The Coca-Cola Company: 2003 Financial Performance
Coca-cola is the leading manufacturer, distributor, and marketer of nonalcoholic beverages and soft drinks in the world (The Coca-Cola Company, 2004). For this analysis, we will review 2003 year-end financial statements including a common-size balance sheet and income statement (see Exhibit A and Exhibit B) as well as the selected financial ratios shown in Table 1.
The Coca-Cola Company has displayed profitable growth, as seen over the three-year period displayed on their income statement (Exhibit A). From 2001 to 2003, the company increased their revenues by nearly 20% and their net income by 9.5%. The decrease in the company’s 2002 net income was a result of the adoption of SFAS No. 142, a required change in accounting principle. The cumulative effect of adopting this new standard resulted in a decrease to net income of $367 million for company operations and $559 million for the company's proportionate share of equity method investees. Evidently, the company has rebounded from this anomaly showing solid revenue and net income growth in 2003 over 2002, at 8% and 43% respectively. Coca-Cola’s streamlining initiatives during 2003 were the only irregularity affecting the operating profit margin, a decrease of three percentage points. The cost of these initiatives resulted in an additional charge of $575 million against income (The Coca-Cola Company, 2004).
The company’s common-size balance sheet (Exhibit B) shows a reduction of liabilities, particularly long-term debt, and an increase in equity as a percentage of total assets. The net increase in assets is 12% in 2003 over the previous year. Furthermore, the selected financial ratios displayed in Table 1 below indicate measures on Coca-Cola’s profitability, efficiency, liquidity, and leverage. Most results indicate stability and improvement in subsequent periods, with the 2002 exception in the decreased net profit margin, primarily due to the adaptation of SFAS No. 142.
Table 1: Financial Ratios
Coca-Cola Company and Subsidiaries
2003 2002 2001
Return on Assets 15.9% 12.5% -
Return on Equity 30.9% 25.9% -
Net Profit Margin 20.7% 15.6% 22.6%
Asset Turnover 0.77x 0.80x -
Current Ratio 1.06 1.00 -
Debt Ratio 48.5% 51.7% -
The measures of return on