Coca Cola's Vertical and Horizontal Analysis Free Essay Example

Coca Cola is a company that came up in 1886 as the product of a scientist who was experimenting on a treatment for headache and an energy drink. Today, Coca Cola is one of the biggest brands in the world, giving the service of manufacturing beverages and soft drinks. This paper presents a vertical and horizontal analysis of the company for the years 2008-2012.

Horizontal Analysis

The horizontal analysis shows percentages of important numbers in the company as reinforcement for financial ratios. The vertical analysis shows what amount of financial energy is being spent in what area of the company’s finances. One of the glaring trends in the financial information provided below is the fact that in all five years, over 60% of all revenues are gross profits for the company. This shows that for every dollar of investment, $0.6 comes back as profits which can be enjoyed by the company, thereby presenting a very lucrative and efficient business model. Additionally, the company maintains the operating costs at between 18-23%, ensuring that the company remains very efficient in terms of administrative costs. As a result, the income remains high on every count and it remains high despite the tax costs. This is shown in the income statement table below:

It’s time to jumpstart your paper!

Delegate your assignment to our experts and they will do the rest.

Get custom essay

Table 1 : Income Statement Vertical Analysis

Coca Cola	Yearly Data					Vertical Analysis
	2012	2013	2014	2015	2016	2012	2013	2014	2015	2016
Total Revenue	48017	46854	45998	44294	41863	100.0%	100.0%	100.0%	100.0%	100.0%
Gross Profit	28964	28433	28109	26812	25398	60.32%	60.68%	61.11%	60.53%	60.67%
Operating Income	10779	10228	9708	8728	8626	22.45%	21.83%	21.11%	19.70%	20.61%
Income Before Tax	11809	11477	9325	9605	8136	24.59%	24.50%	20.27%	21.68%	19.43%
Income After Tax	9086	8626	7124	7366	6550	18.92%	18.41%	15.49%	16.63%	15.65%
Net Income	9086	8626	7124	7366	6550	18.92%	18.41%	15.49%	16.63%	15.65%

On the other hand, the study investigated the balance sheet in a vertical analysis to determine similar trends in financial strengths of the Coca Cola Company. One of the key investments the company has made is through the acquisition of long-term non-current assets, which seek to pursue the development of the company’s production in the long term (McGowan, 2014). As such, non-current assets consist 61% of the total value of assets that the company owns, while the remaining 39% is split over the current assets. On the other hand, short-term and long-term debts seem to be the hallmark of liabilities that the company holds. Representing 25% and 46.2% respectively, the largest part of the liabilities the company holds come in form of debt. It is possible that the larger part of this debt is used for asset financing as well as short-term monetary needs for the company.

