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Coca-Cola Co. (KO)


Analysis of Investments

Difficulty: Advanced


Investment Accounting Policy

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

Effective January 1, 2018, Coca-Cola adopted Accounting Standards Update ("ASU") 2016-01 Financial Instruments — Overall: Recognition and Measurement of Financial Assets and Financial Liabilities ("ASU 2016-01"), which requires Coca-Cola to measure all equity investments that do not result in consolidation and are not accounted for under the equity method at fair value and recognizes any changes in earnings. For equity securities without readily determinable fair values, Coca-Cola has elected the measurement alternative under which Coca-Cola measures these investments at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. Prior to the adoption of ASU 2016-01, marketable equity securities not accounted for under the equity method were classified as trading or available-for-sale. Both realized and unrealized gains and losses on equity securities classified as trading securities were recognized in net income. For equity securities classified as available-for-sale, realized gains and losses were included in net income. Unrealized gains and losses on equity securities classified as available-for-sale were recognized in accumulated other comprehensive income (loss) ("AOCI"), net of tax. Equity securities without readily determinable fair values were recorded at cost. 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.

Source: 10-K (filing date: 2019-02-21).


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, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014
Net income attributable to shareowners of The Coca-Cola Company (as reported) 6,434  1,248  6,527  7,351  7,098 
Add: Net unrealized gains (losses) on available-for-sale securities (34) 188  17  (684) 714 
Net income attributable to shareowners of The Coca-Cola Company (adjusted) 6,400  1,436  6,544  6,667  7,812 

Based on: 10-K (filing date: 2019-02-21), 10-K (filing date: 2018-02-23), 10-K (filing date: 2017-02-24), 10-K (filing date: 2016-02-25), 10-K (filing date: 2015-02-25).


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

Coca-Cola Co., adjusted ratios

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Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014
Net Profit Margin
Reported net profit margin 20.20% 3.52% 15.59% 16.60% 15.43%
Adjusted net profit margin 20.09% 4.06% 15.63% 15.05% 16.98%
Return on Equity (ROE)
Reported ROE 37.89% 7.31% 28.30% 28.77% 23.41%
Adjusted ROE 37.69% 8.41% 28.38% 26.09% 25.77%
Return on Assets (ROA)
Reported ROA 7.73% 1.42% 7.48% 8.16% 7.71%
Adjusted ROA 7.69% 1.63% 7.50% 7.40% 8.49%

Based on: 10-K (filing date: 2019-02-21), 10-K (filing date: 2018-02-23), 10-K (filing date: 2017-02-24), 10-K (filing date: 2016-02-25), 10-K (filing date: 2015-02-25).

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 deteriorated from 2016 to 2017 but then improved from 2017 to 2018 exceeding 2016 level.
Adjusted ROE A profitability ratio calculated as adjusted net income divided by shareholders’ equity. Coca-Cola Co.’s adjusted ROE deteriorated from 2016 to 2017 but then improved from 2017 to 2018 exceeding 2016 level.
Adjusted ROA A profitability ratio calculated as adjusted net income divided by total assets. Coca-Cola Co.’s adjusted ROA deteriorated from 2016 to 2017 but then improved from 2017 to 2018 exceeding 2016 level.

Coca-Cola Co., Ratios: Reported vs. Adjusted


Adjusted Net Profit Margin

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Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014
As Reported
Selected Financial Data (USD $ in millions)
Net income attributable to shareowners of The Coca-Cola Company 6,434  1,248  6,527  7,351  7,098 
Net operating revenues 31,856  35,410  41,863  44,294  45,998 
Ratio
Net profit margin1 20.20% 3.52% 15.59% 16.60% 15.43%
Adjusted: Mark to Market Available-for-sale Securities
Selected Financial Data (USD $ in millions)
Adjusted net income attributable to shareowners of The Coca-Cola Company 6,400  1,436  6,544  6,667  7,812 
Net operating revenues 31,856  35,410  41,863  44,294  45,998 
Ratio
Adjusted net profit margin2 20.09% 4.06% 15.63% 15.05% 16.98%

Based on: 10-K (filing date: 2019-02-21), 10-K (filing date: 2018-02-23), 10-K (filing date: 2017-02-24), 10-K (filing date: 2016-02-25), 10-K (filing date: 2015-02-25).

