Free Understanding Financial Reports: Coca Cola Company Essay Sample
Web Location: www.coca-colacompany.com
Link to financial information:
Coca Cola is the biggest brand of the world and a trade mark registered for the Coca Cola Company. It is among very old and successful company whose history goes back to over 127 years of successful operations. Today, the company has over 3500 brands that are manufactured and traded worldwide. I have had interest in this company since long as I am a loyal customer of the soft drink; coca cola and prefer it over any other cola present in the market Today. Apart, how the company has grown tobe a strong and successful multinational venture with global presence had always inspired me and I have always been interested to get more of insight of the company.
The following is an analysis of the key profitability and cash flow measure ratios for the company as well as for its close competitor; Pepsi Co., to give a more logical view of the company’s performance and position. It would really help me academically with my course for accountancy and give a practical know how of the company matters.
Competitive profitability analysis
Return on assets is a measure of how much profit a company earns in contrast to its total assets (Cengage Learning, n.d.). Coca Cola Company has a good return on assets ratio of around 10.54% that shows a healthy return on assets for the company. This demonstrates the efficiency of the company’s management towards the assets utilization for earning good profits. Pepsi Co has a lower return on assets of around 8.28% showing the stronger return on assets for Coca Cola Company as compared to its competitor.
Profit margin is a measure of company’s profits it is earning as a proportion of sales. It is a very effective ratio for comparison of profitability for different companies in the same industry (Drake, P, n.d.). Coca Cola Company has a high profit margin of approximately 19% that is very strong. Pepsi Co has a substantially lower profit margin equivalent to almost half that of Coca Cola Company. This shows that Coca Cola Company is earning a much stronger profit on sales as compared to its competitor.
Asset utilization presumes the revenue earned on every dollar of asset a company owns. It shows that the great the ratio, the more efficient utilization of each dollar of company’s assets (Mongiello, ,. 2009). Coca Cola Company has a lower asset utilization of 56% as compared to its competitor; Pepsi Co, amounting to 88%. This means that Coca Cola Company is less efficiently earning revenue when compared to the total investment in assets and needs to improve the ratio of through higher revenue.
Competitive cash flow analysis
Free cash flow analyzes company’s total cash flow available after making any capital expenditures and without incorporating the financing activities (Walther, l, 2012). For Coca Cola Company, the free cash flow position presumes a critical situation as it shows negative balance which was due to the amount for investing activities exceeding the cash flow generated from operations. If we analyze the cash flow statement, we can see that the total cash flow generated from operating activities was $10,645 million while the total outflow in form of investing activities was somewhat around $11,404 million. The major outflow was for purchase of investments for $9,590 million and plant and property around $2,780 million. On the other hand, Pepsi Co has a very sound cash flow position with free cash flow figure amounting to $5,474 million with cash inflow from operations amounting to $8,479 million while cash spending on investment activities amounted to $3,005 million. All in all, Coca Cola Company has more critical and weaker cash flow situation in contrast to its competitor and needs to improve it in order to minimize any serious risks associated in the future.
Cengage Learning. (n.d.). Business Resources for Students: The Role of Financial Analysis. Retrieved December 7, 2011 from http://college.cengage.com/business/resources/casestudies/students/financial.htm
Drake, P. (n.d.). Financial Ratio Analysis. Retrieved November 15, 2011 from http://educ.jmu.edu/