Security and Financial Analysis of Coca-Cola Company - Book Report/Review Example

? SECURITY ANALYSIS al Affiliation) Key words: Coca-Cola, Financial Analysis Table of Contents Executive Summary 3 Coca-Cola Analysis 4 Dividend Stock Analysis 4 Coca-Cola vs. The S&P500 over a decade 5 The company Earnings and Dividend 6 Payout Ratio 7 Revenue Growth and Cash flow 8 Balance Sheet 8 Risks 9 Valuation Panel 9 Double Stage Dividend Discount Model 9 Growth Model 9 Valuation Conclusion 9 Cash Secured Puts 9 Financial highlights 10 Valuation 10 Per Share 10 Profitability 10 Growth 10 Financial Strength 10 Management Effectiveness 11 Efficiency 11 Recommendation 11 Conclusion 11 Reference 12 Executive Summary The Coca-Cola Company is a beverage company that is engaged in manufacturing, selling, and marketing non-alcoholic drinks globally. The company provides still beverages (flavored water, enhanced waters, sports drinks, juice drinks, carbonated drinks, and energy drinks) and sparkling beverages. Additionally, the company provides flavoring sweeteners, beverage ingredients, powders to purify water, and fountain syrups. Coca Cola sells its products under Diet Coke, Coca-Cola, Coca-Cola Zero, Minute Maid, Powerade, Dasani, and Ayatake brand names. The company provides its beverage products through distribution operators, controlled bottling, and through independently owned bottling wholesalers, retailers, and partners. The company was established in 1886 and its headquarter is in Georgia and Atlanta. The financial analysis of Coca-Cola Company is important for Dennis Mark to make investment decisions. Introduction Dennis Mark is one of the celebrated investors in Atlanta. Dennis Mark is anticipating investing in a five year stock with Coca-Cola Company. Therefore, the paper is important because it analyses the financial prospects of Coca-Cola Company. Industry Analysis The beverage industry is one of the competitive global industries. According to beverage digest, the Coca-Cola Company was the leading brand with about 4.5Billion cases in 2004. Followed closely were Pepsi and Cadbury. Pepsi and Coca-Cola control the shares of the market however their shares for both Pepsi and Coca-Cola decreased from 2003 to 2004. The Volume of Coca-Cola decreased by 1 per cent since 2003 while Pepsi increased. Diet coke recorded a 5% growth but other 10 brands of Coca-Cola declined. According to American Beverage Association, the sales of the beverage industry were 65.9 Billion dollars. After analysis, the industry means and mean net profit margin was 11.28 per Cent. The current ratio for the beverage industry is 1.11 and its quick ratio is 0.8. The figure helped in analyzing the financial figures of major companies in the industry. Coca-Cola Company has observed their net profit margin rise from 20.7 per cent to 22.1 per cent. According to the company’s annual report, a greater percentage of their revenues come from soft drinks. This shows that the revenues increases but at a lower rate. This is according to the happenings in the beverage industry. The beverage industry is competitive and its growth has remained to be in a stable level. The slight rise in the company’s profit margin is from the energy beverage product line. The beverage is rising at a rapid rate, and this allows the company to raise their profits. The working capital of Coca-Cola is 1.1 billion dollars. This is a large rise from the previous year at 500 Million dollars; conversely, the quick ratio and the current ratio are a concern. The current ratio is considered good and the company was 1.102. This means that the company will lack funds to cater for the short term claims. The quick ratio is 0.89 and is termed as good when it is higher than 1. This means, without selling inventories the company will not be able to pay for the short-term debt. Coca-Cola Analysis Dividend Stock Analysis The company sells its products in more than 200 countries and owns a license of over 500 brands. The company also produces Mello Yello, Aquarius, Fresca, and Tab. Over the years in operation, there was growth in carbonated beverages. Additionally, the company also produces Powerade brands, Minute Maid, and Dasani. Company Statistics Symbol: KO PE ratio: 19.56 Yield: 2.8 per cent Percent above 52 weeks: 62.5 per cent Beta: 0.33 Market Capitalization: 180.3 Billion Dollars Website: us.coca-cola.com Coca-Cola vs. The S&P500 over a decade The company