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Problem 1

a The assets which are listed under current assets are closest to the market value
The marketable securities, Account receivable, and cash are very close to market value
b The fixed asset in the balance sheet are purchased in historical price
To find the price at which the FA was purchased the depriciation need to be added back
Purchase value of Fixed asset $5685 million
c The current assets is more than fixed assets. Reasons for this can be stated like the company
needs liquid cash for various purpose like investment in others value chain operations like bottling, package
d If the company is sold off and if the Coke have majority stake in the company then the Balance sheet will be conso
If the company doesn’t have majorty stake the minority active or passive securities will be reflected on the balance

Problem 2
a The interest bearing liabilities would be sum of both short term and long term interest bearing liabilities
which is eqaul to 5149m(4462+687mn)
b The amount Coke obtained through equity market is 3060mn which is the paidup capital
c If a firm have high reinvestment rate and the amount needed for the reinvestment is meet through by plough back
then the reatined earning will be higher than the paid up capital
d The book value of Coke is $8.4 billion which is much smaller than $140 billion in market
The difference is due to the market view about the Coke future activites and the brand value

Problem 3
a Coke brand value is not showed in the balance sheet. One way to refelect the brand value of Coke in the balance s
to sell the rights to the subsidiary or to other companies to use the name Coke

Problem 4
a Net working Capital is difference between current asset and current liablitiy which is (2260)mn
Non cash working capital excludes the cash and near cash assets from the Current asssets and interest
bearing short term liabilites from the other side which is 554mn
b Current ratio is current assets divided by current liabilities which is 73.85 %
c Quick ratio for the firm is 20.9%
d The riskiness of business can be figured out by the working capital management.
The negative working capital management shows that riskness in the business is to high. But also
it is important to consider the fact that Coke sold most of its operation.
Problem 5
1997 1998
a Revenue 18,868 18,813
COGS 6,105 5,562
SGA 7,852 8,284
Operating Income 4,911 4,967
The operating income is almost same but SGA cost is increased and the cost of go
ns like bottling, package
he Balance sheet will be consolidated Problem 6
will be reflected on the balance sheet Advertising aim to build the brand which ultimately leads to increase in sales whi
When ad cost is cosidered to be Capex it is amortized over the period of time like

est bearing liabilities Problem 7


1997 1998
Income tax 1,926 1,665
s meet through by plough back EBIT 5,001 4,967
Interest 258 277
Non operating profit 1,312 508
Effective tax rate 31.81% 32.03%
The difference may due to accounting standards followed by the company
Problem 8
value of Coke in the balance sheet is 1997 1998
Sales 18,868 18,813
EBIT 5,001 4,967
Pretax margin 26.51% 26.40%
Net margin 18.08% 17.94%
sssets and interest Unless industrial standard data ia available no strong conclusion can be made fro

Problem 9
Return on equity Pretax return on capital
Net income 3533 EBIT
high. But also BV of equity 7274 Capital
Return on equity 48.57% Pretax retu

After tax return 30.28

Problem 10
Book value of equity (199 1500
Share repurachase 400
Net income for 1999 150
Dividends paid 50
Book value of equity 1200
Return on equity on beginning book value 10%
Return on equity on average book value 11.11%
ncreased and the cost of goods sold is decreased

ads to increase in sales which is very similar to the Capex


over the period of time like R&D and good will

wed by the company

conclusion can be made from this

Pretax return on capital


4967
11149
44.55%