Coca-Cola Analysis
Below you will find financial data for Coca-Cola for the years 2006 and 2016. This data includes the following:
1. Raw numbers for the balance sheet and income statements
2. Common-size balance sheets (all entries expressed as a percent of Total Assets)
3. Common-size income statement (all entries expressed as a percent of Total Sales)
4. Ratios—including liquidity, profitability, leverage, asset management, and market ratios
5. DuPont equations
6. Working Capital
7. Cash Conversion Cycle
Your assignment is to analyze this data. Your analysis should include the following:
1. An ‘eye-ball’ assessment of the changes in Coke’s financial statements between 2006and 2016—e.g., overall growth in assets, revenues, equity, debt, etc.
2. Analysis of the Common-size statements—i.e., what changed and why. That is, describe the changes in these statements and analyze the cause of the changes. Include: a) mix of assets, b) split between current assets and fixed assets, c) mix of debt, d) split between current liabilities and LT liabilities, capital structure (i.e., debt and equity), e) profitability at all levels, f) changes in expenses, etc. This section must include evidence of research indicating what events had substantive effects on Coke’s financial profile during the 10 year period. In other words, profitability may have increased due to introduction of new product lines, leverage may have increased due to the issuance of bonds, and assets may have increased due to acquisitions. These are offered as examples, and your research should indicate what occurred and how it affected Coke from a financial perspective.
3. Analysis of the ratios by category—include in this an explanation of the cause of the change—e.g., liquidity increased due to the increase in CAs and decrease in CLs. In addition to discussing each of the individual ratios, this section must include an overall conclusion regarding the direction of the four major categories of ratios. In other words, you must draw conclusions regarding the overall trends in 1) liquidity, 2) efficiency, profitability, and 4) leverage over the 10 year period. You must also provide industry averages where available so that you can compare Coke’s ratios to those of its industry competitors.
4. Analysis of the DuPont equation and discussion of the underlying reasons for the changes in ROI (ROA) and ROE.
5. Analysis of working capital and discussion of the implication of a positive or negative WC level. Is Coke’s WC policy conservative, moderate, aggressive? Why?
6. Analysis of the Cash Conversion Cycle and discussion of its implications.
7. Summary and conclusion concerning the major changes in Coke’s financial situation.

Coca-Cola Common-Size Statements of Income and Retained Earnings for December 2006 and 2016
All Amounts in Millions
2006 % 2016
Revenue 24,088 100% $ 41,863 100%
Cost and Expenses
Cost of Sales $8,164 34% $16,465 39%
Gross Profit $15,924 66% $ 25,398 61%

S, G, and A $9,616 40% $16,772 40%
Interest Charges $220 1% $ 733 2%
Other Income/Expenses (net) ($490) -2% ($243) -.5%
Total Cost and Expenses $17,510 73% $ 33,727 81%
Income before Income Taxes $6,578 27% $ 8,136 19.4%

Provision of Income Taxes $1,498 6% $ 1,586 4%
Other Income ($23) -0.4%
Net Income 5,080 21% $ 6,527 15.6%
Dividends (% of NI) 57% 83.6%
Adjustments to Retained Earnings $0 $0
Retained Earnings, Beginning Balance $28,388 $ 65,018
Retained Earnings, Ending Balance $33,468 $ 65,502


Coca-Cola Common Size Balance Sheets for December 2006 and 2016
All amounts in Millions
2006 % 2016 %
Assets
Current Assets
Cash and Equivalents $2,440 8% $22,201 25.4%
Receivables $2,704 9% $3,856 4.4%
Inventory $1,641 5.5% $2,675 3.1%
Other $1,656 5.5% $5,278 6.1%
Total Current Assets $8,441 28% $34,010 39.0%
Productive Assets
Property, Plant, and Equipment (net) $6,903 $10,635

Net Productive Assets $6,903 23% $10,635 12.2%
Other Assets $14,619 49% $42,625 48.8%
Total non-current assets $21,522 71.8% $53,260 61.0%
Total Assets $29,963 100% $87,270 100%
Liabilities And Shareholders’ Equity
Liabilities
Current Liabilities
Accounts Payable $5,622 19% $2,682 3.1%
Current Debt Due $3,268 11% $16,025 18.4%
Other $0 0% $7,825 9.0%
Total Current Liabilities $8,890 30% $26,532 30.5%
Long-Term Liabilities
LT Debt $1,314 4% $29,684 34.0%
Other LT Liabilities $2,231 7% $3,753 4.3%
Deferred Income Taxes $ 608 2% $4,239 4.9%
Total LT Liabilities $4,153 13% $37,676 43.2%
Total Liabilities $13,043 43% $64,208 73.6 %
Shareholders’ Equity
Common Stock $878 3% $1,760 2.0%
Treasury Stock ($22,118) -74% ($47,988) -55.0%
Retained Earnings $33,468 112% $65,502 75.1%
Equity Adjustments ($1,291) -5% ($11,205) -12.8%
Capital Surplus $ 5,983 20% $14,993 17.2%
Total Shareholders’ Equity $16,920 57% $23,062 26.5%
Total Equity + Liabilities $29,963 100% $87,270 100%

Ratio Analysis for Coco-Cola: 2006 and 2016
Ratio Definition 2006
2016

Liquidity
1. Current ratio current assets
current liabilities .9 1.28

2. Quick ratio (acid test) current assets – inventories
current liabilities .76 1.18

Asset Management
3. Average collection period accounts receivables
credits sales/ 365 41 33.6
Total Rev. = Cr. Sales

4. Inventory turnover cost of sales
average inventory 5 5.64
INO = AVE INV

5. Fixed asset turnover sales
fixed assets 3.5 3.94
FIXED ASSETS = NET
6. Total asset turnover sales
total assets .8 0.48

Financial Leverage Management
7. Debt Ratio total debt
total assets .44 0.735
ST+LT= Total Debt
8, Debt-to-equity total debt
total equity .77 2.78
ST+LT
Profitability
9. Gross profit margin sales – cost of sales
sales 66.1 60.7

10. Net profit margin earnings after taxes (EAT)
sales 21.1 15.6

11. Return on investment earnings after taxes (EAT)
total assets 17.0 7.5

12. Return on Stockholders’ equity earnings after taxes (EAT)
stockholders’ equity 30.0 28.3

Dividend Payout 57% 83.6%

Du Pont Model
ROI or ROA:
ROI = Profit Margin x Asset Turnover = Net Profit x Net Sales
Net Sales Total Assets

ROI (2006) = $5,080 x $24,088 = 21.1% x ,80 = 17%
$24,088 $29,963
ROI (2016) = $6,527 x $41,863 = 15.6% x 0.48 = 7.5%
$41,863 $87,270

ROE:

ROE = Profit Margin x Asset Turnover x Leverage

Where Leverage = Total Assets/Equity

ROE (2006) = 21.1% X .8 X 1.77 = 29.9%
ROE (2016) = 15.6% X 0.48 X 3.78 = 28.3%
Working Capital
Working Capital = Current Assets – Current Liabilities
2006 Working Capital: 8441 – 8890 = -449
2016 Working Capital: 34,010 – 26,532 = +7478

Cash Conversion Cycle
2006 2016
Accounts Receivable Days: 41 33.6
Inventory Days: 73 59.4
Accounts Payable Days: 251 59.5
CCC -137 33.6