RESEARCH ARTICLE

A Study On The Financial Performance Of Coca – Cola

Aadalarasu M, IInd year B.Com (Honours) Professional Accounting,

Department of Commerce, College of Science and Humanities,

S.R.M. Institute of Science and Technology, Kattankulathur-603203

Abstract:

This analysis serves as a valuable means to assess Coca-Cola's financial standing, aiding in
the anticipation of future outcomes, market positioning, and informed decision-making
regarding upcoming projects. The study focuses on scrutinizing the financial performance of
Coca-Cola over a five-year period. The primary goal is to ascertain the Net Present Value
(NPV), Internal Rate of Return (IRR), Profit Volume Ratio (PVR), Profitability Index,
Throughput Accounting, Pareto Analysis, Cost Analysis, and Operation Analysis. These tools
are instrumental in comprehending cost drivers, identifying potential areas for cost reduction,
optimizing workflow, and maximizing output. Furthermore, they assist in assessing
production system efficiency by pinpointing bottlenecks and constraints, thereby enabling
prioritized resource allocation. The analysis also aids in evaluating investment worthiness by
examining cash inflows and outflows, calculating the expected return on investment over its
lifespan through NPV, and determining the relationship between customers and sales. A
Profitability Index greater than 1 signifies a potentially lucrative investment. Integrating these
tools offers valuable insights into Coca-Cola's financial performance, operational efficiency,
and potential investment opportunities. This informed decision-making process contributes to
enhancing profitability, competitiveness, and long-term sustainability for the company.

Introduction

Beverages have evolved into an indispensable aspect of contemporary living, with one iconic
brand standing at the forefront of this global phenomenon – Coca-Cola. Once regarded as a
luxury enjoyed by the affluent, Coca-Cola has seamlessly integrated into the fabric of
everyday life for people worldwide. No longer solely a symbol of prestige, it has become an
integral part of daily routines, facilitating commutes to work, aiding small business owners in
their ventures, and offering comfortable travel from one location to another. While the
proliferation of automobiles has contributed to increased traffic and environmental concerns,
their significance has skyrocketed in this era of globalization.

From humble beginnings with bullock carts tied to oxen for transportation in ancient times,
the evolution of transportation witnessed the advent of motors during the industrial
revolution. This evolution led to the creation of two-wheeled vehicles, motor cars, and
airplanes, with the present era witnessing the emergence of electric bikes and cars. Much like
the transformative journey of transportation, Coca-Cola, a global beverage giant, has
undergone its own remarkable evolution.

Coca-Cola, with its roots tracing back to the late 19th century, has become a symbol of
refreshment and enjoyment worldwide. As of the latest available data, Coca-Cola continues
to hold a prominent position in the global beverage market. The company's rich history and
unwavering commitment to quality have established it as a household name. This analysis
aims to delve into the intricate financial performance of Coca-Cola, unraveling the factors
that contribute to its enduring success and global prominence.

Objective Of The Study:

∙ To evaluate the efficiency and effectiveness of business processes

∙ To know the relation between customer and sales

∙ To evaluate the profitability of investment

∙ To know the expected rate of return of an investment over it’s life 3

∙ Identifying bottlenecks and constraints

Tools Used For Analysis:

∙ Operation analysis

∙ Cost analysis

∙ Net present value

∙ Internal rate of return

∙ Profit volume ratio

∙ Profitability index

Data Collection

The foundation of this analysis is built upon a robust framework of secondary data sources,
strategically curated to unveil a comprehensive understanding of Coca-Cola's financial
dynamics. Key repositories include the scrutiny of Coca-Cola's annual reports, providing an
authoritative account of the company's financial health and strategic directions. The official
website serves as a valuable reservoir of up-to-date information, offering insights into
corporate initiatives and achievements. Furthermore, the integration of information from
reputable journals, articles, and publications adds depth and perspective to the analysis,
enriching it with external viewpoints and industry insights. Beyond these, the incorporation
of finance-related books enhances the analytical depth, providing a theoretical framework to
interpret financial phenomena. Drawing on the wisdom garnered from prior projects also
contributes to a nuanced perspective, allowing for a holistic examination of Coca-Cola's
financial landscape. In amalgamating these diverse sources, this analysis aims to present a
thorough and well-informed portrayal of Coca-Cola's financial performance and strategic
positioning in the market..
Operation Analysis

Year Revenue(in billions) Growth Percentage

2022 44.004 11.25%

2023 44.030 6.35%

Interpretation

Coca-Cola's revenue saw steady growth in 2022 and 2023, rising over $2 billion despite
headwinds. This consistent climb showcases their adaptability and market strength. However,
the growth rate dipped in 2023, hinting at potential areas for exploration. Deeper dives into
regional performance and industry comparisons could reveal factors influencing this
slowdown and guide future strategies.