Table 2 : Balance Sheet Vertical Analysis

Coca Cola	Yearly Data					Vertical Analysis
	2012	2013	2014	2015	2016	2012	2013	2014	2015	2016
Current assets
Cash
Cash and cash equivalents	8442	10414	8958	7309	8555	9.8%	11.6%	9.7%	8.1%	9.8%
Short-term investments	8109	9854	12717	12591	13646	9.4%	10.9%	13.8%	14.0%	15.6%
Total cash	16551	20268	21675	19900	22201	19.2%	22.5%	23.6%	22.1%	25.4%
Receivables	4759	4873	4466	3941	3856	5.5%	5.4%	4.9%	4.4%	4.4%
Inventories	3264	3277	3100	2902	2675	3.8%	3.6%	3.4%	3.2%	3.1%
Prepaid expenses	2781	2886	3066	2752	2481	3.2%	3.2%	3.3%	3.1%	2.8%
Other current assets	2973		679	3900	2797	3.4%	0.0%	0.7%	4.3%	3.2%
Total current assets	30328	31304	32986	33395	34010	35.2%	34.8%	35.8%	37.1%	39.0%
Non-current assets
Property, plant and equipment
Gross property, plant and equipment	23486	25032	25258	22354	21256	27.3%	27.8%	27.4%	24.8%	24.4%
Accumulated Depreciation	-9010	-10065	-10625	-9783	-10621	-10.5%	-11.2%	-11.5%	-10.9%	-12.2%
Net property, plant and equipment	14476	14967	14633	12571	10635	16.8%	16.6%	15.9%	14.0%	12.2%
Equity and other investments	10448	11512	13625	15788	17249	12.1%	12.8%	14.8%	17.5%	19.8%
Goodwill	12255	12312	12100	11289	10629	14.2%	13.7%	13.1%	12.5%	12.2%
Intangible assets	15082	15299	14272	12843	10499	17.5%	17.0%	15.5%	14.3%	12.0%
Other long-term assets	3585	4661	4407	4207	4248	4.2%	5.2%	4.8%	4.7%	4.9%
Total non-current assets	55846	58751	59037	56698	53260	64.8%	65.2%	64.2%	62.9%	61.0%
Total assets	86174	90055	92023	90093	87270	100.0%	100.0%	100.0%	100.0%	100.0%
Liabilities and stockholders' equity
Liabilities
Current liabilities
Short-term debt	17874	17925	22682	15806	16025	33.5%	31.5%	36.8%	24.5%	25.0%
Accounts payable	1969	1933	2089	2795	2682	3.7%	3.4%	3.4%	4.3%	4.2%
Deferred income taxes					692	0.0%	0.0%	0.0%	0.0%	1.1%
Taxes payable	471	309	400	331	307	0.9%	0.5%	0.6%	0.5%	0.5%
Accrued liabilities	6711	7644	7145	6865	6116	12.6%	13.4%	11.6%	10.6%	9.5%
Other current liabilities	796		58	1133	710	1.5%	0.0%	0.1%	1.8%	1.1%
Total current liabilities	27821	27811	32374	26930	26532	52.1%	48.9%	52.5%	41.7%	41.3%
Non-current liabilities
Long-term debt	14736	19154	19063	28407	29684	27.6%	33.7%	30.9%	44.0%	46.2%
Deferred taxes liabilities	4981	6152	5636	4691	3753	9.3%	10.8%	9.1%	7.3%	5.8%
Minority interest	378	267	241	210	158	0.7%	0.5%	0.4%	0.3%	0.2%
Other long-term liabilities	5468	3498	4389	4301	4081	10.2%	6.1%	7.1%	6.7%	6.4%
Total non-current liabilities	25563	29071	29329	37609	37676	47.9%	51.1%	47.5%	58.3%	58.7%
Total liabilities	53384	56882	61703	64539	64208	100.0%	100.0%	100.0%	100.0%	100.0%

Horizontal Analysis

A horizontal analysis for the company is also necessary to determine trends in the company’s key financials over the last five years. Considering that the vertical analysis has shown positive financial practices, the horizontal analysis could show whether these practices have had a general positive impact on the company over the five-year period. Notably, the company has had increasing revenues over the past five years at a steady rate of 95%, showing impressive gains over the last time period. This shows positive investment in marketing and sales over the time period and improving customer response to the products. However, increasing revenues have seen decreasing gross profits which could be linked to increased administrative costs. This can be confirmed by the ever-rising operating income that rose up to -207.2% in the 2014-15 year. It is possible that this increased value has a large impact of the gross profit decline over the years.

Table 3 : Horizontal Analysis for Income Statement

Coca Cola	Yearly Data					Horizontal Analysis
	2012	2013	2014	2015	2016	2012	2013	2014	2015	2016
total revenue	48017	46854	45998	44294	41863		95.7%	95.6%	95.5%	95.2%
gross profit	28964	28433	28109	26812	25398		-64.8%	-63.6%	-65.2%	-64.8%
Operating income	10779	10228	9708	8728	8626		-178.0%	-189.5%	-207.2%	-194.4%
Income before Tax	11809	11477	9325	9605	8136		10.9%	-4.1%	9.1%	-6.0%
Income after Tax	9086	8626	7124	7366	6550		-33.1%	-30.9%	-30.4%	-24.2%
Net Income	9086	8626	7124	7366	6550		0.0%	0.0%	0.0%	0.0%

Table 4 : Horizontal Analysis for Income Statement

Concerning the income statement, minimal changes were noted. The company’s change in assets was minimal, ranging between 5% and -5%. This shows that the company maintained a steady income stream with the acquisition of assets – both current and non-current – so as to maintain its position. Assets also remained strategically placed with significantly close figures of under 8% change at any given time. This way, the company maintained its financial position minimally changed.

