LiabilitiesAccounts Payable
1226.0 929.0 1,380.0 1,370.0 13,721.0
Short-Term Debt
5283.0 3,268.0 6,052.0 6,531.0 6,800.0
Other Current Liabilities
5191.0 4,693.0 5,793.0 5,087.0
Total Current Liabilities
11701.0 8,890.0 13,225.0 12,988.0 13,721.0
Long-Term Debt
2457.0 1,314.0 3,277.0 2,781.0 5,059.0
Other Non current Liabilities
4046.0 2,839.0 5,023.0 4,278.0 4,545.0
Total Liabilities 18205.0 13,043.0 21,525.0 20,047.0 23,872.0
Shareholder's Equity
Preferred Stock Equity
- - - - - - - - - -
Common Stock Equity
19712.0 16,920.0 21,744.0 20,472.0 24,799.0
Total Equity 19712.0 16,920.0 21,744.0 20,472.0 25,346.0
Shares Outstanding (mil.)
2317.2 2,317.2 2,317.2 2,317.2 2,317.2
Assignment # 2 Ratio Analysis Business Finance
Income Statement of Coca-Cola Company:
FISCAL YEAR ENDING
Dec 2005 Dec 2006 Dec 2007 Dec 2008 Dec 2009
Revenue 28296.0 24,088.0 28,857.0 31,944.0 30,990.0
Cost of Goods Sold
9981.0 8,164.0 10,406.0 11,374.0 11,088.0
Gross Profit 18315.0 15,924.0 18,451.0 20,570.0 19,902.0
Gross Profit Margin
64.8% 66.1% 63.9% 64.4% 64%
SG&A Expense 10716.0 9,431.0 10,945.0 11,774.0 11,671.0
Depreciation & Amortization
1109.0 938.0 1,163.0 1,228.0 1,236.0
Operating Income
7668.0 6,798.0 8,329.0 7,877.0 9,301.0
Operating Margin
27.2% 28.2% 28.9% 24.7% 20.6%
No operating Income
251.0 297.0 841.0 (902.0) 121.75.0
No operating Expenses
-- -- (220.0) (105.0) (181.67.0)
Income Before Taxes
7296.0 6,578.0 7,873.0 7,439.0 8,946.0
Income Taxes 1674.0 1,498.0 1,892.0 1,632.0 2,040.0
Net Income After Taxes
5622.0 5,080.0 5,981.0 5,807.0 7,605.0
Continuing Operations
5622.0 5,080.0 5,981.0 5,807.0 7,605.0
Continuing Operations
5622.0 5,080.0 5,981.0 5,807.0 7,605.0
Liquid Ratio:Current Ratio 2005 2006
Current ratio = Current assetsCurrent Liabilities
= $10907$11701
= 0.932 cents
Current ratio = Current assets Current Liabilities= $8441
$8890= 0.94 cents
Current ratio = Current assets Current Liabilities= $12105
$13225= 0.915 cents
Assignment # 2 Ratio Analysis Business Finance
2007 2008
Interpretation:In 2005, the firm’s ability to cover its current liabilities with its
current assets is 0.932 cents. In 2006, the ratio goes up to 0.94 cents as compared to 2005, which means that the company has the ability to pay its liabilities, as the definition says that higher the ratio, greater the ability of the firm to pay its bills. Then in 2007 again the ratio falls and then increases in 2008. We can analyze that the data varies from year to year.
Acid Test Ratio 2005 2006
Current ratio = Current assetsCurrent Liabilities
= $12176$12988
= 0.93 cents
Acid test ratio = Current asset – Inventories Current Liabilities= $10907 - $2016
911701= 0.759 cents
Acid test ratio = Current asset – InventoriesCurrent Liabilities
= $8441 - $1641 $8890= 0.76
Acid test ratio = Current asset – InventoriesCurrent Liabilities
= $12105 – 2220$13225
= 0.75
Assignment # 2 Ratio Analysis Business Finance
2007 2008
Interpretation:According to the definition of Acid Test Ratio, the company
should have the ability to pay its liabilities through its most liquid assets. The graph shows that in 2005-06, the firm has the ratios 0.759 cents and 0.76 cents. Then we observe a great decline in 2007 and in the end the ratio goes up again. So we can figure out that through the ratios that the firm is paying its current liabilities through its most current assets effectively.
