Posted: May 25th, 2022

The quality of Management at Coca Cola

Coca Cola Management

The quality of the company management can be measured according to the company performance and the company market capitalization, as the investors are assumed to be rational and can objectively value the expected earnings of the company with indication of the price the investors are ready to pay for company shares. The subject company considered is Coca Cola company competing in food and beverages really tight industry thus facing fierce challenges in order to perform successfully. Competitive industries increase the importance of adequate management for predicting future market movements and preparing the company for changing trends in commodities markets. Net Operating Revenues for Coca Cola company have increased from $21,742 billions up to $23,104 billions, and the longer term trend is the growth from the net operating revenues of $17,374 billions in 2001. The growth in revenues is much higher than the growth of costs of goods sold, or namely growth from $6,054 billions in 2001 up to $7,674 billions In 2004 and $8,195 billions in 2005. This reveals very good company position to grow cash generate capacity while to be able to exploit economies of scale and decrease the costs of good produced. The gross profit has increased from $11,320 in 2001 up to $14,068 in 2004 and $14,909 in 2005. While the profit has been increasing and costs of goods sold have not been increasing as much as the revenues, the selling, general and administrative expenses have been growing at much higher paste from $5,968 in 2001 up to $8,739 in 2005 which is sometimes the problem with management of big companies and the administrative structure is not the optimal.

Another financial indicator is the total amount of shares outstanding and together with growing revenues and profits, the total amount of shares outstanding was decreasing thus the company has less liabilities and it allows the company to pay more dividends per each share. The basic net income per share has increased from $1.60 in 2001 up to $2.04 in 2005 which reveals high growth of income for the company, while there was a drop in value for shareholders as the price per share has decreased from $47.15 in December, 2001 to $40.31 in December, 2005 and considering the time value of money, the price decrease was even more significant, revealing loss of wealth for shareholders and thus poor management in this sphere of company corporate headquarters. While the average shares outstanding assuming dilution number has decreased from 2,487 in 2001 to 2,393 in 2005, the total market value of common stock has deceased within this time scope from $117,226 to $95,504. Long-term debt has decreased from $1,219 in 2001 to $1,154 in 2005 and shareowners’ equity has increased from $11,366 to $16,355. This shows that the company is having the right strategy of targeting decreasing liabilities to shareholders and long-term debt, increases dividends but not by as much point as the profits are growing. The overall financial management and management of company working capital is thus efficient. The company was ranked the first by its’ long-term debt to equity ratio within beverages industry which is very strong financial management indicator. The one year’s target share price is expected by investors and analysts to be in the order of $48 dollars, thus revealing increase and thus positive expectations. Thus, due to good management of the company investors are ready to receive lower than average for the market dividends while still keeping their funds with the company due to high positive future cash flow expectations.

If the company performance, or performance of the company stock is compared with that of the major indices, Coca Cola seems to be an aggressive company, meaning that when the indices turn down and perform poorly, the stock performs even worse, while on the other hand, when the indices turned upwards in the recent half of the year before the downturn in the last months, the Coca Cola company shares did not perform so well. The company was also performing less profitably than other companies in beverages industry.

The profit margin of the company 7.12% which is lower than those of major company competitors, namely, of Pepsi Co and Hansen, Embotell and must be managed carefully by the corporate headquarters.

The competitive advantages of the company include very high market capitalization, the highest in the industry, very high brand awareness and well developed network of retail locations all around the globe, though facing fierce competition from world wide brands and local brands, good marketing tactics and developed employee selection and retaining process. These factors ensure the company diversifies its’ output markets and also enjoy searching of outsourcing and thus less cost consuming production facilities, and spread the output network.

The management of the company clearly identifies the major risk factors associated with the company business and ensure to develop risk management system within the corporation. The major risk factor is the increasing obesity in the U.S.A., one of the largest and major company markets, and increasing health awareness which can lead to decreasing demand for the products which do not qualify as dietary, for the company. This could potentially decrease the company profitability and the company is already taking very strategic correct steps into developing its’ dietary products and trying to be competitive in healthy products. The longer term risks which are already though considered by the company is the decreasing amount of water available on the globe and especially the quality of water in countries with cheaper labor where the company targets to transfer production to decreasing production costs. The company is also solving the problem of retail channel consolidation in the U.S.A. And Europe and thus will be able to cooperate with shipping greater volumes to one retail location, which could potentially reduce the amount of employees necessary. The management of the company targets to expand as large as possible and to earn biggest possible market share in emerging countries which are according to Kearney Retail Index are the most promising retail locations for the coming years. Thus, the company is strategically right to develop brand awareness and be cost effective in these markets. The other risks of increasing energy costs, risks associated with dealing with one big bottling partner and the company has the correct strategy to maintain good fruitful cooperation with it, and other.

To conclude, the company has good executive management which allows it to enjoy growing revenues, while the company must strive to reduce administrative costs to reach profit margins competitive with those of the industry leaders. The financial management of the company is great and it has the long-term best in the industry debt to equity ratio which is very important in the present era of increasing interest rates. Furthermore, the company has good market share and targets increasing geographic prevalence in very strategically important for the industry locations, which is reflected in overall investors’ positive expectations as to future company performance.

References

Coca Cola Annual Report, Available at http://ir.thecoca-colacompany.com/phoenix.zhtml?c=94566&p=IROL-sec&control_selectgroup=Annual%20FilingsAvailable at http://biz.yahoo.com/ic/ll/348g5r.html

Brealey, Myers. Fundamentals of Corporate Finance, 3rd Ed., McGraw-Hill, 2003.

Coca Cola Annual Report, Available at http://ir.thecoca-colacompany.com/phoenix.zhtml?c=94566&p=IROL-sec&control_selectgroup=Annual%20FilingsAvailable at http://biz.yahoo.com/ic/ll/348g5r.html

Analyzing Lease vs. Buy Decisions

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