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RATIO ANALYSIS
Name
Institution
Date
RATIO ANALYSIS
Contents
Abstract............................................................................................................................................3
Introduction......................................................................................................................................4
Share price movements....................................................................................................................5
Ratio analysis...................................................................................................................................7
Current ratio.................................................................................................................................7
Quick ratio...................................................................................................................................7
Fixed asset turnover ratio.............................................................................................................8
Total assets turnover ratio............................................................................................................8
Total debt to total assets ratio......................................................................................................9
Profit margin on sales..................................................................................................................9
Return on common equity.........................................................................................................10
Price earnings ratio....................................................................................................................10
Market/book ratio......................................................................................................................11
References......................................................................................................................................13
RATIO ANALYSIS
Abstract
This paper looks at a Fortune 500 company, specifically Coca Cola and analyses its financial
statements using ratio analysis. The purpose of this report is to provide the reader with an
understanding of the financial position of coca cola. The report looks at financial statements
going back 5 years from 2010- to 2014. It will look at the computation of various ratios where
the formulas will be given in the word document and the calculations given in an excel
document. The companys financial condition is stable and it looks to stay so for the foreseeable
future.
RATIO ANALYSIS
Introduction
Coca Cola Company is a beverage company that produces and distributes a number of nonalcoholic drinks all over the globe. The company has 4 out of the top 5 soft drinks worldwide
including Coca Cola, Fanta, Diet Coke and Sprite. It holds position one in non-alcoholic
beverages owning or licensing and marketing over 500 beverage brands (Hoovers.com, 2015).
Its products are mainly sparkling drinks but they also have water, energy drinks, juices and ready
to drink coffee and tea. The companys reach is over 200 countries. As of June 2015, it held
position 63 in the fortune 500 list (Hoovers.com, 2015).
It is considered on the worlds most recognized brands and has remained quite stable financially
over time. However, their profits have been declining over the last five years. This is illustrated
in the table below. This chart has been produced by data taken from morning star
(Financials.morningstar.com).
Net income
14000
11809
12000
10000
8572
9019
8584
8000
7098
6884
42004
42369
6000
4000
2000
0
40543
Part A
40908
41639
41274
RATIO ANALYSIS
RATIO ANALYSIS
prices going down. However, since the external environment is ever changing, the share price.
RATIO ANALYSIS
Adj Close
50.0000
45.0000
43.3858
40.4195
40.0000
38.7445
38.6309
36.6136
35.8936
35.5365
41.0023
39.8088 40.2526
40.8599
40.7824
37.4901
35.0000
30.0000
25.0000
20.0000
15.0000
10.0000
5.0000
0.0000
11/22/2013
3/2/2014
6/10/2014
9/18/2014
12/27/2014
4/6/2015
RATIO ANALYSIS
PART B
Ratio analysis
The latest financial statements available are for the year 2015. This will be used in the
calculation of ratios. The formulas will be given in this word document as the calculations will
be provided in the excel document.
Current ratio
Current ratio= current assets
Current liabilities
It measures the ability of the company to meet current debt obligations, as and when they fall due
using its current assets. The higher the current ratio the better. Any company with a current ratio
of less than 1 would not be able to meets its debt obligations even after the liquidation of all its
current assets.
Coca colas current ratio is 1.01. This shows that if all current creditors demanded their money,
they could be in a position to pay them back. This shows that coke is doing well as far as
liquidity is concerned.
Quick ratio
It is a liquidity ratio that measures the ability of the company to pay off current liabilities using
cash, accounts receivable and marketable securities. It is based on the argument that some
current assets for example prepaid expenses cant be converted back to cash to pay off current
liabilities.
Quick ratio= cash + marketable securities + accounts receivables
Current liabilities
RATIO ANALYSIS
Coca colas quick ratio is 0.80. This means that they could only pay up 80% of current liabilities.
The difference between quick ratio and current ratio is the exclusion of inventory on the former.
This is because conversion of inventory to cash does not happen overnight and may take time
depending on the product.
revenues
Average net fixed assets
Coca colas fixed assets turnover ratio is 3.10. This shows that for every dollar held up in fixed
assets, they make $3.89. This shows that the company has less cash being tied up by fixed assets.
RATIO ANALYSIS
10
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11
This ratio looks at how efficient a company is in generating profits relative to its assets. A high
return on assets means that the company efficiently uses assets to generate income. It means that
the company is making more from less investment. It is highly dependent on the industry and
comparison should only be done against previous performance or similar companies.
Return on total assets= net income
Total assets
Coke return on assets is 1.94%. This is quite low for the company and it needs to make better
returns from their assets.
net income
Shareholders equity
Cokes ROE is 23.41%. This means that the company generates $23.41 for every $100 invested
by equity holders.
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12
dollar of the companys earnings. A high P/E is an indication that companies are expecting high
earnings growth in future as compared to a company with a low P/E ratio. A low P/E ratio may
mean that the company is undervalued currently or it is experiencing exceptional performance as
compared to its previous years. Taking the P/E ratio for a company over a number of years can
be used to calculate the expected benchmark for determining whether a share is worth buying or
not.
Price earnings ratio= market value per share
Earnings per share
Cokes P/E ratio is 25.17. For better interpretation of this ratio, it is important to look at the P/E
ratio of similar industries.
Market/book ratio
This ratio is used to determine a companys value by undertaking a comparison of the book value
and the market value. The book value is calculated using by looking back at the historical cost of
the company or the accounting value. The market value on the other hand is determined through
market capitalization in the stock market. It is used to determine if a stock is over or
undervalued. It helps determine if investors will be paying over and above what would be left
behind if the business went bankrupt.
Market to book ratio= market value of stock
Book value
Cokes 2015 market to book ratio is 4.47 according to my calculation. This shows that investors
pay 4.47 times of the book value for the companys shares. It is a different case in different
industries. For such a high ratio, it would mean that either the market value of cokes assets is
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13
higher than their book value or that management are expected to create additional value from the
given assets.
Financial position of coca cola
The companys overall financial position is stable. Its liquidity, solvency, efficiency and
profitability ratio all signify that they are doing well financially. Their net income annually is
however, declining generally and could be attributed to competition or increased operational
costs.
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14
References
Finance.yahoo.com,. "KO Historical Prices | Coca-Cola Company (The) Common Stock Yahoo! Finance". N.p., 2016. Web. 12 Jan. 2016.
Financials.morningstar.com,. "Income Statement For Coca-Cola Co (KO) From
Morningstar.Com". N.p., 2015. Web. 12 Jan. 2016.
Hoovers.com,. "!Company_Name! | Company Profile From HooverS". N.p., 2016. Web. 12
Jan. 2016.