Question

Hello,

I need help answering these questions below for the Coke (KO) Company with the key ratios attached.

·        How liquid is the company?

·        Is management generating a substantial profit on the company's assets?

·        If the management of the company would like to improve the company's financial performance, what should the management of THE COMPANY do?

Also, what specific recommendation with supporting rationale would you recommend. as to whether the assigned company's recent trends and results in financial performance is of sufficient financial strength, will THE COMPANY be financially sustainable over the next two to three years, and which steps should be done to improve its financial stability?
Liquidity/Financial Health Latest Qtr 2011-12 2009-12 2010-12 2012-12 2013-12 2014-12 2015-12 2016-12 2017-12 2018-12 Current Ratio 1.09 1.34 1.28 1.17 1.05 1.13 1.02 1.24 1.28 1.05 0.92 Quick Ratio 0.95 0.85 0.78 0.77 0.90 0.81 0.89 0.98 0.90 0.66 0.69 Financial Leverage 1.96 2.35 2.53 2.63 2.71 3.04 3.53 3.78 5.15 4.90 4.67 Debt/Equity 0.58 1.83 1.49 1.71 0.20 0.45 0.43 0.45 0.63 1.11 1.29

Answer 1

The two main measure of liquidity ratio are current ratio and quick ratio. The average current ratio of the company for the period 2009 to 2018 is 1.17 approximately which is to at certain extent good ratio showing its ability to meet its short-term obligation. The current ratio in the latest quarter has fallen to 0.92 which might be cause of concern. The average quick ratio of the company over the period of 2009 to 2018 is 0.85 which might be a sign of significant inventory and less cash and cash equivalent in the current asset. Its liquidity position seems to good but the quick ratio should be slightly improved. The management seems to be not doing great with reference to the return on its assets criteria. The return on asset has deteriorated from during the period from 2009 to 2018. During the 2009 period the return on asset was 15.30 and then in 2010 it increased to 19.42% and after that it deteriorated for next few years. The asset turnover ratio also does not show a good picture of the use of its asset base. The asset turnover ratio has also been falling. The company can improve its performance by focusing on the efficient use of its assets to improve its return on assets and asset turnover ratio. The debt has significantly increased in the capital component, although its interest coverage ratio has been significantly high in the past but in the recent years it has also decreased. The debt in the capital structure should be evaluated for its benefit of tax in comparison with the distress cost associated with it. The company financials and trend seem to be strong, its net margin on its product seems to be quite good. Its Interest coverage ratio indicates is strength to meet its interest payment obligation. Its return on equity also seems to be very high. The company seems to be financially stable and should be in business for the long term given its net margin and return on equity but some of the ratios can be improved like its quick ratio, where a lot of inventory seems to be, its return on asset ratio which should be improved. The debt in the capital component should be evaluated and if possible reduced.