Debt to Equity Ratio:2005 2006
Acid test ratio = Current asset – InventoriesCurrent Liabilities
= $12176 – 2187$12988
= 0.76
Debt to equity ratio = Current liabilities + long term debts
Shareholders equity = $16502
$21744 = 0.76
Assignment # 2 Ratio Analysis Business Finance
2007 2008
Interpretation:In 2005, the graph shows that the firm is using borrowed
money from shareholder’s equity. The creditors are providing 0.718 cents of financing for each one dollar being provided by shareholders. Then we can see the increase in 2007 and 2008. This ratio has to be low according to the definition. But here the ratio is moving upwards which shows that the firm has low financing from the shareholder’s side.
Debt to Total Asset Ratio:
Debt to equity ratio = Current liabilities + long term debts
Shareholders equity = $14158
$19712 = 0.718
Debt to equity ratio = Current liabilities + long term debts
Shareholders equity= $10204
$16920= 0.60
Debt to equity ratio = Current liabilities + long term debts
Shareholders equity= $15769
$20472= 0.77
Assignment # 2 Ratio Analysis Business Finance
2005 2006
2007 2008
Interpretation:The ratio shows the company’s ability to cover its debts
through its total assets. The ratio is 37 percent in 2005, then falls to 34 percent and then goes up in 2007 and 2008. The ratio has to be low. Now we can interpret that in the last four years, the risk of the firm is getting higher as the ratio goes up.
Long Term Debt to Total Capitalization:2005 2006
Debt To Total Asset Ratio = Total debtsTotal assets
= $1415837917
= 0.373
Debt To Total Asset Ratio = Total debtsTotal assets
= $10204$29963
= 0.34
Debt To Total Asset Ratio = Total debtsTotal assets
= $16502$43269
= 0.38
Debt To Total Asset Ratio = Total debtsTotal assets
= $15769$40519
= 0.389
Long term debt to total = Long term debtsCapitalization Total capitalization
= $2457$22169
= 0.11
Long term debt to total = Long term debtsCapitalization Total capitalization
= $1314$18234
= 0.07
Long term debt to total = Long term debtsCapitalization Total capitalization
= $3277$25021
= 0.13
Assignment # 2 Ratio Analysis Business Finance
2007 2008
Interpretation:The measure tells us the relative importance of long-term debt
to the capital structure of the firm. The ratio is 0.11 in 2005, decreases in 2006, and then increases in 2007 and ends at 0.12 in 2008.
Gross Profit Margin Ratio:2005 2006
Long term debt to total = Long term debtsCapitalization Total capitalization
= $2781$23253
= 0.12
Gross Profit margin ratio = Net sales – CGS
Net sales= $28296 – 9981
$28296= 64.7 %
Gross Profit margin ratio = Net sales – CGS
Net sales= $24088 – 8164
$24088= 66 %
Gross Profit margin ratio = Net sales – CGS
Net sales= $28857 – 10406
$28857= 63 %
Assignment # 2 Ratio Analysis Business Finance
2007 2008
Interpretation:The ratio should be high according to the definition. Because
higher the ratio, higher will be the firm’s ability to produce goods and services at low cost with high sales. Here in this graph there is small difference between the ratios in four years, but its high, which means it is favorable.
