Balance Sheet Analysis Of The Coca Cola Company Finance Essay

Introduction: Coca-Cola

The Coca-Cola Company is one of the world’s largest and most diversified nonalcoholic beverage companies. It owns or licenses and became market leader with more than 500 beverage brands, prominently sparkling beverages. It also have a variety of still beverages like waters, juices, enhanced waters, juice drinks, ready-to-drink coffees and teas. Moreover, it has sports and energy drinks too. Along with Coca-Cola their identity drink, Coca-Cola owns four of the top five most famous nonalcoholic brands including diet Coke, Fanta and Sprite. Coca-Cola is one of the most valuable brand names in the world. Finished beverage products of Coca-Cola brand have their origin from United States since 1986.

Coca cola has the world’s largest distribution system for beverages. They operate though company owned or controlled bottling operations. Approximately 55 billion beverage servings are sold worldwide each day, Out of which approximately 1.7 billion belong to coca cola

 Coca cola attributes their success to its ability to connect with consumer’s desires, needs and lifestyles. That is the reason why the firm provides its consumers with a plethora of options to choose from. The company uses its assets – its brands, unrivaled distribution system, financial strength, talent and strong management commitment-to create value for its stakeholders and associates.

Financial Statements

Balance Sheet

Asset

Current Assets

Current assets usually include cash and some other type of assets that usually get converted into cash with normal course of time within an operating cycle. Operating cycle is important terms in current assets as it refers to a period between acquisition of raw material and cash realization cycle time of finished goods sale. Operating cycle usually posses cash cycle and inventory cycle which also shows the amount of current asset and current liability which affirm usually have. More the cash conversion cycle, more will be inventory therefore current asset and less of real revenue. Seeing this can say that there is 20% rise in current assets. It rose from $2354mn to $2650mn.

Cash

Cash is just money available for any contingency. Company kept it just as a buffer to meet their short term liquid fund need. It is usually listed a first item in balance sheet as it is highly liquid and normal accounting rule suggest listing as per descending order of liquidity.Cash and cash Equivalent has increased as compared to last year from $7021 mn to $8517 mn in 2011. Short term equivalents has also increased from $2130 to $2682 mn

Marketable Securities

These investments are kind of temporary investments usually made from extra cash company have. These are highly liquid can be cashed anytime that is why they can are usually considered cash equivalent and also comes in category of Current asset only. Sometime it is done due to government obligations only. Here seeing the Coca-Cola Marketable securities we can say that it gets doubled in 2011 than 2010.Figures changed from $62mn to $138mn.Usually Marketable securities and other assets constitute a tradable securities. This tradable security has taken a huge jump from last year to this year. It has changed from $61 to $209. This more than 200% change has shown that company has fairly utilized it extra cash to get some interest and monetary benefit.

Accounts Receivable

Simply, accounts receivables are the sum owed to a firm and are written on balance sheet by use of promissory notes. Account receivable is bills owed to you by your customers. They magnitude depends upon the collection ways company have and credit period company has. This is the actual amount yet to be collected from customers. From the given figure below in the table we can say that account receivable has been increased from $3700 to $4400 in last one year. This means that company has either increased the collection cycle or it’s started giving more good on credit to fight against competitors.

Inventories

Inventory are the good company has unsold or unmade into final product. Inventory is of different types like raw material, semi-finished goods and finished goods. Usually inventory is not good as this is the product which is their left unsold and their cost incurred in raw material and processing are the cost you losing as opportunity cost. From the below figures we can say that Company’s raw material inventory more or less remains the same but company’s finished goods inventory has increased from $1029 to $ 697.This means that company has either made extra goods than it can sell or Coca-Cola was not able to sell as per the last year’s estimates.

Prepaid expenses

There are expenses like payments need to be given for service we have availed or the payments we have to give for the supply of materials. These payments are sometime made in achieve supplier loyalty or goodwill. Company’s prepaid expenses shows an increment from $2226 to $3162 which means that company Coca-Cola has prepaid to its supplier or insurance premium more than last year. This strategy companies usually follow to get their supplier be loyal and should supply on time. This strategy also comes into play in case company wants to remove extra hassle of paying insurance premium again and again

Investments

Investments are kind of cash funds or securities which Company holds for a particular purpose for a usually indefinite period of time. Term “Investments” usually include

stocks

Bonds corporate hold another company,

Real estate

Mortgages that corporate hold for income-producing aims.

