Example Of The Coca-Cola Company Financial Analysis Term Paper

Company Description

The Coca-Cola Company is the world largest beverage company. It owns licenses and markets more than 500 beverage brands including sparkling and still beverages such as water, energy drinks, juice drinks, ready-to-drink teas, and coffees. The company markets and also owns four of the world’s top nonalcoholic sparkling beverage brands including Coca-Cola, Fanta, Sprite and Diet Coke. The beverage products are made available to consumers throughout the world using a network of controlled bottling and distribution operations that include independent bottling partners, wholesalers, distributors, and retailers. The success of the company depends on the ability to connect with consumers by providing them with a variety of options meant to meet their desires, needs and lifestyles. The success also depends on the ability of the company to execute its operations effectively. It is the company’s goal to use its assets including the brands, financial strength, talent, distribution system and the commitment to the management. The goal is to use these assets to gain a competitive advantage and to accelerate the company’s growth in a way that would increase the company’s value with its shareowners (Coca-Cola Company, 2015).
The Company’s operating structure is the basis of the internal financial reporting. The operation structure includes six operating segments namely: Europe, Pacific, North America, Latin America, Bottling Investments, corporate and Eurasia and Africa. Consumer demand usually determines the company’s optimal menu in its product offerings. The consumer demand can vary from one location to another and can change over time. The company employs its business strategies in order to build its existing brands and also broaden its family of products, brands, and services so as to satisfy the consumer’s demand in every location. The company measures the volume of the beverage products it has sold in two ways: concentrate sales and unit cases of finished products. Unit case volume consists the beverage products bearing the company’s trademarks. Concentrate sales volume represents the amount of syrups and concentrates sold or used in finished beverages. Unit case and concentrate sales are not usually equal.
The company’s portion of the industry is competitive. It deals with the segment of nonalcoholic commercial beverage. It faces tough rivalry from a number of other companies that deal in specialty and general beverages. Some factors exist that affect all companies in the beverage industry. These include cost of manufacturing and distributing products, economic conditions, consumer spending, consumer preference, water quality and readiness, inflation, national and local rules and regulations, political climate, weather patterns, fuel prices and fluctuations in foreign currency exchange. The company’s objective is asset utilization, which include brands, financial strengths, universal reach and commitment of its management to accomplish long-term growth. The company’s vision is to people, portfolio, partners, planet, profit, and productivity. The company hopes to provide a great environment where people can work and get inspired in the best way possible. It hopes to globally introduce a portfolio of its beverage brands and satisfy people’s needs and desires. It aims to create a nurturing and successful network of associates and to build mutual loyalty. It also aims to become a difference making global citizen of the world. The company also works towards maximizing its returns to its shareholders while still minding its overall responsibilities. It also aims to manage its time, people, and money to achieve great effectiveness.
The company has five strategic priorities that are aimed at forming sustainable growth for the company as well as the value of its shareowners. The priorities include accelerating sparkling growth, strategically expanding its profitable still portfolio, to increase media investments by maximizing productivity, to invest in the next generation of leaders and to triumph at the point of sale by unlocking the power of the Coca-Cola system. In order to deliver on its strategic priorities, the company must enhance its primary proficiencies of consumer marketing, franchise leadership, commercial leadership and operations of distribution.
Marketing investments enhance the awareness of the consumer and increase their preference for its brands. Successful marketing investments produces a lasting growth of the unit case volume, worldwide share of non-alcoholic beverage sales and per capita consumption. The company crafts and implements integrated marketing agendas both locally and globally that enhance the consumer awareness and appeal of the products by the brands. The company conducts a packaging and product research, to determine the positioning of the brand, lobby consumer feedback and to develop precise consumer communications. The company has marketing approaches to increase the volume in developing markets. It increases the value of the brand and profits in developing and developed markets.
Globally, the Coca-Cola Company’s customers are in their millions. The company focuses on improving value for its customers and solving problems in order to grow the beverage business. The company’s tactic entails understanding each customer’s needs. The needs may vary from that of a refined merchant operating in a market that is developed to that of an owner of a kiosk in a developing market. The company focuses on guaranteeing that its consumers have the precise package and product offerings as well as the correct tools that ensure delivery of improved value to the consumers and company. The company continues to improve its franchise leadership’s capabilities. The improvement gives the company and partners the capacity to grow collectively in shared values, incentives, and urgency that supports consumers’ changing tastes and needs. The company works with its bottling partners in detecting the processes that enable it to attain efficiencies and scale and to share the finest practices all the way through the system of bottling.
The company uses independent bottling partners to manufacture, sell and distribute most of its beverage products. It acquires those in underachieving markets where it uses its expertise and resources to develop performance. Coca-Cola Company provides outstanding customer service. It demonstrates marketplace leadership, and it also influences the global workforce talent. It also has a skilled team in bottler management.

