Financial Ratio Analysis of Coca-Cola
Ratio 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 #2 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 the company -Coca-Cola for all four class assignments.
Assuming the role of an entering corporate officer, complete a financial ratio analysis for the company assigned for you by your instructor. The Ratio Analysis Project based on the Week 3 and Week 4 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 Ratio Analysis – The student should develop and present the ratio analysis for the company. It must include data for at least the most recent 3 years. Additional years should be included if available. The ratio data must include appropriate Solvency, Profitability, Activity, Capitalization, and Market Ratios.
It is necessary to prepare and incorporate a table(s) (tables are always numbered, titled, and show the source of the information) of the relevant criteria being examined in the ratio analysis and their present status. There must be comparisons to competitors or industry standards. 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 ratio 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 financial ratio 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.
Submission and Format:
The completed paper is to be submitted to the “Assignment” folder 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)
Ratio Analysis -Coca-Cola
Author
Affiliation
Course
Instructor
Due Date
Ratio analysis -Coca-Cola
Introduction
Coca-Cola is an American company specializing in the sale of non-alcoholic beverages across the globe. Coca-Cola was founded in 1886 by a pharmacist and incorporated in Delaware. The company has its headquarters in Atlanta, Georgia. The major brands associated with the company are Fanta, Coke, and Sprite. John Stith Pemberton was the original founder. Today, the company is headed by the current Chief Executive Officer (CEO), James Quincey, who acts as the Chairman of the Board. The company is traded on the New York Stock exchange with the Ticker (KO). Coca-Cola is part of the S&P 100 and the S&P 500. The company’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. Our study will explore the company’s financial results between 2021 to 2019. This study shall cover data analysis of the financial statement using financial ratios. The critical ratios in focus include; profitability, liquidity, solvency, and market and capitalization ratios.
Financial Analysis
Profitability Ratios
Profitability Ratios
profitability Ratios
Gross margin
60.27%
59.32%
60.70%
53.47
Operating margin
28.24%
27.25%
27.00%
8.52
Pretax margin
32.14%
29.52%
28.94%
6.68
Net Profit margin
25.36%
23.46%
23.03%
1.95
Return on Equity
46.20%
36.49%
42.52%
31.27
Return on Assets
10.79%
8.89%
10.40%
7.89
Table 1: Coca-Cola’s profitability ratios since 2019
According to Black (2021), profitability ratios measure a company’s ability to generate profits based on the revenue earned, balance sheet assets, and common stock holder’s equity. Coca-Cola’s gross profit margin has marginally changed over the past three years. The gross profit margin in 2021 slightly improved from 60.27 percent to 59.32 percent. In general, the company has an average of 60 percent compared to the industry average of 53.47 percent. The operating profit margin grew from 27 percent in 2019 and 2020 to 28.24 percent in 2021. The operating profit margin is way above the market average performance of 8.52 percent. The pretax profit has had consecutive growth since 2019. The pretax profit improved from 29.52 percent in 2020 to 32.14 percent in 2021. Coca-Cola’s pretax profit margin indicates a strong performance compared to the industry average of 6.68 percent. Net profit also grew from a stagnation of 23 percent between 2019 and 2020 to 25.36 percent in 2021. Again, Coca-Cola performed above the industry average of 1.95 percent. An assessment of the overall profitability of Coca-Cola against the industry’s performance shows that the company is highly profitable by significant margins. This performance shows that the company has a strong presence in the non-alcoholic beverage market and that its goods are still sold despite huge margins (Zvonek, 2022). Therefore, Coca-Cola’s strength over competitors lies in its efficiency to generate profits due to a strong brand.
Additionally, the return on equity describes a company’s ability to generate profits relative to shareholder’s equity. Coca-Cola’s return on assets was 46.2 percent in 2021, suggesting that for every dollar of equity, the company generated sales with a net profit of $0.46. Its performance in 2021 was a significant improvement from 2020, following a 36 percent decline. However, Coca-Cola’s performance is above the industry average of 31.27 percent. The return on equity as well improved from 9 percent in 2020 to 11 percent in 2021. The performance was above the industry average of 7.89 percent, proving that Coca-Cola is more profitable than its competitors
Solvency ratios
Solvency ratios are used to measure the ability of a company to meet its long-term obligations. Over the past three years, Coca-Cola’s debt-to-equity ratio has steadily grown from 2.25, 2.217, and 3.1 in 2019, 2020, and 2021 respectively. Coca-Cola’s performance is below the industry average of 0.78. As a result, the high debt-to-equity ratio can drive the company into insolvency if not closely monitored. The debt-to-asset as well has remained steady at 0.5 against an industry average of 0.23. The cash ratio demonstrates a company’s ability to pay down all present liabilities without disposing of additional assets. In general, a greater cash ratio indicates that the corporation can better cover its short-term debt. On the other hand, a high cash ratio could imply ineffective administration. Coca-Cola’s cash ratio shows that in 2019 the ratio was 0.41, then it rose to 0.75 in 2020 and declined again in 2021 to 0.63. The company’s performance is slightly below the industry average of 0.54. Therefore, Coca-Cola’s weakness is its inability to convey confidence in meeting long-term obligations compared to competitors.
Solvency ratios
2021
2020
2019
Industry Average
Debt-to-equity
3.1
2.217
2.253
0.78
Debt-to-asset
0.45
0.49
0.5
0.23
Cash ratio
0.63
0.75
0.41
0.54
Table 2: Coca-Cola’s solvency ratios from 2019 to 2021
Liquidity ratios
Liquidity ratios
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