Question

For assignment # 3 you will do an in-depth analysis of a stock of you choosing. The only requirement is it must be a dividend paying stock. Also, do not pick the same stock as your friends. The Assignment is worth 30 points and is due Tuesday, March 24th. All rules of academic integrity apply to this assignment.

Your task will be as follows:

1) Select a dividend paying stock listed on an exchange. State the company name, symbol, and current price

2) From the company's most recent balance sheet calculate the current ratio and total debt ratio.

3) From the company's most recent income statement calculate the profit margin

4) Using both the company's most recent income statement and balance sheet calculate the return on assets

5) List the quarterly dividends paid for the last two years

6) Using the dividend growth model estimate the current value of the stock. For the required rate of return use a rate of your choosing - it must be greater than the dividend yield. How does the price you calculate compare to the actual current stock price?

7) Select three additional pieces of information that you found interesting about the company and discuss them. This is a significant part of the assignment so do not skimp on this.

To do the research I find Yahoo Finance intuitive and easy to navigate. You can use other source such as Bloomberg, but regardless of the site you decide to use to capture the information, you must answer all the elements noted above. You must show the details of your calculations to receive credit.  

Answer 1

1. Name of the company - The Coca Cola Company Symbol - KO (NYSE) Stock price - $38.30 2. Current ratio=Current assets / Current liabilities. The Company has current assets of $20.411 bn and current liabilities of $26.973 bn. Hence current ratio = $20.411 bn / $26.973 bn=0.76 Total debt ratio = Total debt/Total Assets. Company's debt consists of loans and notes payable ($10.994 bn), current maturities of long-term debt (54.253 bn) and long-term debt except current maturities (527.516 bn). Hence total debt is $42.763 bn. Total assets are $86.381 bn. Hence total debt ratio = $42.763 bn/586.381 bn=0.50 3. Profit margin can be calculated in three ways- a Gross profit margin calculated as: Gross profit/Net operating revenues. Hence Company's gross profit margin = $22.647 bn / $37.266 bn = 560.77% b. Operating profit margin calculated as: Operating income /Net operating revenues. Hence Company's operating profit margin = $10.086 bn / $37.266 n = $27.06% C. Net profit margin calculated as: Net income Net operating revenues. Hence Company's net profit margin = 58.920 bn / $37.266 bu=$23.94% 4. Return on assets is calculated as: Net income / Total assets. Hence Company's return on assets = $8.920 bm / $86.381 bu = $10.33% 5. The Company has paid dividends for the last two years as shown in the table below amount in sbn): Quarter Q1 2018 Q22018 Q3 2018 042018 Q1 2019 Q22019 32019 242019 Dividend 1.66 1 .66 1.66 1.66 1.71 1.711.71 1.71 Since we want to analyze the Company, we should exclude dividends paid to non-controlling interests 6. Following table shows the historical dividend payment by the Company in terms of annual amount as well as growth rate Year 2015 2016 2017 2018 2019 Dividend per share 1 32 1.40 1.48 1.56 1.60 Growth 09093939 Since the Company is a mature company, we are assuming that it's dividend payout will increase at a long-term perpetual rate of 2% in line with the projected long-term GDP growth rate). The Company is market leader in global non-alcoholic beverages market and has consistent dividend payment history since last several decades along with strong profitability and financial strength. The current dividend yield is 1.6/38.30 = 4.18%. Hence my expected return (cost of equity) would be slightly more than dividend yield say 6.0%. Hence using these growth rate and required return assumptions, value per share as per dividend growth model is: Dividend (1-growth rate)/(required retum-growth rate) = 1.6*(1 +296) (6% -296) = $40.8 say $41 7. Three additional pieces of information that I found interesting a. The Company has a negative working capital as demonstrated in higher liabilities than current assets. While traditionally this can be construed as a stretched liquidity position, in case of the Company this reflects the superior bargaining position with respect to debtors and creditors. This means Company is able to recover money faster

from the debtors (as reflected in accounts receivables of just $3.971 bn) and get long payment terms from creditors (as reflected in accounts payables and accrued expenses of $11.312 bn) signifying fast cash conversion cycle b. Company's strength is reflected in its decentralized operations and partnership with bottlers and distributors. If the Company had to offer everything on their own rather than partnering with bottlers, then they would have required much more capital and Return on Capital Employed would have declined in that case. This strong relationship with bottlers and distributors is a source of enduring strength for The Coca Cola Company The Company, over the period of time, has tried to diversify their offerings by making acquisitions. The Goodwill generated out of these acquisitions as of December 2019 is $16.764 billion, equating the cash flow from operations of just the past 3 years. This is a high cash generating business.

Happy Learning!