Coca-Cola HBC Financial Ratios

This paper aims at assessing the Coca-Cola HBC prospects and performance by the use of financial ratios. Other helpful information also used include the company reports, financial ratios, and sector/ competitor reports. Coca-Cola Company was incorporated in Wilmington, Delaware. However, the company is headquartered in Atlanta, Georgia (Elmore 2013). It is an American multinational corporation of beverage, retailer, manufacturer, as well as the marketer of the syrups and concentrates of nonalcoholic beverage. Asa Griggs Candler bought the Coca-Cola brand and formula in 1989 (Foster 2014). Since 1989, the company has been operating a system of franchised distribution. There is also another anchor bottler that is owned by the company in North America. The stock of the Coca-Cola HBC is listed on the NYSE. Besides, it is part of the S & P 500 and the DJIA.

               In general, only syrup concentrates is produced by the Coca-Cola Company as well as its subsidiaries. The syrup is the bought by various bottlers worldwide who hold a local franchise of Coca-Cola. The finished product is produced by the bottlers of Coca-Cola holding exclusive territorial contracts with the corporation (Gertner and Rifkin 2017). These finished products are readily present in bottles and cans from the concentrate. It is combined with the sweeteners and filtered water. Subsequently, the resulting product of Coca-Cola is sold, merchandised, and distributed by the bottlers to the vending machines, distributors of food service, and restaurants. Besides, the fountain business is also controlled by these bottlers outside the United States (Elmore 2013). Since the early 1980s, the consolidation of the bottlers has been actively encouraged by the Coca-Cola Company, with a share of these anchor bottlers owned by the company. In the United States, the bottlers are bypassed by the company (Sundar 2012). As a consequence, the Coca-Cola Company in this country is responsible for the sale and well as the manufacturer of the fountain syrup directly to some retailers and wholesalers who are authorized. 

Financial Ratios: Performance, Efficiency, and Returns to Shareholders

Table 1: Trends in Financial Ratios

Financial Ratios

Year

2012

2013

2014

2015

2016

Revenue

$48.0 billion

$46.9 billion

$46.0 billion

$44.3 billion

$41 billion

Gross margin

60.3%

60.7%

61.1%

60.5%

60.7%

Operating margin

22.4%

21.8%

21.1%

19.7%

20.6%

Pretax margin

26.89%

24.5%

20.27%

21.68%

19.43%

Net income margin

18.78

18.32

15.43

16.60

15.59

Average asset turnover

0.57

0.53

0.51

0.49

0.47

Return on assets

10.86%

9.74%

7.80%

8.07%

7.36%

Financial Leverage

2.63

2.71

3.04

3.53

3.78

Return on equity

28.00%

26.03%

22.36%

26.31%

26.85%

Revenues

In general, revenue = Quantity x price. Of course, there are also other variables of income such as investment and rent that contribute to the company’s total revenue. The growth of revenue is the most commonly analyzed metric of finance. It is the percentage decrease (or increase) of revenue of a company between two periods of time. Annual revenue growth year-over-year occurs when the periods of time are two consecutive years. Also, the quarterly growth of revenue quarter-over-quarter takes place if the periods of time are two consecutive quarters. In case the periods of time are two non-consecutive years, then the commutative annual growth rate (CAGR) is computed.  With the revenues of $41.9 billion, the Coca-Cola Company ranked position sixty on the research list of R&P of top three thousand public companies in the United States by revenues during 2016. During this year, each of these companies (top 3000) generated more than fifty million US dollars of the annual revenues.

With the revenues of $41.9 billion, the Coca-Cola HBC was ranked number two of all the companies in the industry of beverages in the United States. In total, there were eighteen public companies in the beverages industry in the United States that had revenues that is greater than fifty million dollars during 2016. In particular, the PepsiCo, the Coca-Cola, and the Starbucks had $62.8, $41.9, and 21.3 billion US dollars respectively. Dr. Pepper Snapple Group also recorded total revenue of about $6.4 billion US dollars in the same year. For this reason, the Coca-Cola HBC is evident to be performing relatively well in this beverages industry. 

Figure 1: The Total Revenues and Revue Growth of Coca-Cola HBC form 2012 to 2016

The report helps in providing the Coca-Cola’s revenues and the revenue growth of the last five years (2012 to 2016). In total, the company generated about $41.9 billion revenues in 2016. As a result, revenue growth of -5.5% was recorded by the company every year during 2016. Both the revenue growth and revenue are corresponding to the fiscal year that ends in December.

