Understand Coca-Cola’s capital structure (KO)

The Coca-Cola Company (KO) is the oldest and most famous beverage company in the world. Founded in 1886, Coca-Cola has always been a leader in the industry by virtue of its multinational brand awareness and smart control of its finances (including capital structure).

In short, capital structure is a measure used to determine how much debt and/or equity a company provides for operations. Let us look at the elements of Coca-Cola’s capital structure, including its equity capitalization, debt capitalization, leverage and corporate value.

Key points

  • For many years, the Coca-Cola Company has maintained good control of its finances, including its capital structure.
  • As of November 2021, the market value of Coca-Cola is approximately US$244.5 billion.
  • Coca-Cola’s total shareholder equity (the amount that will be returned to the company’s shareholders if all assets are liquidated) is $22.179 billion.
  • In terms of debt capitalization, the other half of the capital structure coin, the company’s total liabilities are US$66.473 billion.
  • Measured by the current ratio, the company’s ability to pay current liabilities has actually improved, and its debt-to-equity ratio has declined.

Equity capitalization

Shareholders’ equity (or owner’s equity of a private holding company) represents the amount that will be returned to the company’s shareholders if all assets are liquidated. Representing the ownership of shareholders in the company, the amount of equity invested in the company is calculated by calculating the sum of retained earnings and common stock minus the number of treasury stocks.

As reported in the third quarter of the 10th quarter, Coca-Cola’s total shareholder equity was $22.179 billion. This includes $1.76 billion in par value common stock, $17.929 billion in capital surplus and $68.494 billion in reinvested (retained) earnings, minus $14.25 billion in cumulative other comprehensive income and $51.754 billion in treasury stocks. As of October 1, 2021, Coca-Cola has 4.318 billion outstanding shares and 26 million diluted shares, also known as diluted securities.

As of November 2021, the market value of Coca-Cola is approximately US$244.5 billion.

Debt capitalization

Debt is another part of the capital structure, which determines the amount of accumulated capital owed to creditors. Debt is first divided into two categories: current liabilities due within one year and the remaining liabilities due over one year.

Coca-Cola’s 10-Q from October 2021 shows that the company has 15.99 billion U.S. dollars in current liabilities, including 12.83 billion U.S. dollars in accounts payable and accrued expenses, 1.866 billion U.S. dollars in loans and notes payable, and 448 million U.S. dollars Of current long-term debt due, and accrued income tax of $846 million. Long-term debt, deferred income tax and other long-term liabilities totaled 50.483 billion U.S. dollars, and total liabilities amounted to 66.473 billion U.S. dollars.

Leverage

Since the 2008 financial crisis, the Federal Reserve (also known as the Federal Reserve) has kept interest rates low for a long time. This has allowed many companies, including Coca-Cola, to increase leverage by issuing bonds at relatively low interest rates, bringing Coca-Cola’s total outstanding bonds to $45.19 billion.

Despite these debts, Coca-Cola’s ability to repay current liabilities has actually improved. Coca-Cola’s current ratio (a comparison of the company’s current assets and its current liabilities) is 1.44, which is generally considered normal; it has increased slightly since 2016, indicating the growth of assets relative to short-term debt, which was 1.24 at the time.

Its quick ratio measures the ratio of the dollar amount of available current assets to the dollar amount of the company’s current liabilities, which is 1.31.

Coca-Cola’s debt-to-equity ratio has fallen, which is another sign of financial health. This leverage measure is used to calculate the company’s ownership and the amount payable to creditors. It is determined by finding the quotient of total liabilities divided by shareholders’ equity. In the third quarter of 2021, Coca-Cola’s debt-to-equity ratio was 2.997. This marks a steady decline since 4.04 in 2017.

Corporation value

Enterprise value (EV) is a measure often used by investment bankers to determine the price of a company when it goes public. EV is calculated by calculating the sum of the company’s market value and net debt. Net debt is calculated by subtracting the cumulative value of the company’s liabilities and debt from its total cash and cash equivalents.

The current value of Coca-Cola’s electric vehicles is 259.112 billion U.S. dollars, compared with 226.204 billion U.S. dollars in 2015 and 210.33 billion U.S. dollars in 2012. However, the high value of Coca-Cola’s electric vehicles should not worry investors. This is an incremental increase, especially when compared to other large companies such as Amazon.com Inc. (AMZN) and Apple Inc. (AAPL), whose electric vehicles have sometimes soared 150% in the past decade.

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