Financial Analysis of Coke

Financial Analysis of Coke

Introduction

Coca Cola is amongst the most successful brands world has ever witnessed. Keeping the taste of the beverage at one side, significant work is required on understanding the cost structure of the company and how it influences the strategy in the long run.

Discussion

Overview of Coca Cola Company

Coke is the king and market leader of the beverage industry. Their portfolio comprises of 15 Billion dollar brands including Diet coke, Sprite, Minute maid, Powerade, Fanta together with other juices and drinks. Their average daily serving is approximately 1.7 billion as it operates in more than 200 countries. The company is very active in spreading socio-economic awareness as it continuously strives for environmental awareness and community sustainability. “Going green” is a part of their mission statement (Watters, 1978).

Coca Cola came into existence in later parts of the 19th century. In 1866, a pharmacist named John Pemberton alternatively known as the “doc” invented the Coke formula (Watters, 1978,). His desire to develop a product that could give him commercial success led to the invention of this magical solvent. Other drugs made by Pemberton were complete failures, so he decided to move Atlanta to enter the beverage market (King, 1987).

Coca Cola was initially sold in soda fountains as this was a premier socializing spot at that time. It was then when formula of Coke was patented and its slogan and logo designed. Pemberton passed away in 1888 and unfortunately couldn't witness the success Coke had to offer. Griggs Candler rescued the brand in 1891 and later went onto become the sole owner of Coca Cola (Pendergast, 1993). Coca Cola's failing health was tackled by the latest marketing technique Candler had to offer. It was also marketed, in the initial years, as a medical drug but with regulatory changes over time it wasn't allowed to be sold under this genre but only as a beverage. On March 27, 1944 the beverage was trademarked as Coke with the name being owned by The Coca Cola Company Atlanta, Georgia.

The company is involved in the production and retail of the Coke together with other brands in its portfolio. It has filling facilities and bottling plants throughout the world with the most prominent ones being situated in USA, China, India, UK and Spain (Pendergast, 1994).

Effects of changes in costs

The cost structure of the company comprises of fixed cost and variable costs. Although their proportion may vary from company to company and across the industry. The cost structure of Coca Cola Company has immense effect on profit sensitivity to changes in volume. The proportion of fixed cost is described by the operating leverage. This can vary significantly from one industry to the another. Cost volume analysis can be performed with the aid of Breakeven charts and Profit Volume Charts. The higher the fixed costs Coca Cola has, the greater will be the operating leverage as a result contribution margin/unit will be high too. The breakeven point will be high if the fixed costs ...