 In detail, the company generated a total of $48 billion revenues in 2012.  During this year, the growth of revenue was 3.2%. In 2013, 2014, and 2015, Coca-Cola HBC also generated a total of $46.9 billion, $46 billion, and 44.4 billion revenues respectively. Correspondingly, there was revenue growth of -2.4%, -1.8%, and -3.7% during the years 2013, 2014, 2015 respectively. Finally, Coca-Cola reported total revenue of $41.9 billion during 2016. Here, the growth of revenue was -5.5% year-over-year- during the year (Gertner and Rifkin 2017). In summary, Coca-Cola HBC has been reporting a drop in the growth of revenue over the pasts five years.

            The timeline depicts the net operating revenues of the Coca-Cola HBC worldwide from 2012 to 2016. Worldwide, the net revenue of the Coca-Cola HBC amounted to about 35.41 billion United States dollars. The company is retailer, producer, and marketer of the beverages that are non-alcoholic. Besides, it is well known for Coca-Cola which is a soft drink. Looking at the trends, the Coca-Cola Company's performance has been deteriorating. For example, in 2012, the company recorded total revenue of $48.0 billion. In 2013 and 2014, the total revenue decreased to 46.9 and $46.0 billion respectively. In 2015 and 2016, the total revenue further dropped to $44.3 and 41.9 billion dollars respectively.

Some of the main drivers of the net income and pretax margin performance of the Coca-Cola Company include the sale of its various products. In general, this company has along acquisitions history. For example, is managed to acquire the Minute Maid in 1960. Afterward, in 1993, Coca-Cola Company also acquired the Indian cola brand. Besides, the stock of the Coca-Cola Company is listed on the NYSE. Moreover, it is part of the S & P 500 and the DJIA. These businesses are the one making the company continue growing. As already noted, the syrup concentrates is produced by the Coca-Cola Company as well as its subsidiaries. The syrup is the bought by various bottlers worldwide who hold a local franchise of Coca-Cola. The finished product is produced by the bottlers of Coca-Cola holding territorial exclusive contracts with the corporation (Gertner and Rifkin 2017).

               Probably, these finished products that the Coca-Cola Company produces are some of the main drivers of its return on equity and return on assets. Remember, the products are evident to be readily present in bottles and cans from the concentrate. It is combined with the sweeteners and filtered water. Subsequently, the resulting product of Coca-Cola is sold, merchandised, and distributed by the bottlers to the vending machines, distributors of food service, and restaurants. Besides, the fountain business is also controlled by these bottlers outside the United States (Elmore 2013). Since the early 1980s, the consolidation of the bottlers has been actively encouraged by the Coca-Cola Company, with a share of these anchor bottlers owned by the company. In the United States, the bottlers are bypassed by the company (Sundar 2012).

               Coca-Cola Company has a big market share, in the United States alone, the company is responsible for the sale and well as the manufacturer of the fountain syrup directly to some retailers and wholesalers who are authorized. Based on the net sales, the top three leading beverage companies in the world in 2016 include Anheuser-Busch, the Coca-Cola Company, and PepsiCo Inc. These companies had net sales of 45,517, 41,900, and 30,144 million dollars respectively. The Nestle SA was position four with total net revenue of 24,534 million dollars. As can be seen, the Coca-Cola Company is competing favorably in the beverage industry. Sugar appears to be one of the biggest vices in the world. Moreover, it one of the key ingredients behind various beverages, food, and tobacco companies. When measured by a composite revenue score, assets, value of the market and profit, Nestle, Pepsi, and the Coca-Cola companies still appear in the top three drink and food companies in the world.

Even though Nestle continues reigning at the food industry's top, it dropped one position to thirty-four on the Global 2000 list of 2017. However, it still manages to dominate the field. Coca-Cola and Pepsi are no stranger to the war on sugar's vagaries, either. In recent quarters, the sale of both the giants of soda has been challenged. As a result, several executives of companies have pledged money and time towards finding ways for diversifying beyond the soda with the aim of revamping the product lines that exist. Yet, despite such struggles, Coca-Cola and Pepsi have managed to maintain their places at the beverage and food industry's top. On 2017 Global 2000, Pepsi jumped six positions to number eighty-four. At the same time, its main rival Coca-Cola become position eighty-six after slipping three places. Noticeably, the Coca-Cola Company compares well with its peers. Some of the drivers of these company that makes it compete effectively with its peers are the wide range of products it deals in and the large market share it enjoys globally.

