Annual Report Analysis on Coca Cola
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The company I chose to perform my annual report analysis on was The Coca Cola Company. I chose this company because they are a well-established company that would give me a good idea of what a large company’s annual report might look like. Coca-Cola is the world’s largest retailer of non-alcoholic beverages. The company sells products in over 200 countries around the world and owns over 500 brands worldwide (“Coca-Cola” which is deemed the world’s most valuable brand). They also sell concentrates and syrups marketed to wholesalers, retailers and distributors. The Coca-Cola headquarters are located in Atlanta, Georgia on a 35-acre commercial property. The company has an 870,000 square foot complex adjacent to another 264,000 square foot plaza. The physical address is 10 Glenlake Parkway, Atlanta, Georgia. The fiscal year for 2013 ended on December 31, 2013. In 2013, The Chief Executive Officer was Muhtar Kent, he joined the company in 1978 and was elected the CEO and director of the company in December 2006. The Coca-Cola Company’s main area of operation is North America. Although it is sold in nearly all countries, North America accounted for 54% of its capital expenditures.
1. Who are the firm’s auditors? Do they provide a clean opinion on the financial statements? Coca Cola was audited by Ernst & Young, LLC. Ernst & Young, LLC. ARE independent auditors that were used to evaluate consolidated balance sheets and other financial statements for the Coca-Cola Company in for the 2013 fiscal year. Ernst & Young reported that the balance sheets, income statements, stockholder equity, cash flows and other financial reports accurately and fairly reported the Coca-Cola Company’s financial position. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Coca-Cola Company and subsidiaries at December 31, 2013 and 2012, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2013, in conformity with U.S. generally accepted accounting principles.
2. Have there been any subsequent events, errors and irregularities, illegal acts, or related-party transactions that have a material effect on the financial statements? There has been certain factors that could possibly affect the business and financial conditions in future periods. Consumers, public health officials and government officials are highly concerned about the public health consequences of obesity, particularly among young people. In addition, some researchers, health advocates and dietary guidelines are suggesting that consumption of sugar-sweetened beverages, including those sweetened with HFCS or other nutritive sweeteners, is a primary cause of increased obesity rates and are encouraging consumers to reduce or eliminate consumption of such products. Increasing public concern about obesity; possible new or increased taxes on sugar-sweetened beverages by government entities to reduce consumption or to raise revenue; additional governmental regulations concerning the marketing, labeling, packaging or sale of our sugar-sweetened beverages; and negative publicity resulting from actual or threatened legal actions against us or other companies in our industry relating to the marketing, labeling or sale of sugar-sweetened beverages may reduce demand for or increase the cost of our sugar-sweetened beverages, which could adversely affect our profitability.
Water scarcity and poor quality could negatively impact the Coca-Cola system’s production costs and capacity. Water is the main ingredient in substantially all of our products, is vital to our manufacturing processes, and is needed to produce the agricultural ingredients on which our business relies. It is also a limited resource in many parts of the world, facing unprecedented challenges from overexploitation, a growing population, increasing demand for food products, increasing pollution, poor management and the effects of climate change. As the demand for water continues to increase around the world, and as water becomes scarcer and the quality of available water deteriorates, the Coca-Cola system may incur higher production costs or face capacity constraints that could adversely affect our profitability or net operating revenues in the long run.
3. Describe the trend in total assets and total liabilities for the years presented. The balance sheet for Coca Cola includes 2 years which are 2012 and 2013. According to the consolidated balance sheet, both total assets and total liabilities increased from January 30, 2012 to January 29, 2013. At first glance of their balance sheet, Coca Cola appears to be doing well. Their total assets are large enough to cover their total liabilities which is what people would be looking at, but when I took a closer look, the total assets only increased by $3881 where the total liabilities increased by $3881. (Reported in millions) The total cash, cash equivalent, and short-term investments increased from 2012 to 2013. The total current assets significantly inclined from 2012 to 2013. The total assets significantly inclined from 2012 to 2013. The total current liabilities inclined from 2012 to 2013. Long term debt, capital surplus, and reinvested earnings all inclined from 2012 to 2013. The total equity inclined in addition to total liabilities and equity.
