Viability for Investing in Coca-Cola Company

Coca-Cola is a beverage company whose main product is coke. The company mainly
manufactures carbonated soft drinks. At the moment, the company has been able to set up
distributors across the globe. The strategy has enabled them to gain the needed competitive
advantage and stay afloat in business. They face stiff competition from companies such as Pepsi,
which is equally a beverage company. Determining the financial worth of the company will
provide insights into its performance and capabilities. For instance, knowing the company’s
assets can be influential in determining its capabilities to pay off its debt. Four methods can be
used in the determination of the fiscal worth of Coca-Cola. The following information obtained
from section 10-k showing the various financial documents will assist in the determination of the
financial worth. An evaluation of the company’s financial statements reveals that it is an
attractive investment venture.
The ROE ratio for Coca-Cola in 2019 was 35.55%. In 2018 the value was 31.75%, and in
2017 the ROE was 22.1955. The ROA for Coca-Cola in 2019, 2018, and 2017 was 17.14%,
14.88%, and 9.85%, respectively. The ROI for Coca-Cola in the last three years, namely 2019,
2018, and 2017 was 20.42, 17.78%, and 11.78%, respectively (The Coca-Cola Company, 2020).
EBIT is a representation of the earnings of an organization before interest and taxes. It is
essential in indicating the profitability of a company. A key advantage of EBTI is to provide
information on the operating efficiency of an organization. That is because it does not consider
the indirect expenses such as the taxes and the interest due on debt. The EBIT for Coca-Cola
Company increased from $7,755 in 2017 to $10,086 in 2019 (The Coca-Cola Company, 2020).
However, there has been a decline in the value to $8,997 in 2020. The decreasing value can be

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attributed to the COVID-19 pandemic, which affected the operation of various businesses across
the globe.
Gross margin is the distinction between the revenue generated in a company and the cost
of the goods sold divided by the overall revenue. In most instances, it is expressed as a
percentage, and it is calculated as the selling price for an item less the cost of goods that have
been. The profitability of a company can be depicted in the gross profit margin assisting
investors in making decisions. A higher gross profit margin is preferable since it indicates the
ability of the company to satisfy the debt obligations. The gross margin for Coca-Cola Company
has declined from 64.10% in 2018 to 57.86 in the 2020 financial years (The Coca-Cola
Company, 2020). Despite the decline, the average gross margin is good standing at 61.05%. The
acid test ratio depicts the liquidity is a company. It measures the ability of a company to utilize
the immediate cash and some of the quick assets to sort out some of the current liabilities. An
excellent quick or acid test ratio needs to be above one, implying that the organization can
comfortably pay off the liabilities. The ratio for Coca-Cola Company has a median value of 0.9X
for the years ending December of 2016 to 2020 (The Coca-Cola Company, 2020). In the last five
years, the higher quick ratio obtained was 1.2X in the 2021 financial year.
Overall, from the analysis of the various ratios investing in the company is a good idea.
The company has strong financial indicators, and it is likely to realize an increase in the revenue
generated. In addition, the company has a high-profit margin. That implies the investors and
stakeholders are likely to have a higher stakeholder equity ratio, and the outcomes will be more
pleasing. The returns from the investment are also likely to be high, making it a viable
investment project.

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References

The Coca-Cola Company. (2020). Unites States Securities and Exchange Commission form 10-
K. Retrieved from http://www.thecoca-
colacompany.com/investors/pdfs/form_10K_2020.pdf