INTERPRETING FINANCIAL RESULTS
Published financial statements generally cover three financial periods. Coca-Cola Company's financial year ends on 31st December each year and therefore their 2014 financial report is yet to be released. This paper, therefore, analyses three years, i.e. 2011, 2012 and 2013.
- Liquidity Ratios
The current ratio for Coca-Cola Company has steadily risen between the year 2011 and the year 2013. In 2011, the ratio was 1.05. It increased by 0.0401 to 1.0901 in 2012 before again rising by 0.0355 in 2013 to 1.1256. The steady increase can be attributed to a significant decrease in current liabilities from 2011 through to 2013. The company has had a current ratio of above 1 for the past three years indicating its ability to pay its current liabilities using the current assets. The company’s closest competitor in the industry, Pepsico, Inc. had a current ratio of 1.2446, (22,203,000/17,839,000), in 2013 which is higher than Coca Cola’s 1.1256. Coca Cola is not far from the industry’s average Current ratio (Yahoo! Finance, 2014).
The company's quick ratio in 2011 and 2012 was not ideal because the company was not in a position of using its quick assets to settle its current liabilities. The situation has, however improved in 2013 where the quick ratio is more than the ratio of 1:1 at 1.0078. The company can now use its quick assets to offset its current liabilities. Pepsico’s quick ratio for 2013 was 1.0535 ((22,203,000-3,409,000)/17,839,000) (Finance.yahoo.com, 2014). This indicates that Coca Cola’s is within the industry range and, therefore, the company is doing well.
- Efficiency Ratios
Total Asset Turnover
The total asset turnover for Coca-Cola in 2011, 2012 and 2013 was 0.582, 0.5572 and 0.5203 respectively. This shows a slight decrease each year from 2011 to 2013. The ratio shows that at $0.5 of sales was being generated for a $1 of assets used. The ratio, however, decreases as the amount of assets employed increases indicating inefficient use of the assets. PepsiCo’s ratio for 2013 is 0.8572, (66,415,000/77,478,000) which considerably higher than Coca Cola’s. The company can manage its assets better to reach industry average (Yahoo! Finance, 2014).
Fixed Asset Turnover
The fixed asset turnover rate for Coca-Cola in 2011 was 0.8543 and slightly rose to 0.8598 in 2012 before eventually dropping to 0.7975 in 2013. Fixed assets' generation of revenue for the company fluctuates from year to year. The approximate industry fixed asset turnover is 1.2015 which way above Coca Cola’s.
- Leverage Ratios
Total Debt Ratio
The total debt ratio for the company has been rising marginally between 2011 and 2013 as shown in the table above. This is an indication that the company has slightly been increasing the proportion of its assets that are financed by long-term debts. The industry's corresponding ratio is 0.6866 which is not far away from Coca Cola's. The company is, therefore, performing well relative to the industry.
The ratios above indicate that Coca Cola's reliance on long-term debt instruments to finance its capital projects has been rising steadily from 2011 through 2013. The industry's corresponding figure in 2013 is 0.9969. Coca-Cola is relatively better since it has a lower long-term debt to total capital ratio.
- Profitability Ratio
Return on Equity
The company’s return on equity between 2011 and 2013 is as shown above. The percentage rose slightly in 2012 before decreasing in 2013 possibly due to a corresponding decrease in revenues in 2013. The industry’s corresponding figure in 2013 is 27.61 which mean that Coca-Cola is doing well as per the industry’s general performance.
Gross Profit Margin
This is almost constant over the course of 2011, 2012, and 2013 as shown above. The industry's corresponding figure in 2013 is 52.96% that shows that Coca-Cola is doing better that other players in the industry in terms of generating gross profit.
- Market Value Indicators
Earnings per Share
The earnings per share for Coca-Cola have been $1.22, $1.28, and $1.22 in 2013, 2012 and 2013 respectively. There was a slight increase in 2012 as a result of the increase experienced on net income distributable to ordinary shares. The company is stable and is doing well as compared to competitors in the industry in the industry.
Dividend per Share
The dividends per share for Coca-Cola have remained stable for the three years as shown above. Since the DPS and the EPS are not equal, it means that not all earnings attributable to common stock have been paid as dividends in all the three years covered here.
Coca-Cola Company vs. PepsiCo. Inc.
PepsiCo is Coca Cola's biggest rival in the beverage industry (Finance.yahoo.com, 2014). Various calculations above have shown that Coca-Cola is doing better in many aspects in the industry as compared to close competitors. It is, consequently, fair to say that the company's performance is satisfactory, though there is a room for improvement.
Finance.yahoo.com, . (2014). PEP Balance Sheet | Pepsico, Inc. Common Stock Stock - Yahoo! Finance. Retrieved 1 October 2014, from http://finance.yahoo.com/q/bs?s=PEP+Balance+Sheet&annual
Yahoo! Finance, . (2014). The Coca-Cola Company. Retrieved 1 October 2014, from http://finance.yahoo.com/q?s=KO&reco=1