Coca Cola Financial Analysis - Case Study Example

? Number] Coca Cola Financial Analysis Introduction Organizations throughout the world are massively dependent upon the financial planning phase. In every business endeavour, financial analysis is considered as the moral fibre. Financial analysis and planning signifies meeting organizational strategic goals and objectives on the monetary basis. It is the fiscal estimation of each and every organizational activity to be carried out. It notifies either business expedition should be performed or not by exemplifying the financial output overview. In the execution and development of any business, the financial planning aspect is given utmost importance. The reason for giving so much worth to this element is because of its magnitude and intensity. Positive calculations and feasibility of organizational processes on the financial basis indicate business to flourish in the future (Chandra 24). The strategic dimensional examination by the organization is carried out by financial and accounting analysts. The time frame involved in business mounting and expected returns are highlighted by the financial forecasters. The rationale of revealing this information is to escort organization why they should or should not opt for the business commotion (Chandra 31). The purpose of this paper is to elucidate about the financial analysis of Coca Cola. Core steps of the financial planning and analysis along with categories of financial planning are depicted too. The paper enlightens that to what extent financially Coca Cola stands and what are its strengths and weaknesses. The paper also notifies the positioning of Coca-Cola's biggest competitor; Pepsi Cola's financial condition. Coca Cola- Company Introduction Cola-Cola is the largest beverage brand in the world. The operational activities of the organization are widespread in more than 200 countries. With more than 500 brands and 90,000 employees, Coca-Cola holds promising place in the beverage industry and is considered as the market leader. The company has divided its operational activities into six groups- Europe, North America, Latin America, Pacific, Eurasia and Africa and Bottling investments. The financial positioning of the company throughout the years has been remained promising. Pepsi Cola International is the biggest competitor of Coca Cola and retains prominent position in the industry too. The business endeavours of Coca Cola are far more than Pepsi, and financial analysis of the previous years indicate Coca Cola's lead in the industry (Clarkson 18). Financial Analysis and Planning- Core Steps The business environment assessment is the preliminary segment in the financial planning commotion. In this segment, it is determined either the market atmosphere is competitive enough to execute business activity or not. Alongside the economic conditions of the region are determined. Moreover, the legislations or laws passed in favour and against the respective business ventures are scrutinized by the financial analysts. Their role remains to monitor market inclination, approximate the chances of implementation and make precise decision about the viability of market. After business environment assessment segment, business vision and objectives confirmation is determined. Fundamentally the dissection of organizational goals and objectives is detected. Concise understanding about business preference and tendency to operate is scanned by the financial analysts (Chandra 40). The summarization of all the costs attached in the performance of business is illustrated in the financial plan. Business activity has to bear certain risks too which are emphasized in the financial reporting final charge sheet. The financial plan ultimate verdict is presented to the decision making body of the firm so that they would asses either it is possible to opt for the business option or not. The steps elaborated needs to be followed in the same direction, because inter-dependency is attached with each other. The termination, escape or mingling up steps of financial planning can bring disastrous outcomes (Chandra 59). Coca Cola Financial Positioning The financial analyses of Coca Cola are elaborated in this section. All the six groups operational of the company are collectively examined. The tables given below reveal that the financial positioning of the company in 2012 was far better than 2011. Table 1 shows the net operating revenues of Coca Cola in the year 2011 and 2012. In 2011, net operating revenues were $46,542 million while in 2012 it escalated to $$48,017 million. As per the operating income, company had to experience altitude as well. Till 2011, operating income of the company was $10,173 and in 2012 operating income reached $10,779 million (U.S-SAEC 57). The details of operating income are depicted in table 2. Table 1: Net Operating Revenues (in million $) December 31, 2011 December 31, 2012 Percentage Change Europe 5474 5123 -6 North America 20571 2168 5 Latin America 469 4831 3 Eurasia & Africa 2841 297 5 Pacific 5838 6035 3 Bottling Investment 8591 8895 4 Corporate 159 127 -21 Eliminations -1622 -1644 1 Consolidated 46,542 48,017 3 Source: US Securities and Exchange Commission Report 2012 The operations of the firm are spread out in various localities, therefore concise accumulation of the revenues and expenses incurred individually can be sometimes tricky to mount up. On the percentage examination of the net operating revenues of Coca Cola in 2011 and 2012, it is revealed that corporate sales of the company are on decline. The percentage change of -21 is alarming for the company. Meanwhile, decline in the European revenues of -6% is of serious concern for the organization. North American and Eurasia & Africa revenues are increased to 5% which is positive. Overall it can be observed that the percentage decline in corporate and European revenues is certainly more than the increase percentage of net revenues. Table 2: Operating Income (in million $) December 31, 2011 December 31, 2012 Percentage Change Europe 309 296 -4 North America 2319 2597 12 Latin America 2815 2879 2 EuraAsia & Africa 1091 1169 7 Pacific 2151 2425 12 Bottling Investment 224 140 -38 Corporate -1517 -1391 -7 Consolidated 10,173 10,779 6 Source: US Securities and Exchange Commission Report 2012 On the operating income sector, it can be seen that the percentage change in the bottling investment has been declined to -38%. For a multi-millionaire organization such decline is enormous and needs to be covered. These declining figures can be of serious problem for the organization as the percentage is too much high. The corporate sales position is also tragic as operating income decline of -7% is evident. Same is the case with European operating income whose decline percentage change has reached -4. Coca cola needs to overview its operations in Europe, bottling sector and corporate sector as the issue is very serious and can be tragic for the organization in the future. Cumulatively the operating income has been increased change of 6% which is promising. The concise elements of the financial analysis are presented in table 1 and 2. The tables