Assignment 5: Capstone Project: The Coca-Cola Company
Assignment 5: Capstone Project (the Coca-Cola Company)
Kelvin Colbert
Professor Earnest Daniel
Graduate Accounting Capstone
December 14, 2012
Create an executive summary of the company that discusses the company, industry, products and services, and competitive advantages in the marketplace
The Coca-Cola Company, whose headquarter is located in Atlanta, Georgia, is the world’s largest beverage company and has been ranked number one for the past thirteen consecutive years, according to InterBrand’s Best Global Brand Report (Elliott, 2012). This is a huge honor given the fact where the company first started off. The Coca-Cola soft drink made its debut in Atlanta, at Jacobs’ Pharmacy soda …show more content…
fountain, where it was sold just for five cents a glass (Coca-Cola Company, 2006-2011). After seeing an increase demand for the original Coca-Cola drink, it was time for the company to expand. In 1893, the Coca-Cola Company’s trademark was registered in the U.S. Patent Office and in the following year the Coca-Cola soft drink was first put into bottles in the state of Mississippi by Joseph Biedenharn (Coca-Cola Company, 2006-2011). After years of success with the original brand, the Coca-Cola Company expanded even more and now the company produces over 3,500 products that are sold in two hundred countries. Globally, the Coca-Cola Company is the top provider in the beverage industry for sparkling beverages, ready-to-drink coffees, and juices and juice drinks, number two in sports drinks, and number three in bottled water. The Coca-Cola Company owns four of the five top non-alcoholic beverage brands: Coca-Cola, Diet Coke, Sprite, and Fanta. Coca-Cola sells syrups and concentrates to authorized bottling and canning operators.
The main competitor of the Coca-Cola Company is PepsiCo. The Coca-Cola Company and PepsiCo competition has been going on for years and according to the Beverage Digest report, Coca-Cola is the uncontested U.S heavyweight (D’Altorio, 1999-2012). This suggestion could have been debated depending on the point of view those people who analyzed the competition determined the winner. The clearest indication that the Coca-Cola Company is the United States heavyweight is when Diet Coke surpassed Pepsi to become the number two soda in America behind Coca-Cola; it was as if the Cola Wars finally declared a winner (Russell, 2012). The company competes through differentiation. The company has many strong brands that consumers prefer and are willing to pay a premium price for. One of the competitive advantages that the Coca-Cola Company has in the marketplace is the company’s advertising methods. The Coca-Cola Company has been known for its unique advertising, which has led to increases in sales and more exposure for the company on a global base. The Coca-Cola Company takes every opportunity to sponsor major events, which has been a great way to advertise the company to a great number of people at one time. The Coca-Cola Company sponsored the World Cup in 1994 and has the longest continuous relationship with the Olympics that dates back to 1928 and has supported the Olympics games ever since (Coca-Cola, 2012). According to an article in the New York Times written by Elliot Stuart, the Coca-Cola Company has 51.98 million likes on Facebook, more than any other brand. Social media advertising is important for the success of any company in any business industry due to evolution social media. The Coca-Cola Company has used the evolution of social media to once again show why the company’s advertising method is its competitive advantage.
Evaluate the financial condition of the company and its ability to achieve the strategic objectives as discussed in the annual report. After evaluating the latest annual report for the Coca-Cola Company, which is the 2011 annual report, it shows a company that is in great financial condition. In 2011, the Coca-Cola Company’s operating income increased from $1.7 billion to $10.2 billion, the company sold 26.7 billion unit cases, and earned $46.5 billion in revenues (Coca-Cola Company, 2012). Another indicator that the Coca-Cola Company is in good financial condition is the company’s asset-liability ratio reported on the 2012 Third Quarter Report. According to the 2012 Third Quarter Report, the Coca-Cola Company has $86,654 million in total assets and $27,008 million in total current liabilities. This means that the Coca-Cola Company has the cash or assets available to meet obligations as those obligations become due. The overall financial condition of the Coca-Cola Company can be determined from the consolidated balance sheet as of September 28, 2012, compared to the previous year’s consolidated balance sheet. While comparing and evaluating the two balance sheets, it was discovered that the Coca-Cola Company had a five percent increase in net assets, which equals to a $1,669 million increase in the company’s assets. The Coca-Cola brand is estimated at $77.8 billion, up eight percent from the previous year, 2011 (Elliott, 2012). These above reasons are perfect indicators that the Coca-Cola Company has the ability and is on the appropriate track to achieve its strategic objective that was discussed in the annual report. The company’s 2020 objective is to double the business over the course of this decade (Coca-Cola Company, 2012). There are many ways that the Coca-Cola Company can achieve this objective; one way would be for the company to expand its business into the international markets. One way for the Coca-Cola Company to expand into the international market would be for the company to build a good company image that would help with brand recognition. For example, Coca-Cola has established a $31 million Coca-Cola Japan Reconstruction Fund to support relief and rebuilding efforts in the wake of the tragic earthquake and tsunami (Coca-Cola Company, 2012). Another way for the Coca-Cola Company to expand into the international market would be for the company to buy out or buy stake in the leading beverage companies in foreign countries. The Coca-Cola Company has acquired approximately half of the equity in Aujan Industries’ existing beverage business, which gives the Coca-Cola Company a significant stake in one the Middle East’s leading still beverage companies (Coca-Cola Company, 2012). Investing in other countries’ beverage industries, besides the United States, would be a great growing opportunity for the Coca-Cola Company. After looking at the company’s recent activities, the company’s top executive must see the foreign beverage industry as a key component in order to reach the objective of doubling the business. The Coca-Cola Company has announced multibillion dollar investments in China, India, the Middle East and Russia as part of the more than $30 billion invested worldwide over the next five years to support anticipated growth (Coca-Company, 2012).
