Activity - Go to Chapter 3 and do Exercise 3B

Go to Chapter 3 and do Exercise 3B "Develop a Competitive Profile Matrix" for Coca-Cola. Develop an analysis of Coca-Cola utilizing this matrix in two to three pages. Then go to the end of Chapter 4 and do Exercise 4A "Perform a Financial Ratio Analysis for Coca-Cola" Step 1. After developing an analysis of Coca-Cola (two to three pages) and after completing the financial ratio analysis (one page minimum), submit them in the Discussion Forum for this week. Reply to at least two other students (200- word minimum each) and, as a class, refine the Competitive Profile Matrix analysis and the financial ratio analysis so that they are acceptable for Coca-Cola.

EXERCISE 3B

Develop a Competitive Profile Matrix for Coca-Cola

Purpose

Monitoring competitors’ performance and strategies is a key aspect of an external audit. This exercise is designed to give you practice in evaluating the competitive position of organizations in a given industry and assimilating that information in a CPM.

Instructions

Step 1 Turn back to the Cohesion Case and review the section on competitors (p. 28). Also view

online resources that compare Coca-Cola with Pepsi. Use the sources listed in Table 3-7.

Step 2 Prepare a CPM that includes Coca-Cola, Pepsi, and Dr Pepper.

Step 3 Turn in your CPM for a classwork grade.

EXERCISE 4A

Perform a Financial Ratio Analysis for Coca-Cola

Purpose

Financial ratio analysis is one of the best techniques for identifying and evaluating internal strengths and weaknesses. Potential investors and current shareholders look closely at firms’ financial ratios, making detailed comparisons to industry averages and to previous periods of time. Financial ratio analyses provide vital input information for developing an IFE Matrix.

Instructions

Step 1 Using the resources listed in Table 4-8, find as many Coca-Cola financial ratios as possible. Record your sources.

Page.28

Cohesion Case:

Coca-Cola Company, 2018

BY FRED R. DAVID

www.coca-cola.com, KO

Headquartered in Atlanta, Georgia, Coca-Cola Company (Coke) is the world’s largest producer

and distributor of beverages, marketing over 500 nonalcoholic brands in more than 200 countries.

Coke has 21 billion-dollar brands, 19 of which are available in lower- and no-sugar options. Four

of the top five beverages sold globally are Coke products: 1) Coca-Cola, 2) Diet Coke, 3) Fanta,

and 4) Sprite. Other Coke products include Dasani waters, Fanta, Gold Peak teas and coffees,

Honest Tea, Powerade sports drinks, Simply juices, Glaceau Smartwater, Sprite, and Zico coconut

water. However, company’s revenues for 2017 declined 15 percent, so rumblings are spreading

within the firm.

Coke brands sold mostly outside the United States include Ayataka green tea in Japan, I LOHAS

water in Japan, Ice Dew water in China, FUZE TEA outside the United States, Minute Maid Pulpy in

Asia Pacific, Georgia coffee in Japan, and Del Valle in Latin America. Five large independent bottling

companies supply Coke with 39 percent of their bottling needs, led by Coca-Cola FEMSA that supplies

central Mexico and countries in Latin and South America.

Coke revenues have declined every year for nearly a decade, usually accompanied by net income

declines. Since 2005, sales of diet soda in general have dropped every year, a combined 34 percent.

Although Diet Coke is the weakest link in the company’s whole soda lineup, the brand is still the third

best-selling carbonated drink in the United States.

Environmentalists are complaining, saying Coke produces 110 million plastic bottles annually

that end up in landfills and oceans. To combat this complaint, the company launched in 2018 its

“World Without Waste” initiative. Coke needs a good strategic plan because its customer base is eroding

and its shareholders want sustained 5 percent annual growth in revenues and profits—and not

declines—every year.

Copyright by Fred David Books LLC.

History

Founded in 1886, Coke’s flagship product Coca-Cola was invented in 1886 by pharmacist John Pemberton

in Columbus, Georgia. Coke has operated a franchised distribution system since 1889, whereby the company

only produces syrup concentrate, which is then sold to various bottlers throughout the world, who

hold exclusive territories.

Interestingly, the big, jolly man in the red suit with a white beard (Santa Claus), did not always

look that way. In 1931, Coke paid illustrator Haddon Sundblom to create advertising images depicting

a jolly, plump, red (like Coke cans) dressed, warm, friendly Santa Claus delivering toys to children.

