Credit Analysis -Coca-Cola
Coca-Cola
RESEARCH PROJECT #3
Credit Analysis Coca-Cola
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.
Evaluation: The Project #3 is 15% of final course grade.
No more than 20% of the text of the project should be made up of quotes.
For this assignment, use Coca-Cola for all four class assignments.
Assuming the role of an entering corporate officer, complete a credit analysis for the company that was selected for tCoca-Cola based on the Week 5, Week 6, and Week 7 assigned readings and other materials that can be located.
This analysis should reflect a review of a 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 4 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.
Please note that starting from the Fall 2020 semester the UMGC moved to the 7th Edition of the APA Style. The links to the 7th Edition of the APA Style methodology are posted in Content – Course Resources – Writing Resources.
Required Organization of Paper:
The following subheadings are to be used and the following topics must be addressed in the paper:
Presentation of the Credit Analysis – The student should develop and present the basic credit 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 credit analysis and their present status. Make sure that the criteria cover the 5 C’s of credit analysis. 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 credit 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 credit 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.
Please note that starting from the Fall 2020 semester the UMGC moved to the 7th Edition of the APA Style. The links to the 7th Edition of the APA Style methodology are posted in Content – Course Resources – Writing Resources.
Spelling, punctuation, and grammar:
There should not be errors in grammar and punctuation. All sentences must be complete and well-structured.
Submission and Format: The completed paper is to be submitted to the “Gradebook” location designated for the assignment. 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)
I will upload more documents that can be of use to you.
Credit Analysis of Coca-Cola
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Credit Analysis of Coca-Cola Company
Introduction
During the evaluation of a borrower, the 5c's credit method takes into consideration both qualitative and quantitative factors. Lenders may consider comprehensive income statement, credit reports, credit ratings, and other documents relating to a borrower's financial situation when determining whether or not to grant the borrower a loan. They also consider the effects information pertaining to the loan itself.
Whether you are applying for business or personal credit, lenders will use the five Cs to determine whether or not you are a good risk. Character, capacity, capital, collateral, and conditions are all important considerations in the 5cs credit analysis.
Credit Capacity Analysis of Coca-Cola
Capacity analysis looks at the borrower's debt-to-income (DTI) ratio to see how well they can pay back a loan with their income. It is easy for lenders to figure out DTI by summing up all of a monthly loan repayments and dividing that by the borrower's gross monthly income. Organizations or people that have lower DTIs have greater prospects of being able to get a new loan. According to the Coca-Cola financial statements the following table represents the company’s DTI.
Period Ending:
2021
2020
2019
Revenue
38,655
33,014
37,266
Total Liabilities
71,355
67,997
67,400
Debt-to-Income
1.85
2.06
1.81
Table 1.1
The table demonstrates that the company’s DTI recorded 1.81 ratio in 2019, followed a decline to 2,06 in 2020 and slightly improved to 1.85 in 2021. Safier and Sweet (2021) suggest that DTI higher than 50% is worrying and caution should be taken in managing the debt. According to the Coca-Cola Form 10K (2021, 58), commercial paper borrowing $ 2,462 million will mature in 2022 while credit lines worth $ 845 million matures the same year as well. Other significant obligation that mature in the year 2022 include a purchase obligation worth $ 12,569 million and a marketing obligations worth $ 2,331 million. Cumulatively, according to the payment schedule the company hopes to settle a total of $ 22,209 million (Coca-Cola Form 10K, 2021, 58). Table 1.2, below gives a detailed breakdown of the company’s obligation in the coming future. Therefore, Coca-Cola’s debt capacity is limited because of the huge debt it already has.
Table 1.2: Coca-Cola’s arising obligations, (Form 10K, 2021, 58).
Capital Analysis of Coca-Cola
The borrower's capital represents his or her bet that the business will be profitable. This, they believe, proves that the borrower will be a valuable asset to the business. Borrowers are aware of the amount of money they will lose if the business fails, and they make plans accordingly (Sheppard, n.d.). Lenders want to see a significant amount of money from the borrower's own assets, as well as a personal financial guarantee, to show that the borrower is serious about repaying the loan. When a borrower has a large sum of good money, both the lender and the borrower's trust in each other grows.
Coca-Cola’s revenue was $38.655 billion in 2021 compared to $33.014 in 2020. Net profit as well improved from $7.747 billion to $9.771 billion in 2020 proving that the company has solid earnings. In addition, the gross profit margin decreased from 60.27 percent to 59.32 percent in 2021. In 2019 and 2020. This demonstrates Coca-success in creating wealth. Coca-Cola makes more money than the rest of the industry in general, and it makes more money than the majority of industry participants. Coca- Cola's is clearly highly profitable by significant margins.
Table 1.3: Coca-cola’s equity, (Form 10K, 2021, 41).
Table 1.3 suggest that the company’s equity improving having moved from $544,280, 000 in 2020 to $724,486,000 in 2021. This performance should create confidence that the company has sufficient capital and is likely to grow sustainably in the foreseeable future. Therefore, Coca-Cola’s capital position show confidence. Coca-Cola uses interest rate swaps to deal with fluctuations in the interest rate. An increase of one percent in interest rates by December 31, 2021, would have cost the business $125 million in interest costs. Variable rate debts and other types of debt that change with the market were in place as of December 31, 2021. Companies are exposed to interest rate risk because of their exposure to liquid debt instruments. The majority of the time, these investments are handled by external managers who adhere to the company's investment plan. According to company policy, they must be sound investments. Keeping your money safe is the primary objective. In addition, there is a limit on the amount of debt a single company can carry. Because of a 1% increase in interest rates, liquidity debt stocks may have lost $52 million in value.
Coca-Cola shares limited information in terms of assets used as collateral for debt. However, according to Form 10k (2021) the company must return $331 million in derivative cash collateral. In addition, Coca-Cola has no right to cash collateralized derivatives. As a result, the company must return $546 million in derivative cash collateral (Form 10k, 2022). Coca-Cola has provisions in place that require collateral for the majority of its transactions if a counterparty's credit rating is downgraded (Form 10k, 2021). In addition, the company has not used its fixed assets including property and equipment as collateral for debt. Except for cash mentioned above, no company’s assets including cars, bank savings deposit, and pension accounts has been charged. Minimum credit standards rise with duration to reduce pre-settlement risk. Additionally, master netting agreements enable a business to net settle transactions with the same counterparty, thereby reducing credit risk. Coca-Cola uses derivatives ...