has tracked S&P500 over the last decade. Over that period, an investment in Coca-Cola grew by 75 Percent to the 64 per cent in S&P500. The company Earnings and Dividend Period EPS Growth (%) Dividend Growth (%) 1 year 6.5 8.5 3 years -11.8 7.7 5 years 12.0 7.6 10 years 9.2 9.8 The Earning per Share growth for the company was up with a decrease in 2008 and an upward trend in 2010. Conversely, the dividend growth for the company has been solid. A 9.8 per cent over a decade is a solid growth for a dominating company like Coca-Cola. The trend shows that the dividend growth will accelerate. This is a good sign for Dennis Mark. A beginning yield of 2.8 per cent and the growth rate of 8.5% the company anticipated to grow in yield on cost in excess of 6.8 percent in a decade. To double the dividend, it will take less than eight and a half years. Payout Ratio The payout ratio for the company has hovered in the range of 50%. There was a decrease in 2010, but it was quickly reinstated to its historic norm in the subsequent years. Revenue Growth and Cash flow Period Revenue Growth (%) 1 year 3.2 3 year 16.9 5 year 10.7 10 year 9.6 The cash flow of the company mirrored its Earning per Share, which slightly dipped in 2008, and then spiked 2010 to display a constant upward trend. The revenue growth for the company has been respectable over the last decade as well. Balance Sheet Currently, the company debt to equity is 45%. Over the last decade, the company recorded an increase in debt to equity, but later leveled at 45%. Risks The rapid growth rate in beverages that are non-carbonated would hinder the company. This will be reversed because the company owns some of the leading brands like Minute Maid and Dasani The company is subjected to currency fluctuations. But this is offset because of the options and future. The industry is prone to speculation therefore there was an anticipated risk that would cause problems. Valuation Panel Coca-Cola has a Graham number of 17.71 dollars. The stock price is above the Graham number, meaning that the number might be overvalued. Double Stage Dividend Discount Model The company’s dividend is growing at 8.5 per cent. But the model is not useful to the company because there is no time for rapid dividend growth Growth Model Using a discount rate of 10% and a growth rate of 8%, the model produced an undervalued figure of 60.48 dollars. When a 12.6% is used as a discount rate as speculated by the CAPM model, offers an overvalued of 26.07 dollars. Valuation Conclusion From the tested models, it is suggested that the company is overvalued. Cash Secured Puts It is felt that the company is overvalued; therefore it is discouraging to buy at current prices nor selling against it. Financial highlights Valuation P/E: 18.62 Price to Revenue: 1.37 Price to Cash flow: 11.69 Price to Book: 5.01 Per Share Revenue/Share: 28.84 Earnings per Share Diluted: 2.29 Dividend/Share: 0.56 Book Value/Share: 8.51 Cash Flow/share: 3.37 Cash: 1.88 Profitability Operating Margin: 10.46 Net Profit Margin: 7.81 Gross Margin: 503 Growth 5 year Yearly Growth: 7.77 5 Year Yearly Revenue Growth Rate: 5.24 5 Year Annual Dividend Growth Rate: 21.67 5 Year Earning Per Share Growth: 7.80 Financial Strength Quick Ratio: .89 Current Ratio: 1.05 LT Debt: Equity: 150.34 Total Debt: Equity: 177.23 Management Effectiveness Return on Equity: 24.91 Return on Assets: 6.54 Return on Investment: 8.79 Efficiency Asset Turnover: .84 Inventory Turnover: 12.30 Recommendation Dennis Mark, need to invest in stock of the company. Consequently, he needs to take note of the currency fluctuation through forwards and options. When their currency depreciates or appreciated, the company pays with a foreign currency. The combination of the human resource management and the business strategies is important for Dennis Mark to make decisions. This is because it will improve the image and the product name. Conclusion I advise Dennis Mark to invest in the company. This is because as noted above, the company offers the investors a high return on equity. This means when you invest in the company, the return will be higher than the average of the industry. For Coke, it is greater than similar beverage companies. The company has increased the stock dividend annually for half a century. Additionally, the company has remained to be a solid investment for every stakeholder. Reference Coca cola. 2013. S.l.: Spruce Books. Read More