Value the Coca Cola Company

¶ … Value

The Coca Cola Company is a strong international player and its power has been manifested in different manners and at different times, with the most recent example being the company's results for 2008. While a large proportion of the global economic agents were registering decreasing revenues in the context of the internationalized economic crisis, the Coca Cola incomes followed a sustained ascendant trend. This is true for most of their financial highlights, including the dividend payments made to shareholders. Throughout the five years from 2004 to 2008, the company's net operating revenues increased from $21,742,000,000 to $31,944,000,000; cash dividends increased from $1,000,000 in 2004 to $1,520,000 by 2008 (the Coca Cola Company 2008 Annual Review).

The decision of weather or not to invest in the company is generally a complex one, despite the financial successes forwarded by the Coca Cola executives. A first endeavor in pronouncing a verdict is that of assessing the company's performances in order to identify its ability to pay its short- and long-term debts:

The dividend yield for 2008 is of 3.29, significantly higher than the industry's 0.41 average, meaning that the company is highly able to generate money from the investors' contributions; the trend has also been maintained throughout the past five years -- the average dividend yield for the past five years is of 2.63, higher than the 1.74 industry average; the growth rate for the past five years is 11.55, again higher than the 7.76 industry average

The Coca Cola sales ratio registered a negative value of 8.61 as opposed to only -1.22 in the industry (the trend is however a growth one for the past five years, with a rate of 8.90); in these times of economic hardship, the Coca Cola products seem disposable items and demand for them has suffered reductions

The quick and current ratios indicate values below the industry averages, meaning that the company encounters some difficulties in honoring its short- and long-term payments

Finally, the company's debt to equity ratio is of 49.61, as opposed to only 28.90, the industry average (Reuters, 2009); this means that the company uses much more debt than equity to finance its operations and that debt reimbursement might constitute for priority in profit distribution

All the above indicate that the largest beverage maker in the world is not as successful as initially believed. Yet, an estimation of the equity futures cannot occur without a look at the company's share. Its value today (September 2, 2009) is of $49.80. In the near past, the KO stock has not suffered major modifications. Yet, its more distant past evolution has been fluctuating. The peak was registered in 2006, when the Coca Cola share was sold for an estimated value of $65; the lowest amount of money paid for it was slightly lower than $40 and it was reached in 2004. The chart below reveals this evolution:

Source: MNS Money, 2009

Based on the past evolutions and the current state of the economy, it is expected that the Coca Cola Company share loses value. As such, in a year's time, it could be traded at $45. Purchasing the futures now would materialize in loses for the investors. Given this situation then, it would be best to invest the money in safer placements, such as bank deposits, which offer a 12% interest rate.