Financial Ratios: Solvency and Liquidity

Current Ratio = Current Assets/ Current Liabilities

               A liquidity ratio is normally calculated as the current assets divided by the current liabilities. As can be seen in Table 2, the current ratio of the Coca-Cola Company improved from 2015 to 2016. Also, the improvement was seen from 2016 to 2017.

For 2017, the current ratio = 36,545/ 27,194 = 1.34

For 2016, the current ratio = 34,010/ 26,532 = 1.28

For 2015, the current ratio = 33,395/ 26,930 = 1.24

For 2014, the current ratio = 32,986/ 32,374 = 1.02

For 2013, the current ratio = 31,304/ 27,811 = 1.13

Quick Ratio = Total cash Assets/ Current Liabilities

               The quick ratio of the Coca-Cola Company improved from 2015 to 2016. However, it slightly reduced from 2016 to 2017 but failing to reach the level of 2015. A liquidity ratio is calculated as the marketable investments’ cash plus the receivables divided by the liabilities that are current. 

For 2017, the quick ratio = 24,342/ 27,194 = 0.90

For 2016, the quick ratio = 22,201/ 26,532 = 0.84

For 2015, the quick ratio = 19,900/ 26930 = 0.74

For 2014, the quick ratio = 21,675/ 32,374 = 0.67

For 2013, the quick ratio = 20,268/ 27,811 = 0.73

Cash Ratio = Total Cash Assets/ Current Liabilities

               The cash ratio of the Coca-Cola Company showed an improvement from 2015 to 2016. However, the improvement slightly deteriorated from 2016 to 2017 but failed to reach the level of 2015. A liquidity ratio is calculated as the short term remarkable investments plus the cash divided by the current liabilities. 

For 2017, the cash ratio = 20,675/ 27,194 = 0.76

For 2016, the cash ratio = 22,201/ 26532 = 0.84

For 2015, the cash ratio = 19,900/ 26,930 = 0.74

Fr 2014, the cash ratio = 21,675/ 32,374 = 0.67

For 2013, the cash ratio = 20,268/ 27,811 = 0.73

Days Sales Outstanding

The Days Sales Outstanding helps in measuring the average number of days taken by a company for the revenue collection after making a sale. It is a financial ratio illustrating how Accounts Receivable of a company are being managed. Mathematically, the Days Sales Outstanding = (Accounts Receivable/ Revenue) x Days in period. For the year 2017, the Days Sales Outstanding for the Coca-Cola company = (3667 x 35410) x 365 = 37.80.

Cash Conversion Cycle

The Cash Conversion cycle is given by the average processing period of the inventory plus the average collection period of receivable minus the average periods of payments of the payables. For 2017, the cash conversion cycle = 73 + 38 – 63 = 48.

Day Payables

For 2017, the day payables for the Coca-Cola HBC is 365/ payable turnover = 365/ 5.79 = 63

Debt to Equity

The debt to equity = total debt/ the Coca-Cola company’s equity attributes to shareholders

For 2017, the debt to equity = 47,685/ 17,072 = 2.79

For 2016, the debt to equity = 45,709/ 23,062 = 1.98

For 2015, the debt to equity = 44,213/ 25,554 = 1.73

For 2014, the debt to equity = 41,745/ 30,320 = 1.38

For 2013, the debt to equity = 37,079/ 33,173 = 1.12

Table 2: Trends of Financial Ratios

Financial Ratios

Year

2013

2014

2015

2016

2017

Current ratio

1.13

1.02

1.24

1.28

1.34

Quick ratio

0.90

081

0.89

0.98

0.90

Cash ratio

0.73

0.67

0.74

0.84

0.76

Days sales outstanding

37.96

35.44

32.48

33.62

37.80

Days inventory in hand

73

59

61

63

65

Days payables

63

59

58

43

38

Cash Conversion Cycle

48

34

35

55

65

Interest Cover (by Earnings)

677

642

613

594

534

Interest Cover (by Operating Cash Flow)

25.79

20.31

12.22

12.10

9.02

Net Debt to Equity

2.79

1.98

1.73

1.38

1.12

            During 2016, the top four companies in the beverage industry in the United States by revenue included PepsiCo, Coca-Cola, Starbucks, and Constellation Brands companies. Specifically, these companies PepsiCo, Coca-Cola, and Starbucks had total revenues of $62.8, 41.9, 21.3, and 6.5 billion dollars respectively. As can be seen, Coca-Cola Company is competing favorably with its peers. Also, the pre-tax margin for Monster Beverage Corporation, National Beverage Corporation, Coca-Coal, and Dr. Pepper Snapple Group, Inc. were 35.67%, 19.69%, 19.04%, and 17.53% respectively. Moreover, the pretax income of these companies were also $1,201.623, $162,825, 6,742.000, and $1,171.00 respectively.