Analyze the company’s profitability trends and recommend strategies for management to improve or capitalize on these trends
To analyze the Coca-Cola Company profitability trends, the company’s profitability has to be analyzed for the past couple of years. The best indicators of profitability are profitability ratios. Profitability ratios are used to assess a business ' ability to generate profits as it compares to expenses that are accumulated while operating the business. EBIT Financial Analyses Center’s Profitability Analysis found the following:
Coca-Cola Co. 's gross profit margin declined from 2009 to 2010 and from 2010 to 2011. Coca-Cola Co. 's operating profit margin weakened from 2009 to 2010 and from 2010 to 2011. Coca-Cola Co. 's net profit margin improved from 2009 to 2010 but then declined significantly from 2010 to 2011. Coca-Cola Co. 's Return on equity (ROE) improved from 2009 to 2010 but then deteriorated significantly from 2010 to 2011. Coca-Cola Co. 's Return on Assets (ROA) improved from 2009 to 2010 but then declined significantly from 2010 to 2011. (Stock Analysis) For management to improve these profitability trends the first step should be to enhance the understanding of the company’s profitability trends over the past years. Understanding the profitability trends to improve these trends involves allowing management to uncover the main cause of the profitability ratios’ decrease or increase. This will allow management to develop action plans that can help increase those profitability ratios that have declined over the past years and develop plans to continue the increase of those ratios that have a trend of increasing. Once the plans to improve profitability ratios are in action, the results should closely monitored and tracked. This will allow management to make the appropriate adjustments to the plans or provide incentives to employees to help reach performance objectives. By understanding the profitability ratio trends and developing actions to improve those trends, management would gain insights that can help improve the company performance.
Evaluate the company’s cash position. Articulate its ability to invest in capital projects in future years.
To evaluate the Coca-Coca Company’s cash position, the statement of cash flows will be a very helpful tool. The reason why the statement of cash flows is a useful tool when trying to evaluate the cash position of a company is because it tells you where the cash comes from, how cash was used, and the change in the cash balance at the end of a period. The statement of cash flows reports the cash of a company’s operations during a period, its investing activities, and its financing transactions. Based on the statement of cash flows the year 2011, the Coca-Cola Company’s net cash provided by operating activities seen a minor decrease from the year 2010. The net cash provided by operating activities was $9,474 million in the year 2011 and $9,532 million in the year 2010. The next segment of the statement of cash flows is the investing activities of the Coca-Cola Company. The Coca-Cola Company used less money in investing activities in the year 2011 than in the year 2010. In 2010, the Coca-Cola Company used $4,405 million in investing activities but in the year 2011 the company only used $2,524 million. The main reason for these decrease seemed to be because the Coca-Cola Company spent less money on acquisitions and investment in the year 2011 than in the year 2010. There was a great different in money spent on acquisition and investment in 2011, which was $997 million, and in 2010 the company spent $2,511 million, resulted in a $1,534 million difference. The following segment after the investing activities on the statement of cash flows is the financing activities. The Coca-Cola Company used $2,234 million in the year 2011 compared to $3,465 million in 2010. When the annual statement of cash flows report for the year 2012 is released it is safe to assume that these trends of Coca-Cola using less in investing and financing will continue. Although, the Coca-Cola Company used less money in investing and financing, the company had seen an increase in net cash. This trend will also continue given the fact that the Coca-Cola Company will continue to spend less money in their investing and financing activities. The changes in the amount of money used by the company could be a direct result of the state of the economic. At the end of the year, the Coca-Cola Company had $12,803 million in cash, which was a $4,286 million increase from the year before. The Coca-Cola Company is in good cash position, given the fact that the company made the correct adjustments in their investing and financing activities to make sure there was an increase of cash at the end of the year. The Coca-Cola Company has the ability to invest in capital projects in the future. Remember, the Coca-Cola Company has already announced investments that the company has made that are over the next five years.
Analyze the effectiveness of the company’s inventory or service costing methods. Make a recommendation for improvement in this area.
