financial ratios analaysis Of coca-cola report.docx

Alexandria university
Faculty of engineering


Report (2)

Topic :financial ratios analaysis
Of coca-cola


Name: Mohamed Abdirahman Mohamed
ID: 3371






Coca Cola International Company
The Coca-Cola Company is the world's largest beverage company.
It is no.1 brand according to fortune 2009 survey.
The company operates a franchised distribution system dating from 1889.
The Coca-Cola Company is headquartered in Atlanta, Georgia.
With local operations in over 200 countries around the world.
Coca Cola has 150,900 employees worldwide.

Financial analysis
Assessment of the firm's past, present
and future financial conditions
Done to find firm's financial strengths
and weaknesses
Primary Tools:
–financial statements
–comparison of financial ratios to past, industry , sector and all firms


Objectives of ratio analysis

Standardize financial information for
comparisons
Evaluate current operations
Compare performance with past
performance
Compare performance against other
firms or industry standards
Study the efficiency of operations
Study the risk of operations


Types of ratios

Short-term solvency , or liquidity, ratios
Long-term solvency, or financial Leverage ratios
Asset utilization, or turnover, ratios
Profitability ratios
Market value ratios










Liquidity ratios

Current ratio
Current ratio: current assets/current liabilitie
$30,328/$27,821 =1.09

Year
2011
2012
Current ratio
1.05
1.09

In 2011, the firm's ability to cover its current liabilities with its current assets was 1.05. In 2012, the ratio goes up to 1.09 as compared to 2011, 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. This tells that Coca-Cola is improving their liquidity and efficiency, because their current ratio is improving.




Quick ratio


Quick ratio: current assets-inventory/ current liabilities

$27,064/$27,821 =0.97

Years
2011
2012
Quick Ratio
0.92
0.97


According to the definition of Acid Test Ratio, the company should have the ability to pay its liabilities through its most liquid assets. The table shows that in 2011, the firm has the ratio 0.92 cents. Then we observe a slight improvement in 2012. So we can figure out from the ratios that Coca-Cola still cannot pay its debts without its inventory. This leads us to believe that Coca-Cola is a somewhat risky business, even though it is the largest in the nonalcoholic beverage industry.


Activity (turnover) ratio

Total asset turnover ratio

Total asset turnover: sales/total assets

$48,017/$86,174 = 0.55

Year
2011
2012
Assets turnover
0.58
0.55

The ratio is supposed to be high. Here we can see that the coca-cola company's total asset turn over ratio in 2011 was 0.58, which means that the company generated more revenue per dollar of asset investment. The ratio then comes slightly down in 2012.


Inventory turnover ratio

Inventory: turnover: cost of goods sold / inventory

$19,053/$3,264 =5.8

Year
2011
2012
inventory turnover
5.90
5.80

The Coca-Cola's Inventory turnover ratios deteriorated from 2011 to 2012, which means that its ability to sell inventory has relatively come down. In 2011 Coca-Cola had a ratio of 5.90 and in 2012 has a ratio of 5.80. These ratios are not what we expected; we assumed that the ratios would be much higher because Coca-Cola sell its syrup to bottling partners around the world so it does not need to deal with the storing of the bottled product.



Average collection period

Avg. collection period: 365/receivable turnover (10.9) =36.17 days

Year
2011
2012
Avg. collection period
5.90
5.80

The ability of the firm of collecting the receivables in the specific time. Here in the year 2011 the turnover in days was almost 39, but the collection days decrease in the year 2012 and the collection period of approximately 36 days is well within the 60 days allowed in the credit terms. This shows that the collection is faster as compared to the previous year.


Average payment period


Avg. payment period: 365/payable turnover(24.39) =14.96 days


Year
2011
2012
Avg. payment period
17
15


Coca-Cola's average period for payment has reduce to 15 days in 2012 which was 17 days in 2011. This reduction in average payment period shows that how efficiently company is paying back their creditors and also assuring that payments are being made in a prompt manner by Coke to its creditors. This period should remain low as much as possible.



