The Coca-Cola Company is a multinational company with its headquarters in Atlanta, Georgia, in the United States. Founded in 1892 by Asa Griggs Candler, the corporation operates within the carbonated soft drinks (CSD) and beverage sector while serving billions of customers across the globe. The company brand positioning has transformed from initially being a patent medicine offering a cure to headaches and fatigue to a refreshing and quenching thirst. Today, the corporation incorporates cultural values like friends, family, and everyday happiness in its brand positioning. Coca-Cola consistently markets its products as of premium quality that offer a positive experience to its customers. According to a report at the Statistica, Coca-Cola is the leading CSD corporation in the US, with a market share of 44.9 percent. In comparison, PepsiCo follows next with a market share of 25.9 percent as of 2020 (Ridder, 2022). The firm markets, manufactures and sells beverage concentrates, finished beverages, syrups, sports drinks, water, soft drinks, sparkling soft drinks, juice, coffee, plant-based drinks, dairy, and tea.
The Coca-Cola executive leadership is responsible for establishing a culture of success committed to influencing change and expansion throughout the globe. Some of the notable leaders of the corporation include James Quincey, the chairman and chief executive corporation. Before joining Coca-Cola, the CEO was the president of Northwest Europe and Nordics business unit president. Under his tenure, he oversaw the acquisition of Innocent juice from the year 2008 to 2012. Quincey was the president of the Coca-Cola Europe Group, where under his stewardship, the firm expanded its brand portfolio and enhanced its market share. From 2015 to 2017, he was the firm’s president and chief operating officer. In 2019, he was chosen as the board’s CEO and chairman. According to the proxy statements filed for 2021, Quincey earned a total compensation package estimated to be $24,590,663 (Salarycom, 2022). This compensation package includes $1,600,000 as salary compensation, $2,800,715 as stock options, $6,400,000 as bonus, $13,672,020 as stock while the Coca-Cola CEO and chairman received $117,928 as other types of compensation.
Another notable figure heading the corporation includes John Murphy, the executive vice president, and chief financial officer. From 2016 to 2018, Murphy served as the Coca-Cola Asia Pacific group president. The leader has acquired experience in this field from his three-decade experience working in Coca-Cola in finance, strategic planning, and general management. Before joining Coca-Cola, Murphy worked as an auditor for Waterhouse in Dublin for four years. Based on the proxy statements filed for the year 2021, the corporation’s executive vice president received total compensation of $8,757,661. Murphy earned $2,237,500 as their salary, while the leader’s stock options and bonus totaled $4,557,227 and $933,573, respectively (Salarycom, 2022). Additionally, Murphy received stock worth $4,557,227 while pocketing other types of compensation totaling $148,111.
Manuel Arroyo, appointed in January 2020, is Coca-Cola’s global chief marketing officer. He is responsible for heading Coca-Cola global marketing teams for the firm’s beverage categories, Marketing Operations & Capabilities, Human Insights, Marketing Performance, and integrated Marketing Experience (IMX). Before joining Coca-Cola in 1995, he worked with S.C. Johnson & Son and Banco Santander. in 1998, while working as the global brand manager for the company, he established the first global water strategy for Coca-Cola. Before their appointment to his current position, Arroyo was Coca-Cola’s global chief marketing officer (CMO) and the Asia Pacific operating group president. Proxy statements filed for 2021 reveal that the firm’s chief marketing officer earned $7,375,478 in compensation. This total reflects $645,000 earned from salary, $763,833 and $3,728,637 earned from stock options and stock received respectively (Salarycom, 2022). Additionally, the leader earned an estimated $613,008 from other types of compensation.