The Coca-Cola Company uses distributers and bottling companies to create the inventory and sell their products. The Coca-Cola Company sell concentrates, beverage bases, and syrups for their products to these outside bottling companies. The bottling companies manufacture, package, merchandise, and distribute the final branded beverages to their customers and vending partners, who then sell their products to consumers. Being a bottler does not create a legal partnership or joint venture between the Coca-Cola Company and the bottlers; the bottlers are independent contractors and are not the Coca-Cola Company agents (SEC, 2011). The Coca-Cola Company is then only responsible for the brand and any marketing campaigns. Their inventory method allows the Coca-Cola Company to reduce costs by having several distribution companies in local and international markets. Those suppliers are responsible for costs of materials, machinery, and packaging. A recommendation for improvement in the company’s inventory method area would be for the Coca-Cola Company to find an alternative to their bottling partners or implement their own bottling department. The reason for the implement of their own bottling department is because it will allow the Coca-Cola Company to not depend so heavily on their bottling partners. Under current circumstances, the success of the Coca-Cola Company business depends on the bottling partners’ financial strength and profitability because a significant portion of the Coca-Cola Company’s net operating revenues comes from sales made to the bottling partners (SEC, 2011). Therefore, if the Coca-Cola Company could somehow lessen the portion of the net operating revenue that comes from the bottling partners, the financial condition of their partners will have a smaller effect on the Coca-Cola Company’s business and financial results.
Evaluate the adequacy or risks of the internal control environment noted in the annual report by management, and internal and external auditors
Risks to the internal control environment noted in the annual report focused on the Coca-Cola Company’s information systems. The potential threats are service interruption, misappropriate use of data, and breach in security (SEC, 2011). These threats are common threats that most, if not all, companies that operate with an information system faces. Another element to add to the potential threats to the information system is when companies rely on third-party companies to support business activities. Service interruption to the Coca-Cola Company’s information system may be caused by failures during routine operations such as system upgrades or user errors, as well as network or hardware failures, malicious or disruptive software, computer hackers, geopolitical events, natural disasters, or failures or impairments in the telecommunications networks (SEC, 2011). The misappropriate use of data is also a major concern for the Coca-Cola Company. The biggest threat to the company would be for an employee or top executive to use the Coca-Cola soft drink formula for their personal gain or expose the secret formula. Misappropriate use of data is a risk because misuse or falsification of information could result in a violation of data privacy laws and regulations, which would damage the reputation and credibility of the company and have a negative impact on net operating revenues (SEC, 2011). The misappropriate use of data could be the use of confidential information that belongs to the Coca-Cola Company, suppliers, or bottling partners. The internal control environment of the Coca-Cola Company is taking the necessary steps in order to develop an approach to handle the potential risks against the company and its information system. In order to prevent and protect the company from these risks the Coca-Cola Company needs to have the proper resources. To address potential risks to the Coca-Cola Company’s information systems, the company continues to make investments in personnel, technologies, cyber insurance, and training of Company personnel, bottlers and third parties (SEC, 2011). An attribute that should be included in an internal control environment is a committee that oversees the internal control process. The Coca-Cola Company understands this and has taking the proper steps to ensure that there is a committee in place to oversee the internal control process. The Coca-Cola Company maintains an information risk management program which is supervised by information technology management and reviewed by a cross-functional committee (SEC, 2011). This program and oversight committee has benefited Coca-Cola in their fight against potential threats. As part of this program, emerging risks are identified along with plans and strategies to address those risks (SEC, 2011).
Assess the risk to the company related to foreign currency translations, foreign economic events, and international financial reporting standard requirements in order to summarize the risk tolerance level for the company.
Since the Coca-Cola Company does business globally, the foreign currency exchange rates have an impact on the company. The Coca-Cola Company earn revenues, pay expenses, own assets and incur liabilities in countries using currencies other than the U.S. dollar, including the euro, the Japanese yen, the Brazilian real and the Mexican peso (SEC,2011). The previous four mentioned currencies are not the only currencies that the Coca-Cola Company has used. The company’s products are sold in over two hundred countries; in the year 2011, the company used seventy-two functional currencies in addition to the U.S. dollar and derived $27.8 billion of net operating revenues from operations outside the United States (SEC, 2011). These different currencies will have different impacts on the U.S. dollar. Therefore, the Coca-Cola Company has to account for each currency that they used outside of the United States and the results the foreign currency translations will have on the financial statements. Increases or decreases in the value of the U.S. dollar against other major currencies affect the Coca-Cola Company’s net operating revenues, operating income and the value of balance sheet items (SEC, 2011). The Coca-Cola Company is creating a risk tolerance level to deal with the foreign currency translations because these translations will continue to happen as long as the company continues to expand and do business worldwide. The Coca-Cola Company use derivative financial instruments to further reduce the company’s net exposure to currency exchange rate fluctuations (SEC, 2011). Foreign economic events also will have a major impact on the Coca-Cola Company. A lot of the Coca-Cola Company’s operating revenues come from countries outside of the United States. As mentioned earlier, foreign countries account for over twenty billion dollars of the company’s net operating revenues. Therefore, unfavorable economic and political conditions, including civil unrest and governmental changes, in certain of the Coca-Cola Company’s international markets, as well as the financial uncertainties in the euro zone, could undermine consumer confidence and reduce consumers ' purchasing power leading to a reduction in the demand for the company’s products (SEC, 2011). As we have learned from the economic condition in the United States, consumers will reduce spending or look for more affordable alternatives when they are faced with hard financial times. This is the same case when it comes to unfavorable foreign economic events. Consumers shifting away from Coca-Cola beverages to lower-priced products offered by other companies could reduce the Coca-Cola Company system 's profitability and could negatively affect the company’s financial performance (SEC, 2011). International financial reporting standards could have an effect on the reported results of the Coca-Cola Company.
