Long Term Financing of Coca-Cola Company
Introduction
Either the new business entity or the established corporation, there are similarities that most of the small and large companies have the kind of debt in their entire business life. The said businesses are commonly being turn to the lenders not to expand the companies but to purchase the equipments as well as financing the operating capital in the even out cash flow. The long term financing can provide the capital deficit in the businesses funds for over 1 year (UniXL, 2008). The long term financing is also more appropriate in financing the long-term assets or the construction projects. These long term financing can also be in the form of bonds, mortgages, or equity securities. The long term financing can be use in meeting the seasonal needs of the organization which can be commonly impractical and has the effect on the profit of the company and the flexibility of the financing (Shim, J et. al, 1998, p. 153).
The long term financing can also be use by the firm when there is an expected increase in the future of the sales that are require in funding the marketing as well as the others supportive functions so that it can remain to be competitive. This can also be advantageous when the company grown and there the demand for increase. This implies that the firm can have the chance to continue modernizing and introducing the more efficient equipment. They usually used this in shifting for the demand force to invest the new capacity and to abandon the obsolete capacity. The financing in the long term research and development can also be done in promoting the projects of healthy business cycle (Gropelli and Nikbakht, 2001, p. 366).
Long Term Financing Pattern of Coca – Cola Company
The Coca-Cola Company engages in the distribution, manufacturing, and marketing of the non-alcoholic beverages syrups and concentrates worldwide. It is considered to be the world’s largest beverage company and one of the largest corporations in United States. For the annual record and reporting of the company, it sells the beverage for more than 312 territories and 50 billion beverage servings for all type of consumed worldwide daily. The company reported lastly that it has the revenue of .1 billion which has come up 55,000 employees. The syrups and the concentrates for the bearing beverages of its trademark are accounted for 53 percent of the total concentrate sales of the company (Coca Cola Corporate Website, 2008).
The financial strategy of the company is adding value by allocating the funds in the activities and the projects that can generate the return increase of the share-owner value and the cost of capital. The major goal of the company is achieving the optimal capital structure that can provide the financial flexibility of the company’s internal projects, appropriate priced acquisitions and the share repurchase. Its principal operating goal therefore is the increase of the long-term operating cash flow which can be profitable in the increases for its sales volume. The company has also the external factors for its capital that includes yet not limited to the bank borrowings, the issuance of private and public placement, and the issuance of the equity securities. The company also believes that the proper long-term resources can have the operating cash flows which are available in satisfying the maturities of the debt, income tax obligations, interest payments and the dividends payments for the share owners. The company has added to the availability of the equity market and it is the source of the long-term financing while registered in the debt securities to the Securities and Exchange Commission and under the shelf registration that can enable the company in issuing debt which is important in the amount that registered for the issuance. It had been recorded to have the 1 million of the shelf registration are remained to be unissued and can also be issued every time at the floating or fixed interest rate which was the selection of the company at the issuance of the time (Ibid).
In the year 2007, the company had taken its first long-term debt for five years and borrowed .75 billion in helping to pay its recent purchase of the vitamin water maker Glaceau. This bond will replace the short-term debt commercial paper and taken from by the company while some of the proceeds of the bonds can be used to the general corporate purposes but unspecified (Lufkin Daily News, 2007). It maintains its level of debt and considers being base on prudence of the cash flow, percentage of the debt capital, and to the interest coverage. This had been use in lowering the entire cost of capital and to increase the capital of return in the equity of the shareowners. In relation to this, at the financial year 2003, the long term debt of the company had been rated A+ which means that the capital structure and the financial policies of the company are considered. The issuance and the payments of the debt are included in the long term financing activities and recorded the ,963 million in credits for the available facilities. The debt increase is primarily due to the acquisition of the 18 German bottling as well as the distribution of the operations. The company also decided to lists its stocks on the German Exchange and to the Swiss Exchange and repot the 2004 annual report of .3 million for the long term debt which are denominated in euros (Ibid).
