COCA-COLA BUSINESS ANALYSIS PART II
Angel Hale
Mgt/521

Coca-Cola Business Analysis Part II

This paper will take a look at the financial health of the Coca-Cola Company in comparison to two of their competitors Pepsico & Nestle. As a potential investor, this information will help provide insight on the option to move forward, while looking at technological advantages and globalization effects on the company. At the end of this paper, you will be one step closer to deciding if the Coca-Cola company’s practices, financial & operational findings are in line with a potential investor’s requirement. It has often been said that business is about finding and exploiting advantages and the goal of any business is to maximize profits. As we look into the Coca-Cola Company as a potential investor some of the things to consider are: assets and liabilities, company track record, market position and future potential within the respective market. In general an investor wants to know how attractive current assets and future projects are in order to gauge how successful they may be. One of the first items to look into will be the financial standings for the company, not only will we review the current 2011 annual report, with regards to the balance sheet, cash flow and income statements. In order to understand how efficient the company is, we will also show the comparison between two other competitors within the same niche market: Pepsico & Nestle (see exhibits A, B & C). The first area we will look at will be the overall net profit for each company. Although the economy has been stagnant as it relates to consumer spending in some industries, we will consider three years of analysis to give a comparative advantage. Starting in 2009 Coca-Cola reported number’s in the millions for net profit of $6,824. This number increased by 1.73% to $11,809 in 2010. This compares to its competitor Pespico who only reported a 1.06% net profit increase year over year (2009 to 2010). Those respective numbers were again listed in millions and are $5,979 and $6,338. The Nestle Company presented a slightly complicated showing for their annual numbers which are based on a measure referring to ‘CHF’ units, or the Swiss franc currency table. Although the company provided figures in both CHF units it also breaks the report down into USD units as well, however it is unclear how the company designates or combines revenue. The final net profit number listed (in millions of CHF) for 2010 & 2011 were $8,777 and $9,487 which equates to 1.08% year over year increase. Both competitors showed year over year increases from 2009 thru 2011 except for Coca-Cola which reported a loss in net profit ending at $8,572. The annual report for the Nestle Company only reported figures for 2010 and 2011 respectively. The next area focuses on how overall net profit is reflective in the year end cash reserves held by the company. Cash reserves take into account the available cash flow after operating expenses and shareholder equity that can be used for repaying both short and long term debt. As always, cash is king and the more that a company has at the end of the day, the more attractive and potentially less of a risk. This risk is partially used for the purpose of weighing shareholder wealth, as well as by potential creditors when evaluating liquidity ratios. Although the Coca-Cola company reported a decrease in net profit from its 2010 number, cash reserves increased by 1.5%, ending at a $12,803 in 2011 (again in millions). Both competitors reported decreases in cash flow from 2011 to 2010. The Pepsico Company decreased cash reserves from $5,943 in 2010 to $4,067 and the Nestle Company also reported a decrease from$7,761 in 2010 down to $4,491. Companies tend to have good and bad years, decreases in cash flow can be justified by things such as global expansion, as well as internal decisions made to increase company technology to help aid in benchmarking efforts. Next we have to consider how cash reserves correlate into actual owners’ equity or shareholder equity. After all the operating costs have been cleared and external taxes have been paid, we need to assure that the shareholders are being compensated in the manner in which they want. This is reflective in shareholder equity, common stock and dividends payable. All three of the companies listed have been an industry leader in what’s considered a monopolistic group, so along with product differentiation, the next available resource to separate companies would be who has the best return on equity. The Coca-Cola Company for the past three years has paid out dividends to its shareholders with increases from 2010 of $24,799 to 2011 figures of $ 31,635, which average approximately 1.13% annually. This shows a consistent growth and stability with the company, even after the decrease in net profit, in other words sound internal management decisions are being made to solidify their position within the market. In looking at the other two competitors, the Pepsico Company has been inconsistent with the average dividend payout as well as the overall dollar at year end. Respectively in 2009, the company ended with $16,908 (million) in equity payouts, increased to $21,273 in 2010 and finally dropped back to $20,704 in 2011. As an investor, a possible question may arise as to what change occurred within the past 3-4 year period to justify the large swing in equity payout? Our final company: Nestle, although numbers are again only reported for the past two years, has also shown a large decrease in equity payout from year to year. In 2010, the company ended with $65,977 and in 2011 ended with $ 60,419 in equity. Again, as an investor the difference in the CHF vs. USD could have a bearing on this number, however; clarification and additional research would be needed to get a further understanding of the company’s accounting principles. All-in-all, three of the noted companies have reported earnings and would be viable investor choices, however; the Coca-Cola Company shows that its leading market edge is also supported with solid net profit, cash reserves and overall equity payouts. Moving to the overall financial health of the Coca-Cola Company, it is supported by the consistent financial numbers presented above. As a potential investor, there are no additional concerns that would be considered based on the key financial drivers listed. By looking at the key resources within the company, an investor can consider factors that contribute to the overall health of the company that involve net operating revenue, gross profit, operating income, income before taxes and net income per share. In the brief review completed above, we have seen a consistent gain in the Coca-Cola’s Company’s balance sheet, income statement, and cash flow statement. Technology is important in order to absorb the businesses performance market. While