From reading the annual report and reviewing the Website, determine where the company appears vulnerable for displaying unethical behavior.
The Coca-Cola Company has had a history of unethical behavior and the company did appear to be vulnerable to their behavior.
The company’s unethical behavior started years ago when the secret formula of the Coca-Cola drink was in question. Coca-Cola, the world 's best-selling soft drink, once contained cocaine, and it is still flavored with a non-narcotic extract from the coca, the plant from which cocaine is derived (May,1988). Some people believe that this action by the company had a main reason behind it, which is the case when most unethical behavior occurs. The Coca-Cola Company’s idea of creating customer loyalty was aimed more at addicting the customer to the product over developing a relationship between the customer and the company (Zarate, 2012). By addicting the customers to the soft drink, revenues will have increased dramatically and demand for the product would have always been extraordinary. This was a very unethical behavior on the company’s part due to the fact that people of all ages were drinking the product and the company was producing a product that could have had potential harm to the society. The impact of cocaine on society can be seen in those that use the substance families, communities, and workplaces. As the public began to turn against cocaine, because its adverse effects and addictive properties were discovered, the Coca-Cola Company eventually switched the soft drink’s formula. If the company did not switch the soft drink’s formula it would have impacted the demand of the product, resulting in less sales revenue and would have hindered the growth of the company. By the end of the 1900’s the Coca-Cola soft drink was completely free of cocaine (Harrell,
2008). The Coca-Cola Company has been involved in more recent ethical issues, globally. In places where agriculture is the primary source of capital, the Coca-Cola Company has been considered to be unethical because it has created hardship for communities. The Coca-Cola Company started its bottling operations in Kala Dera, India in 2000, and within a year, the community started to notice a rapid decline in groundwater levels (Srivastava, 2008). Water is important to agriculture and to those people in the community, who’s only means to life is farming. The community in Kala Dera organized itself to challenge the Coca-Cola Company for the worsening water conditions, through extraction and pollution, and demanded the closure of the Coca-Cola Company bottling plant (Srivastava, 2008). There have been meetings about the issue and recommendations made to fix this issue. Since the meetings and recommendations have made the Coca-Cola Company has failed to improve the situation. The community of Kala Dera has not seen much action on the part of the Coca-Cola Company to address the issue; in fact, the community has seen an unethical and dishonest campaign by the Coca-Cola Company in an attempt to misrepresent the issue (Srivastava, 2008). In this situation, the Coca-Cola Company appears to be vulnerable because of the increase pressure on the company from the community and India government regulations. The Coca-Cola Company must follow the recommendations made with regard to Kala Dera and immediately cease tapping any further into the groundwater resource or it could risk beginning shut down (Srivastava, 2008).
From the research conducted in this paper, predict where this company will be financially in five (5) years. Thoroughly provide your rationale for your prediction.
Findings from the research can predict that The Coca-Cola Company will have continued financial success over the next five years. The company has found ways to improve their cash flow at time when there are financial troubles around the world. The Coca-Cola Company has made future investment for the next five years that should only add value to a company that is already in a good financial position. The Coca-Cola Company is continuing to expanding, from what was a soft drink being sold for five cents a glass to a global company that is being sold around the world. The demand for their products and services are increasing and they are creating new ways to sell their products. As time evolves, the company actively keeps up with technological advances and uses it to benefit their company. New technology such as the Coca-Cola Freestyle, a touch screen fountain drink machine, is being implemented in many fast-food restaurant chains. The Coca-Cola Freestyle fountain drink machine dispenses over one hundred flavors of Coca-Cola products, allows the Coca-Cola Company to remain the leader in the beverage industry. Remember, the Coca-Cola Company’s goal for this century is, by the year 2020 the company will have taking the appropriate steps, financially, in investing, and in operations, to double the business.
