The Coca-Cola Company’s Financial Analysis
Introduction
The Coca-Cola Company is a globally recognized beverage company that deals with the production, marketing, and selling of non-alcoholic drinks. Founded in 1886 by John Pemberton, the company has grown into a global brand with operations in over 200 countries (Nair, 2021). The company has a rich history, beginning as a small pharmacy in Atlanta, Georgia, where Pemberton developed a syrup mixed with carbonated water to create a refreshing beverage. Its product portfolio includes a variety of sparkling and still beverages such as Coca-Cola, Diet Coke, Sprite, Fanta, and Dasani (Nair, 2021). The business went public in 1919 and has since been listed on the New York Stock Exchange (NYSE). It has a strong reputation for financial stability and consistent growth, with a market capitalization of over $200 billion as of 2021 (The Coca-Cola Company, 2022). This essay provides a financial analysis of the Coca-Cola Company, examining its income statement, balance sheet, and ratio analysis, to understand the company’s performance over the last three years.
Analysis of Financial Statements (2020-2022)
The income and cash flow statement shows that Coca-Cola has been experiencing an exponential increase in its revenue. There has been an increase in sales from 33,029 in 2020 to 38,726 in 2021 and finally to 43,004 million USD in 2022 (The Coca-Cola Company, 2022). This trend reveals that the company has grown its revenue over the past few years. Several factors may have contributed to this growth. Firstly, the global economy was recovering from the effect of coronavirus pandemic, and many businesses were bouncing back (Khan, 2020). This provided a favorable environment for Coca-Cola to grow its revenue and profitability. Secondly, the rise of health and wellness trends led to consumer preferences shifting towards low and zero-calorie drinks (Khan, 2020). Coca-Cola responded to this trend by introducing new products such as Coca-Cola Zero Sugar, which likely contributed to the increase in revenue.
Furthermore, an analysis of Coca-Cola Company’s balance sheet reveals fluctuations in total assets over the past three years. In 2020, the company had total assets of 87,296 million USD. However, by 2021, the assets had increased to 94,354 million USD, indicating that the company had invested in new assets. 2022 saw the total assets decrease slightly to 92,763 million USD (The Coca-Cola Company, 2022). Despite this decrease, the company’s total assets in 2022 were still higher than in 2020, denoting that Coca-Cola has been buying new assets annually, contributing to its growth. However, it is important to evaluate the source of financing for the assets to ensure that the company is not relying solely on borrowing funds to finance its growth.
Finally, the fluctuations in Coca-Cola’s total liabilities can be attributed to the company’s various conditions during that period. In 2020, Coca-Cola, like many other companies, experienced significant challenges due to the coronavirus pandemic. The pandemic led to declining sales and revenue as governments implemented lockdowns and restrictions, reducing economic activity (Maital & Barzani, 2020). As a result, Coca-Cola may have had to take on additional liabilities to meet its financial obligations, such as paying its employees and suppliers, which could explain the increase in total liabilities from 2020 to 2021. In 2021, there was some recovery from the pandemic, with governments lifting some restrictions and gradually returning to normal economic activity. Thus, the company may have been able to reduce its total liabilities, as it generated more revenue and cash flow to meet its fiscal requirements. In 2022, the decrease in total liabilities could be attributed to the company’s successful cost management strategies and effective debt management practices, such as repaying some of its debts.
Ratio Analysis
Current Ratio
The current ratio is a financial metric used to evaluate a company’s ability to satisfy its immediate financial obligations with its existing assets. Typically, a ratio of 1 or greater is deemed satisfactory, indicating that a business possesses adequate current assets to fulfill its short-term fiscal requirements.
Table 1: Current Ratio
Table 1 illustrates the trend of Coca-Cola’s current ratio from 2020 to 2022. It can be observed that the ratio slightly declined from 1.32 in 2020 to 1.13 in 2021. It however rebounded rose again to 1.15 in 2022 (The Coca-Cola Company, 2022). The increase signifies Coca-Cola’s ability to cover its short-term liabilities with current assets. On the other hand, a decrease suggests that Coca-Cola is having difficulty generating enough current assets to cover its current debts. However, it is significant to note that a current ratio of 1.15 is still acceptable, suggesting that Coca-Cola has sufficient liquidity to meet its current obligations (Hasanaj & Kuqi, 2019). The company has maintained adequate liquidity over the past three years, despite a slight decrease in 2021.