Coca Cola is known as one of the most stimulating companies in the world, its expansion and growth worldwide as a company depends on the investment in technologies which will help further develop the companies’ vision. The company’s information technology (IT) staff is responsible for the monitoring of solutions and exceeding expected results. Other goals for technological advancements include the political side of the company that helps to back up political and federal committees. Those committees include: Coke Political Action Committee and Georgia Political Action Fund. Coca-Cola also expands their innovation to include their vending machines. The newer vending machines placed around malls and public places help reduce carbon dioxide and are less wasteful, these are called ‘freestyle dispensers.’ The company also reduces their product material by creating more eco-friendly and safe drinking portions for consumers to enjoy. The two competitors tend to follow the same form of advances to strengthen their brand by incorporating eco-friendly products that are made from bio-degradable materials, as well as creating a presence within the social media scene. Competition within the free market system as we know it is saturated with competitors offering similar products. As a company strategizes to gain more market shares and obtain organic growth, it has to consider globalization and the affects it can have on organizational goals. We define organic growth as growth within the existing business frame free from acquisitions and mergers. Organic growth is also apparent within foreign markets due to typically obtaining additional sales growth and new consumer bases thru expanding markets. As an example with the ever increasing economic growth within the Middle East and North Africa markets, the Coca-Cola Company has committed to invest 5 billion within those regions over the next 5 years. During a speech given at the World Economic Forum (WEF), the CEO of Coca-Cola, Muhar Kent, stated that, "the Middle East and North Africa, despite its challenges, is positioned to benefit from a booming youth population that's dynamic, resourceful and highly entrepreneurial. Ongoing demographic shifts can be a powerful and even irresistible tool in helping bring additional economic opportunity and foreign direct investment to the region." (Muhar Kent, 2011) This type of insight on behalf of the company supports the idea of globalization to sustain growth, and potential dollars the company is looking to invest will definitely help aid in this venture. Since its inception Coca-Cola has been innovative in its approach to marketing its brand. From 1905-1918 the company focused on developing the unique contour bottle to combat copycats, making itself more outstanding from the competitors. From 1919-1940 Coca-Cola introduces the six-pack, a convenient packaging that helped to revolutionize soft drink consumption; this helped to enable people to enjoy Coca-Cola anywhere. In 1941 thru 1959, the organizations introduced the elf-like Sprite to promote the use of the word “Coke”, making it easier to remember by consumers. Beginning in 1960 thru 1981 Coca-Cola thrilled the world with its exciting and dynamic advertising, the company ambitiously aimed at teaching the world to sing. They have also focused on the theme of refreshing the thirsty world through sports, which is supported by its long-standing association with athletic events including the Olympic Games and FIFA World Cup. Also, Coca-Cola has been constantly changing its slogan, from “Delicious and refreshing” to today’s “Life Begins Here.” (Coca-Cola 125 Years Booklet, 2011)
Competitors quickly followed within the industry to keep up with these novel benchmarking ideas. PepsiCo in turn practiced the marketing strategies similar to that of Coca-Cola. Pepsico started with an advertising strategy entitled “Exhilarating, Invigorating, Aids Digestion”. As time goes by, PepsiCo’s advertisements changed to more elaborate and well-known personal public figures. Famous racing car driver Barney Oldfield endorsed Pepsi in a newspaper as “a bully… drink refreshing, invigorating, a fine bracer before a race” (PepsiLegacy Book, 2005). Also, Pepsi promoted sales with the slogan, “Drink Pepsi-Cola. It will satisfy you”. Later on, they recognized that advertising could be a cornerstone of soft drink marketing and introduced a comic strip; “Pepsi & Pete” to promote Pepsi’s pricing advantage. In conclusion The Coca-Coal Company in review has shown consistent and steady growth both organically and in market presence. In c