Financial Mix of Coca Cola Company
For the past year, Coca Cola Company can maintain its growth in the earnings per share with the aide of the leverage and with the share repurchase with record of 8 percent fell of shares and inflated the earning per share. For the past years, the have the strong forecast which are based on the market analysis and grown for 10% for last year though slightly below the industry. For the nest five years, there are also analyses that the company can grow for 14% and can also translate for the greater margins due to the reason that the company is pushing to have the slower growth policy. The stock is safe and it is base on the low debt or to the equity ratio. The company is still doing well in the prices ratios as compared to the industry and to S&P 500. This also signifies that the company is known to be less risky and has the good growth prospects and suggests that the investors are willing to pay more of its book value as compared to the industry. For the summary of the company’s financial ratios, it shows that it has the steady growth in the PE ratio despite having the profit margin this year. The organization does not also get its financing from the creditors when it compared to the industry and the current ratio is less than the industry and also indicates that the less leverage and less risky to the stockholders. This can also have the correlation on the safer investment yet the less return to the investment. The company had the average sales yet below the average earnings for the last years. In looking for the income and sales are climbing and the income are going down for the last year and signifies the problems with the translating of earnings and sales. The PE to the growth ratio implies that the stock can also be overvalued and the company has the higher PE ratio than the industry though its growth is only 10 percent and slightly below the industry. This does not be a good start for the stock due to the reason that the CEO change as well as the growth of the policy change. This can also be the writings of the losses and can be in the matter of long term which can boost the earnings. On the contrary, it can also not be seen in the short term manner. Its net profit for 5 years also is double for the industry and has the tradition of higher profit margin as compared to its competitors (Coca Cola Financial, 2008).
The ultimate successes are the measures or reflected in the results of liquidity, operations, and in capital resources. The key measurements for the operations of the company which can be use in the long term financing are the income per share, the income before tax, and the operating income. For the past years, it has .0 billion and increase 4 percent for the past years. It has also the capital resources and liquidity and the net cash flow that had provided by the operating activities which is approximately .0 billion which is 9 percent increase for the past years. In the upcoming years until 2009, the company is expecting the cumulative net cash through the operating activities to be in the excess of billion. The company is still optimistic that it is one of its strengths which are the ability in generating the precise cash flows in reinvesting into the business. Its cash can provide the greatest shareowners value while can be use in the share repurchase and went up to .7 billion as well as the dividend as expected to be .4 billion and continuous increase (Ibid).
In the year 2000, the long term debt ratio of the company had a slight increase due to reduce of equity as in the income loss. Its long term debt in the total capital had been improved because of the impact of high increase in the short term liabilities. In the same year, in measuring the ability of the company to meet the current obligations, its current ratio also increase and it is a good indication that the largest corporations are equally spread. The decrease on the dynamic liquidity is also an important factor as well as the declination of the ability fro future payments which can cover the 23.4 percent. Since the company has not have the major restructuring that goes in the recent year, it can also recognized to be stable and are presented in the cash flow while the estimation of the Net Cash Flow can signifies that there is the possible problems in facing the huge increase in the short term liabilities while generating the revenues can able to pay off the said liabilities (Ibid).
Conclusion
Starting from the year 2000 and up to the current year, the Coca Cola Company has not had the drastic changes apart from the fact that the short-term liabilities had considerable increase. For the long years that the company had been in market, the changes that arise cannot have that huge impact in the short-run because it still have the good reputation as it shows the good results every year. Nevertheless, the company is still in the changing times which require for it to have the different strategies that neither implemented nor considered. This means that the heading of the company is at the right track while improving the different segments.
Recommendation
After the analysis that had been done, the Coca-Cola Company showed that it is in the good financial shape. This also signifies that the company needs to have the long term debt further so that it capital structure can replace the short-term debt which can be volatile in the interest rate and can also carry more of the risk of the financing vehicle. This is also important in realizing and considering the company to be the international company and can affect the economic and political events abroad.
Bibliography
Coke Takes on the Bigger than expected bond 2007, Lufkin Daily News, viewed 22 July, 2008, http://www.lufkindailynews.com/money/content/shared/money/stories/2007/10/COKE_BOND_1031_COX.html.
Groppelli, A and Nikbakht, E 2001, Finance, Barron’s Educational Series, New York.
Shim, J et. al., Schaum’s Outline in Financial Management, Mc Graw-Hill Professional, New York.
Long Term Financing 2008, UniXL, viewed 22 July, 2008,
http://www.unixl.com/dir/business_and_economy/finance/business_financing/long_term_financing/.
Coca Cola Corporate Website 2008, viewed 22 July, 2008, http://www.thecoca-colacompany.com/.
Coca Cola Financial Site 2008, viewed 22 July, 2008, http://www.thecoca-colacompany.com/investors/index.html.
Credit:ivythesis.typepad.com
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