Coca-Cola's Financial Strength and Efficiency Analysis

Analyses of Coca-cola’s fundamentals reveal that the company has sound financial base, well capitalized, and efficiently run. As of December 2007, its Capital was US $103. 463 B, Total assets were US $ 45. 258 B, Equity was US $ 21. 744 B, Total liabilities US $ 21. 525 B, Revenue was US $ 28. 857 B and Net income US $ 5. 981 Billion (www. thecoca-colacompany. com/investors/financial_statements. html ).

The financial ratios for financial period ending 31 Dec 2007 were a followed: Debt to Equity ratio was 0. 49, Net profit margin was 18.74%, Current ratio 0. 98, P/E ratio 17. 20, Divide yield 3.

43%. To measure the financial strength of the company we compare with performance of its competitors, industry and its past performance. Coca-cola Company operates in a large geographic area (world wide) and serves over 200 countries, thus its operation costs are high. Management efficiency is very important to success of every organization and most importantly to a global company like Coke Company ().

The company’s net profit margin was 18. 74% exceeding its competitors including Pepsi Co (17.36%), the industry’s average (5. 23%) and its five-year average (17.

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56%). This point that the company is efficiently run and managed. The company’s P/E ratio is 17. 2, which is higher than its main competitor Pepsi (8. 3) and industry’s average (14. 58). Divided yield (3. 3%) was higher than its close competitors and its five-year average (2. 5%). Thus the shareholder’s return is high in Coca-cola (www. thecoca-colacompany. com/investors/financial_statements. html). The company’s debt/equity ratio was 0. 49, this is well within the required ratio of 0.5.

It shows that the company has stable solvency level and also it has adequately leveraged (). Current ratio is 0.

98, against the industry’s average of 1. 5. This rate is very low and the company may experience liquidity problems. With capital of over US $ 103 Billion out of the total industry’s US $401, the company enjoys sound capital base. During the year under review, the company’s Earnings before interest and tax was US $ 8. 3 B, and according to analysts estimates, the earnings with grow to reach an EPS of 3.3 this year from 3. 1 last year (Business wire, 2007).

However, the company’s debt has increased to stand at US $ 9. 6 B 9 (Aug 2008). Although the debt will earn Coke a tax saving (due to the increased interest), it will reduce the net earnings available for distribution to shareholder in the future. This is because the debt obligation will eat into shareholders’ earnings. But if the management will invest prudently the funds borrowed as widely expected, then the earning from invested debt fund may be higher than interest paid.