Assignment Sample on BMG704 International Finance

Introduction

International finance is an essential tool that is applied by the business organization to analyse the financial interaction that emerges between two or more nations. The important areas focused on by international finance are the rate of currency exchange and foreign direct funding. Enhancement in globalization has boosted the importance of global finance. The main purpose of this study is to apply the tool of internal finance in Coca-Cola Company in order to explain its monetary interaction that unfolds between two or more countries.

Overview of the company

Coca-Cola Company is an American multinational corporation and it produces non-alcoholic beverages and syrups. This company was founded by John Stith Pemberton in 1892. In 2020, the total number of employees working in this multinational corporation is eighty thousand two hundred (coca-colacompany.com, 2021). The main aims of Coca-Cola are to refresh the world and to inspire the moment of happiness. This company is efficiently operating its business activities in different countries around the world. The total revenue earned by Coca-Cola from 2018 to 2020 is $34141 million, $37273 million, and $33029 million. Therefore, in 2019, 9.17% was the growth of their sales but in 2020 the sales growth has reduced by 11.39% (wsj.com, 2021).

Two new development in the global financial environment

The global financial environment states the conditions for undertaking in the financial market and in the economy around the world. The background for monetary activities and operation of multinational companies. As opined by Haret and Simiyu (2017), it includes different factors such as regulation, financial system, political condition, and economy. The international monetary environment has changed drastically due to globalization, the dominance of upgraded and advanced technology, the trade war between the USA and China, and the COVID-19 pandemic. Therefore, these recent developments have influenced the performance of Coca-Cola Company to a great extent. The international financial environment is vital for every business organization as it has the power to create a positive and negative impact on the business enterprise performance.

Innovation and advanced technology are one of the latest developments in the international monetary environment which influence the performance of Coca-Cola in the market. Innovation and upgraded technology have a positive impact on the growth of the company (Hassani et al. 2017). Effective innovation drives Coca-Cola Company towards its success. Therefore, the process of innovation boosts its productivity, sales growth, and profitability. Innovative ideas are implemented within its business in order to achieve the predetermined target of Coca-Cola. Innovation improves the quality, design, and marketing of the product produced by Coca-Cola in the market (coca-colacompany.com, 2021). This helps to retain the existing customers as well as attract new customers and it positively enhances the annual turnover of the company. Advanced and new technology influences the communication system within the business enterprise. Effective communication helps to develop a healthy relationship between customers and company and company and employees. The effective communication process boosts the motivation of the employees in order to enhance their performance as well as the company. Therefore, advanced technology and innovation improve the performance of Coca-Cola in near future.

The impact of COVID-19 is another current development that affected the performance of Coca-Cola Corporation in the internal market (coca-colacompany.com, 2021). In 2019, coronavirus has spread between the people who can come in close contact with the person who was infected with this virus. The coronavirus was dangerously spreading among a huge number of people. So the government of every country has declared a strict lockdown. As a consequence, the manufacturing of this stopped. On the other hand, the income of Coca-Cola has been reduced and expenses have been enhanced. Therefore, the cash inflow of the business was less than its cash outflow. The development of this situation has a negative impact on the performance of Coca-Cola. Coca-Cola Company has taken a drastic step to properly control its expenses by cutting down the jobs of 2200 employees worldwide (businesstoday.in, 2021). This drastic step was taken by the company to influence the performance of its business during the pandemic situation. This decision was taken by Coca-Cola to enhance the future performance of its business.

Analysing the important element

Sources of fund

Source of fund refers to a place from where the multinational business corporation raises capital from their operation of the business. A business operation can acquire funds from external and internal sources as per their requirement. When a business enterprise wants to expand its business operation it obtains funds from long-term sources. Therefore, Coca-Cola raises finance for its business activities by issuing preference and equity shares to the general public and also by debt financing. The financial management of Coca-Cola is responsible to select an appropriate source of finance that will help to carry out the business activities efficiently. However, the source of capital affects the financial performance of the business enterprise. So the financial management of Coca-Cola must be very alert while making decisions about the source of finance for the company (coca-colacompany.com, 2021). Settlement, credit, and liquidity risk are linked with international finance. The issue of shares is an important part of sources of finance for Coca-Cola Company. Shareholders have the right to choose their representative in the company and are entitled to receive a return on their invested fund. In case this is unable to issue shares then they can obtain finance by selling bonds to their existing or new investors.