References:
Coca-Cola (2012). The Olympic Partner. The IOC. Retrieved from http://www.olympic.org/sponsors/coca-cola
Coca-Cola Company (2006-2011). Heritage Timeline. Coca-Cola History. Retrieved from http://heritage.coca-cola.com/
Coca-Cola Company (2012). 2011 Annual Review. Latest Annual Information. Retrieved from http://www.coca-colacompany.com/annual-review/2011/
Coca-Cola Company (2012). Third Quarter 2012. Latest Quarterly Information. Retrieved from http://ir.thecoca-colacompany.com/phoenix.zhtml?c=94566&p=irol-financials
D’Altorio, T (1999-2012). Coke vs. Pepsi….Are the Cola Wars Finally Over? Investment U Research. Retrieved from http://www.investmentu.com/2012/February/are-the-coke-vs-pepsi-cola-wars-over.html
Elliott, S (2012). List of Global Brands Keeps Coke on Top, and Apple Jumps Up. Media & Advertising. Retrieved from http://www.nytimes.com/2012/10/02/business/media/best-global-brands-report-has-coca-cola-on-top-and-apple-climbing.html?_r=0
Harrell, L (2008). When and why was cocaine removed from Coca-Cola? Helium. Retrieved from http://www.helium.com/items/1166011-cocaine-and-coca-cola-coca-cola-and-cocaine-cocaine-in-coca-cola-cocaine-in-cola-drinks
May, C (1988). How Coca-Cola Obtains Its Coca. New York Times. Retrieved from http://www.nytimes.com/1988/07/01/business/how-coca-cola-obtains-its-coca.html
Russell, M (2012). How Pepsi Went From Coke’s Greatest Rival to an Also-Ran in the Cola Wars. Business Insider. Retrieved from http://www.businessinsider.com/how-pepsi-lost-cola-war-against-coke-2012-5?op=1
SEC (2011). The Coca-Cola Company. United States Securities and Exchange Commission. Retrieved from http://www.coca-colacompany.com/investors/investors-info-sec-filings
Srivastava, A (2008). Coca-Cola Continues Unethical and Dishonest Practices in India. India Resource Center. Retrieved from http://www.indiaresource.org/campaigns/coke/2008/kaladeraunethical.html
Stock Analysis (2012). Coca-Cola Co. (KO) Profitability Analysis. EBIT Financial Analyses Center. Retrieved from http://www.stock-analysis-on.net/NYSE/Company/Coca-Cola-Co/Ratios/Profitability
Zarate, O (2012). Unethical Behavior Coca Cola Week 4. Coca Cola. Retrieved from http://coca-cola081.blogspot.com/2010/09/unethical-behavior-coca-cola-week-4.html
Kelvin Colbert
Professor Earnest Daniel
Graduate Accounting Capstone
December 14, 2012
Create an executive summary of the company that discusses the company, industry, products and services, and competitive advantages in the marketplace
The Coca-Cola Company, whose headquarter is located in Atlanta, Georgia, is the world’s largest beverage company and has been ranked number one for the past thirteen consecutive years, according to InterBrand’s Best Global Brand Report (Elliott, 2012). This is a huge honor given the fact where the company first started off. The Coca-Cola soft drink made its debut in Atlanta, at Jacobs’ Pharmacy soda …show more content…
fountain, where it was sold just for five cents a glass (Coca-Cola Company, 2006-2011). After seeing an increase demand for the original Coca-Cola drink, it was time for the company to expand. In 1893, the Coca-Cola Company’s trademark was registered in the U.S. Patent Office and in the following year the Coca-Cola soft drink was first put into bottles in the state of Mississippi by Joseph Biedenharn (Coca-Cola Company, 2006-2011). After years of success with the original brand, the Coca-Cola Company expanded even more and now the company produces over 3,500 products that are sold in two hundred countries. Globally, the Coca-Cola Company is the top provider in the beverage industry for sparkling beverages, ready-to-drink coffees, and juices and juice drinks, number two in sports drinks, and number three in bottled water. The Coca-Cola Company owns four of the five top non-alcoholic beverage brands: Coca-Cola, Diet Coke, Sprite, and Fanta. Coca-Cola sells syrups and concentrates to authorized bottling and canning operators.
The main competitor of the Coca-Cola Company is PepsiCo. The Coca-Cola Company and PepsiCo competition has been going on for years and according to the Beverage Digest report, Coca-Cola is the uncontested U.S heavyweight (D’Altorio, 1999-2012). This suggestion could have been debated depending on the point of view those people who analyzed the competition determined the winner. The clearest indication that the Coca-Cola Company is the United States heavyweight is when Diet Coke surpassed Pepsi to become the number two soda in America behind Coca-Cola; it was as if the Cola Wars finally declared a winner (Russell, 2012). The company competes through differentiation. The company has many strong brands that consumers prefer and are willing to pay a premium price for. One of the competitive advantages that the Coca-Cola Company has in the marketplace is the company’s advertising methods. The Coca-Cola Company has been known for its unique advertising, which has led to increases in sales and more exposure for the company on a global base. The Coca-Cola Company takes every opportunity to sponsor major events, which has been a great way to advertise the company to a great number of people at one time. The Coca-Cola Company sponsored the World Cup in 1994 and has the longest continuous relationship with the Olympics that dates back to 1928 and has supported the Olympics games ever since (Coca-Cola, 2012). According to an article in the New York Times written by Elliot Stuart, the Coca-Cola Company has 51.98 million likes on Facebook, more than any other brand. Social media advertising is important for the success of any company in any business industry due to evolution social media. The Coca-Cola Company has used the evolution of social media to once again show why the company’s advertising method is its competitive advantage.
