The company I chose to analyze was Coca-Cola, with ongoing health trends I wanted to see how an all beverage company with mostly soda has adjusted to these trends and see how it has affected their sales. The Coca-Cola Company is one of the biggest selling sodas in history. It was created in 1886 in Atlanta, Georgia by Dr. John S. Pemberton. Coca-Cola is made by mixing syrup and carbonated water and was first offered at Jacobs Pharmacy in Atlanta Georgia for five cents a glass. The product was patented in 1887 and trademarked in 1893 and by time 1895 came around it was sold in every state in the United States. It wasn’t until 1899 that the company started bottling operations in the US and in 1906 it started to expand internationally.
Today the Coca-Cola company is the world’s largest beverage company. Coca-Cola owns or licenses and markets more than 500 non-alcoholic beverages. These beverages can be broken down into categories such as sparkling soft drinks, water, sports drinks, dairy, juice, enhanced water, plant-based beverages such as tea and coffee, and energy drinks. Coca-Cola is now sold in more than 200 countries all around the world. They also own and market four out of five of the world’s top non-alcoholic sparkling soft drinks; Coca-Cola, Diet Coke, Fanta, and Sprite.
The Coca-Cola brand accounts for 1. 9 billion of the approximate 60 billion servings of beverages consumed worldwide every day. Coca-Cola believes that its success depends on its ability to connect with consumers by providing them with wide varieties of beverage options. I find this to be completely accurate due to everyone’s different needs desires and lifestyles.
In December 31st 2017 the company’s operating structure consisted of six operating groups. Europe Middle East and Africa, Latin America, North America, Asia Pacific, Bottling Investments, and corporate. The Coca-Cola Company markets manufactures and sells the beverage concentrates which could also be called the ingredients such as the sweeteners used in the drink the syrup or powders. The company also sells finished sparkling soft drinks. According to the report finished product operations generate higher net operating revenues but lower gross profit margins than concentrate operations. The company cells their syrups or concentrates to bottling operations which they call their bottling partners or bottlers. These bottlers mix the ingredients with the sparkling water and then are finished and packaged in authorized containers for example cans and refillable and non-refillable glass and plastic bottles. These syrups are also sold in large containers to be sold to restaurants in order to produce fountain drinks which are immediately consumed.
In 2017 the Coca-Cola system sold 29. 2 billion-unit cases of sparkling soft drinks which represent 69% of a worldwide unit case volume. These numbers are consistent with both 2016 and 2015 reports. the Coca-Cola trademark accounts for 45% of the worldwide unit case volume in these years. In 2017 United States represented 19% of the company’s worldwide unit case volume.
The Coca-Cola Company conducts their own independent advertising and marketing activities but they also provide promotional, marketing and funding support to their bottlers. This assistance is not always advertised and typically done too pursue marketing agreements. According to the Forum the aggregate amount of funds provided to the company bottlers and resellers or other customers of our company’s products principally for participation and promotional and marketing programs was $6. 2 billion in 2017.
Most of the brands beverages are produced and manufactured and sold by these independent bottlers. However occasionally we take control of bottling operations specifically in times of underperforming markets where are we believe we can use our resources and expertise to improve performance.
In December of 2017 and 16 the Coca-Cola company had approximately 61,800 and 100,300 employees. The decrease in number of employees in 2017 was due to refranchising of certain bottling territories and such franchises as China and Africa.
The report has a section called risk factors and this is one of the exact reasons I wanted to look at the Coca-Cola Company. Over the past five to ten years there has been up-and-coming health trends and studies linking sugary snacks and drinks too obesity not only in children but also in adults. They have also been linked to other health problems such as diabetes. I wanted to look at how coke reinvented its drinks to also suit the needs of these consumers.
The Coca-Cola company wants to put the consumers first, they have been rethinking and creating some new beverage recipes to appeal to these consumers. They also have been offering new drinks that provide health benefits such as hydration and nutrition. They have changed packaging making beverages available in smaller bottles to help portion control and providing clearly stated easy to find calorie information.
The company has kept up with its consumers demand for healthier beverages by creating beverages that have zero sugar in them. These drinks do not have pure sugar but they contain sugar substitutes. Although there are some people who believe these sugar substitutes are linked to cancer the company has also kept up on those trends by creating drinks that contain stevia which is a plant-based sugar found in the leaves of plants. Many studies confirm that there is no link between Stevia and cancer unlike other sugar substitutes.