Money that corporate may keep holding for pension fund.

Investments can be either amortized cost or have fair value. Investments usually in debt securities for which Company has positive intent and has ability to hold till maturity are usually carried at kind of amortized cost and generally classified as held-to-maturity .Those not coming in this category are generally carried at fair value and can be classified as either available-for-sale or trading. Trading securities are reported as either marketable securities or other assets in our consolidated balance sheets. Coca-cola Investment patterns shows that they have major portion of their investment mainly in Equity method Investment. Their investment in equity is around 10% of the total asset and 90% of the total investment

Property, Plant and Equipment

Property, Equipments and plants are the real fixed asset and always come under this category. Plant asset include buildings, land, equipment and machinery which are generally used in business operations. These things usually stay for a longer period that is why they are called fixed asset and their requirement usually doesn’t change with the number of unit manufactured. On December 31, 2010, date of balance sheet reference, the carrying value of Coca-Cola equipment, plant and property has net of depreciation that was approximately $14727 million which was around 20 percent of Coca-Cola total asset. Usually, this dip is caused by depreciation, impairment loss and revaluation of assets. May be even in Coca-Cola is he same reason.

Intangible Assets: Goodwill, Trademarks and Others

Intangible assets are usually classified into three categories:

Intangible assets having definite lives subjected to amortization,

Intangible assets having indefinite lives that are not subject to amortization,

Goodwill.

Usually, for intangible assets having definite lives, Impairment test must be performed to check out whether accounted value is correct or not as many of these highly valuable intangible assets lose their value with time due to obsolescence. The following table carries values of intangible assets that got included balance sheet (in millions):

Coca-Cola’s Intangible asset shows in table that their goodwill is the major thing which they can boast of. Goodwill constitutes 16% of all the intangible assets which is logical only seeing the greatly history of Coca-Cola since 18th Century. Bottle’s franchise rights come close second with 10% of all intangible assets. By the way most of these intangible things are not recoverable until and unless somebody buys it.

Other Assets

At the time of preparation of balance sheet, there are conditions that the asset cannot be classified into any of the category such as investments, current assets, intangible assets or plant assets. These types of assets are therefore listed on balance sheet under section other assets. Seeing Coca-Cola Balance sheet and Notes thereafter we can say that these unclassified ‘other assets’ also increased in last one year by around 10%.It got changed from $1976mn to $2121mn in 2011.

Liabilities

Liabilities are the sum which company is obliged to pay. For Coca-Cola, the liabilities are like given below:

Contingent Liabilities

Three examples of contingent liabilities include

Warranty of company’s products

The Guarantee of other party’s loan

The lawsuits that is filed against a company

Basically, Contingent liabilities are considered potential liabilities. Since they are dependent upon future event’s occurrence or nonoccurrence, they can or cannot get converted into actual liabilities.

Coca-Cola has, as can been through its Contingency liability Note snapshot, has contingency liability due to Guarantee to its third party customers. Coca-Cola has made some guarantee withn bottlers and vendors regarding buying and selling assurances which can become liability in case company is not able to fulfill his terms already agreed. The amount is approximately $683 mn.

Other contingent liability which Coca-Cola has is in term of legal liability. It is a legal obligation as per a company “Aqua-Chem” which is asking Coca-Cola to pay $10mn out of pocket. This problem get created as “Aqua-Chem” was earlier owned by Coca-Cola and its now owned by someone else and who is blaming Coca-Cola for some defective gasket-asbestos.

Current Liabilities

If the company has payable loans then the principal to be paid in next one year is considered as current liability and all the other things will be considered as long term liability in balance sheet. Over and above this, whatever interest is charged as part of loan will be considered in income statement only not in balance sheet. Only the due interest will be considered as liability in balance sheet. Current Liability of Coca-Cola has increased recently from $13721mn to $18508 mn. The main difference has come only because of the maturity of some long term debt company has taken earlier.