Evaluate the financial condition of the company and its ability to achieve the strategic objectives as discussed in the annual report. After evaluating the latest annual report for the Coca-Cola Company, which is the 2011 annual report, it shows a company that is in great financial condition. In 2011, the Coca-Cola Company’s operating income increased from $1.7 billion to $10.2 billion, the company sold 26.7 billion unit cases, and earned $46.5 billion in revenues (Coca-Cola Company, 2012). Another indicator that the Coca-Cola Company is in good financial condition is the company’s asset-liability ratio reported on the 2012 Third Quarter Report. According to the 2012 Third Quarter Report, the Coca-Cola Company has $86,654 million in total assets and $27,008 million in total current liabilities. This means that the Coca-Cola Company has the cash or assets available to meet obligations as those obligations become due. The overall financial condition of the Coca-Cola Company can be determined from the consolidated balance sheet as of September 28, 2012, compared to the previous year’s consolidated balance sheet. While comparing and evaluating the two balance sheets, it was discovered that the Coca-Cola Company had a five percent increase in net assets, which equals to a $1,669 million increase in the company’s assets. The Coca-Cola brand is estimated at $77.8 billion, up eight percent from the previous year, 2011 (Elliott, 2012). These above reasons are perfect indicators that the Coca-Cola Company has the ability and is on the appropriate track to achieve its strategic objective that was discussed in the annual report. The company’s 2020 objective is to double the business over the course of this decade (Coca-Cola Company, 2012). There are many ways that the Coca-Cola Company can achieve this objective; one way would be for the company to expand its business into the international markets. One way for the Coca-Cola Company to expand into the international market would be for the company to build a good company image that would help with brand recognition. For example, Coca-Cola has established a $31 million Coca-Cola Japan Reconstruction Fund to support relief and rebuilding efforts in the wake of the tragic earthquake and tsunami (Coca-Cola Company, 2012). Another way for the Coca-Cola Company to expand into the international market would be for the company to buy out or buy stake in the leading beverage companies in foreign countries. The Coca-Cola Company has acquired approximately half of the equity in Aujan Industries’ existing beverage business, which gives the Coca-Cola Company a significant stake in one the Middle East’s leading still beverage companies (Coca-Cola Company, 2012). Investing in other countries’ beverage industries, besides the United States, would be a great growing opportunity for the Coca-Cola Company. After looking at the company’s recent activities, the company’s top executive must see the foreign beverage industry as a key component in order to reach the objective of doubling the business. The Coca-Cola Company has announced multibillion dollar investments in China, India, the Middle East and Russia as part of the more than $30 billion invested worldwide over the next five years to support anticipated growth (Coca-Company, 2012).
Analyze the company’s profitability trends and recommend strategies for management to improve or capitalize on these trends
To analyze the Coca-Cola Company profitability trends, the company’s profitability has to be analyzed for the past couple of years. The best indicators of profitability are profitability ratios. Profitability ratios are used to assess a business ' ability to generate profits as it compares to expenses that are accumulated while operating the business. EBIT Financial Analyses Center’s Profitability Analysis found the following:
Coca-Cola Co. 's gross profit margin declined from 2009 to 2010 and from 2010 to 2011. Coca-Cola Co. 's operating profit margin weakened from 2009 to 2010 and from 2010 to 2011. Coca-Cola Co. 's net profit margin improved from 2009 to 2010 but then declined significantly from 2010 to 2011. Coca-Cola Co. 's Return on equity (ROE) improved from 2009 to 2010 but then deteriorated significantly from 2010 to 2011. Coca-Cola Co. 's Return on Assets (ROA) improved from 2009 to 2010 but then declined significantly from 2010 to 2011. (Stock Analysis) For management to improve these profitability trends the first step should be to enhance the understanding of the company’s profitability trends over the past years. Understanding the profitability trends to improve these trends involves allowing management to uncover the main cause of the profitability ratios’ decrease or increase. This will allow management to develop action plans that can help increase those profitability ratios that have declined over the past years and develop plans to continue the increase of those ratios that have a trend of increasing. Once the plans to improve profitability ratios are in action, the results should closely monitored and tracked. This will allow management to make the appropriate adjustments to the plans or provide incentives to employees to help reach performance objectives. By understanding the profitability ratio trends and developing actions to improve those trends, management would gain insights that can help improve the company performance.
Evaluate the company’s cash position. Articulate its ability to invest in capital projects in future years.
To evaluate the Coca-Coca Company’s cash position, the statement of cash flows will be a very helpful tool. The reason why the statement of cash flows is a useful tool when trying to evaluate the cash position of a company is because it tells you where the cash comes from, how cash was used, and the change in the cash balance at the end of a period. The statement of cash flows reports the cash of a company’s operations during a period, its investing activities, and its financing transactions. Based on the statement of cash flows the year 2011, the Coca-Cola Company’s net cash provided by operating activities seen a minor decrease from the year 2010. The net cash provided by operating activities was $9,474 million in the year 2011 and $9,532 million in the year 2010. The next segment of the statement of cash flows is the investing activities of the Coca-Cola Company. The Coca-Cola Company used less money in investing activities in the year 2011 than in the year 2010. In 2010, the Coca-Cola Company used $4,405 million in investing activities but in the year 2011 the company only used $2,524 million. The main reason for these decrease seemed to be because the Coca-Cola Company spent less money on acquisitions and investment in the year 2011 than in the year 2010. There was a great different in money spent on acquisition and investment in 2011, which was $997 million, and in 2010 the company spent $2,511 million, resulted in a $1,534 million difference. The following segment after the investing activities on the statement of cash flows is the financing activities. The Coca-Cola Company used $2,234 million in the year 2011 compared to $3,465 million in 2010. When the annual statement of cash flows report for the year 2012 is released it is safe to assume that these trends of Coca-Cola using less in investing and financing will continue. Although, the Coca-Cola Company used less money in investing and financing, the company had seen an increase in net cash. This trend will also continue given the fact that the Coca-Cola Company will continue to spend less money in their investing and financing activities. The changes in the amount of money used by the company could be a direct result of the state of the economic. At the end of the year, the Coca-Cola Company had $12,803 million in cash, which was a $4,286 million increase from the year before. The Coca-Cola Company is in good cash position, given the fact that the company made the correct adjustments in their investing and financing activities to make sure there was an increase of cash at the end of the year. The Coca-Cola Company has the ability to invest in capital projects in the future. Remember, the Coca-Cola Company has already announced investments that the company has made that are over the next five years.