Net Profit Margin Ratio:2005 2006
Gross Profit margin ratio = Net sales – CGS
Net sales= $31944– 11374
$31944= 64%
Net profit margin ratio = Net profit after taxesNet sales
= $5623$28296
= 19.87 %
Net profit margin ratio = Net profit after taxesNet sales
= $5080$24088
= 21 %
Net profit margin ratio = Net profit after taxesNet sales
= $5981$28857
= 20.7%
Assignment # 2 Ratio Analysis Business Finance
2007 2008
2009 = 7,605/30990= 24.5%
Interpretation:According to the definition, higher the ratio, higher will be the
firm’s ability to pay its taxes. In the first three years, the margin is high but in 2008 the margin falls by 2%. For the company, roughly 0.20 cents out of every sales dollar consists of ‘After Tax Profit’.in 2009the company again suddenly high the ratio 6.4% .
Return on Investment:
Net profit margin ratio = Net profit after taxesNet sales
= $5807$31944
= 18.1%
Assignment # 2 Ratio Analysis Business Finance
2005 2006
2007 2008
2009 = 7605/48671= 15.6%
Interpretation:The ratio should be higher. Here starting from 2005, the ratio
is almost 15% and goes up in 2006 and is static in 2008 and 2009 with 14%-15.6%. The fluctuations show that in 2005, the firm is generating 14.8% and in 2009 15.6% of net profit after taxes by using its total assets.
Return on Equity:
Return on Investment = Net profit after taxesTotal assets
= $5623$37917
= 14.8 %
Return on Investment = Net profit after taxesTotal assets
= $5080$29963
= 17 %
Return on Investment = Net profit after taxesTotal assets
= $5981$43269
= 14 %
Return on Investment = Net profit after taxesTotal assets
= $5807$40519
= 14.33 %
Assignment # 2 Ratio Analysis Business Finance
2005 2006
2007 2008
2009 = 7605/25,346= 30%
Interpretation:The ratio should be higher. Here starting from 2005, the ratio
is 29% and goes up in 2006 and fluctuates in 2007 and 2008 in 2009 the ratio again high to 30%. The fluctuations show that in 2005, the firm is generating 29% and in 2009 the firm generating 30% of net profit after taxes through Shareholder’s Equity.
Receivable Activity Ratio:2005 2006
Return on equity = Net profit after taxesShareholders equity
= $5623$19712
= 29 %
Return on equity = Net profit after taxesShareholders equity
= $5080$16920
= 30 %
Return on equity = Net profit after taxesShareholders equity
= $5981$21744
= 27 %
Return on equity = Net profit after taxesShareholders equity
= $5807$20472
= 28 %
Receivable activity ratio = Annual credit sales
Receivables= $28857
$8317= 8.69 times
Assignment # 2 Ratio Analysis Business Finance
2007 2008
2009 = 30,990/3,758= 8.25 times
Interpretation:This ratio shows that how effectively the firm is using their
assets, the higher the turn over between the sales and cash collection. For Coca-Cola company , the turnover in 2005 is 10 times, 9.3 times in 2006, 8.69 in 2007, 10 times in 2008 and 8.25 in 2009. The ratio should be low and it is low as shown in the graph.
Receivable Turnover in Days:2005 2006
Receivable activity ratio = Annual credit sales
Receivables= $28296
$2998= 10 times
Receivable activity ratio = Annual credit sales
Receivables= $24088
$2587= 9.3 times
Receivable activity ratio = Annual credit sales
Receivables= $31944
$3090= 10 times
Receivable turnover in days= Days in year x Receivables
Annual credit sales= 365 x 2998
28296= 39 days
Receivable turnover in days= Days in year x Receivables
Annual credit sales= 365 x 2587
24088= 39 days
Receivable turnover in days= Days in year x Receivables
Annual credit sales= 365 x 8317
$28857= 42 days
Assignment # 2 Ratio Analysis Business Finance
2007 2008
Interpretation:The ability of the firm of collecting the receivables in the
specific time. Here in 2005 the turnover in days is 39 and remains the same in 2006, but the collection days increase in 2007 which shows that the collection is slower as compared to the previous years. The collection period should be low to get the payments on time.