2018 Calculations

1 Net profit margin = 100 × Net income attributable to shareowners of The Coca-Cola Company ÷ Net operating revenues
= 100 × 6,434 ÷ 31,856 = 20.20%

2 Adjusted net profit margin = 100 × Adjusted net income attributable to shareowners of The Coca-Cola Company ÷ Net operating revenues
= 100 × 6,400 ÷ 31,856 = 20.09%

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 deteriorated from 2016 to 2017 but then improved from 2017 to 2018 exceeding 2016 level.

Adjusted Return on Equity (ROE)

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Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014
As Reported
Selected Financial Data (USD $ in millions)
Net income attributable to shareowners of The Coca-Cola Company 6,434  1,248  6,527  7,351  7,098 
Equity attributable to shareowners of The Coca-Cola Company 16,981  17,072  23,062  25,554  30,320 
Ratio
ROE1 37.89% 7.31% 28.30% 28.77% 23.41%
Adjusted: Mark to Market Available-for-sale Securities
Selected Financial Data (USD $ in millions)
Adjusted net income attributable to shareowners of The Coca-Cola Company 6,400  1,436  6,544  6,667  7,812 
Equity attributable to shareowners of The Coca-Cola Company 16,981  17,072  23,062  25,554  30,320 
Ratio
Adjusted ROE2 37.69% 8.41% 28.38% 26.09% 25.77%

Based on: 10-K (filing date: 2019-02-21), 10-K (filing date: 2018-02-23), 10-K (filing date: 2017-02-24), 10-K (filing date: 2016-02-25), 10-K (filing date: 2015-02-25).

2018 Calculations

1 ROE = 100 × Net income attributable to shareowners of The Coca-Cola Company ÷ Equity attributable to shareowners of The Coca-Cola Company
= 100 × 6,434 ÷ 16,981 = 37.89%

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 × 6,400 ÷ 16,981 = 37.69%

Ratio Description The company
Adjusted ROE A profitability ratio calculated as adjusted net income divided by shareholders’ equity. Coca-Cola Co.’s adjusted ROE deteriorated from 2016 to 2017 but then improved from 2017 to 2018 exceeding 2016 level.

Adjusted Return on Assets (ROA)

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Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014
As Reported
Selected Financial Data (USD $ in millions)
Net income attributable to shareowners of The Coca-Cola Company 6,434  1,248  6,527  7,351  7,098 
Total assets 83,216  87,896  87,270  90,093  92,023 
Ratio
ROA1 7.73% 1.42% 7.48% 8.16% 7.71%
Adjusted: Mark to Market Available-for-sale Securities
Selected Financial Data (USD $ in millions)
Adjusted net income attributable to shareowners of The Coca-Cola Company 6,400  1,436  6,544  6,667  7,812 
Total assets 83,216  87,896  87,270  90,093  92,023 
Ratio
Adjusted ROA2 7.69% 1.63% 7.50% 7.40% 8.49%

Based on: 10-K (filing date: 2019-02-21), 10-K (filing date: 2018-02-23), 10-K (filing date: 2017-02-24), 10-K (filing date: 2016-02-25), 10-K (filing date: 2015-02-25).

2018 Calculations

1 ROA = 100 × Net income attributable to shareowners of The Coca-Cola Company ÷ Total assets
= 100 × 6,434 ÷ 83,216 = 7.73%

2 Adjusted ROA = 100 × Adjusted net income attributable to shareowners of The Coca-Cola Company ÷ Total assets
= 100 × 6,400 ÷ 83,216 = 7.69%

Ratio Description The company
Adjusted ROA A profitability ratio calculated as adjusted net income divided by total assets. Coca-Cola Co.’s adjusted ROA deteriorated from 2016 to 2017 but then improved from 2017 to 2018 exceeding 2016 level.