Accounting, Ratio, and Credit Analysis of Coca-Cola

Coca-Cola Financial Analysis
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Executive Summary
Coca-Cola prepares financial statements in accordance with Generally Accepted Accounting Principles (GAAPs), which results in three financial statements: cash flow statement, income statement, and statement of financial position. Companies must make assumptions and estimates for revenues, expenses, assets, and liabilities, as well as disclose contingent liabilities and assets in the financial statements with accompanying notes, according to GAAPS. Coca-Cola uses accounting flexibility by recognizing marketing expenses after they have occurred rather than when they are incurred. Furthermore, the company consolidated reports that included entities in which it did not own a controlling interest.
Given that the auditors and the company agree on the valuation of trademark and goodwill impairment, Coca-accounting Cola's policies and estimates have been realistic. To achieve an optimal mix of long-term and short-term debt, the company structures primarily long-term debt by extinguishing certain tranches after the issuance of long-term notes. There are no red flags in the income statements or balance sheet because the amounts, earnings, and expenses vary within reasonable ranges from year to year. In the past three years, the company has not received a qualified opinion from its auditors, Ernst & Young, indicating that there are no material misstatements in their financial reports.
There is no evidence that long-term obligation costs are consistently underestimated or overestimated. Coca-Cola also calculates the cost of goods sold by factoring in the actual cost of shipping and handling.
There is, however, no acceptance of the International Financial Reporting Standards (IFRS). Coca-Cola may have difficulty meeting reporting requirements in countries that have adopted the Framework. Through the financial statement notes, the company has been able to make complete disclosures.
When comparing Coca-overall Cola's profitability to that of the industry, it becomes clear that the company is highly profitable by significant margins. The pre-tax profit margin of Coca-Cola increased from 29.52 percent in 2020 to 32.14 percent in 2021. When compared to the industry average of 6.68 percent, Coca-pre-tax Cola's profit margin is impressive. Coca-strong Cola's performance cements its position as a beverage industry leader, and the company must maintain its positive image in order to increase sales.
Coca-debt-to-equity Cola's ratio has steadily increased over the last three years, from 2.25, 2.217, and 3.1 in 2019, 2020, and 2021, respectively. Coca-performance Cola's falls short of the 0.78 industry average. If debt is not managed properly, the company will go bankrupt. Coca-flaw Cola's is that it has amassed so much debt in comparison to its competitors. While the industry average long-term debt-to-equity ratio was below 145 percent, Coca-long-term Cola's debt-to-equity ratio was above 165 percent.
Coca-asset Cola's turnover ratio has remained consistent at 0.4, indicating that for every dollar invested in assets, the company generated $0.4 in sales. Coca-results Cola's are slightly lower than the market average. As a result, the company needs to create more synergies with its subsidiaries in order to improve asset turn over ratios and activity ratios in general. Coca-Cola, on the other hand, has a higher receivable turnover than the industry average, with a turnover ratio of 11.62 compared to the industry average of 9.86.
Coca-Cola is clearly the market leader, with the largest market share and emerging brands such as Coke Zero, Limca, and Maaza fueling growth. However, Coca-Cola has not made an entry into the snack business like its competitors Pepsi. Furthermore, the company is widely regarded as the leading promoter of unhealthy food. The company can improve its image by offering more zero-calorie beverages to its customers.
Lenders will use the five Cs to determine whether you are a good risk, whether you are applying for business or personal credit. The five Cs are character, capacity, capital, collateral, and conditions. Because of its massive debt, Coca-debt Cola's capacity is limited. Coca-Cola should try to reduce its debt burden by converting debt to equity.
Coca-Cola tries to capitalize on its goodwill by introducing new products that do well. By aligning itself to modern realities, management's foresight has helped the company maintain its market leadership position. The company's strong values and contribution to reducing carbon footprints give it a distinct personality.
Coca-Cola follows stringent counterparty credit guidelines and only transacts with investment-grade financial institutions. We also have provisions in place that require collateral for the majority of our transactions if a counterparty's credit rating is downgraded. Coca-long-term Cola's debt was rated "A+" by S&P and "A1" by Moody's as of the end of December 2021. The company's commercial paper program received a "A-1" rating from Standard & Poor's and a "P-1" rating from Moody's.
The debt-to-income ratio revealed that the company's debt is nearly two times its revenue. The ability of a company to secure and repay loans and debts, on the other hand, is a good indicator of its long-term viability. Coca-performance Cola's has been explained in many ways using the income statement, cash flow statement, and balance sheet, along with adequate notes.
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.