Dividend policy

The policy of dividend refers to the dividend pay-out framework of a business enterprise. The structure of dividend pay-out is applied by companies to make payments to their existing shareholders. The policy of dividends is an important part of the business strategies of Coca-Cola. It is the return on investment that Coca-Cola has promised to pay their existing shareholders.

Ex-Div.- Date Amount Frequency Payment Record Announced
2021-06-14 0.42 USD Quarterly 2021-07-01 2021-06-15 2020-04-21
2021-03-12 0.42 USD Quarterly 2021-04-01 2021-03-15 2021-02-18
2020-11-30 0.41 USD Quarterly 2020-12-15 2020-12-01 2020-10-15
2020-09-14 0.41 USD Quarterly 2020-10-01 2020-09-15 2020-07-16
2020-06-12 0.41 USD Quarterly 2020-07-01 2020-06-15 2020-04-22
2020-03-13 0.41 USD Quarterly 2020-04-01 2020-03-16 2020-02-20
2019-11-29 0.40 USD Quarterly 2019-12-16 2019-12-02 2019-10-18
2019-09-13 0.40 USD Quarterly 2019-10-01 2019-09-16 2019-07-18
2019-06-13 0.40 USD Quarterly 2019-07-01 2019-06-14 2019-04-26
2019-03-14 0.40 USD Quarterly 2019-04-01 2019-03-15 2019-02-22

Table 1: Information related to the dividend payment of Coca-Cola Company

(Source: investors.coca-colacompany.com, 2021)

The above-represented table shows the quarterly payment of dividends in the year 2019 and 2020 of Coca-Cola Company. The amount of dividend paid to the shareholders has increased in 2020 from its previous year. It also indicates that the company’s total revenue has increased in 2020 from 2019 (coca-colacompany.com, 2021). The financial and non-financial management of the company has made effective decisions regarding enhancing the profitability, productivity, and sales of its business. The company makes quarterly payments of dividends which helps to develop confidence and trust among their shareholders towards the performance of Coca-Cola Company.

Explaining the financial performance of Coca Cola

Companies apply quantitative techniques to evaluate the financial performance of their business. The result of the ratio calculation helps to identify the exact financial position of the business. The help of information on the financial ratio guides the internal management to make proper decisions regarding the business operation. The external stakeholders also benefit from the information of ratio calculation in order to make effective decisions about their investment.

Profitability ratio

The profitability ratio is calculated by a business enterprise to determine its financial condition at the end of the financial year (Zavadskaset al. 2018). The following table is representing the outcome of different types of profitability ratios. This ratio indicates the profit earring ability of a company.

Coca-Cola Company
Profitability ratio
SI. No. Particulars Formula 2020 2019
  Gross income (USD Millions)   19527 22665
  Total Sales (USD Millions)   33029 37273
1 Gross Profit Ratio Gross income/ Total sales *100 59% 61%
  Net Income (USD Millions)   7747 8920
  Total revenue (USD Millions)   33029 37273
2 The ratio of Net Profit Net Income/ Total revenue *100 23% 24%
  EBIT (USD Millions)   9336 10504
  Amount of employed capital (USD Millions)   19299 18981
3 Return on Capital Employed EBIT / Capital employed *100 48% 55%

Table 2: Calculating profitability ratio for Coca-Cola for 2020 and 2019

(Source: Produced by author)

Explanation:

  • Gross Profit Ratio:

From the gross profit margin ratio, the company can ascertain the earning ability before bearing the expenses. 59% and 61% are the gross profit margin in 2020 and 2019 for Coca-Cola. Therefore, the percentage of this ratio has reduced from the previous year but it is still satisfactory for the internal and external management of the company. It reflects that firms efficiently carry out business activities.

