The Coca-Cola Financial Accounting - Essay Example

FINANCIAL ACCOUNTING Introduction. Ordinarily, the Coca-Cola Company is doing well ingeneral. The Coca-Cola Company falls in the nonalcoholic beverage industry. The ratio of the company has been compared with the overall industry ratio to determine if the Coca-Cola Company is doing well by meeting the average ratios. This report tends to analyze the company ratios against the industry so as to compare its performance. In addition, the overall health is determined by the financial ratios. The company has recorded a significant rise of sales of $46,854 million in 2014 from $.45, 998 .The increase of sales is normally an indication that the business is going on well. The comparison with the Nonalcoholic beverage industry of which Coca-Cola is a member shows that the business is doing well. Currently; Coca-Cola is less liquid as compared to other firms in the industry. It has a quick and current ratio of 1.1 and 1.059 which are higher than the industry ratios of 0.57 and 0.7.This shows that the company is in a better liquidity position thus making it to collect receivables faster than other firms in the industry. However, the Company should evaluate its credit policy to determine if it is negatively affecting the sales since it has a collection period of 11 days which is lower than that of the industry of 9days. Additionally, the company is using its resources more efficiently to generate more sales and thus avoiding wastes. This is because the fixed and total asset turnovers are above the non alcoholic beverage industrial ratios. On the other hand, its debt and debt to equity ratio reveals that the company is more leveraged than other companies and thus poor performance since the company it is much committing to pay interest regardless of the markets instability. The statements have shown consistency in the interest payment. Analysis Vertical analysis. The assets have increased significantly from 34% to 35% because the company invested more. The short term investment rose from 7% to 9% raising the assets turnover. In addition more assets were held for sale by the company and this increased the total assets significantly. The total equity reduced significantly from 37% to 33%.This was because of the reduced shareholders who run away due to low prices of share and dividends. The shareholders reduced by 4 % and this affected the total equity significantly Horizontal analysis. In 2014 when revenues were 95% of the base year amounts, cost of goods sold was less—only 93% of the base year amount. There has been a degree in revenue from 98% to 95% because the company has decreased the prices of the products and the brand. The selling price of the products was reduced due to the lower costs of production. In addition, the inventory cost could have declined significantly. This has significantly affected the net income which has reduced from 95% in 3013 to 78% in 2014. The Gross margin has increased significantly over years and this means that the business is doing well and its rising in profitability as the year’s progresses. This also implies that the company has a lot of money to spend on other business operations including marketing as compared to other companies in the industry. The company is not facing liquidity issues since the working capital ratio is more than one. Normally, a ratio that is less than 1 makes a company to face liquidity issues. Therefore, Coca-Cola Company is in a good position to settle its debtors and that it has no reason of selling its assets to pay debts and therefore the firm has no liquidity problems. (Anonymous, 2014) Ordinarily the greater the working capital, the more likely it will be to make its payments on time. Its competitor has working capital of 0.95 meaning it is facing liquidity problems. The company has an inventory turnover of 11.5.This is a good indication of production and purchasing efficiency. A high ratio of 11 indicates inventory is selling quickly and that little unused inventory is being stored. There is no overstocking, obsolete inventory or selling issues The Coca-Cola company has an benefit in its leverage ratio which entails Assets to Equity of 2.97 compared to 1.52 for the industry and in its use of assets showed in Asset Turnover of 1.04 compared to 0.61 of the industry yet the company has a poorer return on equity because of its low net profit margin.“Large variable and fixed expenses (relative to the level of sales) are negatively impacting ROA, and these expenses, especially variable expenses (selling, general, and administrative expenses) since they are perceived to be more easily controllable, need to be closely evaluated. Increases in sales revenues may also help the ROA situation.” (Pol, 2014).The educing sales could be blamed because of the overall poor market. Management’s Discussion and Analysis I. Capital Structure Management. The capital structure analysis has focused on long-term debt in calculating the leverage. Coca-Cola Company has a higher gross profit margin of 1.57 which is greater than the industry firm which has 1.2, but has a lower net margin. Coca-Cola Company would scrutinize its capital structure policy so that it contains the correct benefit balances from the tax shield of risen debt in comparison to the bankruptcy and other related financial costs related to the increased debt. II. Debt management. The company long term debt reduced from 21.2% in 2013 to 20.7% in 2014.The equity dropped significantly on both the book value and market value basis. The Company has a strict debt equity ratio therefore it has to balance the benefits of debt. The cash balances have increased significantly, this shows that some of long-term financing was used to improve the short term liquidity position. The company recorded an increased leverage which made the company to increase interest payment so as to service that long term debt. The interest payments also increased from $534M to $594M from 2013 to 2014, increasing the losses of the company in 2014 as the market conditions worsened. (CSI, 2014) III. Asset management. This rising asset turnover ratio means that the Coca-Cola Company is using its assets more productively and efficiently to produces more profits.Ordinariy; the asset turnover may indicate overcapacity caused by extremely poor forecasts of future sales. The poor ratio may indicate a fundamental inability or inefficiency in using the deployed assets IV. Short Term Liquidity Management. Coca-Cola Company is in a short liquidity position when compared to the industry performance. The industry quick and current ratio of 0.57 and 0.7 are less compare to Coca-cola’s of 1.059 and 1.1 respectively. The liquidity is justifiable by the fact that the ratios are above one, therefore the company is in a solid short-term liquidity. Coca Cola Company has had very solid improvements in its liquidity position since 2013. The liquidity improvement is as a result of reductions in notes payable and the current portion of long-term debt. However, significant enhancement is due to large increases in cash and cash equivalents. The cash and cash equivalent balance rose by 3% in that period. In conclusion it is evidenced that the company is doing well as it is using its assets efficiently in the production. Conclusion It is evidenced that the company is doing well, in terms asset, debt, short term liquidity and the capital structure management. Additionally, the company is using its resources more efficiently to generate more sales and thus avoiding wastes. Works Cited Anonymous. (2014). Coca cola. Retrieved 2015, from http://assets.coca -colacompany.com/d2/78/7d7cad454f3fbd033d55d786b890/2014-annual-report-on-form-10-k.pdf CSI. (2014). CSI Market-Nonalcoholic Beverages IndustryFinancial Ratios. Retrieved 2015 , from http://csimarket.com/Industry/Industry_Financial_strenght.php?ind=502 Pol. (2014). Financial analysis. Retrieved 2015, fro m http://www.vppartners.org/sites/default/files/reports/full_rpt.pdf Read More