Long Term Liabilities

Owner’s Equity

In finance or accounting, equity is considered as the residual claim or can be said to be the interest of most simple class of investors that have invested money in assets. This is money which is paid to these investors after all the liabilities are paid. If assets are more than liabilities, than it is the case of negative Equity.

The owner’s equity is always subdivided in the balance sheet under the liability column. One of the parts represents the money invested by investors as paid-in capital and any part of retained earning converted into paid-in capital of the company. The other part shows net-earning money usually retained of the company. Usually, stockholders, or owners, don’t become personally responsible for the debts that a company contracts. A stockholder can lose his investment most of the time, but creditors cannot look to their personal assets for the satisfaction of their usual claims. Normally, the stockholders can withdraw with cash dividends as an amount measured as corporate earnings. But creditors don’t.

Stockholders’ Equity

Misc Stocks Options Warrants

–  

–  

Redeemable Preferred Stock

–  

–  

Preferred Stock

–  

–  

Common Stock

880,000  

880,000  

Retained Earnings

49,278,000  

41,537,000  

Treasury Stock

-27,762,000

-25,398,000

Capital Surplus

10,057,000  

8,537,000  

Other Stockholder Equity

-1,450,000

-757,000

Total Stockholder Equity

31,003,000  

24,799,000  

Relevant Notes

Usually, all the information which is relevant for the investors cannot be included in the financial statement. There is some information in the financial statement which is shown just under a category without any explanation. But as part of Annual report everything should be clear and transparent therefore notes are included. Notes are actually included in order to reveal something of importance in addition to what is already there in the financial statements. Notes can be of importance to the investors who are willing to know more about the company or those who faces problem in understanding the main financial statements. The note reference is mainly to allow clarity in the annual report about the financial statements. Below given statement shows the use of notes in the balance sheet. Here the definition and calculation part of BASIC NET INCOME PER SHARE will be there explained in the notes told to be referred.

Significance of structure of Balance Sheet

Structure of balance sheet is also important part of the balance sheet. Basic accounting convention shows to present the balance sheet in two major ways. One way to present the balance sheet is to present it is Horizontal presentation (account form). Other form of presentation will be to present it in Vertical presentation (Report form). Though there are two forms, Vertical report form is mostly used and is famous. Disadvantage with the vertical form is that it doesn’t confirm typical explanation among investment literature about the balance sheet should have “two sides” that shows balancing out of two sides. We can see here Coca-Cola has followed vertical form of balance sheet only usually followed by corporate.

One more thing is which section should be considered first and which at later point of time. Usually, in asset sections, the accounts are taken in the descending order as per their liquidity Means most liquid asset will be taken first then the next level of liquid asset. In the same way liabilities are written in the order of priority for payment. Usually, in financial reporting, the term short-term and long-term is synonymous or interchangeable with the terms current and non-current items respectively. That is why the asset part of balance sheet of Coca-Cola has followed decreasing form of liquidity. Cash being most liquid followed by marketable securities this is followed by Investments and Intangible assets like goodwill coming at last. These intangible assets come at last because they are the most illiquid fund which cannot be cashed until and unless firm is sold or acquired.

Trend Analysis of Coca-Cola of five year duration

If we check out the performance of Coca-Cola over five years, we can say that on most of the parameters of Coca-cola is showing consistently downward trend. Current Asset has decreased from $2230 mn to $3800 mn in last five years. Total Equity has been fluctuating in this period of five years from a low of $ -35 mn to high of $ 4500 mn in 2006.Total Asset has been decreasing $23366mn of 2006 to $8596mn in 2010. Good thing is that total liability has also decreased for $ 18000 mn to $5 453 mn. Total Debt has been reduced to its one-fifth in these five years.

Conclusion

Coca-Cola is doing well in 2010. The company is totally out of slowdown that was there since recession. It has its hard-earned goodwill in the market which the company is cashing through higher purchase making higher profit. Its market Capitalization has reached $153Bn recently and its enterprise value has reached $168Bn in May 2011. The company has became the epitome of globalization with so much of expansion and diversification that ‘Coke’ is the second most recognized word after ‘Ok’.