  • Net Profit Ratio:

Net Profit Ratio is determined by the business enterprise in order to recognize its profit-earning capacity. Total sales of Coca-Cola in 2020 and 2019 are $33029 million and $37273 million respectively (wsj.com, 2021). In the year 2020, the total sales of Coca-Cola have reduced from the previous year. So, better strategies must be implemented within its business to increase its sales in the market. Effective advertisement and promotion must be properly applied within the business to increase its sales. 23% and 24% is the net profit ratio of Coca-Cola in 2019 and 2020.

  • Return on Capital Employed:

Return on Capital employed is calculated within the business enterprise to evaluate its earning ability by investing the funds. 48% and 55% is the return on capital employed in 2019 and 2020. From this calculation, the external and internal interest parties ascertain that the return is satisfactory. Therefore, the investors get confidence to invest their funds in Coca-Cola in order to get an effective return.

Liquidity ratio

Liquidity Ratio is implemented within the business organization whether it has enough amount of cash and cash equivalent to bear all the current expenses of the business (Afrino and Erni, 2019). It indicates the liquidity position of a company at the end of every accounting year.

Coca-Cola Company
Computing Liquidity Ratio
SI. No. Particulars Formula 2020 2019
  Cash Balance (USD Millions)   6795 6480
   Liabilities (Current) (USD Millions)   14601 26973
4 Cash Ratio Cash Balance / Liabilities (Current) 0.47 0.24
  Current Assets (Excluding inventory) (USD Millions)   15974 17032
  Liabilities (Current) (USD Millions)   14601 26973
5 Acid test ratio Current Assets (Excluding inventory)/ Liabilities (Current) 1.09 0.63

Table 3: Evaluating Liquidity ratio for 2019 and 2020

(Source: Produced by author)

Explanation:

  • Cash Ratio:

One of the important ratios that evaluate the liquidity of the company is the cash ratio. This ratio is calculated by the business enterprise by cash and cash equivalent with its current liabilities. Although, the cash ratio of Coca-Cola increased from 0.24 to 0.47 which is a positive sign for this company. The enhancement of this ratio indicates that the cash balance of Coca-Cola has increased from its previous year and this will help the business organization to smoothly bear all its expenses. Current liabilities of the company can be paid within the given time period.

  • Acid-Test Ratio:

Acid-Test ratio determines the liquidity position of the business organization by dividing current assets after excluding stock by its current liabilities. From the outcome of this ratio, external stakeholders can identify whether the company is efficient to meet its current liabilities. The total current liabilities of Coca-Cola in 2020 and 2019 are $14601 million and $26973Millions (wsj.com, 2021). From the computation of this ratio, it is ascertained that the company’s liquidity position has decreased from the previous year. 1.09 times and 0.63 times are the quick ratios of Coca-Cola in 2020 and 2019.

Efficiency Ratio

Different types of efficiency ratios are computed at the end of the accounting year to properly assess whether it is using the assets efficiently or not. The mains of efficiency ratio is to give appropriate financial; information of the company to their investors (Nalurita, 2017).

Coca-Cola Corporation
Calculating efficiency Ratio
SI. No. Particulars Formula 2020 2019
  Current Assets (USD Millions)   19240 20411
  Current Liabilities (USD Millions)   14601 26973
6 Working Capital Ratio Current assets/ current liabilities 1.32 0.76
  Total Sales (USD Millions)   33029 37273
  Total Current and noncurrent Assets (USD Millions)   87296 86381
7 Assets Turnover Ratio Total Sales / Total Current and noncurrent Assets 0.38 0.43

Table 4: Computing different types of efficiency ratios for Coca-Cola Company

(Source: Produced by author)

Explanation:

  • Working Capital Ratio:

The above table states that the Current assets of Coca-Cola in 2020 are $19240 million and in 2019 is $20411 million (wsj.com, 2021). The ratio of working capital helps to determine the efficiency of the business enterprise. The working capital ratio of Coca-Cola is 1.32 and 0.76 in 2020 and 2019. Therefore, enhancement in this ratio indicates that Coca-Cola can meet its short-term obligation within a given time period. From the information in this table, it can be ascertained that the current assets of its business are more than its current liabilities. The financial management of the company has properly handled the short-term liabilities of its business.