highlight about the proximity of Coca-Cola financial condition. Table 3 reveals the calculation of operating income and diluted net income per share. The increase in the price per share of Coca cola is constructive and it portrays that company shares must be purchased and the individuals having Coca Cola shares must sustain them. For the investment point of view, Coca Cola shares show potency and strength. Details of operating income, gross profit and diluted income per share are given (U.S-SAEC 50). Table 3: Operating Income Calculation December 31, 2012 December 31, 2011 % Change Net Operating Revenues 48,017 46,542 3 Cost of goods sold 19,053 18,215 5 Gross Profit 28,964 28,327 2 Selling and Admin Expense 17,738 17,422 2 Other Operating Charges 447 732 - Operating Income 10,779 10,173 6 Diluted net income p/share 1.97 1.85 6 Source: US Securities and Exchange Commission Report 2012 The overall preview of the financial performance notifies that company is progressing extravagantly, and the price per share has been increased as well. Coca-Cola’s financial position is competitive and the company is in profits. The increase in operating income is encouraging and rise in revenues is promising too. On the broader levels, Coca-Cola is progressing. Strengths and Weaknesses The strengths of Coca Cola are that it has a reputed name and its brand following is massive. The company has been continuing its investments even since and the results accumulated so far are praiseworthy. The financial position of the organization depicts that its operational activities are working out pretty well. The operating income, revenues and profitability condition of the company is remarkable. It has acquired several small brands and has been making landmark in the world for more than 125 years (Clarkson, 122). The weaknesses of Coca Cola are its increase in the operating expenses. The company needs to overlook its expenses as controlling it can elevate profits of the organization. Furthermore, it is necessary for the organization to make equilibrium in the expenses. The expense of the company has been increasing which can be alarming for the firm in the long run (Clarkson 146). Financial Analysis and Planning Categorization There are three categories of financial planning: strategic role, objectivity, and the planning cycle. These categories sum up the financial planning paradigm. The strategic role of financial planning is to make synergy with the strategic measures of the organization. The organization sets certain strategic measures in the initiation of business so that they would have clear cut direction and vision to perform the respective tasks. The strategic role of financial management is to keep the business strategy ahead while making any move. Through this way analysts come to know that what kind of action would be appreciated or detested by the organization. Essentially the escalation of financial supremacy with the strategic measures of the company are matched and observed whether it would be beneficial or not (Chandra 64). The organizations set mission, vision and objectives of operations. The objectives include reaching certain point or position in the determined tenure. The tenure set for reaching certain point motivates the management to proceed ahead in the business, and does not stay stagnant on certain point. The financial management objectivity is to recognize this organizational budge and make sure to perform such financial reporting in which tenure defined results are predicted. The estimation of amount to be earned till that time frame is presented. The management than specifically knows what sort of orientation the company should opt for. The objectives of every firm remain to strive and optimize in the business environment but getting concrete evidence from the financial side is rather more significant in nature (Chandra 72). Competition with Pepsi Cola Pepsi Cola's rivalry with Coca Cola is anticipated throughout the globe. There are certain regions where Pepsi Cola is dominant over Coca Cola, such as sub-continent. The sales of Pepsi Cola overall are significant and have colossal enormity. The competition of Pepsi along with Coca cola is also with several regional brands. Worldwide both these companies make roar in terms of beverage brands. Pepsi Cola and Coca Cola have remained neck to neck in the beverages industry. The rivalry between these two companies has given the chance to numerous new entrants into the industry. Although the market share captured by Coca Cola is highest in the beverages sector, Pepsi cola holds eminent second position. The difference between the companies is not that much and can be surpassed too. The small firms have regional following but they have not captured the realm entirely, Coke and Pepsi are still considered as the premium brands (Clarkson 35). The financial analysis of Pepsi Cola highlight that it is way beyond Coca Cola. The company's profits are encouraging but overall it is not that much strong as Coca Cola is in the industry. The operating profits of Pepsi in 2012 were $9,112 million while in 2011 $9,633 million. This shows 5 percent decline in the profits. The operating costs of Pepsi cola international are high and the revenues generated do not reach the optimum level. The targets set by Pepsi in 2012 were not achieved and decline in the profitability sector was also observed (Pepsi Co. 2013). Conclusion The financial analysis of Coca Cola demonstrates that company is progressing by leaps and bounds. The strategic business units of the organization are working out pretty well. The group cluster created by Coca Cola has systemized financial flows. The bottling investment of the company is not working out very well as loss has been examined. The demur in the financial statements can be costly for the organization in the long run. Pepsi Cola, the biggest rival of Coca cola is strong in the bottling sector. Overall Pepsi’s financial performance is not very appealing as compared to Coca cola but it can be big threat for the organization, if Coca cola would not cover its weaknesses. On the financial grounds, Pepsi was more powerful in 2011 than 2012. The recent activities of the organization highlight that it would start to overlook its weaknesses and would come back in the beverages realm strongly. Coca Cola’s price per share is increasing which is a positive indicator. The shares of the company should be purchased as the current operations and investments of the company suggest that price per share would be increased in the near future. The increase in price per share can be examined from 2011 to 2012 too; therefore the possibility of improved financial position of Coca Cola can be determined in the coming years. Works Cited Chandra, Prasanna. Financial Management. New Delhi: Tata McGraw-Hill Education, 2011. Print. Clarkson, Kelly. Coke-Cola Company Performance with a Close Comparison to PepsiCo. GRIN Verlag, 2013. Print. Pepsi Co. “Pepsi Co Reports Fourth Quarter and Full Year 2012 Results Online.” Web. 28 Aug. 2013. . U.S-SAEC. “United States Securities And Exchange Commission Report- Coca Cola Company.” 2012. Web. 28 Aug. 2013. . Read More