Coca Cola Financial Analysis Case Solution
Market Value Ratios.
- Book Value per Share Ratio.
- Dividend Yield Ratio.
- Earnings per Share Ratio.
- Price Earnings Ratio.
Now the calculations of the above mentioned five financial ratios which are as under:
Liquidity Ratios.
Formula:
Current Ratio = Current assets / Current liabilities
Calculation:
| Current Ratio | |
| Description | Amount |
| Current Assets | 1,924,000,000.00 |
| Current Liabilities | 14,601,000,000.00 |
| Answer | 0.13 |
Comment:
1.2 to 2 Current Ratio consider Company’s Healthy Current Ratio but in this company case, the current ratio is 0.13 it means the company is not able to cover its current liabilities with Current Assets.
Formula:
Acid-test Ratio = Current assets – Inventories / Current liabilities
Calculation:
| Acid-test Ratio | |
| Description | Amount |
| Current Assets | 1,924,000,000.00 |
| Current Liabilities | 14,601,000,000.00 |
| Inventories | 3,266,000,000.00 |
| Answer | (0.09) |
Comment:
If the acid test ratio is exact 1 or more than 1 consider a healthy ratio but this company's (0.09) acid test ratio shows that the company does not have sufficient liquid assets to compensate their current obligations or liabilities. And this is not a good sign for the company.
Formula:
Cash Ratio =Cash and Cash equivalents / Current Liabilities
Calculation:
| Cash Ratio | |
| Description | Amount |
| Cash | 6,795,000,000.00 |
| Short Term Investments | 1,771,000,000.00 |
| Net Receivables | 3,144,000,000.00 |
| Cash and Cash equivalents | 11,710,000,000.00 |
| Current Liabilities | 14,601,000,000.00 |
| Answer | 0.80 |
Comment:
0.5 to 1 consider a healthy cash ratio and in this case, the company’s 0.80 cash ratio show that the company can cover your short-term liabilities.
Formula:
Operating Cash Flow Ratio = Operating cash flow / Current liabilities
Calculation:
| Operating Cash Flow Ratio | |
| Description | Amount |
| Revenue | 33,014,000,000 |
| Operating Expenses | 10,584,000,000 |
| Operating Income | 22,430,000,000 |
| Income Tax Exp. | 1,981,000,000 |
| Change in Working Capital | (12,677,000,000.00) |
| Operating Cash Flow | 7,772,000,000 |
| Current Liabilities | 14,601,000,000.00 |
| Answer | 0.53 |
Comment:
The company’s 0.53 ratio show that the company cannot easily cover its current short-term liabilities because greater than 1 or higher operating cash flow indicates the company’s good financial health.
Leverage Ratios.
Formula:
Debt ratio = Total liabilities / Total assets
Calculation:
| Debt ratio | |
| Description | Amount |
| Current Assets | 1,924,000,000.00 |
| Current Liabilities | 14,601,000,000.00 |
| Answer | 7.59 |
Comment:
7.59 Debt Ratio indicates the company is more difficult to borrow money because 0.4 or lower ratio indicates well for the company but 0.6 or higher indicates badly for the company.
Formula:
Debt to equity ratio = Total liabilities / Shareholder’s equity
Calculation:
| Debt to equity ratio | |
| Description | Amount |
| Total Liabilities | 66,012,000,000.00 |
| Total Assets | 87,296,000,000.00 |
| Shareholder’s equity | 21,284,000,000.00 |
| Answer | 3.10 |
Comment:
The 3.10 ratio indicates $ 3.10 of debt for each $ 1 of equity.
Efficiency Ratios.
Formula:
Asset Turnover Ratio = Net sales / Average total assets
Calculation:
| Asset Turn Over Ratio | |
| Description | Amount |
| Total Assets of Current Year | 87,296,000,000.00 |
| Net Sales | 33,014,000,000.00 |
| Answer | 0.38 |
Comment:
If the asset turnover ratio is exact 2.5 or greater than 2.5 consider a healthy ratio but in this case company’s ratio is 0.38 indicates that the company is not intelligent for developing the sales or earnings from its assets base. So 0.38 ratio is not a healthy asset turnover ratio of the company.