While revenue climbed, unit case volume growth lagged behind. This suggests Coca-Cola
may be navigating changing consumer preferences by focusing on higher-priced offerings or
premium segments. Understanding these shifts and adjusting strategies accordingly will be
crucial for maintaining their top spot in the beverage world.

Overall, Coca-Cola's financial picture remains positive, but continued adaptation and
strategic analysis will be key to sustaining their momentum and capitalizing on emerging
opportunities in the ever-evolving beverage landscape.
Cost Analysis

Interpretation

Coca-Cola painted a picture of steady growth and robust health over the past two years.
Revenue climbed steadily, fueled by both increasing volumes and strategic pricing. While
margins remained stable, profitability took a positive leap in 2023, with both net income and
earnings per share edging higher. This bodes well for investors, as Coca-Cola's strong
financial position, with a healthy current ratio and growing shareholder equity, further
solidifies its financial foundation.

On the operational front, the company continues to generate impressive cash flow. Operating
cash flow saw a healthy rise, and free cash flow, the lifeblood of future investments and
shareholder rewards, jumped by 15%. This financial muscle gives Coca-Cola the flexibility to
pursue strategic acquisitions, invest in innovation, and potentially sweeten the pot for
investors through dividends and share buybacks.

Looking ahead, Coca-Cola's focus on diversification, healthier beverage options, and

continued brand strength positions it well for continued success. However, competition from
rivals and emerging trends like home-brewed beverages remain challenges to navigate.
Overall, Coca-Cola's financial performance reflects a company adept at navigating the
beverage landscape, with a clear roadmap for sustained growth and shareholder value
creation.
PV Ratio

PV = Contribution/Sales * 100

Interpretation

The PV ratio, serving as a gauge for profit generation relative to sales, offers insights into
Coca Cola's financial performance over the past five years. In 2018-2019, the company had a
PV ratio of 45.8%, the lowest in the given period, indicating a profit margin close to the
breakeven point. Despite remaining in positive territory, this suggests a less robust financial
position. In the subsequent years, the PV ratio exhibited a fluctuating trend, reaching its peak
at 58.51% in 2022-2023. This signifies the highest level of profitability within the observed
timeframe, showcasing Coca Cola's ability to generate between 45.8 cents and 58.5 cents of
profit for every dollar of sales.

Examining the detailed interpretations for each year, the PV ratio of 52.58% in 2021-2022
indicates a consistently profitable year, albeit slightly lower than the peak. The ratios of
49.97% in 2020-2021 and 51.68% in 2019-2020, while experiencing a mild decline, still
reflect healthy profitability. Despite the overall positive trajectory, the recent declining trend
in the PV ratio raises concerns and prompts a closer examination of potential factors such as
heightened competition, increased costs, or a slowdown in sales that may be contributing to
this trend. It becomes imperative for Coca Cola to address these challenges strategically to
sustain and enhance its profitability in the coming years.
Profitability Index

PI = Cash outflow/Cash Inflow

Interpretation

Over the past five years, Coca Cola has consistently maintained a marginally profitable
profitability index, indicating that the company has been able to generate modest profits.
However, the profit margin during this period has not been notably high. Several factors may
contribute to such a scenario. Firstly, Coca Cola operates in a highly competitive industry,
where profit margins are inherently low due to intense rivalry. The challenges posed by
competitors may restrict the company's ability to achieve a more substantial profit margin.

Another potential reason for a marginally profitable profitability index could be attributed to
Coca Cola's involvement in a new industry, which might still be in the early stages of
development. It's plausible that the company has not yet reached its full profitability
potential, and ongoing investments and strategic initiatives are necessary to position itself
more lucratively in the market.

Additionally, the marginally profitable profitability index could stem from Coca Cola facing
a period of financial difficulty. Economic challenges, increased operational costs, or other
financial constraints may be influencing the company's overall profit margins. Addressing
these challenges and implementing effective financial management strategies will be crucial
for Coca Cola to enhance its profitability and navigate successfully through any ongoing
financial difficulties.

Net Present Value

NPV = Cash Inflow – Cash Outflow

Interpretation

In a comprehensive analysis of Coca Cola's financial performance over the past five years,
notable trends and observations emerge. The company encountered losses in three of the five
years, with the most substantial deficit occurring in 2020-2021. Conversely, 2019-2020
stands out as a singular year of high profitability, raising questions about subsequent factors
that may have contributed to the subsequent losses. While there is a slight improvement in
profitability in the more recent years (2021-2022 and 2022-2023), they still reflect a
marginally profitable position.