            In this business of food and beverages, the quick, current, as well as the cash ratios can meet the requirements of the liquidity because their all have positive values. Also, the cash conversion cycle (48 for 2017) of the Coca-Cola Company makes the best use of the working capital for the particular model of the business. The figure increased from 34 in 2016 to 48 in 2017 meaning that the company is making some improvements in its business operations. Competition from peer companies such as PepsiCo and Starbucks appear to be putting forces that might increase pressure on the working capital of Coca-Cola Company. The interest cover of the cover has been reducing over the previous years. For example, it 2013, it was 25.79. In 2014, 2015, and 2016, the interest cover was 20.31, 12.22, and 12.10 respectively (Gertner and Rifkin 2017). In 2017, it was 9.02. In the same way, the net debt to equity has also been reducing for the past five years. In other words, the net revenues of the company also continue to reduce accordingly. The debt-equity ratios stretch too much on its current assets.

Financial Reporting

            Even though there is a series of long and complicated tables, the strategic, risks, operating, and remuneration reports about the Coca-Cola HBC is clear rather than confusing. In both Tables (1 and 2), one can easily see the trend of the company’s performance over the past five years. The remuneration report is even made simpler by the use of Figure 1. In the figure, the graphs shows a downward trend of the total revenue that the company has been making over the past five years. As can be seen, these reports are clear, helpful, and innovative. Even though a clear report is given about the performance of the Coca-Cola HBC, the primary reason for the continuous reduction in the total amount of revenue is not given.

In history, Coca-Cola Company has been the biggest and most popular selling soft drink in the world. It is also recognized mostly in the world. Some of the company’s products include Sprite, Fanta, Coca-Cola Zero, Diet Coke, Dasani, Coca-Cola life, Minute Maid and so on. Coca-Cola Company has its customers all over the world (Sundar 2012). Some of the competitors of this company include PepsiCo, Starbucks, and Constellation Brands. The company has a strategy of expanding its business to include food. It also considers buying some of the peer companies within the industry. One of the biggest challenges that the Coca-Cola Company faces is the stiff competition within the beverage industry. In particular, PepsiCo is the company’s biggest challenger.

Audit Report

According to the audit report, the company is excited about its business’ potential and it is confident in the future (Gertner and Rifkin 2017). Even though these reports are provided in lengthy tables, their summary is easy to understand. In a difficult external environment and over several years, Coca-Cola HBC has been seen to create a stronger and efficient business that is currently primed for growth in the improvement of the condition of the market. The audit report shows that the company is benefiting from the organization’s underlying strengths that includes the flexibility to respond to the dynamic retail landscape and evolving consumer trends.

A genuine insight into the specific risks that Coca-Cola Company faces is provided by the risk report. Besides, the remuneration report helped in explaining clearly the rules for determining bonuses, salary, as well as the shares awarded to the executives. Specific and useful insight is added by the Audit Committee for the analysis of the financial statements of the Coca-Cola Company. All these reports acted as a useful tool for exploring the Coca-Cola HBC’s performance in the food and beverage industry.

Conclusion

Coca-Cola Company has been seen to continue dominating the beverage industry. The best estimates of the report are seen to be in line with the important features of the Coca-Cola Company’s statements. Even though the company continues to make huge profits, its total revenue has been declining in the past five years as already discussed. Also, Coca-Cola Company is currently facing stiff completion from various peers within the industry thus making it devise strategies to continue remaining in the market. All in all, the company still competes favorably with rivals such as PepsiCo and Starbucks. The best strategy here is to expand the market share and also invest in other food products for the company to continue making profits and stay safe in the industry.

Bibliography

Elmore, B. (2013). Citizen Coke: An Environmental and Political History of the Coca-Cola Company. Enterprise and Society, 14(4), pp.717-731.

Foster, R. (2014). Corporations as Partners: “Connected Capitalism” and the Coca-Cola Company. PoLAR: Political and Legal Anthropology Review, 37(2), pp.246-258.

Gertner, D. and Rifkin, L. (2017). Coca-Cola and the Fight against the Global Obesity Epidemic. Thunderbird International Business Review, 60(2), pp.161-173.

Hartogh, M. (2002). It's Still the Real Thing: A Profile of the Coca-Cola Company. SSRN Electronic Journal.

Sundar, D. (2012). Unleashing the Entrepreneurial Potential of Women: an initiative of Coca-Cola Company. Global Journal for Research Analysis, 3(8), pp.1-3.