Assumptions

The company’s financial statements get prepared according to accounting principles. The preparation of the statements requires the analysts to make assumptions and estimates that affect the reported amounts of liabilities, assets, revenues and expenses. Even though these estimates are based on the knowledge of current actions and events, the actual results might vary from the assumptions and estimates made. The company’s most critical accounting policies and estimates relate to income taxes, principles of consolidation, revenue recognition, pension plan valuations and recoverability of noncurrent assets.

Crucial Factors

There are certain factors that could affect Coca Cola’s business, financial condition or results of their operations even in the future. Obesity concerns have led to the reduced consumption of most of the company’s products. Consumers, public health officials are concerned about the public health consequences of obesity especially among young people. Researchers suggest consumption of sugar-sweetened beverages including those sweetened with High Fructose Corn Syrup (HFCS) leads to increase in obesity rates. Consumers are encouraged to reduce or eliminate consumption of such products. The negative publicity resulting from threatened legal actions against the company and others in the industry regarding marketing, labeling may reduce the demand for the sugar-sweetened beverages, which would affect the company’s profits.
Water scarcity or poor quality could impact Coca-Cola’s system’s production costs and capacity. Water is a core component in all the company’s products. That means it is important to the manufacturing process and is required in the production of the agricultural components the business requires. All over the world, this is an inadequate resource due to overexploitation, increased population, increased demand for food products and climate change effects. As the demand of water increases and the quality reduces, the Coca-Cola Company may incur high production costs that could adversely affect the profitability and net operating revenues.
Increased competition in the nonalcoholic segment of the commercial beverage industry is also a major factor. Coca-Cola competes with major international beverage companies that also operate in multiple geographical areas and have many companies that are regional or local in operation. Pepsi is a primary competitor, and other significant competitors include Nestle, Danone, Kraft, and Unilever. In other markets, the company competes with major beer companies. The beverage products also compete with private brands developed by retailers. If the company does not strengthen their marketing and innovation strategies to maintain the brand loyalty and market share, the business could be negatively affected.
Coca-Cola Company is required to comply with policies and applicable laws in most countries throughout the world where they do business. In most jurisdictions, compliance with competition laws is important to the company, and the company’s operations may be under special scrutiny by competition law authorities as a result of competitive positions in those jurisdictions. In the United States, the safety, distribution, production, transportation, advertising, labeling and sale of the company’s products and the ingredients are all subject to various laws. They include the Federal Food, Drug, and Cosmetic Act, Lanham Act, Federal Trade Commission Act, competition laws, state consumer protection laws, state and local environmental protection laws and other federal, state and local statutes and regulations. The company’s business is also subject to similar statutes and regulations and other legal and regulatory requirements. Bottlers of the company’s beverage products offer and use nonrefillable, recyclable containers in the United States and other markets around the world. Some of these bottlers also use refillable containers that are also recyclable. There are legal requirements that apply in various jurisdictions in the United States and overseas that require certain fees be charged in connection with the sale, marketing and the use of certain beverage containers. The company’s facilities and other operations in the United States and elsewhere in the globe are subject to many environmental protection regulations and statutes.
Product safety and quality concerns including concerns on the artificiality of ingredients could affect the business. The business’ success depends on their ability to maintain the consumers’ confidence in the safety and quality of the products. The company has product safety and quality standards that should be met by the company’s operations and bottling partners. The company cannot be assured that all the bottling partners will meet the product safety and quality standards. Failure to comply with these standards, the beverage products taken to the market become contaminated. The company would be required to conduct product recalls that would lead to negative publicity, and product liability claims causing the business to suffer. The increase in public concern about the perceived quality issues whether justified or not could result in additional government regulations on marketing and labeling of the products against the company and others in the industry.

