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Financial Accounting

Group Assignment
Topic:

COCA COLA FINANCIAL ANALYSIS

Student

Class

: K52-BFA

Instructor

: TS. Nguyn Th Hong Anh

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Content
Executive Summary.
Terms of Reference.
Introduction
Overview of Financial Performance and Position
Short-term activity analysis..
Conclusion..
Appendices.

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Executive summary
The report presents the financial position of Coca Cola in 2014, compared with its
competitor Pepsico and its previous years of operating.
In the first part of the report, the companys net operation, long-term debt, concentrate
sales and net income are showed briefly in order to create an overall view over the
companys performance during 2014 compared with its last few years.
After having a brief concern over the information, the report will present some key ratios
used to state the companys financial position, its improvements in operating
management systems to win over its competitors in the same industry.

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Terms of reference
This report was calculated and analyzed based on the Ratio Analysis Method. All
numbers and percentages are taken precisely from the Financial Report of Coca Cola
and Pepsico on the official websites.

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Introduction
Coca Cola is one of the biggest soft drink brands in the world, established in 1944 in the
United States of America. The company first sold only concentrated carbonated soft
drink in stores, restaurants and vending machines over the country; however, after a
period, the company has extended its manufacturing products and continuously created
many exclusive brand names and flavors such as Caffeine-Free Coca-Cola, Coca-ColaZero and so on.

Overview of financial
performance and position
In overall, the companys net operation revenue grew roughly 15,008 million dollars in
the last 5 years (approximately 48% compared between 2014 and 2009), illustrating the
increasingly in investing that generates the companys income. The figure also points
out the exclusive interest of shareholders and other contributors in supporting the
company financial position. However, in comparison with the 2013, 2012 and 2011, the
figure appears not really the highest in the 5-year period, showed by its lower value than
the three years mentioned above, approximately 45,998 million dollars compared with
46854 million dollars, 48017 million dollars and 46,542 million dollars respectively.
Furthermore, according to the Selected Financial Data Table in 2014 (p.29), Coca
Colas long-term debt decreased a rather small amount of about 91 million dollars than
its previous year. The reduction in long-term debt somehow could encourage the
company and its stockholders in some extent, but the figure is still higher than the
period from 2012 to 2010 roughly 5,000 million dollars, alarming the company is still in a
long-term high-debt position that could harmfully damage the company directly and
indirectly.
In contrast to its previous year, the company improved its consolidated concentrate
sales up to 1% in 2014 after considering the impact of structural changes. Despite the
fact that 1% is not a really impressive number of sales growth, the company has proved
its highly potential opportunities to survive and profitable abilities in the future economy.
Moreover, in the uncertain economy, 1% of consolidated concentrate sales per year
over the whole merchandise in the world could be considered as a high success.

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Another feature of the company to notice is its consolidated net income in 2014 of
approximately 7,124 million dollars, which decreased 17.4% compared with that of 2013
as well as 21.6% compared with that of 2012. The figure led to a reduction in the basic
net income per share of Coca Cola down to 1.62 dollar, lowered than 16.4% and 19%
compared respectively with that of 2013 and 2012. A small drop in the number of basic
net income per share of Coca Cola could result in the disappointment among the
current shareholders and the unintentionally disinterest of potential investors.

Short-term activity
analysis compared with
the competitor - Pepsico
After thorough calculating, Coca Cola hold the Inventory Turnover Ratio of 5.77, which
is a quite ideal ratio compared with that of 9.83 of Pepsico. The low ratio of Coca Cola
could indicate the insufficiency in poor merchandising and overstocking due to
inadequate organizational planning process or overestimated customer demand. The
insufficiency could lead to an increase in cost of storage management such as rent,
utilities, insurance and so on to control and warrant all the goods in the warehouse.
Moreover, overestimating customer demand could result in an aggressive discount on
the current products and present further difficulties in the trading process, which would
probably slow the turnover cycle of the company. However, unlike Pepsico, the
company was confident for its large number of demand of its products, which illustrates
the position of the company in soft drink industry. The companys Inventory Turnover
Ratio in 2013 was about 5.62, just slightly smaller than in 2014, which shows the ability
of managing inventory of Coca Cola was still not improved during the period.
Apart from the low Inventory Turnover Ratio, the Receivables Turnover Ratio of Coca
Cola is approximately 10.4, which was slightly higher than that of Pepsico calculated
roughly 10.03. The figure shows that Coca Cola had been managing its current assets
more effectively than Pepsico through collecting credit sales from the customers. In
addition, the company had provided its products to profitable and trust-worthy
customers-those who were extremely satisfied with the companys products and the
benefits it brought. However, with the higher Receivables Turnover Ratio, Coca Cola
appears to have stringent financial managers controlling its account receivable closely,
which may prevent customers who intend to pay their credits in a longer term.
Payable Turnover Ratio is also a major advantage of Coca Cola when it is calculated
approximately 8.56 compared with 6.02 of Pepsico. The high ratio illustrates the
effective way that the company control and pay its suppliers, which enhance the partner

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relationship between the two sides resulting in deep connection in the future. Another
advantage of holding the high ratio is that it could encourage the future loan making
process more quickly based on the good history of paying past loans. According to the
ratio, the company paid off its account payable about 9 times in 2014, while its
competitor only reached the number of 6.
Coca Cola had the Working Capital Turnover Ratio of about 75.16, compared with that
of 25.94 in Pepsico, about nearly three times. The ratio not only points out how
efficiently the company utilized its working capital in doing business, but also states how
effectively the assets and liabilities are used to support the companys sales. Again, the
high ratio has re-stated the magnificent management systems of Coca Cola to exploit
completely its potential assets and liabilities. The year 2014 could be considered a
highly successful year of operating of Coca Cola because its Working Capital Turnover
Ratio had increased from 13.41 in 2013 to 75.16 in 2014, approximately 5.6 times. The
extremely high increase in the ratio illustrates the intensive focus of the company in
managing and exploiting the available resources over the period.

Conclusion
In conclusion, Coca Cola has proved its high position in the soft drink industry over its
direct competitor Pepsico. With the magnificent Working Capital Turnover Ratio of
75.16, Coca Cola has using its assets and liabilities effectively and efficiently. Moreover,
its reliability has improved considerably due to the Payable Turnover Ratio with its
suppliers and other partners, creating more and more opportunities in the future
prospects. However, it is fair to suggest the companys departments to estimate and
evaluate the customer demand as well as to improve the merchandising process to
increase its Inventory Turnover Ratio in order to attract more profitable investments from
current and potential shareholders and investors.

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Appendices
Compare of short-term activity between Coca Cola and Pepsico
Ratio
Inventory Turnover
Receivables Turnover
Payable Turnover
Working Capital Turnover

Coca Cola

Pepsico

5.77
10.4
8.56
75.16

9.83
10.03
6.02
25.94