Coca-Cola Rations Based on The Company 10-K for the Year ending December 2021 (amounts in $ millions)
Firm Liquidity
- Current Ratio = Current Assets/Current Liability
- Current Assets = 22,545
- Current liability =19,950
- 22,545/19950 = 1.13
- Acid-Test Ratio = cash & cash equivalent + current receivables + short-term investments / current liabilities
- cash & cash equivalent = 9,684
- current receivables =
- short-term investments =1,242
- current liabilities = 19,950
- 10926/ 19950 = 0. 55
- Average Collection Period (ACP) = (Accounts receivable / net sales) * 365 days
- Accounts receivable = 10,926
- Net sales = Revenues from sale of concentrates and finished product operations in US and international market (13,010 + 25, 645) = 38,655
- 10926/38,655 = 0.28*365 = 103.17
- ACP = 103 days
- Accounts Receivable Turnover (ART) = Average accounts receivable (ACR) / Accounts receivable turnover ratio (ARTR)
- ACR = Accounts receivable at the beginning of 2021 + Accounts receivable at the end of 2021 / 2
- ACR = 8,566+10,926/2 = 9,746
- ART = Net credit sales / ACR
- Net credit sales = 10,926
- ART = 10,926/ 9,746 = 1.12
- Inventory Turnover = Cost of Goods Sold / Avg. Inventory
- Avg. Inventory = (2021 beginning inventory + 2021 ending inventory) / 2
- Avg. Inventory = 3,266 +3414/2 = 3,340
- Cost of goods sold = 15,357
- Inventory turnover = 15,357/ 3,340 = 4.6
Operating Profitability
- Operating Return on Assets =
- Earnings Before Interest and Taxes (EBIT) / Average Total Assets
- EBIT =12,425
- Average Total Assets = Assets at the beginning of 2021 – Assets at the end of 2021
- Average Total Assets = 19240 – 22,545 = -3,305
- Operating Return on Assets = 12,425/ -3,305 = -3.76
- Operating Profit Margin = Operating Income / Sales Revenue
- Operating income = 12,425
- Sales revenue = 13,010 (US sales) + 25, 645 (International Sales) = 38,655
- Operating Profit Margin = 12,425 / 38,655 = 0.321
- Total Asset Turnover = Net Sales / Average Total Assets
- Net sales = 38,655
- Average Total Assets = -3,305
- Total Asset Turnover = 38,655 / -3,305 = -11.70
Financing Decisions
- Debt Ratio = Total Debt / Total Assets
- Total Debt = Total Current Liabilities + Long- term debt + Other noncurrent liabilities + deferred income tax liabilities
- Total Debt = 19,950 + 38,116 + 8, 607 + 2, 821 = 69, 494
- Total Assets = 94,354
- Debt ratio = 69,494 / 94,354 = 0.74
Return on Equity
- Return on Equity = Net income / Shareholder Equity
- Net income = 9,771
- Shareholder Equity = Total Assets – Total Liabilities
- 94,354 – 69494 = 24,860
- Return on Equity = 9,771 / 24, 860 = 0.39
Market-Value Ratios
- Price/Earnings Ratio (P/E/ Ratio) = Market value per share/ earnings per share
- = 0.25/2.25 = 0.11
- Price/Book Ratio = market price per share / Book Value per share
- Market value per share = 0.25
- Book Value per share = Total equity – Preferred equity/ total shares outstanding
- Total equity = 24,860
- Preferred equity = 22,999
- Total shares outstanding = 4,325
- Price/Book Ratio = 24,860 – 22,999/4,325 = 0.43
For the past decade, Coca-Cola has been the market leader compared to Pepsi, among other firms. The order of the top ten soft drink and beverage firms has remained constant apart from the entry of J20 Orange & Passionfruit slips on the table. Despite a brand decline of 13% in 2021, Coca-Cola still earned more revenue ($38.7 billion) than Pepsi, which recorded $25.3 billion. Coca-Cola’s 2021 0.74 debt ratio is below the 5 Pepsi company debt ratio; these records indicate that Pepsi has financed most of its assets through debt (Macrotrends, 2022). Compared to its primary competitor, Coca-Cola experiences less risk. The growth rate of the carbonated soft drinks and beverage market is steadily growing. This growth indicates a future increase in earnings per share in firms operating within this sector.
Coca-Cola issued its $500 million bonds on the 25th of May 2017, with a maturity date of the 25th of May 2027. The bonds offer a coupon of 2.9%, with the payment of the coupon expected to happen twice per biannual on the 25th of November every year. The coupon price stands at a current price of $98.791, which translates to an annual yield of 3.53%. As of April 2022, Coca-Cola had a debt of $ 42.1 billion, while in 2021, the firm recorded $45.2 billion (Simply Wall St, 2022). Coca-Cola’s earnings before interest, tax, depreciation, and amortization (EBITDA) ratio of 2.4 reveals that the company is right because it is moderate; the firm can repay its debts.
Coca-Cola’s stock price has constantly increased over the years despite stiff competition. In 2021 the firm dividend yield was 3.3 %, and it paid an annual dividend of $1.68 per share; in February of 2022, the company announced a $1.76 annual dividend (The Coca-Cola Company, 2022). In 2021, the firm payments for common and preferred stock dividends amounted to $-7.252 billion. This amount represents a 2.91% increase from the amount paid in 2020. For the quarter ending the 31st of March 2022, the company paid $-1.906 billion in total common and preferred stock dividends representing a 5.3% increase year-over-year.