To create the new Santa ads, Sundblom used Clement Clark Moore’s 1822 poem “A Visit from

St. Nicholas” (commonly called “’Twas the Night Before Christmas”).

Coke’s new Santa advertisements debuted in 1931 in magazines such as The Saturday Evening

Post, National Geographic, The New Yorker, and others. Before 1931, Santa was depicted as everything

from a tall gaunt man to a spooky-looking elf. He was often shown wearing a bishop’s robe

and a Norse huntsman’s animal skin. From 1931 to 1934, Coke ads featuring the new Santa Claus

changed the whole world’s view of Santa; these original images of Santa are valuable works of art

even today.

In 2010, Coke became the first brand to exceed 1 billion euros in annual United Kingdom

grocery sales. In January 2018, in the United States, Coke introduced its slimmer 12-ounce Diet

Coke can, updating the logo and offering the 35-year-old drink four new flavors: mango, cherry,

blood orange, and ginger lime. Diet Coke sales have declined as more people switch to other

low-calorie drinks, such as flavored fizzy water. The company said the new flavors and look—

with a different color vertical stripe for each flavor and red for plain—are aimed at appealing to

millennials (people ages 18 to 34). Coke tested more than 30 flavors before settling on the four

new ones.

Core Values, Vision, and Mission

Provided on the corporate website, Coke’s core values center on seven words: leadership, collaboration,

integrity, accountability, passion, diversity, and quality. Coke’s vision statement has not changed in more

than a decade; provided on the corporate website, it reads (paraphrased):

People: To be a workplace where people are inspired to be the best they can be.

Portfolio: To offer quality beverage brands that anticipate/satisfy consumer desires/needs.

Partners: To nurture customers and suppliers working together to provide value.

Planet: To be a responsible citizen helping build and support sustainable communities.

Profit: To maximize long-term return to shareowners given our overall responsibilities.

Productivity: To be an effective, lean, and fast-moving company.

Coke’s mission statement too has not changed in more than a decade and is given on the corporate

website; it reads (paraphrased): “To refresh the planet; to create moments of optimism and happiness;

to provide value and make a difference.”

Business Ethics and Diversity

The Coke website says the company “directs zero advertising targeted to children under age 12.” Also,

in regards to business ethics, the company places substantial nutrition information, including calories,

on the front of most of their cans and packages. A wide range of packaging sizes are provided and

over 100 reduced, low, or no-calorie beverages.

Coke annually publishes an elaborate Sustainability Report that details the company’s water stewardship,

women’s economic empowerment, and philanthropic giving. In addition, the company’s year

2020 sustainability goals include the firm giving back 1 percent of the company’s operating income

annually, and recovering 75 percent of the recyclable bottles and cans introduced into developed markets.

The report is available on the corporate website.

Financial Position

Coke’s fiscal year ends on December 31. As indicated in Exhibit 1, Coke posted revenues of $35.4 billion

in 2017, compared to $41.8 billion in 2016, a 15 percent decline. Net income was $1.28 billion compared

to $6.66 billion in 2016, an 81 percent decline. Declines in both of these numbers are alarming. Note all the

negative numbers in Exhibit 1, even though for most companies 2017 was a very properous year.

Coke’s balance sheets are provided in Exhibit 2. Note that Coke purchased $3.7 billion of its

own stock in 2017. In 2017, Coke paid $5 billion out to shareholders in dividends even though the

company’s net income was only $1.28 billion. Thus, basically the company borrowed money to pay

dividends; this event resulted in a negative retained earnings for the year 2017 and a large drop in retained

earnings on the 2017 balance sheet, as shown in Exhibit 2. Note in Exhibit 2 that Coke’s paidin-

capital increased a whopping 89 percent in 2017 revealing high use of equity as a source of capital.

EXHIBIT 1 Coke’s Income Statements (in millions of dollars)

Income Statement 12/31/16 12/31/17 Percent Change

Revenues $41,863 $35,410 -15.41%

Cost of Goods Sold 16,465 13,256 -19.49%

Gross Profit 25,398 22,154 -12.77%

Operating Expenses 16,772 14,653 -12.63%

EBIT 8,626 7,501 -13.04%

Interest Expense 490 759 54.90%

EBT 8,136 6,742 -17.13%

Tax 1,586 5,560 250.57%

Non-Recurring Events (23) 66 NA

Net Income 6,527 1,248 -80.88%

Source: Based on information at www.coca-colacompany.com

EXHIBIT 2 Coke’s Balance Sheets (in millions of dollars)

