The report is based on the Coca-Cola Company, which operates in the beverage industry. The overall sector contributes over 5% to the GDP with an overall sales revenue of over $1.4 trillion. The industry is composed of over 27,000 firms that employer over 1.5 million people.
Coca-Cola is one of the leading companies in the beverage industry. The company produces both alcoholic and nonalcoholic beverages, with over 500 different brands. Coca-Cola operates in over 200 countries. It derives over 70 percent of the revenue from out of the USA (“The Coca-Cola Company”, n.d.).
- Coca-Cola has stronger liquidity than the competitor (PepsiCo).
- The company’s liquidity measures, as indicated by the current ratio and the quick ratio, beat the industry average.
- Coca-Cola reported better long-term liquidity compared to the competitor (PepsiCo).
- The company performed poorly compared to the industry.
- Coca-Cola reported higher profitability than the competitor (PepsiCo).
- The company also reported higher margins (gross margin and net margin) compared to the industry average.
- The company also had a higher return on capital employed.
Importance of Ratios in the Budgeting Process
Budgeting in an important function of Coca-Cola Company. according to Ryan (2017), the role of budgeting includes:
- It provides a framework for company expenditure.
- The process has to be aligned to the company’s financial resources.
- Financial ratios help to compare the performance of a company overtime.
- The ratios indicate the trends in the company’s performance.
- The ratios are therefore important in forecasting that is critical for accurate budgeting.
Variance and Balanced Scorecard
- Variance compares the budgeted figures to the actual results or for general comparison.
- Variance can be favorable or unfavorable.
- The Balanced Scorecard exemplifies a cause and effect relationship from the overall strategy to the company’s targets.
- The target can be the industry performance.
Ratios and Capital Budgeting
- Capital budgeting involves an evaluation of new projects or new investment opportunities (Bazley and Hancock, 2018).
- The internal rate of return (IRR) and the payback period are the main capital budgeting ratios
- The ratios help to determine whether a project should be accepted or not
- Financial statement analysis is vital in decision making.
- Coca-Cola posted impressive performance than PepsiCo.
- The company also performed well compared to the industry average.
- Coca-Cola had a stronger liquidity, solvency, and profitability.
Bazley, M. and Hancock, P. (2018). Contemporary Accounting. 7th ed. Cengage Learning.
Ryan, R. (2017). Corporate Finance and Valuation. Thomson Learning, London.
THE COCA-COLA COMPANY. (n.d.). Msn.Com.