Value of Coca-Cola common stock = stock price / Earnings per share (EPS) = 0.25/2.25 = 0.11
Analyzing Coca-Cola’s financial ratios, stock valuations, and news surrounding the firm allows one to determine the corporation’s future. The company’s price/equity (PE) ratio has been improving over the years. For the year ending Dec 31st, 2021, the company realized a PE ratio of 25.81; as of July 2022, the firm’s PE ratio stands at 26.26, indicating the firm’s growth. For the year ending 2021, Coca-Cola recorded a 40.89% Return on Equity (ROE), while for the period ending March 2022, the firm recorded an ROE of 41.19% (Macrotrends, 2022). The firm’s ROE has been growing over the past years, indicating that the corporation can generate its profit without requiring much capital. The company’s average stock price rose from 54.084 in 2021 to 62.16 in 2022. There hasn’t been any news revealing stagnation or loss within the corporation. Based on the financial reports, it is clear that Coca-Cola is experiencing steady growth within the industry.
Inflation remains a significant macroeconomic condition facing Coca-Cola company faces today and in the future. The global increase in fuel prices has led to inflation, raising the firm’s production cost through increased cost of raw materials, utilities, rent, and employees, thereby increasing the cost of capital. The Organization for Economic Co-operation and Development (OECD) unemployment rate has fallen to 5.1% by March 2022 (OECD, 2022). The fall in unemployment rates indicates that Coca-Cola has the potential to realize an increase in these nations now and in the future. The global unemployment level increased during the COVID-19 pandemic and is expected to remain below the pandemic level until 2023. Therefore, this indicates that from 2023, Coca-Cola is expected to realize immerse growth in revenues.
The overall risk of the COVID-19 outbreaks in different parts of the U.S, and Europe, among other markets, continues to pressure the business. As the firm’s sales depend on consumer mobility, the firm’s sales within these regions can likely be affected. Prevalence of COVID-19 outbreaks is likely to cause investors to reduce the amount of stock they hold from the company, thereby affecting the firm’s share price.
Due to its steady performance, Coca-Cola provides a suitable investment venue for long-term investing goals. The global soft carbonated drinks and beverages market is expected to grow, especially in developed nations. These nations are also facing an upsurge in demand for low/no sugar drinks, which are the main products from the firm. Coca-Cola dividends have also experienced growth over the years, indicating good returns for the company’s investors.
The COVID-19 pandemic and the ongoing Russian invasion of Ukraine reveal how fast economies can be affected. As inflation due to rising oil prices affect different economies, it is crucial to develop a sustainable investment portfolio capable of mixing safer investments, higher returns, and riskier investments (Kolaczkowski, 2022). My investment portfolio entails Short-term certificates of deposit, Series I bond, Short-term corporate bonds (CDs) funds, Value stock funds, and Nasdaq-100 index funds. During economic growth, rates are likely to change. Short-term certificates of deposit are a good investment choice when there is a likelihood of changes in rates. The investment also allows one to re-invest at a higher rate when the CD matures. During an economic recession, inflation is always high, and the Series I bond is a crucial investment as inflation continues to affect economies globally. The bond is helpful in protection against inflation as it pays a base interest rate and additionally incorporates the changes in the inflation rate. Through this interment vehicle, when inflation rises, the payout also increases. The recession period also offers a chance to invest in Value stock funds as they tend to perform better when interest rates rise and pay dividends.
When the economy is stagnant, the Nasdaq-100 index funds provide better chances of earnings as one does not have to choose winners, losers, or even analyze a given company. The Nasdaq-100 index funds enable one to diversify amongst the most stable and best tech companies. This investment option provides a way of investing in nearly all companies. The global COVID-19 pandemic and the prevailing scarcity of oil will likely lead to economic stagnation in the next two years; if the war in Ukraine is not solved, the recession will probably be in 5 years.
The prevailing macroeconomic conditions offer a gloomy future for most corporations. The rising fuel prices continuously increase the cost of production. as corporations like Coca-Cola strive to maintain their market share, its critical resources, including the human capital, will mainly influence the corporation’s profitability. Coca-Cola is a global corporation with tremendous experience in the industry. The company’s financial ratios and statements reveal that the company is still a worthy investment for investors.
References
Kolaczkowski, M. (2022). How does the war in Ukraine affect oil prices? World Economic Forum.
The Coca-Cola Company. (2022). Annual filings (10-K). The Coca-Cola Company.
Macrotrends. (2022). PepsiCo debt to equity ratio 2010-2022: PEP. Macrotrends.
OECD. (2022). Unemployment rates, OECD – Updated: May 2022. OECD. Web.
Ridder, M. (2022). Leading carbonated soft drink (CSD) companies in the U.S. 2020. Statista.
Salarycom. (2022). Compensation information for James Quincey, chairman of the Board and chief executive officer of Coca-Cola Co. James Quincey Executive Compensation.
Simply Wall St. (2022). We think Coca-Cola (NYSE: KO) can stay on top of its debt. Simply Wall St News.