Formula:
Inventory Turnover Ratio = Cost of goods sold / Average inventory
Calculation:
| Inventory Turnover Ratio | |
| Description | Amount |
| Cost of goods sold | 13,433,000,000.00 |
| Current Year Inventory | 3,266,000,000.00 |
| Answer | 4.11 |
Comment:
If a company’s inventory turnover ratio is between 5 and 10 so this ratio considers a good ratio but this company ratio is 4.11, it’s not a good ratio of a company. It indicates low or weak sales is known as an “overstocking” situation.
Formula:
Receivables Turnover Ratio = Net sales / Average accounts receivable
Calculation:
| Receivables Turnover Ratio | |
| Description | Amount |
| Current Year A/R | 3,144,000,000.00 |
| Net Sales | 33,014,000,000.00 |
| Answer | 10.50 |
Comment:
10.50 ratio indicates that the company issued and collected trade receivables, all are the balance of your account receivables in 10.50 times during the financial year.
Formula:
Days Sales in Inventory Ratio = 365 days / Inventory turnover ratio
Calculation:
| Days Sales in Inventory Ratio | |
| Description | Amount |
| Inventory Turnover Ratio | 4.11 |
| Answer | 88.74 |
Comment:
88.74 ratio show that high day’s stock outstanding it means the organization is not to be able to fast and quickly turn of your stock into sales.
Profitability Ratios.
Formula:
Gross Margin Ratio = Gross profit / Net sales
Calculation:
| Gross Margin Ratio | |
| Description | Amount |
| Net Sales | 33,014,000,000.00 |
| Gross Profit | 19,581,000,000 |
| Answer | 0.59 |
Comment:
0.59 ratios consider good ratios because this ratio indicates that what is the amount of your earnings are after paying the cost of goods sold. The healthy gross margin ratio is between 0.50 and 0.70.
Formula:
Operating Margin Ratio = Operating income / Net sales
Calculation:
| Operating Margin Ratio | |
| Description | Amount |
| Operating Income | 8,997,000,000.00 |
| Net Sales | 33,014,000,000.00 |
| Answer | 0.27 |
Comment:
High than 0.15 ratio is considered a healthy ratio. This company's 0.27 ratio indicates that this is the number of earnings is after paying its variable cost of production. So 0.27 is a healthy ratio of the company.
Formula:
Return on Assets Ratio = Net income / Total assets
Calculation:
| Return on Assets Ratio | |
| Description | Amount |
| Net Income | 7,768,000,000.00 |
| Total Assets | 87,296,000,000.00 |
| Answer | 0.09 |
Comment:
0.09 ratio indicates the investment of the company is not an excellent generated value because over 20 percent ratio considers an excellent ratio.
Formula:
Return on Equity Ratio = Net income / Shareholder’s equity
Calculation:
| Return on Equity Ratio | |
| Description | Amount |
| Net Income | 33,014,000,000.00 |
| Shareholder’s equity | 21,284,000,000.00 |
| Answer | 1.55 |
Comment:
Return on equity ratio indicates the measurement of company profitability with shareholder equity. So, 1.55 ratio is a good ratio of a company because 15 to 20 percent consider good ratios.
Market Value Ratios.
Book Value per Share Ratio = Shareholder’s equity – Preferred equity/ Total common shares outstanding
| Book Value per Share Ratio | |
| Description | Amount |
| Shareholder’s equity | 21,284,000,000.00 |
| Preferred Equity | - |
| Total Common Shares Outstanding | 4,323,000,000 |
| Answer | 4.92 |
Comment:
4.92 ratio shows the net asset value of the organization on a per-share basis. So 4.92 is not a good ratio because under 1 book value ratio considers a good ratio of the company.
Formula:
Earnings per Share Ratio = Net earnings / Total shares outstanding
Calculation:
| Earnings per Share Ratio | |
| Description | Amount |
| Net Earning | 7,768,000,000.00 |
| Total Shares Outstanding | 4,323,000,000 |
| Answer | 1.80 |
Comment:
1.80 ratio indicates low EPS because between 13 and 15 ratio considers the average range of the ratio.
Formula:
Price Earnings Ratio = Share price / Earnings per share
Calculation:...................
Coca Cola Financial Analysis Case Solution
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