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Coca Cola International Finance

Introduction

Global investment banking is a vital component to the Coca-Cola organization due to the vast reach of the organization. Coca-Cola deals in 68 functional currencies around the world making global investment banking a key element of the organizations success.

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Net Operating Revenue

Percent Change
Year Ended 2007 December 31 2007 vs. 2006 2006 vs. 2005
Impact of currency fluctuations versus the U.S. dollar 4% 0%

Information about operating margin on a consolidated basis and by operating segment is as follows:

Operating Income and Operating Margin
Year Ended 2007 December 31 2007 2006 2005
Africa 6.2% 6.7% 6.5%
Eurasia 5.3% 4.3% 3.3%
European Union 36.0% 35.7% 36.5%
Latin America 24.1% 22.8% 19.3%
North America 23.4% 26.7% 25.5%
Pacific 23.4% 26.2% 29.9%
Bottling Investment 2.1% 0.3% -0.6%
Corporate -20.5% -22.7% -20.4%
Total 100.0% 100.0% 100.0%
Year Ended 2007 December 31 2007 2006 2005
Consolidated 25.1% 26.2% 26.3%
Africa 35.3% 38.4% 35.8%
Eurasia 39.2% 34.8% 30.5%
European Union 63.0% 61.6% 52.1%
Latin America 57.0% 57.9% 57.0%
North America 21.9% 24% 23.3%
Pacific 42.5% 41.4% 43.8%
Bottling Investment 2.0% 40.0% 90.0%

In 2007, foreign currency exchange rates favorably impacted operating income by approximately 4% primarily related to a strong Euro, which impacted the European Union and Bottling Investments, a stronger Brazilian real, which impacted Latin America and bottling investments, and a stronger Australian dollar, which impacted the Pacific and bottling investments. The favorable impact of the fluctuation in these currencies was partially offset by a weaker Japanese yen, which impacted the Pacific, and a weaker South African rand, which impacted Africa and bottling investments.

Foreign Exchange
Year Ended 2007 December 31 2007 2006 2005
All Operating Currencies 4% -1% 2%
Brazilian real 11% 10% 21%
Mexican peso 0% 0% 4%
Australian dollar 10% -1% 3%
South African rand -3% -7% 1%
British Pound 9% 1% 0%
Euro 8% 1% 1%
Japanese yen -2% -6% -1%

Hedging through currency is the favored hedging technique used by Coca-Cola. The following table summarizes the Coca-Cola aaccumulated other comprehensive income (AOCI) related to derivatives from global investment banking (in millions).

2007 Before-Tax Income Tax After -Tax
Accumulated derivatives net gain (loss) as of January 1, 2007 -16 6 -10
Net changes in fair value of derivatives -158 61 -97
Net reclassification from AOCI into earnings 62 -24 38
Accumulated derivatives net gain (loss) as of December 31, 2007 -112 43 -69
2006 Before-Tax Income Tax After -Tax
Accumulated derivatives net gain (loss) as of January 1, 2006 35 -14 21
Net changes in fair value of derivatives -38 15 -23
Net reclassification from AOCI into earnings -13 5 -8
Accumulated derivatives net gain (loss) as of December 31, 2006 -16 6 -10
2005 Before-Tax Income Tax After -Tax
Accumulated derivatives net gain (loss) as of January 1, 2005 -56 22 -34
Net changes in fair value of derivatives 135 -53 82
Net reclassification from AOCI into earnings -44 17 -27
Accumulated derivatives net gain (loss) as of December 31, 2005 35 -14 21

The current world economy has witnessed strong transformation in international markets through a combination of factors which has led to companies making drastic changes in the ways they carry out their businesses. The world has seen more integration in how markets operate leading firms to initiate new strategies to respond to these changes. Coca- cola as an international organization is affected by emerging issues in International finance management.

It has started facing various challenges and opportunities as it continues expanding in its quest to reach every corner of the globe. The Far East countries have become the current major focus of coca-cola’s expansion. It is developing new markets in the rapidly developing economies in the East and Pacific Rim while at the same time putting more emphasis on important markets like China and Russia. The importance of having a good branding strategy has been a critical factor in keeping the company on the world map. Strong growth in the non-alcoholic beverage industry in the current times has seen the company manage to post healthy turnover.

However, the current global macro-economic situation is having a negative impact on its operations. It has faced various challenges across the world. The company’s last quarter results only improved at the rate of 3%, signifying a relative drop as compared to the previous quarter. Various factors led to this state of affairs. These factors include strikes in some parts of Europe as well as natural disasters in Asia. Also, poor weather in various markets has affected the company’s revenue base. Furthermore cases of increased food and energy prices have had a negative impact on its operations. The current GDP forecasts for most countries are that there is going to be slow growth in the coming years which is going to affect its growth, albeit in very small instances.

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The current international market has become very competitive forcing many firms to come up with marketing strategies and effectual innovations so as to keep ahead. According to Muktar Kent, the Chief executive officer, The Coca Cola Company has appreciated this fact through re- evaluating their marketing strategy “through greater use of global campaigns, leveraging best practices on creative designs and execution as well as optimizing our use of agencies and other third-party providers.” (Yahoo Finance, 2009). The company has done this through various activities like entering into global marketing agreements aimed at research that will lead to more cost effective savings that will go a long way in achieving the long term objectives of the company.

Reference

BusinessDictionary. Capital. Web.

Caps.fool.com, (2009). The Coca-Cola Company (KO). Web.

Gitman, L (2006). Principles of Managerial Finance. Boston, Mass: Addison Wesley.

The Coca-Cola Company, (2007). FORM 10-K. Web.

The Coca-Cola Company, (2008). The Coca-Cola Company Increases Annual Dividend by 12 Percent; 46th Consecutive Annual Increase. Web.

Yahoo Finance, (2009). 10-Year Treasury Note. Web.

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StudyCorgi. (2022, March 19). Coca Cola International Finance. Retrieved from https://studycorgi.com/coca-cola-international-finance/

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StudyCorgi. (2022, March 19). Coca Cola International Finance. https://studycorgi.com/coca-cola-international-finance/

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