Every business exists to make a profit. Coca-Cola, a multinational company, is not an exception to the rule. Analysis of a company’s undertakings to point out its flaws as well as its successes is one of the approaches that could be employed to gauge the progress of a given company. Profitability ratio is hence one of the most valuable assets in estimating the operation of business. Profitability Ratio, in a simple definition, it is the measure of the total gains of a company due to its sales or assets. Operation margin, Return on equity, return on asset, return on investment, return on sales, and gross profit margin are just but a few of the methodologies that can be applied to figures that show the operation of an entity to calculate the profitability ratio( Ogiela 2014).
Given the fact that coca cola produces as well as sales different beverages, it would be more convenient to apply return on asset methodology to calculate its profitability ratio. However, a few other useful methods could be used.
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Gross profit margin manly focuses on the cost of production of goods. It hence reflects on the amount used in the production process.
It is calculated as
Gross Margin = Gross profit *100
Net sales
Operating cost, the second method of calculation of profit margin takes into consideration the cost incurred through the indirect processes of production such as administrative costs.
It is calculated as
Operating margin = Operating profit *100
Net Sales
Return on a set, another method of profitability ratio gauges how well the company utilizes its assets in the process of profit making.
It is calculated as
Return on Assets = Net Income *100 (Agha 2014).
Assets
Return on sales, one of the most useful methods of calculating profitability realizes the above through a comparison of the operating expenses to those of net sales made by a company.
It is obtained as:
Return on sales= Operating expense *100
Net sales
Return on equity is another profitability measurement technique in which it is gauged how much profit the company makes from the amount inputted into the company by investors.
It is calculated as
Return on equity= Net income * 100
Investment of a shareholder
Although the above methodologies could all be essential in the analysis of profits made by coca cola, some of them can be viewed to be more useful and applicable in an in-depth scrutiny of its general undertakings.
Given the fact that coca cola produces as well as sales different beverages, return on sales can conveniently be used to gauge the profit the company makes in light of the capital invested in the production process, and that gained after sales are made. The above is an inclusive method of analysis since it generalizes all the expenses used in the production and subtracts it from those gotten as returns.
Assets of a company can either build it on its ultimate success or break it. Given the fact that there is stiff competition in the market segment in which coca cola operates, there is a need for it to utilize its assets to the maximum so as to outdo its competitors. Return on assets hence becomes another major methodology that the company can utilize.
ROA= Net income * Sales = Net Income
Sales total assets Total Assets
The DuPont ROA ratio gives an overview of the operation of Coca-Cola. The calculation reflects a rising percentage over the years. The above is an indication of continuous improvement on asset utilization by the company. One particular adjustment that is material to the above analysis is the use of data from two different analyzing agencies. The above could result in the variation of results from data obtained from an individual source.
References
Agha, H. (2014). Impact of working capital management on profitability. European Scientific Journal, ESJ , 10 (1).
Ogiela, L. (2014). Towards cognitive economy. Soft Computing , 18 (9), 1675-1683.