  • Assets Turnover Ratio:

This is one of the important financial ratios which is determined by Coca-Cola to analyse whether they are efficiently applying the current and noncurrent assets within their business activities (wsj.com, 2021). The total Assets of Coca-Cola in 2020 and 2019 are $87296 million and $86381 million respectively. Therefore, the ratio of Assets turnover of Coca-Cola has decreased from 0.43 to 0.38 which indicates that the company has not efficiently utilized assets in 2020. The internal management of this company is properly allocated so that it can be utilized efficiently.

Market Ratio

The investment ratio is calculated to provide effective information about the financial performance of the business to their internal and external interested parties. Therefore, the other name of this ratio is the investment ratio (Satryoet al. 2017). Better investment decisions are taken by the investors with the help of the outcome of this ratio.

Coca-Cola Company
Evaluating the Investment ratio
SI. No. Particulars Formula 2020 2019
  Net Income (USD Millions)   7747 8920
  Number of Ordinary Shares   4302 4280
8 EPS (Earning Per Shares) Net Income / Number of ordinary shares 1.80 2.08

Table 5: Calculating EPS for 2020 and 2019

(Source: Produced by author)

Explanation:

  • Earning Per Shares (EPS):

From the calculation of the above table, it is seen that the total income earned by Coca-Cola in 2020 and 2019 is 7747 USD million and 4935 USD million (wsj.com, 2021). Therefore, the EPS of this company has been reduced from 2.08 to 1.80. It may reduce the confidence of the shareholders towards the company. Application of better strategies within the business improves productivity, sales, and profitability. This improvement will also increase the EPS of Coca-Cola in the upcoming year.

Conclusion

From this study, it is concluded that the two new developments such as innovation and advanced technology and the impact of coronavirus have influenced the performance of Coca-Cola. Therefore, this company pays a dividend to its shareholders on a quarterly basis. The amount of dividend in 2020 is more than from 2019. Ratio analysis is one of the effective quantitative techniques to determine the financial performance of a business organization. From the ratio calculation of Coca-Cola, it is observed that Coca-Cola needs to implement an effective strategy to improve its financial performance.

Reference

Journals

Afrino, J. and Erni, M., 2019. Effect of Profitability Ratio, Solvency, Market Ratio, Andrisk Ratio on Stock Return. Volume97(2), pp.602-606.

Haret, H.N. and Simiyu, E., 2017. External financial environment drivers and financial performance of Islamic banks in Kenya. International Academic Journal of Economics and Finance2(3), pp.368-386.

Hassani, H., Silva, E.S. and Al Kaabi, A.M., 2017. The role of innovation and technology in sustaining the petroleum and petrochemical industry. Technological Forecasting and Social Change119(5), pp.1-17.

Nalurita, F., 2017. The effect of profitability ratio, solvability ratio, market ratio on stock return. Business and Entrepreneurial Review15(1), pp.73-94.

Satryo, A.G., Rokhmania, N.A. and Diptyana, P., 2017. The influence of profitability ratio, market ratio, and solvency ratio on the share prices of companies listed on LQ 45 Index. The Indonesian Accounting Review6(1), pp.55-66.

Zavadskas, E.K., Stević, Ž.,Tanackov, I. and Prentkovskis, O., 2018. A novel multicriteria approach–rough step-wise weight assessment ratio analysis method (R-SWARA) and its application in logistics. Studies in Informatics and Control27(1), pp.97-106.

Websites

businesstoday.in, 2021, covid-19-impact-coca-cola-to-lay-off-2200-employees-as-it-trims-businesses-brands, Available at: https://www.businesstoday.in/latest/corporate/story/covid-19-impact-coca-cola-to-lay-off-2200-employees-as-it-trims-businesses-brands-281956-2020-12-18 [Acceded on: 25th July, 2021]

Coca-colacompany.com, 2021, about the company, Available at: https://www.coca-colacompany.com/[Acceded on: 25th July, 2021]

Investors.coca-colacompany.com, 2021, Dividend information of Coca-Cola, Available at: https://investors.coca-colacompany.com/stock-information/dividends[Acceded on: 25th July, 2021]

wsj.com, 2021, Financial statement of Coca-Cola, Available at: https://www.wsj.com/market-data/quotes/KO/financials/annual/income-statement [Acceded on: 25th July, 2021]

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