Financial Analysis of Coca-Cola: Financial Successes and Failures

FINANCIAL ANALYSIS of COCA-COLA
In the early years of Coca-Cola, the company was bought for $25 million by a group of
businessmen led by Ernest Woodruff. In 1919, the company made its initial public offering
(IPO) on the New York Stock Exchange (NYSE) for $40 per share. According to the 2019
annual report, the Coca-Cola shares (KO) have risen so that the company’s market
capitalization is $206.5 billion and has had its 58th consecutive annual dividend increase
in February 2020.
Financial Successes and Failures

Coca-Cola has continued to diversify and expand into emerging markets. The company
has proven it can respond to grow and maintain market share as consumer tastes shift.
On one hand, one of the company’s financial successes is its first venture outside of soft
beverages, the Minute Maid Corporation acquisition through a stock swap in 1960.
Moreover, the following year Coca-Cola introduced Sprite, another profitable product
estimated at $5 Billion and ranked the third most popular drink around the world.
In 1982, another major success was the brand’s own use of Coca-Cola trademark by
introducing a low calorie alternative - Diet Coke. In less than a year of being introduced to
the market, Diet Coke had become America’s top sugar-free option, raising the company’s
retail sales by 7%. To this day, Diet Coke is still one of the most successful brands
worldwide, present in 185 markets.
On the other hand, one of the company’s biggest failures was determined by Coca-Cola’s
action to outrival the new competitors in the market. In the early 1980’s, Pepsi-Cola started
to gain market-share. On April 23 1985, Coca-Cola replaced its original formula to a new
one and the original Coke was discounted. Such a drastic change had a huge impact in
the market, hence the shared dropping 3%. The New Coke was not welcomed by loyal
consumers, who decided on boycotting the company. 77 days later, Coca-Cola has
publicly admitted its mistake and shifted back to the classic formula and regained market
share. In 1987, Coca-Cola returned this time to Dow Jones stock market.
Financial Statements
Financial analysis is the process of evaluating businesses to determine their performance

and suitability. Coca-Cola is a publicly traded company, hence why all the company’s
financial statements, such as the balance sheet, income statement, equity statement, and
cash flow statement, are listed on their website and available to the large public for
interpretation.
Industry Analysis
Over the past five years, Coca-Cola has achieved a 25% net profit margin compared to
17.67% of their competitors. Moreover, the return on equity is 44% for Coca-Cola, in
comparison to 31.77% of the competition, making the company very attractive for investors
because its better return on investment compared to other companies in the industry.
For a company that has been in the market for over a century the market is very saturated,
but what makes Coca-Cola stock lucrative for investors is that their dividend yield is higher
than their competitors (3.41% vs 2.87%). Coca-Cola's strong brand presence around the
world makes it trustworthy for investors.
Financial Ratios
Financial ratios can help with the interpretation of financial statements in order to take
action and improve them, as well as helping investors compare the financial performance
of various companies to aid in their decision making process before investing.
Activity Ratios, also known as the operation ratios, are looking at how quickly several
accounts are converted into cash or sales. One of the most important accounts is the
Inventory Turnover, which refers to the period used to produce, keep, and sell inventories.
Over the last four years, there was a decrease in inventory turnover ratio, illustrating that
Coca-Cola products stayed longer in the warehouses and were sold slower than it used to.
In 2016 the inventory turnover was 6.6 times, compared to 4.4 times in 2019. This is not a
reason of concern as Coca-Cola products have a long shelf life.
Profitability ratios are looking at how a company generates profit. One example of
profitability ratios is the Profit Margin Ratio which highlights the profit generated for each
dollar in sales. This ratio is important because if a company has a high profit margin then
the business can make less revenue and still manage to pay off the expenses. In 2016,
Coca-Cola’s profit margin was deeply affected by the ministry of health classification of
carbonated drinks as unhealthy, which has caused a large demand fall for carbonated
beverages in North America. In 2016 Coca-Cola had a profit margin of 16%, decreasing to
only 4% in 2017. Nevertheless, the company regained its popularity and two years later,
the profit margin increased 24% in 2019.
Liquidity refers to the ease with which an asset can be converted into ready cash, without
affecting its market price, to replace business short-term and long-term debt. There are
types of liquidity ratios: Current Ratio, Quick Ratio, and Cash Ratio. Current Ratio
measures the business’ ability to pay off short term debt, where a ratio of 1 shows the
capability of covering the liabilities due. In 2016, Coca-Cola recorded a great current ratio
of 1.28 and maintained a ratio over 1 for the next two years. However, in 2019 the current
ratio dropped to 0.76 meaning that the company is facing liquidity issues. Moreover, Quick
Ratios concentrates on turning current assets into cash to cover debt. In 2016 and 2017
the company had a good ratio over 1, but decreased to 0.95 in 2018 and 0.63 in 2019,
caused by a decrease in current assets. To continue, Cash Ratios focuses on paying debt
using liquid assets. Here a ratio under 1 is beneficial as is better to have the cash
invested. Coca-Cola cash ratios have decreased over the past 4 years, from 0.84 to 0.41.
This might indicate that Coca-Cola is not managing their working capital effectively.
Resources:
1. https://www.ig.com/uk/shares/markets-shares/coca-cola-co-KO-
US/history-of-coca-cola
2. https://www.macrotrends.net/stocks/charts/KO/coca-cola/financial-ratios
3. https://www.researchgate.net/publication/342703132_Financial_Analysi
s_of_Coca_Cola_Company
4. https://investors.coca-colacompany.com/financial-information

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FINANCIAL ANALYSIS of COCA-COLA

Financial Successes and Failures

Financial analysis is the process of evaluating businesses to determine their performance

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