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Analysis of Investments

Difficulty: Advanced


Investment Accounting Policy

Cash Equivalents

Coca-Cola classifies time deposits and other investments that are highly liquid and have maturities of three months or less at the date of purchase as cash equivalents. Coca-Cola manages the exposure to counterparty credit risk through specific minimum credit standards, diversification of counterparties and procedures to monitor the credit risk concentrations.

Short-Term Investments

Coca-Cola classifies time deposits and other investments that have maturities of greater than three months but less than one year as short-term investments.

Investments in Equity and Debt Securities

Coca-Cola uses the equity method to account for the investments in equity securities if the investment gives Coca-Cola the ability to exercise significant influence over operating and financial policies of the investee. Coca-Cola includes the proportionate share of earnings and/or losses of the equity method investees in equity income (loss) — net in the consolidated statements of income. The carrying value of Coca-Cola's equity investments is reported in equity method investments in the consolidated balance sheets.

Coca-Cola accounts for investments in companies that Coca-Cola does not control or account for under the equity method either at fair value or under the cost method, as applicable. Investments in equity securities, other than investments accounted for under the equity method, are carried at fair value if the fair value of the security is readily determinable. Equity investments carried at fair value are classified as either trading or available-for-sale securities with their cost basis determined by the specific identification method. Realized and unrealized gains and losses on trading securities and realized gains and losses on available-for-sale securities are included in other income (loss) — net in Coca-Cola's consolidated statements of income. Unrealized gains and losses, net of deferred taxes, on available-for-sale securities are included in Coca-Cola's consolidated balance sheets as a component of accumulated other comprehensive income (loss) ("AOCI"), except for the change in fair value attributable to the currency risk being hedged, if applicable, which is included in other income (loss) — net in the consolidated statements of income. Trading securities are reported as either marketable securities or other assets in Coca-Cola's consolidated balance sheets. Securities classified as available-for-sale are reported as either cash and cash equivalents, marketable securities, other investments or other assets in the consolidated balance sheets, depending on the length of time Coca-Cola intends to hold the investment.

Investments in equity securities that Coca-Cola does not control or accounts for under the equity method and do not have readily determinable fair values for are accounted for under the cost method. Cost method investments are originally recorded at cost, and Coca-Cola records dividend income when applicable dividends are declared. Cost method investments are reported as other investments in Coca-Cola's consolidated balance sheets, and dividend income from cost method investments is reported in the line item other income (loss) — net in the consolidated statements of income.

Coca-Cola's investments in debt securities are carried at either amortized cost or fair value. Investments in debt securities that Coca-Cola has the positive intent and ability to hold to maturity are carried at amortized cost and classified as held-to-maturity. Investments in debt securities that are not classified as held-to-maturity are carried at fair value and classified as either trading or available-for-sale.

Each reporting period Coca-Cola reviews all of the investments in equity and debt securities, except for those classified as trading, to determine whether a significant event or change in circumstances has occurred that may have an adverse effect on the fair value of each investment. When such events or changes occur, Coca-Cola evaluates the fair value compared to the cost basis in the investment. Coca-Cola also performs this evaluation every reporting period for each investment for which the cost basis exceeded the fair value. The fair values of most of Coca-Cola's investments in publicly traded companies are often readily available based on quoted market prices. For investments in nonpublicly traded companies, management's assessment of fair value is based on valuation methodologies including discounted cash flows, estimates of sales proceeds, and appraisals, as appropriate. Coca-Cola considers the assumptions that Coca-Cola believes hypothetical marketplace participants would use in evaluating estimated future cash flows when employing the discounted cash flow or estimates of sales proceeds valuation methodologies.

In the event the fair value of an investment declines below Coca-Cola's cost basis, management is required to determine if the decline in fair value is other than temporary. If management determines the decline is other than temporary, an impairment charge is recorded. Management's assessment as to the nature of a decline in fair value is based on, among other things, the length of time and the extent to which the market value has been less than Coca-Cola's cost basis; the financial condition and near-term prospects of the issuer; and the intent and ability to retain the investment for a period of time sufficient to allow for any anticipated recovery in market value.

Source: Coca-Cola Co., Annual Report


Adjustment to Net Income (Loss): Mark to Market Available-for-sale Securities

Coca-Cola Co., adjustment to Net Income Attributable To Shareowners Of The Coca-Cola Company

USD $ in millions

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12 months ended Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014 Dec 31, 2013
Net income attributable to shareowners of The Coca-Cola Company (as reported) 1,248  6,527  7,351  7,098  8,584 
Add: Net unrealized gain (loss) on available-for-sale securities 188  17  (684) 714  (80)
Net income attributable to shareowners of The Coca-Cola Company (adjusted) 1,436  6,544  6,667  7,812  8,504 

Adjusted Ratios: Mark to Market Available-for-sale Securities (Summary)