Inventory Activity Turnover Ratio:2005 2006
Receivable turnover in days= Days in year x Receivables
Annual credit sales= 365 x 3090
$31944= 37 days
Inventory activity turnover ratio= Cost of good sold
Average inventory= $9981
$2016= 5 times
Inventory activity turnover ratio= Cost of good sold
Average inventory= $8164
$1641= 5 times
Inventory activity turnover ratio= Cost of good sold
Average inventory= $10406
$2220= 4.7times
Assignment # 2 Ratio Analysis Business Finance
2007 2008
Interpretation:Generally, the higher the inventory turnover, the more efficient
the inventory management of the firm and fresher, more liquid, the inventory. The ratios is constant in 2005-06, falls in 2007 and goes up in 2008 and then finally again fall down in 2009. The ratio is high so it is a favorable situation. It shows the efficient management of the firm.
Inventory Turnover in Days:2005 2006
Inventory activity turnover ratio= Cost of good sold
Average inventory= $11374
$2187= 5.2 times
Inventory turnover in days = Days in year x Inventory
CGS= 365 x 2016
9981= 73 days
Inventory turnover in days = Days in year x Inventory
CGS= 365 x 1641
$8164= 75 days
Inventory turnover in days = Days in year x Inventory
CGS= 365 x 2220
10406= 78 days
Assignment # 2 Ratio Analysis Business Finance
2007 2008
Interpretation:The figure tells us how many days, on average, before
inventory is turned into accounts receivable through sales. So in 2005, the turn over in days is 73. In the next four years the turn over ratio in days differs from each other. Lowest of all is 2008’s ratio, which is 70 days.
Total Asset Turnover Ratio:2005 2006
Inventory turnover in days = Days in year x Inventory
CGS= 365 x 2187
11374= 70 days
Total assets turnover = Net salesTotal assets
= $28296$37917
= 74 %
Total assets turnover = Net salesTotal assets
= $24088$29963
= 80 %
Total assets turnover = Net salesTotal assets
= $28857$43269
= 66 %
Assignment # 2 Ratio Analysis Business Finance
2007 2008
2009 = 30990/48671= 63%
Interpretation:The ratio is supposed to be high. Here we can see that the coca-
cola company’s total asset turn over ratio in 2005 is 0.74, which means that the company generated less revenue per dollar of asset investment. The ratio goes up in 2006 and then comes down in 2007. in 2008 the firm manages to stabilize and generate moderate revenue. But in 2009 the again slow down to 0.63 total turn over ratio.
Conclusion:
Total assets turnover = Net salesTotal assets
= $31944$40519
= 78%
Assignment # 2 Ratio Analysis Business Finance
After applying all the formulas we got an idea that the Coca Cola Company is a profitable firm. Because through out the trend analysis of four years, we found that the company is getting profitable return on short term and long term investment, their receivable conversion rate has reduced as well and they are in the position to pay its debts with in their resources.
Limitations of Financial Statement Analysis:Although financial statement analysis is highly useful tool, it
has two limitations. These two limitations involve the comparability of financial data between companies and the need to look beyond ratios.
Comparison of Financial Data:Comparison of one company with another can provide valuable clues about the financial health of an organization. Unfortunately, differences in accounting methods between companies sometimes make it difficult to compare the companies' financial data. For example if one firm values its inventories by LIFO method and another firm by the average cost method, then direct comparison of financial data such as inventory valuations and cost of goods sold between the two firms may be misleading. Sometimes enough data are presented in footnotes to the financial statements to restate data to a comparable basis. Otherwise, the analyst should keep in mind the lack of comparability of the data before drawing any definite conclusion. Nevertheless, even with this limitation in mind, comparisons of key ratios with other companies and with industry average often suggest avenues for further investigation.
The Need to Look Beyond Ratios:An inexperienced analyst may assume that ratios are sufficient
in themselves as a basis for judgment about the future. Nothing could be further from the truth. Conclusions based on ratios analysis must be regarded as tentative. Ratios should not be viewed as an end, but rather they should be viewed as starting point, as indicators of what to pursue in greater depth. They raise many questions, but they rarely answer any question by themselves.