Analyze the effectiveness of the company’s inventory or service costing methods. Make a recommendation for improvement in this area.
The Coca-Cola Company uses distributers and bottling companies to create the inventory and sell their products. The Coca-Cola Company sell concentrates, beverage bases, and syrups for their products to these outside bottling companies. The bottling companies manufacture, package, merchandise, and distribute the final branded beverages to their customers and vending partners, who then sell their products to consumers. Being a bottler does not create a legal partnership or joint venture between the Coca-Cola Company and the bottlers; the bottlers are independent contractors and are not the Coca-Cola Company agents (SEC, 2011). The Coca-Cola Company is then only responsible for the brand and any marketing campaigns. Their inventory method allows the Coca-Cola Company to reduce costs by having several distribution companies in local and international markets. Those suppliers are responsible for costs of materials, machinery, and packaging. A recommendation for improvement in the company’s inventory method area would be for the Coca-Cola Company to find an alternative to their bottling partners or implement their own bottling department. The reason for the implement of their own bottling department is because it will allow the Coca-Cola Company to not depend so heavily on their bottling partners. Under current circumstances, the success of the Coca-Cola Company business depends on the bottling partners’ financial strength and profitability because a significant portion of the Coca-Cola Company’s net operating revenues comes from sales made to the bottling partners (SEC, 2011). Therefore, if the Coca-Cola Company could somehow lessen the portion of the net operating revenue that comes from the bottling partners, the financial condition of their partners will have a smaller effect on the Coca-Cola Company’s business and financial results.
Evaluate the adequacy or risks of the internal control environment noted in the annual report by management, and internal and external auditors
Risks to the internal control environment noted in the annual report focused on the Coca-Cola Company’s information systems. The potential threats are service interruption, misappropriate use of data, and breach in security (SEC, 2011). These threats are common threats that most, if not all, companies that operate with an information system faces. Another element to add to the potential threats to the information system is when companies rely on third-party companies to support business activities. Service interruption to the Coca-Cola Company’s information system may be caused by failures during routine operations such as system upgrades or user errors, as well as network or hardware failures, malicious or disruptive software, computer hackers, geopolitical events, natural disasters, or failures or impairments in the telecommunications networks (SEC, 2011). The misappropriate use of data is also a major concern for the Coca-Cola Company. The biggest threat to the company would be for an employee or top executive to use the Coca-Cola soft drink formula for their personal gain or expose the secret formula. Misappropriate use of data is a risk because misuse or falsification of information could result in a violation of data privacy laws and regulations, which would damage the reputation and credibility of the company and have a negative impact on net operating revenues (SEC, 2011). The misappropriate use of data could be the use of confidential information that belongs to the Coca-Cola Company, suppliers, or bottling partners. The internal control environment of the Coca-Cola Company is taking the necessary steps in order to develop an approach to handle the potential risks against the company and its information system. In order to prevent and protect the company from these risks the Coca-Cola Company needs to have the proper resources. To address potential risks to the Coca-Cola Company’s information systems, the company continues to make investments in personnel, technologies, cyber insurance, and training of Company personnel, bottlers and third parties (SEC, 2011). An attribute that should be included in an internal control environment is a committee that oversees the internal control process. The Coca-Cola Company understands this and has taking the proper steps to ensure that there is a committee in place to oversee the internal control process. The Coca-Cola Company maintains an information risk management program which is supervised by information technology management and reviewed by a cross-functional committee (SEC, 2011). This program and oversight committee has benefited Coca-Cola in their fight against potential threats. As part of this program, emerging risks are identified along with plans and strategies to address those risks (SEC, 2011).
Assess the risk to the company related to foreign currency translations, foreign economic events, and international financial reporting standard requirements in order to summarize the risk tolerance level for the company.