Coca-Cola Co., adjusted ratios

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Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014 Dec 31, 2013
Net Profit Margin
Reported net profit margin 3.52% 15.59% 16.60% 15.43% 18.32%
Adjusted net profit margin 4.06% 15.63% 15.05% 16.98% 18.15%
Return on Equity (ROE)
Reported ROE 7.31% 28.30% 28.77% 23.41% 25.88%
Adjusted ROE 8.41% 28.38% 26.09% 25.77% 25.64%
Return on Assets (ROA)
Reported ROA 1.42% 7.48% 8.16% 7.71% 9.53%
Adjusted ROA 1.63% 7.50% 7.40% 8.49% 9.44%
Ratio Description The company
Adjusted net profit margin An indicator of profitability, calculated as adjusted net income divided by revenue. Coca-Cola Co.'s adjusted net profit margin improved from 2015 to 2016 but then deteriorated significantly from 2016 to 2017.
Adjusted ROE A profitability ratio calculated as adjusted net income divided by shareholders' equity. Coca-Cola Co.'s adjusted ROE improved from 2015 to 2016 but then deteriorated significantly from 2016 to 2017.
Adjusted ROA A profitability ratio calculated as adjusted net income divided by total assets. Coca-Cola Co.'s adjusted ROA improved from 2015 to 2016 but then deteriorated significantly from 2016 to 2017.

Adjusted Net Profit Margin

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Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014 Dec 31, 2013
As Reported
Net income attributable to shareowners of The Coca-Cola Company (USD $ in millions) 1,248  6,527  7,351  7,098  8,584 
Net operating revenues (USD $ in millions) 35,410  41,863  44,294  45,998  46,854 
Net profit margin1 3.52% 15.59% 16.60% 15.43% 18.32%
Adjusted: Mark to Market Available-for-sale Securities
Adjusted net income attributable to shareowners of The Coca-Cola Company (USD $ in millions) 1,436  6,544  6,667  7,812  8,504 
Net operating revenues (USD $ in millions) 35,410  41,863  44,294  45,998  46,854 
Adjusted net profit margin2 4.06% 15.63% 15.05% 16.98% 18.15%

2017 Calculations

1 Net profit margin = 100 × Net income attributable to shareowners of The Coca-Cola Company ÷ Net operating revenues
= 100 × 1,248 ÷ 35,410 = 3.52%

2 Adjusted net profit margin = 100 × Adjusted net income attributable to shareowners of The Coca-Cola Company ÷ Net operating revenues
= 100 × 1,436 ÷ 35,410 = 4.06%

Ratio Description The company
Adjusted net profit margin An indicator of profitability, calculated as adjusted net income divided by revenue. Coca-Cola Co.'s adjusted net profit margin improved from 2015 to 2016 but then deteriorated significantly from 2016 to 2017.

Adjusted Return on Equity (ROE)

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Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014 Dec 31, 2013
As Reported
Net income attributable to shareowners of The Coca-Cola Company (USD $ in millions) 1,248  6,527  7,351  7,098  8,584 
Equity attributable to shareowners of The Coca-Cola Company (USD $ in millions) 17,072  23,062  25,554  30,320  33,173 
ROE1 7.31% 28.30% 28.77% 23.41% 25.88%
Adjusted: Mark to Market Available-for-sale Securities
Adjusted net income attributable to shareowners of The Coca-Cola Company (USD $ in millions) 1,436  6,544  6,667  7,812  8,504 
Equity attributable to shareowners of The Coca-Cola Company (USD $ in millions) 17,072  23,062  25,554  30,320  33,173 
Adjusted ROE2 8.41% 28.38% 26.09% 25.77% 25.64%

2017 Calculations

1 ROE = 100 × Net income attributable to shareowners of The Coca-Cola Company ÷ Equity attributable to shareowners of The Coca-Cola Company
= 100 × 1,248 ÷ 17,072 = 7.31%

2 Adjusted ROE = 100 × Adjusted net income attributable to shareowners of The Coca-Cola Company ÷ Equity attributable to shareowners of The Coca-Cola Company
= 100 × 1,436 ÷ 17,072 = 8.41%

Ratio Description The company
Adjusted ROE A profitability ratio calculated as adjusted net income divided by shareholders' equity. Coca-Cola Co.'s adjusted ROE improved from 2015 to 2016 but then deteriorated significantly from 2016 to 2017.

Adjusted Return on Assets (ROA)

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Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014 Dec 31, 2013
As Reported
Net income attributable to shareowners of The Coca-Cola Company (USD $ in millions) 1,248  6,527  7,351  7,098  8,584 
Total assets (USD $ in millions) 87,896  87,270  90,093  92,023  90,055 
ROA1 1.42% 7.48% 8.16% 7.71% 9.53%
Adjusted: Mark to Market Available-for-sale Securities
Adjusted net income attributable to shareowners of The Coca-Cola Company (USD $ in millions) 1,436  6,544  6,667  7,812  8,504 
Total assets (USD $ in millions) 87,896  87,270  90,093  92,023  90,055 
Adjusted ROA2 1.63% 7.50% 7.40% 8.49% 9.44%

2017 Calculations

1 ROA = 100 × Net income attributable to shareowners of The Coca-Cola Company ÷ Total assets
= 100 × 1,248 ÷ 87,896 = 1.42%

2 Adjusted ROA = 100 × Adjusted net income attributable to shareowners of The Coca-Cola Company ÷ Total assets
= 100 × 1,436 ÷ 87,896 = 1.63%

Ratio Description The company
Adjusted ROA A profitability ratio calculated as adjusted net income divided by total assets. Coca-Cola Co.'s adjusted ROA improved from 2015 to 2016 but then deteriorated significantly from 2016 to 2017.