Character Analysis
Coca- cola's culture is built around the concept of creating shared value. Our world is becoming increasingly intertwined and transparent. As a result, people expect the company's management to be leaders. Coca-Cola announced in February 2021 that it would begin to sell its sodas in bottles made entirely of reused plastic material in the U.s, and that by 2030, the company expected to reuse one bottle or can for everyone it sold as part of a plan to fight plastic pollution (Reuters, 2021). Coca-Cola began selling 2000 paper bottles to see how well they would hold up in the face of potential safety concerns and the possibility of changing the taste of the beverage.
Furthermore, the company's leadership acknowledges that the Coca-Cola Trademark is beloved by the public, and the company is capitalizing on the trademark now more than ever before. Coca-Cola Zero Sugar sales have continued to grow by double digits around the world. For the first time in 12 years, Coca-Cola Orange Vanilla was introduced by the company as a new Trademark Coca-Cola flavor. Coca-Cola with Coffee has been expanded by the company's management to more than 35 additional markets. The above success shows that Coca-Cola’s team is capable of sustaining the success of the company in the foreseeable future. It also shows that the team has a long-term goal for the company and in-line with the current world realities.
Collateral Analysis
Collateral is a form of security that the borrower provides to the lender in the event that the loan is not repaid from the agreed-upon returns when the loan was taken out. They're also known as "guarantees," which are documents that state that if you don't pay back your money, someone else will (Vaidya, n.d.). It's critical to have enough collateral or guarantees to cover some or all of the loan amount.
Coca-Cola adheres to strict counterparty credit guidelines and only conducts business with investment-grade financial institutions. The company monitors counterparty exposures on a regular basis and responds to any credit rating downgrade. Coca-Cola has provisions in place that require collateral for the majority of our transactions if a counterparty's credit rating is downgraded (Form 10k, 2021). 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 with a wide range of financial institutions to spread credit risk. The risk of counterparty default is low given these factors. A legal master netting agreement and cash collateral held or placed with the same counterparties affect derivative carrying values. The company must return $331 million in derivative cash collateral (Form 10k, 2021). We have no right to cash collateralized derivatives. The company must return $546 million in derivative cash collateral (Form 10k, 2022). We have no right to cash collateralized derivatives.
Conditional Analysis
Coca-Cola agreed to a five-year, $500 million unsecured revolving credit facility on July 9, 2021, according to its Form 10k report (2021). In addition to the base rate or adjusted LIBOR, the company's long-term senior unsecured, non-credit-enhanced debt rating at the time the loan agreement is signed is also subject to interest. The debt's credit score determines the Debt Rating. If the Company and its lenders do not agree on an alternative rate based on the current market convention, the Secured Overnight Funding Rate will be used for borrowings under the 2021 Revolving Credit Facility after June 30, 2023. A facility fee is a percentage of the total amount borrowed from lenders under the 2021 Revolving Credit Facility. Based on the company's debt rating, this fee ranges from 0.060 to 0.175%. All banks involved in the 2021 Revolving Credit Facility are believed to be capable of meeting future funding requests by the company. RCF: The 2018 Revolving Credit Facility had a June 8, 2023 maturity date.
As of the end of December 2021, S&P had rated Coca-Cola's long-term debt as "A+" and Moody's had rated it as "A1." Standard & Poor's gave the company’s commercial paper program a "A-1" rating, and Moody's gave it a "P-1" rating. Both rating agencies take into account our capital structure (including the amount of debt and maturity dates), financial policies, and consolidated balance sheet and other financial information when determining our creditworthiness. In addition, Coca-Cola has access to key financial markets around the world, which allows it to borrow funds at competitive interest rates. Coca-Cola’s short- and long-term debt, as well as the company’s fixed- and variable-rate debt, are all actively managed, resulting in lower overall borrowing costs for the company.
Strength and Weakness Analysis
Strengths
The accounting method applied by Coca-Cola are consistent with the International Financial Reporting Standards (IFRs) and Generally Accepted Accounting principles (GAAPs) requirements. Additionally, the credit information provided in notes and other sections of the financial statements and discussion is excellent. The short-term investments, accounting rules or estimates tend to raise the no red flags. However, the company’s debt capacity is shrinking and if the debt is not managed well, the company might become insolvent. The company's ability to secure and repay loans and debts is a good indicator of its long-term viability. Coca-Cola also uses financial derivatives to guard against currency exchange rate fluctuations and other market risks, such as fluctuations in the price of oil.
Weaknesses
The company’s debt has risen to extreme levels and require caution in managing it. The debt-income ratio revealed a debt close to two times the income the company generates. In addition, when comparing Coca-Cola to other companies, management there used a lot of accounting flexibility. As a result, the time and difficulty in getting money can be a long and arduous process.
Summary
In many areas, there are some exceptions to Coca-Cola's performance, but they are well-explained in the notes and other discussions that accompany the financial statements. The few flaws could be quickly explained thanks to management's willingness to share financial information. Notable is the decline in earnings in 2020 attributed to the C0VID-19 pandemic.
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 p...