Coca-Cola is an American global beverage corporation. It manufacturers retail and markets non-alcoholic beverage concentrates and syrups. The company offers its consumers more than 350 brands in more than 200 countries other than the popular Coca-Cola drink. The company produces familiar brands such as Sprite, BreakMate, Diet Coke, Minute Maid, and green tea among many other products (Coca-Cola, 2017). The company also has a stake in different soft drink companies such as Monster and China Huiyuan Juice Group Limited. Major Geographic Markets
The company manages multiple operating segments across the world. The geographic regions include Africa, Europe, North America, Latin America, and Asia Pacific. The segment that generates a majority of the revenue is North America. In 2015, the companys sales outside the United States accounted for 55%, which is a clear indication that it is a global player in the food and beverage industry (Coca-Cola, 2017).
Current CEO and Key Managers
The current chief executive officer of Coca-Cola is James Quincey who was once the chief operating officer. Under the companys BOD, it is led by Muhtar Kent who was also the CEO until recently. Since the firm carries out its activities all across the world, there are different positions in every region. Other notable leaders in the company include;
Francisco Crespo Benitez- Senior vice president and Chief Growth Officer
Alexander M Douglas- Executive Vice President and President. North America
Irial Finan- Executive Vice President and President, Bottling Investments Group
Robert Long- Senior Vice President and Chief Innovation Officer.
The firm began in 1886 after the invention of the Coca-Cola beverage by John Stith Pemberton. The company was incorporated in 1892 and later went to manufacture the famous Coke in 1916. In 1928, the president of the company at the time led to its global expansion activities, and for the first time, it ventured in the Olympics. The 1980s saw rapid innovation in the firm with the production of soft-drinks such as the Diet Coke. As time went by, the business expanded to more regions across the world to become one of the worlds largest soft-drink producers.
In 2015, the company announced that it would accelerate its franchising plans. For example, it announced that it would re-franchise 100% of the business owned North American bottling territories by the end of 2017 to include all cold-fill production facilities CITATION Art162 \l 2057 (Arthur, 2016). Also, the company has been offered numerous awards including the 2014 UN Womens Empowerment Principles Leadership Award, Award for Corporate Excellence, Industry Champion of the Year Award and the Best Global Initiative for Womens Economic Empowerment CITATION Coc17 \l 2057 (Coca-Cola, 2017). Nonetheless, it has been highly ranked by America's and the world's most respected brand. Also, the company has invested a lot in giving back to the society through sustainable economic development.
The soft-drink industry is one that has numerous players. However, the two largest players are Coke and PepsiCo which own at least 70% of the American soft-drink market. In this case, it is important to mention that the carbonated soft drinks industry is highly concentrated with the key companies being Coca-Cola, PepsiCo, and Cadbury Schweppes that hold approximately ninety-percent of the entire market share. A fierce competition exists among the players, but Coca-Cola remains at the top wherein 2016, it held a market share of 42.5% of the market. However, the companies have been faced with increasing health conscious consumers which lead to slow sales and more investments in healthy soft-drinks by the companies. For the purpose of this paper, I will use PepsiCo as the benchmark company.
Usually, liquidity ratios are computed to establish the relationship that exists between liquid assets and current liabilities CITATION Del13 \l 2057 (Delen, Kuzey, & Uyar, 2013). In this case, the liquid assets are those that can easily be converted into cash. There is two major liquidity ratios current and quick ratio.
Table 1: Liquidity Ratio
Liquidity Ratios Coca-Cola Pepsi
Year 2014 2015 2016 2016
Current Ratio 1.02 1.24 1.28 1.28
Quick Ratio 0.28 0.89 0.98 1.08
The current issue is a reliable parameter in the measurement of a companys liquidity. As explained by Tracy (2012), the current ratio addresses the question of the current assets available that can cover the current liabilities. In the computation, there is a common rule of thumb that states that a current ratio of 2 is favorable enough to a company (Tracy, 2012). However, it is a highly generalized statement since the ratio may vary with industries. A ratio of one indicates that the book value of a companys current assets is similar to its book value of the current liabilities. Normally, a desirable current ratio is 2:1 where the current assets are double the current liabilities. On the other hand, a current asset of less than one means that a company has particular problems of settling their short-term obligations. However, it is important to mention that sometimes if the ratio is too large, then it means poor utilization of current assets.
As Table 1 shows, the Coca-Cola Company saw an improvement in their current ratio in the three years. Also, the quick ratio improved across the three years for both companies. The rates show that the corporation's had a significant increase in its ability to handle its short-term and long-term obligations. In simple words, the company was at a better position to settle its short-term debts with current assets. Concerning its principal competitor, PepsiCo, the two have a favorable current ratio where both recorded a ratio of 1.28 in 2016 (Table 1).
