Financial Statement Analysis Case Study

 

Introducting

As it will be observed in the course of this assignment, there are several parameters, other than the stock market trend, that are used to project the general position of a company in the industry. In this case, various types of financial statement will be used to conduct a case study in reference to the Coca Cola Company. Foremost, the company ranks among the world’s giants in the manufacturing and sale of beverage products; a factor, that has drawn interest from a potential investor.

Coca Cola’s Company Stock Trend

A close observation of the company’s stock performance will reveal a generally rising trend. One major possible explanation for this is that in the early months of the year the demand for beverages is quite low, considering that even climatically it is very cold; hence, driving down the consumption. Such an impact is not limited to the Coca Cola Company alone, but rather it is widespread in the industry. However, towards the end of the year, when the climate is favourable, and also it is a commencement towards the beginning of the December festive season, the sales increase. The impact of this is that the company begins to experience a healthy trade environment, both for the consumers and for the investors.

Balance Sheet of the Coca Cola Company

The balance sheet, also known as the statement of financial condition, is used to depict the asset and liability position of a company (Drake & Fabozzi, 2012). Basically, the assets reflect every valuable item that a company owns. They are differentiated into current assets, fixed assets, and intangible assets. The current assets represent all properties that can be liquidated within one year, while the fixed assets are physical properties that a company owns. Intangible assets, on the other hand, represent the factors, such as goodwill and patents associated with a company. As far as the liabilities are concerned, they are categorized into current liabilities and long term liabilities. The former stands for all debts with a maturity period of one year from the date of the balance sheet, while the latter indicates the debts that extend beyond one year. From an economic point of view, the difference between the assets and the liabilities is referred to as the equity of a company.

Income Statement

The primary components of the income statement are the total revenues, total expenses, and the net income (Drake & Fabozzi, 2012). Foremost, the revenue section includes all the segments of investment that generate income, while the expenses part indicates all the costs incurred in the course of the direct operations of the company. Lastly, the net income is generally the difference between the total revenues and total expenses figures as listed in the income statement.

Cash Flow Statement

The Cash Flow Statement is used by organizations to reflect the cash generated and used within the period specified in its heading. The most common period used by companies is the quarter of a year, which is equivalent to three months. The key components of this statement are the operating, investing, and financing activities (Drake & Fabozzi, 2012). More often, the operating activities are used to analyse the amount of cash that a company generates as a result of the sale of its products and services. In contrast, the investment activities indicate the amount of cash spent in the course of accruing new assets. Finally, the financing activities are included in the cash flow statement in order to account for the factors, such as change in debts, dividends, or loans.

Important Deductions from Latest Quarter in the Above Financial Statements

  • Total Revenue

According to Bull (2012), total revenue symbolizes the amount of cash that an organization generates during its operations. Essentially, this is a gross figure and it is not the same as profit or net income of the organization. In reference to the 3rd quarter of the Coca Cola Company’s income statement shown in the Table 1 above, the value of the total revenues is $11, 976,000. In most cases, this amount is obtained by multiplying the cost of one production unit by the total number of units produced.

  • Net Income

Bull (2012) further asserts that net income, also known as net profit, is the value of cash left after all the expenditures are deducted from an organization’s total revenue. In the books of accounting, the net income is recorded in the income statement and a high value indicates a measure of success in any organization. From the income statement represented in the Table 2 above, it will be observed that the Coca Cola Company posted on its financial records a value of $2,114,000 as its net profit.

  • Total assets

One of the factors used to assess the net worth of an organization is the value of its total assets. In regard to the investment analysts, total assets comprise of both current and fixed assets (Drake, Fabozzi, 2012). The former represents the items owned by an organization that can be liquidated within a short notice, while the latter is actually the assets, such as equipment or buildings, which are long term factors of investment. The common entry record of total assets in the financial records is in the balance sheet. According to the Table 1 above, this value has been indicated as equal to $96,314,100.

  • Total stockholder’s equity

Mathematically, stockholders’ equity is the difference between the total assets and the total liabilities, or still the difference between the treasury shares and the sum of the share capital plus the retained earnings. In connection to the 3rd quarter of the of the Coca Cola Company’s balance sheet, the value of the total stockholder’s equity has been entered as $33,429,000.

  • Return on assets

As indicated by the formula shown below, Return on Assets is the ratio of net income to the total assets. Economists use it as a measure of how efficient an investment is in utilizing its total assets to generate net income.

 

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The above formula can be used as follows to determine the ROA for the Coca Cola Company:

Considering this figure, the Coca Cola Company is likely to instill more confidence to the investors in that they will view it as the ability of the management to efficiently utilize the available assets to generate income.

  • Return on equity (ROE)

Drake & Fabozzi (2012) assert that return on equity is a measure in terms of percentage, the ratio of the net income to the shareholders' equity. This statement is further expressed in the form of an equation as follows:

Ideally, ROE measures the ability of each value of an investor's share to generate some income; therefore, a higher percentage reflects better performance in an organization. In relation to the above mentioned financial statements for the Coca Cola Company, the value of ROE is as follows:

Conclusion

In conclusion, this case study has employed various financial statements to project the real position of the Coca Cola Company in the industry. In general, it is possible to describe the company as being in a progressive move; though initially the trend might not have been that promising to the investors.

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