The Financial Statements of a Publicly-Traded Company - Case Study Example

• Introduction

The concept of globalization is considered as one of the most important choices which the companies these days are making. The companies are becoming multinational as they are expanding their business overseas. Moreover, the companies trying to expand their business need funds to do the same and those are provided by the creditors, investors or some institutes. However, the providers of funds also analyze the company’s current financial health in order to identify if their money will be repaid. Therefore, they analyze it through the financial statement presented by the organization and hence this introduces the importance of the income statement, balance sheet and cash flow of the organization. This paper will focus on the various dimension of the financial statement of Coca Cola. It is a beverage corporation based out of US and is headquartered in Atlanta.

• Discussion
  • Question 1

The plant property and equipment of the organization is provided in its balance sheet which carries the statement of assets and liabilities of a company. The plant, property and equipment are a very important part of an organization and moreover it is a long term capital investment for the organization which will be earning profit for it in the near future (Brealey et al., 2012). As per the annual report, the plant, property and equipment with the company were $12,571mn in 2015 and $14,633mn in 2014. The depreciation is the charge against asset and the same is $1,970mn and $1,976mn in year 2015 and 2014. The depreciation in this case has been charged in fixed line method (The Coca Cola Company, 2015).

The sale and purchase of assets and other investments are generally placed in the investing section of the cash flow statement. The cash flow statement is the statement which deals with the cash inflow and outflow (Vernimmen et al., 2014). However, depreciation is only charged against the tangible fixed assets and as per the cash flow the company has purchased few assets as well as sold few of them. The company purchased PP&E worth $2553mn in 2015 and $2406mn in 2014. On the other hand, there is a cash inflow from sale of the assets amounting to $85 and $223mn in 2014 (The Coca Cola Company, 2015). All the expenses related to PP&E is stated at cost and extra cost such as repair and maintenance costs are already expensed as incurred.

• • Question 2

The property, plant and equipment consist of buildings and improvements, machinery, equipment as well as vehicle fleet. The land as well as certain construction which is in progress is not depreciated. The amount of land which was with the organization in 2015 was $717mn and the same in 2014 was $927mn. The buildings and improvements valued $4914mn in 2015 which was $5541mn in 2014. On the other hand, the machinery, equipment and vehicle fleet with the company had a worth of $16723mn in year 2015. The accumulated depreciation for 2015 was $9783mn and $10625mn in 2014 (The Coca Cola Company, 2015).

Non-monetary transaction refers to the exchange or transfer of the assets which are not related to cash and are mostly inventories, PP&E or even the investment in the common stocks. Therefore, whenever these are recorded then it will be on their fair price (Ehrhardt & Brigham, 2016). Therefore, if any of the non-monetary assets is exchanged then the gain or loss from the same is recorded.

• • Question 3

The intangible asset refers to the assets which are not meant to be seen or touched but has a value which can be felt. The company has trademark worth $5989mn, bottlers’ franchise right $6000mn, Goodwill $11289mn and other $164mn. These intangible assets together make up to a total of $23442mn for the year 2015. All of these are subject to amortization which is charged against the intangible assets with a finite life. As per the annual reports of the organization the amortization that has been charged against infrastructure charges amounted to $61mn in 2015 which decreased from $72mn in 2014. In case of PP&E, the leasehold improvements were also amortized via straight-line method and amount of amortization is $18mn in 2015. The accumulated amortization for customer relationship was $199mn, for bottlers’ franchise right is $412mn, trademark is amortized by $44mn while other are amortized by $60mn (The Coca Cola Company, 2015).

The intangible asset that could be found on the cash flow statement of Coca Cola could be the acquisition and disposal of businesses, equity method investment and non-marketable securities. The of cash outflow for the year 2015 in order to acquire these is $2491mn whereas the inflow is $565mn. The PP&E are the capital assets which are subjected to depreciation and are also visible and can be touched but on the other hand, the intangible asset refers to the assets which are only felt. There are generally two types of intangible assets namely, assets with finite as well as infinite life. The assets with finite life such as trademark or copyright are amortized but asset such as goodwill has infinite life is impaired.

• • Question 4

The company does have a goodwill which is worth $11289mn. However, if required, the company impairs the intangible assets by the first day of the third fiscal quarter. As per the company there is a two step process for the impairment of the goodwill. In the first step the fair value of the reporting unit is compared to its carrying value. On the other hand, the second step compares the fair value with that of carrying amount of goodwill. In the first step the cash flow is discounted so as to calculate the fair value of the reporting unit (The Coca Cola Company, 2015).