The quick ratio is comes after the current ratio when it comes to its usage in the calculation of the liquidity ratio. Also known, as the Acid Test Ratio, the quick ratio is a reliable parameter that calculates the liquidity of a company by considering more liquid current assets; therefore, excludes current assets such as inventory (Tracy, 2012). As Delen et al. (2013) stated, the rule of the thumb dictates that a good test index is 1.0 (Delen et al., 2013). In this case, it is necessary to assume that Coca-Colas trade receivables are more liquid than its inventory. The quick ratio of Coca-Cola improved over the three years from 0.28 in 2014 to 0.98 in 2016, as indicated in Table 1. Table However, the ratio is still under the rule of the thumb that states that enterprises with a quick ratio of greater than one are sufficiently able to meet their short-term liabilities. The ratio below one suggests that the company could have been over-leveraged over the three years and even struggling to grow its sales. However, the increasing nature of the ratio shows that it is gradually overcoming its challenges such as quickly receivables into cash and efficiently and accurately covering its financial obligations. In comparison to Pepsi, the latter is doing well than Coca-Cola in meeting its short-term financial liabilities where last year it maintained a quick ratio of 1.08 compared to Coca-Colas 0.98 (Table 1).
Asset Management Ratios
The asset management ratios are ratios that aim at measuring the success of a company in producing sales out of its assets (Tracy, 2012). For instance, they can be used in providing crucial information into the success of a firm based on its inventory management and credit policy. Sometimes they are referred to as Turnover or Activity ratios.
Table 2: Asset Management Ratios for Coca-Cola and Pepsi
Liquidity Ratios Coca-Cola Pepsi
Year 2014 2015 2016 2016
Average collection period 35 32 34 36
Average Inventory Period 58 61 59 54
Days Payable 42.62 58.36 59.46 79.68
Total Asset Turnover 0.51 0.49 0.47 0.87
Coca-Colas Average Collection Period
In accounting, the number of days between a sale and the time of honoring the sale is defined as the average collection period. It is computed by dividing 365 days with the accounts receivable turnover ratio. For instance, if a firm has an account receivable turnover ratio of ten times annually then the average collection period is 36.5 days (365/10) (Delen et al., 2013). The ratio improved for Coca-Cola Company from 2014(35) to 2015 (32) but later declined in 2016 (34) (Table 2). The decline shows that the company delayed in the average number of days when a sale was made, and the time they received or collected their money. Ideally, they have continuously maintained the ratio below the average collection period of 36.5 days. However, PepsiCo in 2016 maintained the ratio at the preferred collection period but remained high in relation to Coca-Cola Company.
Average Inventory Period
The Average Inventory Period (AIP) is a computation that aims at comparing the value of a good or set of goods during two or more specified time periods. In accounting, it is used to show the amount of time that stock remains unsold. It is computed by diving days in a year by inventory turnover. Usually, the ratio is important when comparing it with that of a competitor. In the case of Coca-Cola and PepsiCo, the former is doing better than the latter in converting its inventory into cash in 2016. However, Coca-Cola saw a decline in the ratio from 2015 to 2016 showing that there was a decrease in the number of days that it held its stock.
The Days Payable ratio examines the number of days that a business takes to settle its trade creditors (suppliers). Usually, Days Payable Outstanding (DPO) can be computed in two significant ways, the purchases method and the cost of sale process. To obtain the day's payable ratio through the cost of sales method, one has to know the ending accounts payable and the costs of sales or the costs of revenue. The formula becomes, ending accounts payable divided by CoS/no of days. The method is important for businesses that are trading services that they purchase from somewhere and where the cost of sales is wholly made up of those services. On the other hand, the purchases method is used by businesses that buy items, hold them as stock, and then later sell them.
The Coca-Cola Company has shown a trend of increasing days payable for the three years. That means that with time the company has delayed in paying its suppliers. However, when comparing the two companies, the Coca-Cola is doing well since in 2016 PepsiCo recorded a days payable ratio of 79.68 while Coke recorded 59.46. That means that PepsiCo takes longer to pay its suppliers than Coca-Cola. PepsiCo trend also shows that it has improved on the time it pays its suppliers from March 2016 (227.8) to March 2017 (225.57) (Table 2).
Total Asset Turnover
The ratio is used to estimate how good a business is in using its assets to make sales. Usually, a company with a high total asset turnover ratio is considered efficient in using its assets. To calculate the total asset turnover, the net sales or net operating revenues are divided by the aggregate assets to obtain the number of times. It is crucial to note that a little number may be from slow sales that show that there is a problem with the asset categories. It is mostly used in comparing businesses that exist in the same industry. The TAT of Coke declined from 0.51, 0.49, to 0.47 in 2014, 2015, and 2016 respectively. That means that it reduced its ability to generate sales efficiently. A good explanation for this could be due to slow sales. However, comparing the two companies shows that PepsiCo is doing better in sales compared to Coke. PepsiCo has maintained a TAT ratio that is higher than that of Coke f...
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