Balance Sheet 12/31/16 12/31/17 Percent Change

Assets

Cash and Short Term Investments $18,150 $15,358 -15%

Accounts Receivable 3,856 3,667 -5%

Inventory 2,675 2,655 -1%

Other Current Assets 9,329 14,865 59%

Total Current Assets 34,010 36,545 7%

Property Plant & Equipment 10,635 8,203 -23%

Goodwill 10,629 9,401 -12%

Intangibles 726 368 -49%

Other Long-Term Assets 31,270 33.379 7%

Total Assets 87,270 87,896 1%

Liabilities

Accounts Payable 9,490 8,748 -8%

Other Current Liabilities 17,042 18,446 8%

Total Current Liabilities 26,532 27,194 2%

Long-Term Debt 29,684 31,182 5%

Other Long-Term Liabilities 7,834 10,543 35%

Total Liabilities 64,050 68,919 8%

Equity

Common Stock 1,760 1,760 0%

Retained Earnings 65,502 60,430 -8%

Treasury Stock (47,988) (50,677) 6%

Paid in Capital & Other 3,946 7,464 89%

Total Equity 23,220 18,977 -18%

Total Liabilities and Equity 87,270 87,896 1%

Source: Based on information at www.coca-colacompany.com

Exhibit 3 reveals that Coke spends about $4 billion annually to advertise its beverages. Note also

in Exhibit 3 that the company is intent on increasing its dividends paid every year even if it has to borrow

money to make this payment. The company’s long-term debt is creeping up every year.

Operating Segments

Regarding 2017 cases of beverages sold, the USA accounted for 19 percent of the company total; case

volume outside the USA accounted for 81 percent of sales. Of the 19 percent of cases sold in the USA, 62

percent were sparkling soft drinks.

The four countries outside the United States that Coke sells most to are Mexico, China, Brazil,

and Japan. These four countries accounted for 31 percent of Coke’s outside-USA sales in 2017, and

71 percent of these sales were of sparkling soft drinks. Coke’s revenues derived from the United

States compared to the rest of the world through 2016 are given in Exhibit 4; the company did not

provide this breakdown in 2017, perhaps because of significant declines. Note the decreases in 2016

on all three rows.

TABLE 4-8 Excellent Websites to Obtain Strategic Information (Including

Financial Ratios) on Companies and Industries

1. Online Free Resources.

a. Form 10K or Annual Report

b. http://finance.yahoo.com

c. www.hoovers.com

d. http://globaledge.msu.edu/industries/

e. www.morningstar.com

2. Online Subscription Resources (Likely Subscribed to by Your University Library)

a. Mergent Online: www.mergentonline.com

At this website, financial statements seem to be more complete than at other sites. You can also

search for companies with the same SIC or NAICS code and then create a comparison financial

ratio report. A number of different ratios can be used as comparison criteria to create a tailored

report that can then be exported into a Microsoft Excel format. Alternatively, use the Competitors

Tab in Mergent to build a list of companies and compare their ratios. Your college library

likely subscribes to this service.

b. Factiva: http://new.dowjones.com/products/factiva/

At this website, first use the Companies & Markets tab to search for a company. Next, click

“Reports” and choose the “Ratio Comparison Report” to get a company’s ratios compared to

industry averages. Your college library likely subscribes to this service.

c. S&P NetAdvantage: http://www.standardandpoors.com/products-services/industry_surveys/en/us

This website provides company and industry ratios and information in two sections of the database:

(1) the Compustat Excel Analytics section of a particular company’s information page

and (2) the S&P Industry Surveys.

d. Onesource: www.avention.com/OneSource

This is a widely used source for financial ratio information. Search for a particular company

and then click on the link for “Ratio Comparisons” on the left side of the company information

page. The data in Onesource will compare your company against the industry, against the sector,

and against the stock market as a whole.

e. Yahoo Industry Center: http://biz.yahoo.com/ic/

This is an excellent free resource that allows a user to browse industries by performance rankings,

including return on equity, price-earnings ratio, market cap, price change, profit margin,

price-to-book value, long-term debt, and more.

3. Hardcopy Reference Books for Financial Ratios in Most Libraries

a. Robert Morris Associate’s Annual Statement Studies: An excellent source of financial ratio

information.

b. Dun & Bradstreet’s Industry Norms & Key Business Ratios: An excellent source of financial

ratio information.