Coca Cola	Yearly Data					Horizontal Analysis
	2012	2013	2014	2015	2016	2012	2013	2014	2015	2016
Assets						Horizontal Analysis
Current assets
Cash
Cash and cash equivalents	8442	10414	8958	7309	8555		18.9%	-16.3%	-22.6%	14.6%
Short-term investments	8109	9854	12717	12591	13646		17.7%	22.5%	-1.0%	7.7%
Total cash	16551	20268	21675	19900	22201		18.3%	6.5%	-8.9%	10.4%
Receivables	4759	4873	4466	3941	3856		2.3%	-9.1%	-13.3%	-2.2%
Inventories	3264	3277	3100	2902	2675		0.4%	-5.7%	-6.8%	-8.5%
Prepaid expenses	2781	2886	3066	2752	2481		3.6%	5.9%	-11.4%	-10.9%
Other current assets	2973		679	3900	2797			100.0%	82.6%	-39.4%
Total current assets	30328	31304	32986	33395	34010		3.1%	5.1%	1.2%	1.8%
Non-current assets
Property, plant and equipment
Gross property, plant and equipment	23486	25032	25258	22354	21256		6.2%	0.9%	-13.0%	-5.2%
Accumulated Depreciation	-9010	-10065	-10625	-9783	-10621		10.5%	5.3%	-8.6%	7.9%
Net property, plant and equipment	14476	14967	14633	12571	10635		3.3%	-2.3%	-16.4%	-18.2%
Equity and other investments	10448	11512	13625	15788	17249		9.2%	15.5%	13.7%	8.5%
Goodwill	12255	12312	12100	11289	10629		0.5%	-1.8%	-7.2%	-6.2%
Intangible assets	15082	15299	14272	12843	10499		1.4%	-7.2%	-11.1%	-22.3%
Other long-term assets	3585	4661	4407	4207	4248		23.1%	-5.8%	-4.8%	1.0%
Total non-current assets	55846	58751	59037	56698	53260		4.9%	0.5%	-4.1%	-6.5%
Total assets	86174	90055	92023	90093	87270		4.3%	2.1%	-2.1%	-3.2%
Liabilities and stockholders' equity
Liabilities
Current liabilities
Short-term debt	17874	17925	22682	15806	16025		0.3%	21.0%	-43.5%	1.4%
Accounts payable	1969	1933	2089	2795	2682		-1.9%	7.5%	25.3%	-4.2%
Deferred income taxes					692					100.0%
Taxes payable	471	309	400	331	307		-52.4%	22.8%	-20.8%	-7.8%
Accrued liabilities	6711	7644	7145	6865	6116		12.2%	-7.0%	-4.1%	-12.2%
Other current liabilities	796		58	1133	710			100.0%	94.9%	-59.6%
Total current liabilities	27821	27811	32374	26930	26532		0.0%	14.1%	-20.2%	-1.5%
Non-current liabilities
Long-term debt	14736	19154	19063	28407	29684		23.1%	-0.5%	32.9%	4.3%
Deferred taxes liabilities	4981	6152	5636	4691	3753		19.0%	-9.2%	-20.1%	-25.0%
Minority interest	378	267	241	210	158		-41.6%	-10.8%	-14.8%	-32.9%
Other long-term liabilities	5468	3498	4389	4301	4081		-56.3%	20.3%	-2.0%	-5.4%
Total non-current liabilities	25563	29071	29329	37609	37676		12.1%	0.9%	22.0%	0.2%
Total liabilities	53384	56882	61703	64539	64208		6.1%	7.8%	4.4%	-0.5%

One can thus conclude that Coca Cola has employed strategic management options for the maintenance of its financial position. The company has successfully launched a worldwide soft drink consumption campaign, yet maintained the necessary groundwork to support its operations (Martin, Durr, Smith, Finke, & Cherry, 2017). This is evidenced by the 60% year-on-year profit margin that it experiences, as well as high efficiency levels, with up to 25% income on operating expenses spent. The company has also invested a significant portion of its assets in long-term development items including machinery and prime properties. As a company which started in the mind of a scientist with the idea of an energy drink and painkiller, the company definitely energizes the soft drink industry without necessarily giving any of its managers a headache regarding efficiency of the worldwide enterprise.

References

Financial Morning Star. (2017). Coca Cola Co (KO) - Balance Sheet . Retrieved from Financial Morning Star: http://financials.morningstar.com/balance-sheet/bs.html?t=KO&region=usa&culture=en-US

Financial Morning Star. (2017). Coca Cola Co (KO) - Income Statement . Retrieved from Financial Morning Star: http://financials.morningstar.com/income-statement/is.html?t=KO

Martin, H. M., Durr, D., Smith, L. M., Finke, R., & Cherry, A. (2017). Analysis of GMO food products companies: financial risks and opportunities in the global agriculture industry. African Journal of Economic and Sustainable Development, 6(1) , 1-17.

McGowan, C. (2014). The Fundamentals of Financial Statement Analysis as Applied to the Coca-Cola Company. Business Expert Press.

Coca Cola's Vertical and Horizontal Analysis

Related essays

Texas Roadhouse: The Best Steakhouse in Town

The Benefits of an Accounting Analysis Strategy

Employee Benefits: Fringe Benefits

Standard Costs and Variance Analysis

The Best Boat Marinas in the United Kingdom

Spies v. United States: The Supreme Court's Landmark Ruling on Espionage

Running out of time?