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Coca-Cola Financial Analysis

Essay by review  •  July 26, 2010  •  Case Study  •  7,259 Words (30 Pages)  •  3,052 Views

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Always Coca-Cola

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History and Analysis

Finance 401-201

8-11-09

Table of Contents

History / Overview ................................................................................................................... 3

Article Analysis of Stock Price Movement ............................................................................... 4

Financial Statement Comparison Analysis ............................................................................... 6

Stock Value Analysis: CAPM & DCF Models ....................................................................... 9

Conclusion on Financial Viability of Coca-Cola .................................................................... 10

Ratio Calculations .................................................................................................................... 11

Works Cited .............................................................................................................................. 12

KO and S&P 500 Closing Prices: 1-2-09 to 7-31-09 ............................................... Exhibit 1

Graph of KO and S&P 500 Closing Prices .................................................................. Exhibit 2

Coke History ................................................................................................................ Exhibit 3

Articles Covering Coca-Cola Stock ............................................................................. Exhibit 4

History / Overview

The Coca-Cola Company is an organization as rich in history as its main product is rich in taste. Created in 1886 by John Pemberton, the legendary flavor was the result of the pharmacist playing around with a unique mixture of syrup and carbonated water. Pemberton sold it in his pharmacy as "Coca-Cola", both the name and distinct logo both penned by his bookkeeper Frank Robinson. Asa Candler bought the rights to the beverage and aggressively promoted the brand from the 1880s through 1919. Coca-Cola, or "Coke" for short, grew from an Atlanta novelty to an international business. Robert Woodruff took over as Coke's president in 1923 and lead the company for the next 60 years, according to the Company website's history section. In 1928, Coke aligned itself with the Olympic Games. In World War II, it set up shop in Europe to provide beverages for the troops; when the war ended and the troops went home, Coke stayed! Expansion continued through the second half of the 20th century, introducing Diet Coke, Fanta and Sprite among others. When the Company attempted to change its prized formula in 1985 to "New Coke", it became a monumental marketing disaster. Coke had the sense to listen to its customers however, and quickly reverted back to its legendary flavor. Coca-Cola continued to expand in recent decades, adapting to changing customer trends---introducing Dasani bottled water and Powerade sports drink. Today, Coca-Cola is the world's largest and most recognized beverage brand, enjoying success most likely undreamed of by its curious Atlanta creator.

Our group chose to analyze Coke, and its peer company Pepsi, because of they make up what is probably the most classic example of product competition out there. It is amazing the competition that arises from two products so closely related, and so evenly matched. Slight recipe variations of the generic beverage "cola" are all that separate the giants Coke and Pepsi. Pepsi is not Coca-Cola's only competitor however; both also fight for market share against the able opponents Dr. Pepper/Snapple, Nestle Waters and Red Bull energy drink among others. For each of those competitors, Coke answers with at least one formidable product opponent. As of today, the product line includes Coke, Diet Coke, Sprite, Dasani Water, Fanta, the Minute Maid juice line, Powerade, Barq's Root Beer, and hundreds of local brands across the globe. In addition to the competition and product line factors, we were also attracted to Coke's large market capitalization, long steady dividend growth, and perennial success in all markets---bull, bear and sideways.

Coca-Cola (stock symbol KO) and Pepsi (stock symbol PEP) are SEC Industry "Bottled & canned Soft Drinks & Carbonated Waters". The SIC code is 2086.

Article Analysis of Stock Price Movement

With plenty of radical fluctuations in between, Coke's stock price is basically sideways in

displacement from where it started the year on January 2.

The graph of the stock prices is on the previous page, but a larger version of the same chart is featured after this report as Exhibit 3. Both Coke, and the stock markets in general (represented here by the S&P 500), began 2009 in a downtrend. Both seemed to level off into a sideways pattern through most of February, before nose-diving to a March 5 bottom. KO traded pretty much in-step with the market for most of the year, except the second half of April, where it noticeably lagged.

Aside of the lag period in April just mentioned, most of Coca-Cola's stock price movements can be attributed to merely following the market. It dragged Coke down in the February/March crash and lifted it from that point on. Despite the market's almost straight-line crash in February, the chart shows KO at least making a couple attempts to buck the trend. On February 19, a brief Reuters article reported that Coca-Cola had raised its dividend 8 percent despite the recession. It reported the stock up 1.4 percent, not a bad daily performance in a market free fall!

KO also deviated from the market direction in April and May. As the market continued a robust climb, Coke lagged. There doesn't appear to be very much news covering this particular lag, but we assume it is attributed to bullish traders looking for more aggressive opportunities than Coke, a company

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