Quick Ratio
The quick ratio is a type of liquidity ratio that helps to determine an organization’s capacity to pay its current debts using most of its liquid assets, such as cash and marketable securities while disregarding inventory. Table 2 shows changes in Coca-Cola’s quick ratio from 2020 to 2022. In 2020, the quick ratio was 1.09, which means that Coca-Cola had $1.09 of liquid assets to cover every $1 of current liabilities. However, in 2021 and 2022, the ratio decreased from 0.96 to 0.93, respectively (The Coca-Cola Company, 2022). The decrease implies that Coca-Cola’s ability to meet its short-term debts with its liquid assets has reduced over the years, which could be a concern for investors and creditors.
Table 2: Quick Ratio
Return on Equity (ROE)
ROE is a financial ratio that measures a company’s profitability by calculating the amount of net income earned for each dollar of shareholder equity. Coca-Cola’s ROE has been consistently high over the past three years, with a 2022 value of 39.59%, 42.48% in 2021, and 40.14% in 2020, as shown in Table 3 (The Coca-Cola Company, 2022). This means that Coca-Cola effectively utilizes shareholders’ money to generate profits. Generally, the high ROE ratios suggest that Coca-Cola is generating strong profits relative to the amount of money shareholders have invested.
Table 3: Return on Equity
Net Profit Margin
The net profit margin ratio of Coca-Cola has shown a relatively stable trend over the years, as illustrated in figure 4. The net profit margin ratio for 2020 was 23.46%, which increased to 25.23% in 2021 and then decreased slightly to 22.19% in 2022 (The Coca-Cola Company, 2022). The ratio represents the proportion of an organization’s total sales revenue that remains as net income after subtracting all of its expenses and costs. It shows how much profit a company is making per dollar of sales revenue.
Table 4: Net Profit Margin
The higher the net profit margin, the more efficient the company manages its costs and the more profitable it is for its shareholders. A net profit margin of around 23-25% is relatively high, suggesting that Coca-Cola has strong pricing power and efficient cost management (Hasanaj & Kuqi, 2019). Additionally, it shows that the company has successfully managed its operations in a challenging business environment, generating strong profits.
Debt to Equity Ratio
The ratio evaluates an organization’s fiscal power by comparing debt to equity. A high debt-to-equity ratio indicates that a company uses more debt financing than equity financing, which may increase financial risk (Hasanaj & Kuqi, 2019). In the case of Coca-Cola, the debt-to-equity ratio, as shown in table 5, decreased from 2.15 in 2020 to 1.51 in 2022, indicating a decrease in financial risk (The Coca-Cola Company, 2022). This decrease can be attributed to the company’s efforts to pay off long-term debt and increase shareholder equity. However, the ratio is still relatively high compared to industry averages, indicating that Coca-Cola still relies heavily on debt financing.
Table 5: Debt to Equity Ratio
Conclusion
In conclusion, Coca-Cola is a global brand with a rich history and extensive product portfolio, having adapted to changing consumer preferences and maintaining financial stability over the years. An analysis of its financial statements over the last three years indicates that the company has experienced exponential revenue growth, acquired new assets, and effectively managed its liabilities. However, while there were fluctuations in the total assets and liabilities due to the pandemic, its financial health appears stable. Overall, Coca-Cola’s financial performance indicates its ability to adapt to changing market trends, innovate, and remain competitive in the global beverage industry.
References
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Maital, S., & Barzani, E. (2020). The global economic impact of COVID-19: A summary of research. Samuel Neaman Institute for National Policy Research, 2020, 1-12. The Global Economic Impact of COVID-19 (neaman.org.il)
Nair, R. K., Reddy, L. S., Verma, P., Pandey, R., Yuwono, S., Sin, L. G., Qi, W. Y., Kee, D. M. H., Gee, O. X., Ing, T. W. S., & Yu, T. P. (2021). The impact of COVID-19 towards international business strategy: A study of Coca-Cola Company. International Journal of Accounting & Finance in Asia Pasific (IJAFAP), 4(2), 73-92. Web.
The Coca-Cola Company (2022). Web.