Findings

The Coca-Cola Company sold 28.2 billion, 27.7 billion and 26.7 billion unit cases of products in 2013, 2012 and 2011 respectively. In 2012, the number of unit cases sold does not include BPW unit case volume for those countries where it was phased out. In Eurasia and Africa, the unit case volume increased by 7 percent. The beverage growth was led by 6 percent growth in the Coca-Cola brand, 5 percent growth in Sprite and 3 percent in Fanta. The growth indicates a continued focus on exceptional capabilities in the market, integrating marketing campaigns and great choices of package and price options. The growth in still beverages was mostly led by juices, juice drinks, packaged water, and teas. In Europe, the unit case volume declined by 1 percent, which mostly consisted of 1 percent decline in sparkling beverages and 5 percent in still beverages. The declines indicate the impact of poor weather on many countries including severe flooding in some areas in Germany and Central Europe. The unit case volume in Latin America increased by 1 percent, which was primarily as a result of 8 percent growth in still beverages with the volume of sparkling beverages remaining even. The still beverage growth was as a result of an increase in packaged water, tea, juice and juice drink. In North America, still beverage growth was as a result of the strong performance in teas, packaged water, juice and juice drinks. In Pacific, the volume of unit case increased by 3 percent, and it mostly comprised of 3 percent growth in sparkling beverages and 4 percent in still beverages.
The concentrate sales volume and unit case volume in 2013 grew by 2 percent compared to 2012. In 2012, the concentrate sales and unit case volumes increased by 4 percent compared to 2011. The dissimilarity between the growth rates of the concentrate sales volume and the unit case volume in 2013 and 2012 were mostly as a result of the timing of concentration shipments.
The company’s net operating revenues decreased by 2 percent. One percent of the impact on the consolidated net operating revenues was as a result of price, product and geographical mix. They were impacted by a variety of factors and events. In Eurasia and Africa, the impact was as a result of an increase in prices in a number of major markets mostly due to the unfavorable geographic mix. In Europe, the impact was as a result of consolidating the juice and smoothie business and the price increase in certain markets. On the other hand, Latin America was impacted by pricing in all the business units and also the inflationary environment in certain markets. Pacific was impacted by the geographic mix also and the shift in products and package mix in individual markets. The company’s consolidated results were all unfavorably impacted by geographic mix due to the growth in both the emerging and developing markets exceeding growth in the developed markets. The revenue per unit sold in the emerging markets is less than in the developed markets (CCHBC, 2014).
There are certain inputs that represented an important portion of the company’s total cost of goods sold including sweeteners, metal, juices and PET. The company increased its hedging activities that were related to certain commodities in order to reduce the risk associated with these commodities exposures. It includes any related foreign currency exposure. The company logged losses amounting to 120 million, 110 million, and 54 million in the years ending December 2013, 2012 and 2011 respectively. In 2013, the gross profit margin increased by 60.7 percent from 2012. The increase was mostly attributed to the deconsolidation of the Philippine bottling operations at the beginning of 2013 and Brazilian bottling operations in July 2013. The favorable geographic mix was mostly as a result of most of the company’s emerging markets recuperating from the global recession at a quicker rate than developed markets. The shift in the geographic mix also had a negative impact on the net operating revenue. However, it had a favorable impact on the gross profit margin mostly as a result of the correlated impact it has on the product mix (The Coca-Cola Company, 2014).
In 2013, the company also incurred other operating charges of 895 million dollars that mainly consisted of 494 million of the company’s productivity and reinvestment program, 195 million due to the reduction of certain intangible assets. 188 million of the charges was due to the company’s productivity, integration and restructuring initiatives and 22 million was due to some charges associated with impairment charges. Compared to 2012, the operating charges incurred were of 447 million. It mostly consisted of 270 million that was associated with the company’s productivity and reinvestment program, 163 million related to the company’s restructuring and integration initiatives. 20 million of the operation charges was a result of the changes in the company’s ready-to-drink strategy due to the United States license agreement with Nestle.

Management

The company’s management is responsible for the preparation and the integrity of financial statements. It is also responsible for maintaining and establishing a system of internal controls and procedures in order to provide a reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements. The company’s internal control system is supported by a program of internal audits and appropriate reviews by the management. It also includes written policies and guidelines, a careful selection and training of qualified personnel and a written code of business conduct. The conduct is adopted by the company’s Board of Directors, and they are applicable to all officers and employees of the company and its subsidiaries. The company’s Board of Directors has also adopted a written code of Business conduct for non-employee directors that reflect the same values and principles as the Code of Business Conduct for officers and employees. Nevertheless, they usually focus on matters that are relevant to non-employee directors. Due to its major limitations, the internal control over financial reporting may not prevent and detect misstatements and may only provide reasonable assurance in relation to financial statement preparation and presentation. The company’s management is responsible for establishing and maintaining enough internal control over financial reporting that is also defined under the Securities Exchange Act of 1934. The management assessed the effectiveness of the company’s internal control over financial reporting as of December 2013. It made this assessment using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission. Based on the assessment, the management believed that the company maintained effective internal control over financial reporting as of December 2013.

Conclusion

It is essential for all companies to carry out a financial analysis at the end of its financial year. Such an analysis helps the company identify its areas of profits and losses in that financial year. The details provided by this report are essential in helping the company strategize its next move; make any necessary improvements that would increase its profit, reduce its production costs or even increase its rate of growth. For the Coca-Cola Company, this analysis is especially important for being a global company this is a way for the management to assess the growth of its subsidiaries and to make major decisions on investing on new bottlers or closing down certain unprofitable subsidiaries. The company releases this report annually for its shareholders too. It is imperative for them to know the progress and for investors to make decisions on whether to withdraw or put in more investments.

References

Coca-Cola Hellenic Bottling Company. (2014). 2013 Annual Financial Report. Retrieved from http://www.coca-colahellenic.com/~/media/Files/C/CCHBC/reports-and-presentations/2013_Coca-Cola%20HBC%20AG%20UK%20AR.PDF
The Coca-Cola Company. (2014). 2013 Annual Report on Form 10-K. Retrieved from http://assets.coca-colacompany.com/d0/c1/7afc6e6949c8adf1168a3328b2ad/2013-annual-report-on-form-10-k.pdf
The Coca-Cola Company. (2015). Our Company. Retrieved from http://www.coca-colacompany.com/our-company/company-reports#TCCC