Accounting Analysis of the Coca-Cola Company
RESEARCH PROJECT #1
Accounting Analysis
This project is closely aligned with the Course Outcomes and Finance Program Objectives. Completion of this project can be used as part of a portfolio to show potential employers the student is skilled at performing company valuations and financial statement analysis and can be included on the student's resume.
No more than 20% of the text of the project should be made up of quotes.
For this assignment, use the company Coca-Cola
Phased Company Analysis Project:
The final project assignment requires application of a three-part framework of organizational evaluation that includes strategic, accounting, credit and financial analyses. The assignment involves the application of this analytical framework to an existing, publicly-owned company. This final project is designed to facilitate the synthesis of the topics examined in this course into a comprehensive and applied analysis and evaluation of a company.
A detailed outline of the four assignments that comprise this class-long project follows:
Part 1 Accounting Analysis :
The instructor will assign a company to each student that is publicly traded on the NASDAQ or NYSE Euronext stock exchange. The company must have significant international operations
Coca-Cola
Assuming the role of an entering corporate officer, complete an accounting analysis based on the Week 1 and Week 2 assigned readings and other materials that can be located.
This analysis should reflect a review of at least a three-year period of fiscal years ending with the most recently published Form 10K report.
Writing Instructions:
The discussion portion of the analysis should be three to five pages in length, double spaced, and should employ APA style and format for reference citations. Supporting data (e.g., figures, tables, etc.) and references should be limited to four separate items preferably presented in the written analysis.
Required Organization of Paper:
The following subheadings are to be used and the following topics must be addressed in the paper:
Introduction – The introduction needs to review the assignment or purpose of the paper. It also needs to include an overview of the contents that follow.
Presentation of the Accounting Analysis – The student should develop and present the basic accounting analysis for the company.
It is necessary to prepare and incorporate a table (tables are always numbered, titled, and show the source of the information) of the relevant criteria being examined in the accounting analysis and their present status. Additional information can be included in the table. These data are to be presented in a table (numbered and titled and that shows the sources). The data are then to be discussed and explained in an accompanying written analysis.
Strengths and Weaknesses Analysis – This section needs to present a careful analysis of the strengths and weaknesses demonstrated by the accounting analysis. This section needs to conclude with a paragraph or two that explain and interpret what the analysis means on an overall basis and as the observations and conclusions are considered collectively.
Summary – Prepare a brief summary of the analysis and key findings.
References – Must clearly demonstrate use of a variety of the assigned readings and supplemental material.
Completeness of analysis:
The analysis must demonstrate understanding of accounting analysis. Use of academic and professional databases, business periodicals, analyst reports, and news articles, such as those in the UMUC library, must be included in this company accounting analysis.
Organization:
The paper should be well-organized and follow a logical pattern of analysis and discussion.
Presentation:
Papers should meet professional business standards and meet APA formatting requirements. No more than 20% of the text of the project should be made up of quotes.
Spelling, punctuation, and grammar:
There should not be errors in grammar and punctuation. All sentences must be complete and well-structured.
The paper must be in Word format otherwise no credit is earned for the assignment.
Written projects:
• Must be typed, double-spaced, in 12-point Times New Roman or Arial font, with one-inch margins
• Must have the title page in APA-7th style
• Must have in-text citations in APA-7th edition style
• Must have reference list in APA-7th edition style. Please note that you must reference the data you are using for the project
• Must be prepared using word processing software (Microsoft Word preferred)
Accounting Analysis of Coca-Cola
Student’s Name
Institutional Affiliation
Course
Instructor
Date
Accounting Analysis of Coca-Cola
Introduction
Part 1 of the final project’s three-part framework of organizational evaluation involves an accounting analysis of the Coca-Cola company. This analysis will reflect a review of the company’s three-year period for fiscal years 2019-2021, of its published Form 10K report, following a 6-step accounting policies analysis of the financial statements. This will be followed by an analysis of the Strengths and Weaknesses depicted in the accounting policies analysis and a summary of the analyses and key findings.
Presentation of the Accounting Analysis
1 Identification of Key Accounting Policies
The Coca-Cola Company prepares its consolidated financial statements per the U.S. Generally Accepted Accounting Principles, U.S. GAAP, accounting principles, which mandates the company to make assumptions and estimates affecting the amounts reported in terms of revenues, expenses, assets, liabilities, the disclosure of contingent liabilities and assets in the statements and accompanying notes, in the reporting. As per the reporting requirements of GAAP, the company has the three main financial records of income statements, balance sheets, and cash flow statements, for the three fiscal years of the analysis period.
2 Assessment of Accounting Flexibility
The concept of accounting flexibility has been used by the management of Coca-Cola in several ways. First, the management exercised consolidation in entities that Coca-Cola held a variable interest, though the consolidation condition of having control through ownership of a majority voting interest had not been met. Secondly, from 2018, the company recognizes revenue once the contract performance obligation has been satisfied by a mere promise to sell, after the adoption of ASC 606. GAAP requires that revenues are recognized when realized and earned. Thirdly, Coca-Cola records advertising costs in its books once the advertisement has taken place as opposed to the GAAP requirement of recognizing expenditures when they are incurred. In addition, the company includes shipping and handling costs of moving goods from its manufacturing locations to the sales distribution centers and from these locations and centers to its customers in the cost of goods sold. Other items in which the management exercised accounting flexibility in 2021 include Sales, Use, Value-Added and Excise Taxes, and Net Income Per Share.
3 Evaluation of Accounting Strategy
On non-GAAP financial measures, Coca-Cola compares to its competitor, PepsiCo, which also utilizes such measures on items like cost of sales, net income attributable to noncontrolling interests and PepsiCo, and provision for income taxes (Form 10K, 2022). The management has some stock options under the employee stock-based compensation, such that the 2021 and 2020 stock issuances were concerning the stock options being exercised by the company employees (Form 10K, 2021). Interest expense rose in both 2021 and 2020 due to charges associated with the extinguishment of long-term debt, signifying a near violation of debt covenants. The company changed its accounting policy to account for the tax effects of the provisions of the Tax Reform Act during the period that the company is subject to such tax. The justification is that all prior year (2007) federal income tax examinations had been completed by the U.S. tax authorities and so Coca-Cola’s subsidiary acquisition of its former North America business would not be subject to the net operating losses and tax credit carryovers. The effect of this is an increase in the provision for income tax. The company’s accounting policies and estimates have been realistic given that the auditors are in agreement with the company on the matter of the valuation of impairment of trademarks and goodwill. The company structures mainly long-term debt by extinguishing certain tranches after the issuance of long-term notes to achieve an optimal mix of long-term and short-term.
4 Evaluation of the Quality of the Company’s Disclosure
The company provides adequate disclosures as per U.S. GAAP to enable the assessment of its business strategy and model through the annual report discussions and financial statements. The notes to the financial statements are adequate in their explanation of Coca-Cola’s key accounting policies and assumptions. The current performance of the company is clearly explained. Coca-Cola has operations in different segments, whose disclosures are of good quality in terms of, for instance, segment operating revenues. The management takes the initiative to explain the reasons for poor performance, e.g., by quantifying the divestitures and acquisitions’ impact on the Company’s net operating revenues for investors and trying to offer solutions such as structuring of the divestitures and acquisitions.
5 Identification of Potential Red Flags
There were no notable unexplained changes in accounting principles or estimates. Tables 1.0 & 1.1 below are excerpts of the horizontal analyses of the inco...