Since the Coca-Cola Company does business globally, the foreign currency exchange rates have an impact on the company. The Coca-Cola Company earn revenues, pay expenses, own assets and incur liabilities in countries using currencies other than the U.S. dollar, including the euro, the Japanese yen, the Brazilian real and the Mexican peso (SEC,2011). The previous four mentioned currencies are not the only currencies that the Coca-Cola Company has used. The company’s products are sold in over two hundred countries; in the year 2011, the company used seventy-two functional currencies in addition to the U.S. dollar and derived $27.8 billion of net operating revenues from operations outside the United States (SEC, 2011). These different currencies will have different impacts on the U.S. dollar. Therefore, the Coca-Cola Company has to account for each currency that they used outside of the United States and the results the foreign currency translations will have on the financial statements. Increases or decreases in the value of the U.S. dollar against other major currencies affect the Coca-Cola Company’s net operating revenues, operating income and the value of balance sheet items (SEC, 2011). The Coca-Cola Company is creating a risk tolerance level to deal with the foreign currency translations because these translations will continue to happen as long as the company continues to expand and do business worldwide. The Coca-Cola Company use derivative financial instruments to further reduce the company’s net exposure to currency exchange rate fluctuations (SEC, 2011). Foreign economic events also will have a major impact on the Coca-Cola Company. A lot of the Coca-Cola Company’s operating revenues come from countries outside of the United States. As mentioned earlier, foreign countries account for over twenty billion dollars of the company’s net operating revenues. Therefore, unfavorable economic and political conditions, including civil unrest and governmental changes, in certain of the Coca-Cola Company’s international markets, as well as the financial uncertainties in the euro zone, could undermine consumer confidence and reduce consumers ' purchasing power leading to a reduction in the demand for the company’s products (SEC, 2011). As we have learned from the economic condition in the United States, consumers will reduce spending or look for more affordable alternatives when they are faced with hard financial times. This is the same case when it comes to unfavorable foreign economic events. Consumers shifting away from Coca-Cola beverages to lower-priced products offered by other companies could reduce the Coca-Cola Company system 's profitability and could negatively affect the company’s financial performance (SEC, 2011). International financial reporting standards could have an effect on the reported results of the Coca-Cola Company.
From reading the annual report and reviewing the Website, determine where the company appears vulnerable for displaying unethical behavior.
The Coca-Cola Company has had a history of unethical behavior and the company did appear to be vulnerable to their behavior.
The company’s unethical behavior started years ago when the secret formula of the Coca-Cola drink was in question. Coca-Cola, the world 's best-selling soft drink, once contained cocaine, and it is still flavored with a non-narcotic extract from the coca, the plant from which cocaine is derived (May,1988). Some people believe that this action by the company had a main reason behind it, which is the case when most unethical behavior occurs. The Coca-Cola Company’s idea of creating customer loyalty was aimed more at addicting the customer to the product over developing a relationship between the customer and the company (Zarate, 2012). By addicting the customers to the soft drink, revenues will have increased dramatically and demand for the product would have always been extraordinary. This was a very unethical behavior on the company’s part due to the fact that people of all ages were drinking the product and the company was producing a product that could have had potential harm to the society. The impact of cocaine on society can be seen in those that use the substance families, communities, and workplaces. As the public began to turn against cocaine, because its adverse effects and addictive properties were discovered, the Coca-Cola Company eventually switched the soft drink’s formula. If the company did not switch the soft drink’s formula it would have impacted the demand of the product, resulting in less sales revenue and would have hindered the growth of the company. By the end of the 1900’s the Coca-Cola soft drink was completely free of cocaine (Harrell,
2008). The Coca-Cola Company has been involved in more recent ethical issues, globally. In places where agriculture is the primary source of capital, the Coca-Cola Company has been considered to be unethical because it has created hardship for communities. The Coca-Cola Company started its bottling operations in Kala Dera, India in 2000, and within a year, the community started to notice a rapid decline in groundwater levels (Srivastava, 2008). Water is important to agriculture and to those people in the community, who’s only means to life is farming. The community in Kala Dera organized itself to challenge the Coca-Cola Company for the worsening water conditions, through extraction and pollution, and demanded the closure of the Coca-Cola Company bottling plant (Srivastava, 2008). There have been meetings about the issue and recommendations made to fix this issue. Since the meetings and recommendations have made the Coca-Cola Company has failed to improve the situation. The community of Kala Dera has not seen much action on the part of the Coca-Cola Company to address the issue; in fact, the community has seen an unethical and dishonest campaign by the Coca-Cola Company in an attempt to misrepresent the issue (Srivastava, 2008). In this situation, the Coca-Cola Company appears to be vulnerable because of the increase pressure on the company from the community and India government regulations. The Coca-Cola Company must follow the recommendations made with regard to Kala Dera and immediately cease tapping any further into the groundwater resource or it could risk beginning shut down (Srivastava, 2008).
From the research conducted in this paper, predict where this company will be financially in five (5) years. Thoroughly provide your rationale for your prediction.
Findings from the research can predict that The Coca-Cola Company will have continued financial success over the next five years. The company has found ways to improve their cash flow at time when there are financial troubles around the world. The Coca-Cola Company has made future investment for the next five years that should only add value to a company that is already in a good financial position. The Coca-Cola Company is continuing to expanding, from what was a soft drink being sold for five cents a glass to a global company that is being sold around the world. The demand for their products and services are increasing and they are creating new ways to sell their products. As time evolves, the company actively keeps up with technological advances and uses it to benefit their company. New technology such as the Coca-Cola Freestyle, a touch screen fountain drink machine, is being implemented in many fast-food restaurant chains. The Coca-Cola Freestyle fountain drink machine dispenses over one hundred flavors of Coca-Cola products, allows the Coca-Cola Company to remain the leader in the beverage industry. Remember, the Coca-Cola Company’s goal for this century is, by the year 2020 the company will have taking the appropriate steps, financially, in investing, and in operations, to double the business.
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