Exhibit A: (Coca-Cola)

Year Ended December 31, 2011 2010 2009

(In millions except per share data)
NET OPERATING REVENUES $ 46,542 $ 35,119 $ 30,990
Cost of goods sold 18,216 12,693 11,088
GROSS PROFIT 28,326 22,426 19,902
Selling, general and administrative expenses 17,440 13,158 11,358
Other operating charges 732 819 313
OPERATING INCOME 10,154 8,449 8,231
Interest income 483 317 249
Interest expense 417 733 355
Equity income (loss) — net 690 1,025 781
Other income (loss) — net 529 5,185 40
INCOME BEFORE INCOME TAXES 11,439 14,243 8,946
Income taxes 2,805 2,384 2,040
CONSOLIDATED NET INCOME 8,634 11,859 6,906
Less: Net income attributable to noncontrolling interests 62 50 82
NET INCOME ATTRIBUTABLE TO SHAREOWNERS OF THE COCA-COLA COMPANY $ 8,572 $ 11,809 $ 6,824
BASIC NET INCOME PER SHARE1 $ 3.75 $ 5.12 $ 2.95
DILUTED NET INCOME PER SHARE1 $ 3.69 $ 5.06 $ 2.93
AVERAGE SHARES OUTSTANDING 2,284 2,308 2,314
Effect of dilutive securities 39 25 15

AVERAGE SHARES OUTSTANDING ASSUMING DILUTION 2,323 2,333 2,329

CASH AND CASH EQUIVALENTS
Net increase (decrease) during the year 4,286 1,496 2,320
Balance at beginning of year 8,517 7,021 4,701
Balance at end of year $ 12,803 $ 8,517 $ 7,021

TOTAL EQUITY ATTRIBUTABLE TO SHAREOWNERS OF THE COCA-COLA COMPANY $ 31,635 $ 31,003 $ 24,799

Exhibit B: (Pepsico)

Fiscal years ended December 31, 2011, December 25, 2010 and December 26, 2009
(in millions except per share amounts) 2011 2010 2009
Net Revenue $ 66,504 $ 57,838 $ 43,232
Cost of sales 31,593 26,575 20,099
Selling, general and administrative expenses 25,145 22,814 15,026
Amortization of intangible assets 133 117 63
Operating Profit 9,633 8,332 8,044
Bottling equity income – 735 365
Interest expense (856) (903) (397)
Interest income and other 57 68 67
Income before income taxes 8,834 8,232 8,079
Provision for income taxes 2,372 1,894 2,100
Net income 6,462 6,338 5,979
Less: Net income attributable to noncontrolling interests 19 18 33
Net Income Attributable to PepsiCo $ 6,443 $ 6,320 $ 5,946
Net Income Attributable to PepsiCo per Common Share
Basic $ 4.08 $ 3.97 $ 3.81
Diluted $ 4.03 $ 3.91 $ 3.77
Weighted- average common shares outstanding
Basic 1,576 1,590 1,558
Diluted 1,597 1,614 1,577
Cash dividends declared per common share $ 2.025 $ 1.89 $ 1.775

Effect of exchange rate changes on cash and cash equivalents (67) (166) (19)
Net (Decrease)/Increase in Cash and Cash Equivalents (1,876) 2,000 1,879
Cash and Cash Equivalents, Beginning of Year 5,943 3,943 2,064
Cash and Cash Equivalents, End of Year $ 4,067 $ 5,943 $ 3,943

Total Common Shareholders’ Equity 20,704 21,273 16,908
Exhibit C: (Nestle)

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References
Coca-Cola.com, 2012, Complete 2011 Annual Report on Form 10-K of Coca-Cola, Available: http://www.thecoca-cola.com
Coca Cola Bottling Co. Consolidated SWOT Analysis, April 2012, Retrieved from EBSCOhost database
Nestle.com, 2012, Consolidated Financial Statements of the Nestle Group 2011, Available: http://www.nestle.com
Nickels, W. G., McHugh, J. M., & McHugh, S. M. (2010). Understanding Business (9th ed.), 4

Pepsi-Co.com, 2012, Annual report of Pepsi-co, 2012, Available: http://www.pepsico.com

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