Bradford Amidon

ACG2021 Sec. 002

Part A: Executive Summary
 Coca-Cola has been a strong company and has maintained stable
earnings in the midst of an economic recession. It has shown the ability
to shift focus quickly to the dynamics of consumer tastes. An increase
in low-calorie beverage production shows that Coca-Cola is aware of
the clearly market. After analyzing the long-term debt strategies to
decrease the cost of capital, the investors’ growing confidence in 2008,
I think it and many other factors will contribute to growth in the
future.

 Annual Report 2008: http://www.thecoca-

colacompany.com/investors/pdfs/form_10K_2008.pdf
 Part A: Introduction
 In 2008, The Chief Executive Officer was Muhtar Kent, he joined the company in 1978
and was elected the CEO and director of the company in December 2006.
 The Coca-Cola headquarters are located in Atlanta, Georgia on a 35-acre commercial
property. The company has an 870,000 square foot complex adjacent to another 264,000
square foot plaza. The physical address is 10 Glenlake Parkway, Atlanta, Georgia.
 The fiscal year for 2008 ended on December 31, 2008.
 Coca-Cola is the world’s largest retailer of non-alcoholic beverages. The company sells
products in over 200 countries around the world and owns over 500 brands worldwide
(“Coca-Cola” which is deemed the world’s most valuable brand). They also sell
concentrates and syrups marketed to wholesalers, retailers and distributors.
 The Coca-Cola Company’s main area of operation is North America. Although it is sold in
nearly all countries, North America accounted for 25% of its capital expenditures.
 Part A: Audit Report
 Ernst & Young, LLC. were independent auditors that were used to
evaluate consolidated balance sheets and other financial statements for
the Coca-Cola Company in for the 2008 fiscal year.
 Ernst & Young reported that the balance sheets, income statements,
stockholder equity, cash flows and other financial reports accurately
and fairly reported the Coca-Cola Company’s financial position. Along
with their opinion on the financial statements, they also stated Coca-
Cola adequately established proper internal controls over the financial
reporting in 2008.
Part A: Stock Market Information
 Current Price per share (as of March 2, 2010 at 1:53PM EST): $53.48 per share
 The Coca-Cola Company’s current annual range:
 52 week High: $59.45 per share
 52 week low: $37.44 per share
 In 2008, The Coca-Cola Company’s dividend per share was $0.38
 As far as an investment, I would buy shares in The Coca-Cola Company, the
company has a long-term focus on profitability. The soft drink industry is
rapidly changing because of a shift in consumer tastes towards low-calorie,
non-carbonated beverages and Coca-Cola is leading the way, which will
contribute towards a long-term overall growth in the company.
 Part B: Industry Situation and Company
Plans
 Recently, there has been a link reported between obesity rates and soda in the
United States and Worldwide, this news could be catastrophic to an industry that
depends so much on consumer tastes and preferences. The outlook looks good for
the industry if it can change direction toward more nutrient-rich beverages, Coca-
Cola has led the charge providing new beverages such as, Coke Zero and Vitamin
Water. In addition to beverage changes, they reported a change in bottling
materials. Using plastic that is derived directly from sugar cane and molasses crops,
they are going to use bottles with material derived from plant waste to eliminate
some costs of raw materials.
 Other improvements include further developing their own infrastructure, they have
recently announced plans to purchase their largest bottler in North America from
Coca-Cola Enterprises. The acquisition of such plants also helps drive long-term
value for all shareholders

 http://nacsonline.com/NACS/NEWS/daily/pages/ND1119097.aspx
 http://www.marketwatch.com/story/the-coca-cola-company-and-coca-cola-
enterprises-strategically-advance-and-strengthen-their-partnership-2010-02-
25?reflink=MW_news_stmp
 Part C: Income Statement
 The Coca-Cola Company has a multi-step Income Statement because it
includes the Gross Profit amount that is stated after net revenues and Cost
of Goods Sold.
 Income Statement data as follows:
Fiscal Year 2007 2008 Difference
(amounts stated in
millions of dollars)

Operating $7,252 $8446 $1,194

Income
Gross Profit $18,451 $20,570 $2,119
Net Income $5,981 $5,807 (-$174)

 The data shows overall growth with one large exception, the net income decreased in 2008.
After more analysis, I noticed the net equity on the income statement for 2007 was a gain of
$668 million. In 2008, due to the recession, they reported a loss of $874 million.
 Part C: Balance Sheet
Fiscal Years Total Total
(amounts in
millions of dollars)
Stockhold + Liabilities = Total Assets
(current liabilities
ers’ Equity +other liabilities)

2007 $21,744 + ($13,225) + ($8300) = $43,269

= $21525

2008 $20,472 + ($12,988) + ($7059) = $40,519

= $20,047

Total Change -$1272 + -$1478 = -$2750

• All accounts, total liabilities and total stockholders’ equity led to a

decrease of total assets in 2008.
•Total Liabilities was the account that had the most change.
 Part C: Statement of Cash Flows
Fiscal Year Cash Flows for Net Income
(amount in millions Operations
of dollars)

