Coca-Cola Co. (NYSE:KO)

In discounted cash flow (DCF) valuation techniques the value of the stock is estimated based upon present value of some measure of cash flow. Dividends are the cleanest and most straightforward measure of cash flow because these are clearly cash flows that go directly to the investor.

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We accept:            Intrinsic Stock Value (Valuation Summary)

Coca-Cola Co., dividends per share (DPS) forecast

US\$

Year Value DPSt or Terminal value (TVt) Calculation Present value at
0 DPS01
1 DPS1 = × (1 + )
2 DPS2 = × (1 + )
3 DPS3 = × (1 + )
4 DPS4 = × (1 + )
5 DPS5 = × (1 + )
5 Terminal value (TV5) = × (1 + ) ÷ ()
Intrinsic value of Coca-Cola Co. common stock (per share)
Current share price

Based on: 10-K (reporting date: 2020-12-31).

1 DPS0 = Sum of the last year dividends per share of Coca-Cola Co. common stock. See details »

Disclaimer!
Valuation is based on standard assumptions. There may exist specific factors relevant to stock value and omitted here. In such a case, the real stock value may differ significantly form the estimated. If you want to use the estimated intrinsic stock value in investment decision making process, do so at your own risk.

Required Rate of Return (r)

 Assumptions Rate of return on LT Treasury Composite1 RF Expected rate of return on market portfolio2 E(RM) Systematic risk of Coca-Cola Co. common stock βKO Required rate of return on Coca-Cola Co. common stock3 rKO

1 Unweighted average of bid yields on all outstanding fixed-coupon U.S. Treasury bonds neither due or callable in less than 10 years (risk-free rate of return proxy).

3 rKO = RF + βKO [E(RM) – RF]
= + []
=

Dividend Growth Rate (g)

Dividend growth rate (g) implied by PRAT model

Coca-Cola Co., PRAT model

Average Dec 31, 2020 Dec 31, 2019 Dec 31, 2018 Dec 31, 2017 Dec 31, 2016
Selected Financial Data (US\$ in millions)
Dividends
Net income attributable to shareowners of The Coca-Cola Company
Net operating revenues
Total assets
Equity attributable to shareowners of The Coca-Cola Company
Financial Ratios
Retention rate1
Profit margin2
Asset turnover3
Financial leverage4
Averages
Retention rate
Profit margin
Asset turnover
Financial leverage

Dividend growth rate (g)5

Based on: 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31), 10-K (reporting date: 2016-12-31).

2020 Calculations

1 Retention rate = (Net income attributable to shareowners of The Coca-Cola Company – Dividends) ÷ Net income attributable to shareowners of The Coca-Cola Company
= () ÷
=

2 Profit margin = 100 × Net income attributable to shareowners of The Coca-Cola Company ÷ Net operating revenues
= 100 × ÷
=

3 Asset turnover = Net operating revenues ÷ Total assets
= ÷
=

4 Financial leverage = Total assets ÷ Equity attributable to shareowners of The Coca-Cola Company
= ÷
=

5 g = Retention rate × Profit margin × Asset turnover × Financial leverage
= × × ×
=

Dividend growth rate (g) implied by Gordon growth model

g = 100 × (P0 × rD0) ÷ (P0 + D0)
= 100 × ( × ) ÷ ( + )
=

where:
P0 = current price of share of Coca-Cola Co. common stock
D0 = the last year dividends per share of Coca-Cola Co. common stock
r = required rate of return on Coca-Cola Co. common stock

Dividend growth rate (g) forecast

Coca-Cola Co., H-model

Year Value gt
1 g1
2 g2
3 g3
4 g4
5 and thereafter g5

where:
g1 is implied by PRAT model
g5 is implied by Gordon growth model
g2, g3 and g4 are calculated using linear interpoltion between g1 and g5

Calculations

g2 = g1 + (g5g1) × (2 – 1) ÷ (5 – 1)
= + () × (2 – 1) ÷ (5 – 1)
=

g3 = g1 + (g5g1) × (3 – 1) ÷ (5 – 1)
= + () × (3 – 1) ÷ (5 – 1)
=

g4 = g1 + (g5g1) × (4 – 1) ÷ (5 – 1)
= + () × (4 – 1) ÷ (5 – 1)
=