In addition to ratios, other sources of data should be analyzed in order to make judgment about the future of an organization. The analyst should look, for example, at industry trends, technological changes, changes in consumer tastes, changes in broad economic factors, and changes within the firm itself. Introduction:
Assignment # 2 Ratio Analysis Business Finance
The assignment is about the trend analysis of any firm. Therefore, we have selected the balance sheet and the income statement of Coca-Cola Company. Four years’ data has been collected through secondary source in which the calculations, graphical presentations and interpretations are covered in detail.
In the end the limitations are also mentioned which give us an idea that what kind of problems are faced by the analysts and what are those things they should keep in mind.
Balance Sheet of Coca-Cola Company:
Assets Dec 08 Dec 07 Dec 06
Current Assets
Cash 4,701.0 4,093.0 2,440.0
Net Receivables 3,090.0 3,317.0 2,587.0
Inventories 2,187.0 2,220.0 1,641.0
Other Current Assets 2,198.0 2,475.0 1,773.0
Total Current Assets 12,176.0 12,105.0 8,441.0
Net Fixed Assets 8,326.0 8,493.0 6,903.0
Other Noncurrent Assets 20,017.0 22,671.0 14,619.0
Total Assets 40,519.0 43,269.0 29,963.0
Liabilities and Shareholder's Equity Dec 08 Dec 07 Dec 06
Current Liabilities
Accounts Payable 1,370.0 1,380.0 929.0
Short-Term Debt 6,531.0 6,052.0 3,268.0
Other Current Liabilities 5,087.0 5,793.0 4,693.0
Total Current Liabilities 12,988.0 13,225.0 8,890.0
Long-Term Debt 2,781.0 3,277.0 1,314.0
Other Noncurrent Liabilities 4,278.0 5,023.0 2,839.0
Dec 2005
3744
2998
2016
2148
10907
7907
19102
37917
Dec 2005
1226
5283
5191
11701
4046
18205
Assignment # 2 Ratio Analysis Business Finance
Total Liabilities 20,047.0 21,525.0 13,043.0
Shareholder's Equity
Preferred Stock Equity -- -- --
Common Stock Equity 20,472.0 21,744.0 16,920.0
Total Equity 20,472.0 21,744.0 16,920.0
Shares Outstanding (mil.) 2,317.2 2,317.2 2,317.2
Income Statement of Coca-Cola Company:
Revenue 31,944.0 28,857.0 24,088.0
Cost of Goods Sold 11,374.0 10,406.0 8,164.0
Gross Profit 20,570.0 18,451.0 15,924.0
Gross Profit Margin 64.4% 63.9% 66.1%
SG&A Expense 11,774.0 10,945.0 9,431.0
Depreciation & Amortization 1,228.0 1,163.0 938.0
Operating Income 7,877.0 8,329.0 6,798.0
Operating Margin 24.7% 28.9% 28.2%
Non operating Income (902.0) 841.0 297.0
Non operating Expenses (105.0) (220.0) --
Income Before Taxes 7,439.0 7,873.0 6,578.0
Income Taxes 1,632.0 1,892.0 1,498.0
Net Income After Taxes 5,807.0 5,981.0 5,080.0
Continuing Operations 5,807.0 5,981.0 5,080.0
Discontinued Operations -- -- --
Total Operations 5,807.0 5,981.0 5,080.0
28296
9981
18315
64.8%
10716
1109
7668
27.2%
251
--
7296
1674
5622
5622
--
5622
5622
20%
Assignment # 2 Ratio Analysis Business Finance
Total Net Income 5,807.0 5,981.0 5,080.0
Net Profit Margin 18.2% 20.7% 21.1%
Diluted EPS from Total Net Income
($)
2.49 2.57 2.16
Dividends per Share 1.52 1.36 1.24