The horizontal analysis entails the comparison of the financial performance and position of the company over time. Also known as trend analysis or comparative analysis, the concept studies the behaviors of the individual items of the financial statement for given accounting periods (Robinson, Henry, Pirie, & Broihahn, 2015). Figures are in thousands except percentages.
| Year | 2017 | 2016 | 2015 | Percentage change 2017 | Percentage change 2016 |
| Income | $ 4,323,668 | $3,156,428 | $2,306,458 | 36.98% | 36.85% |
| Cost of sales | $2,782,721 | $1,940,706 | $1,405,426 | 43.39% | 38.09% |
| Selling, Distribution and Administrative expenses | $1,444,768 | $1,087,863 | $802,888 | 32.81% |
35.49% |
| Financial expenses | $41,869 | $36,325 | $28,915 | 15.26% | 26.63% |
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The percentage change is derived by getting the difference between the current year minus the amount in the previous year divided by the previous year amount. In the horizontal analysis, income increased from 36.85% in 2016 to 36.98% in 2017. The cost of sales increased to 43.39 in 2017 compared to 38.09% in 2016. The selling, distribution and administrative expenses decreased from 35.49% in 2016 to 32.81% in 2016. Finally, the finance expenses decreased from 26.63% in 2016 to 15.26% in 2017.
The vertical analysis for the statement of comprehensive income involves converting the components of the financial statements as proportions of the sales amounts. The items in the statement of financial position are expressed as a percentage of the total assets(Robinson et al., 2015). Figures are in thousands except percentages.
| Year | 2017 | 2016 | 2017 % | 2016% |
| Sales | $4,323,668 | $3,156,428 | 100 | 100 |
| Selling, distribution and administrative expenses | $1,444,768 | $1,087,863 | 33.42% | 34.47% |
| Interest expense | $41,869 | $36,325 | 0.97% | 1.15% |
| Profit before tax | $63,006 | $92,712 | 1.46% | 2.94% |
There is a slight decrease in the selling, distribution and administrative expenses. They have been expressed as a proportion of the net revenues. The percentage decreased to 33.42% in 2017 from 34.47% in 2016. The interest expenses have also decreased to 0.97% in 2017 as compared to 1.15% in 2016. The profit before tax has been expressed as a proportion of the net sales, and the value decreased to 1.46% in 2017 as compared to 2.94% in 2016.
Ratio Analysis for Coca Cola
Common shareholder’s equity ratio.
The ratio assesses the capacity of the company to generate income for the shareholders. It is generated by dividing the income attributable to shareholders by the ordinary shareholders' equity.
Common shareholders’ equity ratio = Net income-preference dividends/ Average common shareholders’ equity
2017: Net income = $102,847,000 -$10,204,000 = $ 92,643,000
Average common shareholder’s equity = ($458,907,000+$363,024,000)/2 – $10,204,000 = $400,761,650
Ratio = $ 92,643,000/$400,761,650 = 23.12%
2016 : net income = $56,663,000-$10,204,000 = $55,642,600
Average common shareholder’s equity =$363,024,000
Ratio = $$55,642,600/$363,024,000 = 15.33%
Interpretation: the ratio shows the amount of income in dollars generated from the amount invested in common equity (Williams & Dobelman, 2017). The ratio is higher in 2017 as compared to 2016. The higher ratio indicates increased profitability and a strong financial base. It also indicates that the company has the capacity to convert potential investors into common shareholders.
Profit Margin Ratio
The ratio is the percentage of the net income relative to the sales amount.
Profit margin ratio = net profit/sales.
2017: = $102,847,000/$4,323,668,000 = 2.3%
2016: = $56,663,000/$3,156,428,000 = 1.8%
Interpretation: the ratio means that every dollar of sales contributes to 2.3 and 1.8 cents towards the net income. The ratio is higher in 2017 as compared to 2016. The increase can be due to reducing costs, increase in revenues, and increasing price for goods.
Cash Ratio
The ration is utilized in determining the liquidity of the business, which means the capability of the business to pay off its short term obligations.
Cash ratio = (cash + marketable securities) / current liabilities.
2017: $16,902,000/$639, 452,000 = 0.026
2016: $21,850,000/$593,811,000 = 0.037
Interpretation: the ratio is useful to creditors as it shows the percentage of liabilities the cash and cash equivalents can cover. Any ratio above one indicates that the business can pay off current liabilities and have some cash leftovers. In our case, Coca Cola does not have enough cash to pay off its liabilities as the ratio is less than 1.
Debt to Equity Ratio
The ratio compares the total debt of the company to total equity. The ratio indicates the percentage of company financing, which is generated from investors and creditors.
Debt to equity ratio = total liabilities/total equity
2017: = $2,614,053,000/$458,907,000 = 5.70
2016: $2,086,460,000/$353,024,000 = 5.91
Interpretation: normally, if the ratio is 1, it signifies that the creditors and investors have the same stake in the assets of the business. The lower ratio shows that the business is financially stable. Creditors and investors consider the business risky for an investment as the ratio is higher (Weygandt, Kimmel & Kieso, 2019). The ratios for Coca Cola are high, meaning that the liabilities are five times more than equity. This means the business is risky to invest in for the creditors and investors.
Debt Ratio
The ratio evaluates the company’s total liabilities as a proportion of the total assets. In essence, the ratio assesses the capacity of the business to pay off its liabilities using the assets available. It shows the value of assets that must be disposed of to cover the liabilities.
Debt ratio = total liabilities/ total assets.
2017: $2,614,053,000/$3,072,960,000 =0.85
2016: $2,086,460,000/$2,449,484,000 =0.85
Interpretation: the ratio 0.85 means that Coca Cola company has 1.5 times as many assets as liabilities. The ratio shows that the company is capable of paying off its liabilities as still have assets loft for operations.
References
http://investor.cokeconsolidated.com/static-files/e04a4211-5283-4ffe-923c-a87703dcaa31
Robinson, T. R., Henry, E., Pirie, W. L., & Broihahn, M. A. (2015). International financial statement analysis . John Wiley & Sons.
Weygandt, J. J., Kimmel, P. D., & Kieso, D. E. (2019). Financial accounting . Wiley.
Williams, E. E., & Dobelman, J. A. (2017). Financial statement analysis. World Scientific Book Chapters , 109-169.
Appendix: Coca-Cola Financial statements