Debt ratios


Debt ratio

Debt ratio: total liabilities/ total assets

: $53,006/$86,174 =61.51%


Year
2011
2012
Debt ratio %
60.09
61.51


The ratio shows the company's ability to cover its debts through its total assets. The ratio was 60.09% in 2011, then goes up in 2012. The ratio has to be low. So we can interpret that in the year 2012, the risk of the firm is getting higher as the ratio goes up.



Times interest earned ratio

Times interest earned ratio: EBIT / interest

$11,809 / $471 =25.07


Year
2011
2012
T.LE ratio
23.72
25.07


In 2012 Coca-Cola has a ratio of 25.07 which is a large increase from 2011 when their ratio was 23.72. This means that they have a comfortable coverage of interest, and that the coverage has increased from the previous year.




Profitability ratios


Gross profit margin

Gross profit margin: gross profit / sales

: $28,964 / $48,017 = 60.32%


Year
2011
2012
Gross profit margin %
60.90
60.32


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 table there is small difference between the ratios in two years, but its still high, which means it is favorable.


Operation profit margin

Operating profit margin: EBIT/sales

$11,809 / $48,017 = 24.59%
Year
2011
2012
Operating profit margin %
21.80
24.59


Coca-Cola's operating profit margin has increased in 2012 than the margin in 2011 by approximately 3%. This increase in Operating Profit Marin is mainly due to growth of net revenue, good cost control and strong productivity in company in 2012. This higher margin reflects that the Coca-Cola is more efficient cost management or the more profitable business.






Net profit margin


Net profit margin: net income / sales

: $9,019 / $48,017 =18.78%


Year
2011
2012
Net profit margin %
18.40
18.78


According to the definition, higher the ratio, higher will be the firm's ability to pay its taxes. In the year 2011, the margin was little low but in 2012 the margin increases by 0.4%. For the company, roughly 0.38 cents out of every sales dollar consists of 'After Tax Profit'. Coca-Cola is more efficient at converting sales into actual profit and its cost control is good.



Return on assets (ROV)

ROV: net income / total assets

: $9,019 / $86,174 = 10.46%


Year
2011
2012
ROV %
10.70
10.46

The decrease in Return on Assets indicates that the company is generating less profits from all of its resources in the year 2012 as compared to the year 2011. The higher of this ratio is, the better for the company. Therefore this decrease in Coca-Cola's ratio is indicating that the company is not that much prospering.


Return on equity (ROE)

ROE: net income / total common equity

: $9,019 / $32,790 = 27.51%


Year
2011
2012
ROE %
27.10
27.51


The ratio should be higher. Here starting from 2011, the ratio was 27.10% and goes up in 2012 to 27.51%. This increase in Return on Equity is a good thing for stockholders and indicates that Coca Cola is using the equity provided by stockholders during this specific year effectively and using it to generate more equity for the owners.


Market ratios

Price/earnings ratio

P/E Ratio: market price/share of c.s / earning per share


Year
2011
2012
P/E Ratio
19.00
18.40


Coca-Cola's price-earnings ratio has decreased 0.6 times in 2012, because in 2011 the ratio was 19.00 times but in 2012 it become 18.40 times which suggests that investors may be looking less favorably at the Coca-Cola. This ratio should be high, because the higher the P/E ratio, the higher will be the investors' confidence in company.



Market / book ratio

M/B Ratio: ( market price/share) / (book value per share)

: $36.25 / $7.34 = 4.93


Year
2011
2012
M/B Ratio
5.00
4.93


We can say that Coca-Cola's future prospects are being viewed favorably by investors. Because still, investors are willing to pay more for stocks than their accounting book value as M/B ratio's fluctuation is negligible in 2012 against 2011.




Conclusion

After applying all the ratios we got an idea that the Coca Cola Company is a profitable firm. Because throughout the analysis of two years, we found that the company is getting profitable return on short term and long term investment, their profit margin has been increased as well and they are in the position to pay their debts within their resources.