2007 7,150 $5,981

2008 7,571 $5,807

 In both 2007 and 2008, net income has been greater than the cash flows provided for
operating activities.
 In 2007, The coca-cola company invested a substantial portion of their cash flows (almost
6 billion dollars!) towards acquiring other bottling companies such as Glaceau. In 2008,
displaying a clear retraction in investing activities, The company shifted their focus of
investment toward Plant, Property, and Equipment increasing from $1,648 in 2007 to
$1,968 in 2008.
 The Coca-Cola Company uses Long-Term Loans to lower their costs of overall capital,
which allows for a larger return on Stockholder Equity. The changing interest rates can
have an adverse effect on their strategy. Their long-term debt was rated A+ by Standard
and Poor’s, showing that they are in a good financing position in 2008.
 Cash flow has increased in both 2007 with an increase of $1,653 million and in 2008 an
increase of $608 million.
 Part D: Accounting Policies
 Revenue Recognition: Coca-Cola recognizes revenue when the title of the company’s
products are transferred to Partners, resellers, retailers, and other customers.
Customer incentives are deducted from revenue.
 Cash and Equivalents: Marketable Securities that are highly liquid and reach maturity
in less than 3 months from purchase are considered equivalent to cash.
 Plant, Property, and Equipment: All Plant, Property, and Equipment are stated at cost.
The Depreciation is recorded using the straight-line method. The company generally
follows such guidelines: Buildings and improvements 40 years or less, Machinery and
Equipment 15 years or less, Containers 10 years or less.
 Inventories: The inventories consist of mostly raw materials, packaging and finished
goods.
 Cost Calculations: Cost is calculated on the average cost method and the First in First
out Method (FIFO), Inventories are valued at lower of cost or market.
Part D: Accounting Policies Page 2
Topics in Notes to Financial Statements:

BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

INVENTORIES
BOTTLING INVESTMENTS
PROPERTY, PLANT AND EQUIPMENT
GOODWILL, TRADEMARKS AND OTHER INTANGIBLE ASSETS
SHORT-TERM BORROWINGS AND CREDIT ARRANGEMENTS
LONG-TERM DEBT
COMPREHENSIVE INCOME
FINANCIAL INSTRUMENTS
HEDGING TRANSACTIONS AND DERIVATIVE FINANCIAL INSTRUMENTS
FAIR VALUE MEASUREMENTS
COMMITMENTS AND CONTINGENCIES
NET CHANGE IN OPERATING ASSETS AND LIABILITIES
STOCK COMPENSATION PLANS
PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS
INCOME TAXES
RESTRUCTURING COSTS
SIGNIFICANT OPERATING AND NONOPERATING ITEMS
ACQUISITIONS AND INVESTMENTS
OPERATING SEGMENTS
 Part E: Financial Analysis and Liquidity Ratios
 Working Capital (in Average Days Sales Uncollected:
millions): 2007: 37.3 days
2007: -$1,120 2008: 36.5 days
2008: -$812
Working capital is smaller in 2008 then These averages are related to Receivable
2007, it is in the negatives because turnover, the company can collect payments
they operate on long-term debt.
every 36.5 days on average.
 Current Ratio:
2007: 0.9153 Inventory Turnover:
2008: 0.9375 2007: 5.4 times
Coca-Cola’s Current Ratio is below 2 for both 2008: 5.2 times
years but its ratio increased from 2007 to Inventory Turnover in 2008 decreased slightly
2008. They are more able to pay back their compared to 2007, but is still the industry’s leader.
short term debts. Average Days Inventory on hand:
 Receivable Turnover: 2007: 67.7 days
2007: 9.8 times 2008: 70.7 days
2008: 10.0 times In relation to the Inventory turnover, the average
days the inventory was in the hands of the company
There is a small difference in turnover, an
increase means it takes less time for the increased in 2008 compared to 2007.
company to collect outstanding payments.
Part E. Financial Analysis Profitability Ratios
 Gross Profit Margin:
 2007: 63.9%
 2008: 64.4%
The increase in the gross profit
margin was attributable to
favorable price and product mix
across the majority of our
operating segments. The sale of
Remil and Coca-Cola Pakistan also
increase gross profit.
 Asset Turnover:
 2007: 0.79
 2008: 0.76
The Asset turnover decreased from
2007 to 2008 it has a low asset
turnover but that is related to their
higher-than-average gross profit
margin.
• Return on Assets
• 2007: 16.3%
• 2008: 13.6%
In 2008, Coca-Cola’s return on assets decreased
nearly 3% clearly showing a decrease in their
ability to turn investments into income.
Comparatively, Pepsi faired the same losing 3% of
their return on assets as well.
• Return on Equity:
•2007: 34.46%
•2008: 34.83%
From 2007 to 2008, there has been a slight
increase in the company’s return on equity,
showing that Coca-Cola was better able to take the
investment made by stockholders’ and turn it into
earnings.
Part E. Financial Analysis Solvency Ratio
 In 2007, The Coca-Cola Company had a debt to equity
ratio of 0.998 or 99.8%
 In 2008, The company had a decrease of debt-to-
equity with 0.979 or 97.9%
With knowledge of Coca-Cola’s long-term debt strategy
it doesn’t surprise me to see that their total
stockholder’s equity matches their total liabilities
nearly 1 for 1.
Part E. Financial Analysis Market Strength Ratios
 Price Earnings Ratio:
 2007: 14.37 times the earnings reported.
 2008: 22.73 times the earnings reported.
Data comes from reported EPS and Market prices as of
December 31, 2007 and 2008. It shows the increase from 2007
to 2008 in investor confidence in Coca-Cola to deliver a profit
in the future.
 Dividend Yield:
 2007: 2.2%
 2008: 3.3%
An increase in the dividend yield shows that coca-cola shares
gained more value per share as compared to 2007.