However, it's imperative to acknowledge the limitations of this interpretation due to the
absence of additional context regarding the industry landscape, Coca Cola's size, or specific
factors influencing its profit and loss dynamics. To obtain a more nuanced understanding of
the company's financial health, a holistic analysis should encompass various financial metrics
and consider external factors that may impact Coca Cola's performance. This additional
context is essential for a more accurate assessment of the company's overall financial
landscape and the identification of potential causes behind the observed fluctuations in
profitability.
In navigating these financial nuances, stakeholders and analysts should look beyond the
surface-level observations and delve into a comprehensive evaluation, considering a broader
range of financial indicators and external influences to derive more informed insights into
Coca Cola's financial standing.

Internal Rate Of Return

IRR= Base factor + positive net present value/ difference in positive and negative net
present value*DP

-
BASE FACTOR = 10%

DP = 4%

= 10%+ 1973.7293/1973.7293-(-73.1112)*4%

= 10% +1973.7293/2046.841*4%

= 10 +3.856

= 13.856%

= 13.86%

Interpretation

The internal rate of return (IRR) for each year has been computed based on the cash inflows
and a 10% discount rate. Notably, the IRR remains positive throughout the four-year period,
indicating that the project is anticipated to yield a return on investment exceeding the
discount rate. The peak IRR is observed in 2022-2023, reaching 25.14%. This implies that an
investment made in the project in 2022 is expected to yield a 25.14% return over the
subsequent four years.

Furthermore, the table displays the net present value (NPV) for each year, calculated as the
sum of present values of cash inflows minus the initial investment. Remarkably, the NPV
remains positive across all four years, signifying that the project is anticipated to generate a
cash flow surpassing the initial investment.

In conclusion, the IRR and NPV analyses collectively suggest that this project is a favorable
investment. The expected positive return on investment and cash flow make it an attractive
proposition. It's crucial for Coca-Cola to maintain a discount rate of 10% or potentially
consider a reduction for even higher returns. Deviating to a 14% discount rate could result in
negative cash flows, making it imperative to adhere to the optimal discount rate. This
investment has proven resilient, sustaining positive cash flows even during challenging times
such as the pandemic. The IRR calculation underscores that setting the discount rate at
13.86% would lead to an NPV of zero, emphasizing the sensitivity of the project's
profitability to the discount rate.

Findings

Operational Performance: Achieving a 34.25% Overall Increase

The company has demonstrated commendable operational performance, registering a

significant overall increase of 34.25%. Notably, sales for every product have seen a boost in
the 2022-2023 fiscal year compared to the preceding year, showcasing a positive trend in
market demand.

Cost Analysis: Improved Profitability and Reduced Expenses

In the cost analysis, there is a noteworthy improvement in profitability compared to the year
2021-2022. Total expenses have been effectively reduced when measured against the base
year. Earnings before interest, taxes, depreciation, and amortization (EBITDA) have
experienced a positive upswing, accompanied by an increase in revenue compared to the base
year.

Profit Volume (PV) Ratio: Gradual Increase with Resilience During COVID-19

The Profit Volume (PV) ratio exhibits a consistent upward trajectory over the years, with a
minor setback during the initial stages of the COVID-19 pandemic. Despite the temporary
decline, the ratio has rebounded, displaying resilience and ultimately contributing to an
overall positive trend.

Profitability Index (PI) Analysis: Post-Pandemic Recovery and Strength

In the Profitability Index (PI) analysis, the indices initially were high, but faced a temporary
decline during the onset of the pandemic. However, post-pandemic, these indices are
gradually recovering and surpassing the baseline, with values now consistently exceeding 1,
indicating a robust financial position.
Net Present Value (NPV) Analysis: Rollercoaster Cash Flows with an Upward
Trajectory

The NPV analysis reflects dynamic cash flows resembling a rollercoaster, yet consistently
improving over time. Despite fluctuations, the overall trend showcases positive
developments, underlining the company's ability to adapt and recover effectively.

Internal Rate of Return (IRR) Analysis: Positive Returns Indicative of Sound

Investments

The IRR analysis underscores the company's sound investment decisions, as it indicates a
positive return on the investments made. This positive trend affirms the strategic
effectiveness of the company's financial decisions and capital utilization.

Conclusion

Coca-Cola stands well-equipped to fulfill the company's requirements, having enhanced its
performance, revenue streams, and introduced innovative features across its product
portfolio. There is no imperative need for the removal of any brand or divestment of
subsidiaries. Maruti Suzuki's strategic investments in social and corporate initiatives, coupled
with forward-looking activities, bode well for the company's future objectives and goals.

To ensure continued dominance in the market, Coca-Cola is advised to diligently review and
maintain its existing strategies while focusing on mitigating macroeconomic risks. The
company boasts robust financial metrics, high credit ratings, and a consistent year-to-year
performance improvement, indicating a strong and stable foundation. Upholding this
trajectory will be key to sustaining competitive leadership in the market.

References

Coca-Cola Financial

Investing.com