Coca Cola case
The Coca Cola Company : Case Writeup
Financial Statement Analysis : Why has Coca-Cola been so successful in the past?
To analyze Coca Cola’s success in the past, we look at its financial statements as included in the case. The Dupont System extracts meaningful ratios from the financial statements to compute the Return on Equity (ROE) and breaks it down into the levers which can be used by management to manage the performance of the company. Coca Cola’s ROE and ROA are very healthy. Some of the primary reasons for this above industry performance are :
Management focus on Earnings above cost of capital and Market value add.
Efficient distribution system
Focus on the core business and not on diversifying.
We now take a detailed look at the various ratios as shown in Table 1 which contribute to this excellent ROE. Starting with Coca Cola’s profitability ratios, the ROE numbers of 56% are extremely high. This can be partially attributed to Coca Cola’s reducing debt which has steadily declined as can be seen from the net debt to net capital ration declines from a high of 33.1% in 1992 to 22% in 1997. This might be as Coca Cola were streamlining their operations and getting rid of acquisitions such as Columbia Pictures and other ancillary noncore businesses along with the debt associated with it. Coca Cola’s ROIC has doubled from 14% in 1987 to 30% in just ten years. This is a company which has mastered the art of creating value for its shareholders and enhancing the earning power of its assets. This is truly significant even in this day and age (2010) where American companies have a ROE of 17.6% and ROIC of 13.6%.
Looking next at the company’s levers of performance, Coca Cola’s profit margin has been steadily climbing from 12% to 22%. This can be explained by the fact that revenues have been higher with lower Cost of Goods Sold compared to previous years along with a reduction in interest expenses in recent years. The company’s asset
Financial Statement Analysis : Why has Coca-Cola been so successful in the past?
To analyze Coca Cola’s success in the past, we look at its financial statements as included in the case. The Dupont System extracts meaningful ratios from the financial statements to compute the Return on Equity (ROE) and breaks it down into the levers which can be used by management to manage the performance of the company. Coca Cola’s ROE and ROA are very healthy. Some of the primary reasons for this above industry performance are :
Management focus on Earnings above cost of capital and Market value add.
Efficient distribution system
Focus on the core business and not on diversifying.
We now take a detailed look at the various ratios as shown in Table 1 which contribute to this excellent ROE. Starting with Coca Cola’s profitability ratios, the ROE numbers of 56% are extremely high. This can be partially attributed to Coca Cola’s reducing debt which has steadily declined as can be seen from the net debt to net capital ration declines from a high of 33.1% in 1992 to 22% in 1997. This might be as Coca Cola were streamlining their operations and getting rid of acquisitions such as Columbia Pictures and other ancillary noncore businesses along with the debt associated with it. Coca Cola’s ROIC has doubled from 14% in 1987 to 30% in just ten years. This is a company which has mastered the art of creating value for its shareholders and enhancing the earning power of its assets. This is truly significant even in this day and age (2010) where American companies have a ROE of 17.6% and ROIC of 13.6%.
Looking next at the company’s levers of performance, Coca Cola’s profit margin has been steadily climbing from 12% to 22%. This can be explained by the fact that revenues have been higher with lower Cost of Goods Sold compared to previous years along with a reduction in interest expenses in recent years. The company’s asset