Risk such as health benefits, competition, unsuccessfulness in innovation, fluctuation in foreign currency, increased interest rates, and many other factors can negatively impact this large business. Even such a thing as climate change may have long-term impacts on the business and results of the operations.
Some key points in the data that is presented in the report that I feel the need to touch on. You could clearly see that net revenue declined 15% in the yearly performance which equals out to $35. 4 billion for the year. The company directly links this to the ongoing refranchising of bottling territories during this time. Organic revenue which is generated by sales of the syrups and concentrate grew 3% for the annual performance.
Operating margins which include items impacting comparability grew 315 and 15 basis points for the quarter and full year. Comparable operating margin expanded 530 and 350 basis points for the quarter and year. This expansion was caused by lower margin bottling business and the company’s ongoing productivity efforts. Cash flow operations equals to $7.0 billion which is down 20%. Coke contributes to declines were related to refranchising of North American bottling territories.
Below I did calculations for four different financial ratios using the balance sheets, income statements, and cash flow statements. I wanted to focus on net profit margin, gross profit margin, return on assets, and the return on equity. Below you’ll see all the calculations and fluctuations throughout 2017 to 2014.
According to the definition higher the ratio the higher the firm’s ability to pay its taxes. The net profit margin is the money that is left over after all expenses are paid. As you see stated above the net profit margin deteriorated from 2015 to 2016 bye 1. 01%. It also went on to deteriorate from 2016 to 2017 by 12. 07% which is a huge decrease.
The gross profit ratio should be high because this shows the firm’s ability to produce goods and services at low cost with high sales. a gross profit indicates the percent of Revenue available to cover operating in other expenditures. from the figure I have tried it above you could see that the gross profit margin improved from 2015 to 2016 by .14% and from 2016 to 2017 by 1.89%.
Above you can see the calculations for a return on assets. A decrease in return on assets indicates the company is generating less profits from its resources. In the Coca-Cola Company you could see that it deteriorated from 2015 to 2016 and again in 2016 to 2017. The drastic decrease from 2016 to 2017 shows that the company is not bringing in that much revenue and is not prospering.
Above charted the return on equity ratio. The ratio should be higher as you can see there is a decrease in 2015 to 2016 and then another drastic decrease from 2016 to 2017. From 2016 to 2017 there is a decrease of almost 21%. With a lower than average net income it is going to be hard for a company to use the equity provided by stockholders effectively. With a higher net income, it allows a company to effectively use the equity from the stockholders in the appropriate places.
In 2017 Coca Cola has reached the lowest net income in over 5 years. Much of this loss is due to the refranchising of its U.S. bottling operations. Over the past couple years Coca Cola has been working on business strategies to cope with falling demands of carbonated beverages, also working towards efforts to reduce sugar in its beverages. Both these strategies are due to health experts and governments who have blamed sugary drinks for obesity.
The Coca-Cola company has been making great strides in the past few years to ensure growth within the company and also keep up with our consumer’s needs. In May of 2017 the CEO James Quincey spoke and declared they are going to be a total beverage company. He also added the company is focusing on driving revenue growth by building and bringing to market consumer-centric brands which include low or no sugar options within the company. They plan to prioritize beverage transactions and value share over sales volume like they have in past years.
2017 has also brought new flavors and new designs to Coke products. In this year the Sprite team at Coke begin exploring options for new flavors. the team decided to take a look at the interactive Fountain dispensers which came out in 2009 and saw data that suggested that consumers were putting a splash of cherry to their Sprite. This gave the team the idea to bottle cherry flavored Sprite and also Cherry Sprite Zero. In July of 2017 Coke Zero was given a new name, it is now called Coke Zero sugar. The new name is so that it is clear to Consumers that the drink does contain no sugar or calories.
Another great success in October of 2017 the company after almost a decade has finally returned ownership of bottling operations to United States local business owners. This refranchising that the company has executed will include 350 distribution centers, 51 production facilities, and 55000 plus employees and over 1. 3 billion physical cases of volume. With refranchising complete I feel over the next ten years Coke will slowly see their net income increase.
The Coca-Cola company is one that has been around for decades. In every great company you are going to face difficulties and obstacles to achieve growth and success. I feel that this is what happen over the past couple years in the Coca-Cola company. We are evolving and studying everything around us, we have discovered that there is a direct link between sugary drinks and obesity so there for we are looking to avoid those items in our diet. I feel that this company has made great strides of progress with fitting their consumers needs and am hopeful to see what new items the inventors bring to us in the coming years.