• • Question 5

The company charges both depreciation and amortization to its tangible and intangible assets. Both the charges which are provided to these assets are charged through straight-line method. According to the straight-line method, a same amount is deducted every year from the balance amount of assets (Needles, Powers & Crosson, 2012). There are various ranges of the assets such as the building and improvement has a life of 40 years or less, whereas the machinery, equipment and vehicle fleet have a life of 20 years or less. The company uses same depreciation method in all the areas which even includes the time range of tax returns. However, the annual tax rate which is reflected in the consolidated financial statement is quite different from that which is reported in tax return. It is so because the tax law required the company to include the items in tax return in different times than it was actually reported.

• • Question 6

Impairment is considered as a charge against the intangible assets with an infinite life. It is a condition where the value of the intangible asset decreases (Kaplan & Atkinson, 2015). The company had asset which was sold in Venezuela. However, as per company’s revised expectations which were regarding the currency also charged $55mn as impairment (The Coca Cola Company, 2015). In general impairment occurs when an asset is depreciated and lowers its fair market value than its book value. If impairment is defined in terms of mathematical calculation then a loss could be considered when there is a decrease in the book value. It may also happen that the asset is no longer beneficial to the company then the company abandons the same. This act could also be termed as an act of impairment.

• • Question 7

The current liabilities are the obligations which the company needs to pay within a very short time span (Smith, 2014). In case of Coca Cola, the current liability consist of accounts payable and accrued expenses amounting to $9660mn, loans and notes payable of $13129mn, current maturities of long term debt of $2677mn, accrued income taxes of $331mn and liabilities held for sale was amounting $1133mn. The company did have contingent liability where they owed to the third party an amount of $572mn out of which $263mn was related to the VIEs (The Coca Cola Company, 2015). The parties are generally the customers, bottlers, vendors as well as container manufacturers.

• • Question 8

The long-term liability of the organization is $28407mn for 2015 and $19063mn for 2014. The liabilities are $4301mn in 2015 and $4389mn in 2014. The long-term debt refers to the amount which the company owes to the third party and is payable over a long time (Demski, 2013). The interest expense refers to the amount which the company has to pay on the debt taken as cost of borrowing. The interest expense for 2015 is $856mn in 2015 and $483mn in 2014.

The issuance of debt for the year 2015 is $40434mn in year 2015 and $41674 for year 2014. On the other hand the payment of debt is $37738mn in 2015 and $36962mn for 2014.

• • Question 9

The company does have bonds which consist of government bond and corporate bonds. The government bond is worth $442mn in 2015 as per the US plan and $295mn as per non US plans. On the other hand, the corporate bonds are worth $1037mn in 2015 as per the US plan and $136mn as per non US plan. There is a huge difference between the notes payable and bonds payable as notes payable refers to the obligations of the owner of the business but bonds are much broader concept where to extend its business the owner issues bonds which will pay fixed amount to its holder (Weygandt et al., 2015). A bond could be either issued at par, at discount as well as at premium. When the bond is issued at its fair price then it is issued at par but if the same is issued below its price then it is discounted and on the other hand if the same is issued at higher price, it is issued at premium. The effective interest rate can actually be used discount a bond (Bonin, 2013).

• • Question 10

The company also leased additional facilities such as office space and real estate which is used for various processes. The lease amounted to $900mn in the current year which is expected to repay in a long term which will exceed 2021 as well. There are four criteria for capital lease which are:

• Ownership is transferred
• The lease encompasses equal or more than 75% of the asset’s useful life.
• There should be a bargain purchase option
• The present value of the minimum payment should be at least 90% of fair value of asset.

The additional criteria for the lessor are that the finance for the asset is provided by the lessor and the ownership will be transferred to the lessee. In direct financing lease, the lessor is not the manufacturer and he purchases the item to lease it. In case of sale-type lease the lessor is the manufacturer.

• Conclusion

This paper focuses on the financial statement of Coca Cola which illustrated its income statement, balance sheet and cash flow statement. The company reflected that it has invested in some capital assets and even leased some. The depreciation as well as amortization for the company is quite high due to its capital intensiveness. However, as what has been identified that PP&E as well as the charges against it has decreased against the previous year. Regardless of this, the company’s profit for 2015 has increased in comparison to 2014 and is doing well currently.