4. What are the company’s three largest assets for the most recent year presented? The three largest assets for Coca Cola:
Cash and cash equivalents $ 10,414 $ 8,442
PROPERTY, PLANT AND EQUIPMENT — net 14,967 14,476
GOODWILL 12,312 12,255
5. What are the company’s three largest liabilities for the most recent year presented? The three largest liabilities for the most recent year presented are: Reinvested earnings 61,660 58,045
LONG-TERM DEBT 19,154 14,736
Capital surplus 12,276 11,379
6. What types of stock does the company have? How many shares are there outstanding for each type of stock for the most recent year presented? Common Stock is the only stock option that is shown on Coca Cola annual report. As of January 29, 2013 there are 4,385,924,000 outstanding stocks. 7. Does the company use the single-step or the multi-step income statement or a variation? Coca Cola uses the multi-step income statement because it includes the gross profit amount that is stated after net revenues and cost of goods sold. According to the Intermediate Accounting book, the multi-step is used more frequently by large public companies because it makes it easier to view and analyze the trends within the company.
8. Does the income statement contain any separately reported items in any year presented, included discontinued operations or extraordinary items? If it does, describe the event that caused the item. There are no extraordinary items or discontinued operations included on the income statement for Coca Cola.
9. Describe the trend in net income over the years presented. For the three years presented on statements of earnings, there has been an increase and decrease in the net income. From 2011 to 2012 there was an increase of $400 and from 2012 to 2013 there was a decrease of 460. The last year was not as much of an increase, but from the years presented in the annual report, Coca Cola appears to be consistent with their net earnings. If I were going to invest in their company, I would look back a few more years to see if their net earnings and declining over time. 10. Does the company have other comprehensive income? If yes, what is the nature of the transactions? Listed on the consolidated balance sheet for Coca Cola is accumulated other comprehensive income. It states that this comprehensive income consists mainly of foreign currency translation adjustments. 11. Does the company use the indirect or direct method of the cash flow statement? The statement of cash flows uses the indirect method. The cash flow statement starts with net earnings and depreciation expense is not subtracted from the cash flow statement but is subtracted from the statements of earnings. 12. What is the trend in cash from operations for the years presented? Coca Cola’s cash and cash equivalents had a large increase from January 30, 2011 to January 29, 2012.
The cash and cash equivalents increased by $139, and decreased by $26 in 2013. As per the notes section, “the company considers all highly liquid investments purchased with original maturities of three months or less to be cash equivalents. The Company’s cash equivalents are carried at fair market value and consist primarily of money market funds.” It does not state where they acquired this many money market funds in a one year period. 13. What are the two largest items included in cash from investing activities? The only two items that made Company XYZ money from investing activities are Proceeds from disposals of investments and proceeds from disposals of businesses, equity method investments and nonmarketable securities. In conclusion, “Our goal is to use our Company’s assets — our brands, financial strength, unrivaled distribution system, global reach, and the talent and strong commitment of our management and associates — to become more competitive and to accelerate growth in a manner that creates value for our shareowners Coca Cola seems fairly solid because they have been around for so many years.”
The world’s largest soft-drink maker set all-time intraday highs three days this week, including a new record of $44.87 yesterday in New York. Before this week, Coca-Cola’s last record was on July 15, 1998, when the stock reached $44.47, adjusted for a subsequent split. Coca-Cola has seen steady inclines in stock over the past few decades with increasing dividends making the company a strong investor’s pick that shows steady growth. Through analysis of its income statement, balance sheet, and key ratios, there is reason to believe that its investment in its bottlers has caused their income to slide making them sell their bottlers’ assets to gain a slightly higher income. There is certainly room for improvement in cost cutting and efficiency but this movement must be made in decisively and effectively and in due time without compromising growth. Overall, Coca-Cola is on the right track to further success in the beverage industry as long as it sufficiently adapts to the rapidly changing demands of the consumers in the future.
1 http://assets.coca-colacompany.com/d0/c1/7afc6e6949c8adf1168a3328b2ad/2013-annual-report-on-form-10-k.pdf 2 http://www.bloomberg.com/news/2014-10-10/coca-cola-hits-record-as-investors-seek-safety.html 3 http://www.bus.emory.edu/scrosso/Summer%202013/AR%20Final%20projects/AR%20Final%20projects/Frank,%20Daniel_The%20Coca-Cola%20Company.pdf 4 http://www.coca-colacompany.com/history/.