1. Download all the appropriate annual financial statements for Coca Cola (KO),
ID: 2617781 • Letter: 1
Question
1. Download all the appropriate annual financial statements for Coca Cola (KO), Pepsi (PEP), and Dr Pepper-Snapple (DPS) for fiscal years ending December in 2014, 2015, 2016, and 2017. My favorite source for these financial statements is www.finance.google.com but you can use any reliable source you want as long as you tell me where you get these financial statements. 2. Use the financial statements in Step 1 to calculate any financial ratio you would find relevant. 3. Using the financial ratios you calculated in Step 2, try to understand why the fates of the three companies are very different. I want you to think about a story based on the financial ratios in Step 2 that would explain why, for example, Dr. Pepper-Snapple maybe in much better/worse shape than Coca Cola and Pepsi. 4. For each of the three companies find out the annual dividend payments made during the fiscal years ending on December 2014, 2015, 2016, and 2017. You can find the cash dividend payments in the Statement of Cash Flows. S. For each year (2014, 2015, 2016, and 2017) calculate the internal and sustainable growth rates for each company. Also, calculate the average (over three years) internal and sustainable growth rates for each company. 6. For each of the three companies and their industry find out the expected (by analysts) growth rate of earnings for the next 5 years. For this purpose my favorite source is www.finance.yahoo.com, you can use the area called Analyst Estimates to get these numbers. 7. For each company, assume that dividends will grow at their expected growth rate for the next 5 years, and then at their average internal growth rate forever, calculate the value of the stock using the dividend growth model. Assume that the required rate of return is 15% for all three companies. 8. Find out the closing price of each stock at the end of December 2017. Under the same set of assumptions about the dividend growth in Step 7, find out the required rate of return implied by the closing price of each company 9. Assume again that the required rate of return is 15% for each company. Assume that the dividends will grow at the expected growth rate for the next 5 years and at a constant rate thereafter. Find out the dividend growth rate after 5 years that is implied by the closing stock price of each company 10. Your final report should be in a SINGLE WORD file that contains at least: a. (15 Points) all the financial statements you downloaded as readable tables. b. (15 Points) all the financial ratios you calculated as an easily understandable table. ?. (30 Points) a justification for each ratio you calculated and reasons why the set of ratios you used is sufficient and important for the purpose at hand d. (20 Points) a consistent story that compares Dr. Pepper-Snapple with Coca Cola and Pepsi based on the financial ratios you calculated. You have to make sure that any claim you make is based on data! Simple assertions do not carry any value even when they are correct.Explanation / Answer
1.
The financial statements-Income statement, Balance Sheet and Cash flow can be retreaved from NASDAQ websites and Yahoo finance. It may be mentioned that thta producingthe fincial statements over here would cross the total charecter limit. this has been checked here and hence the answer of 1 cannot be presented here. Any inconvinience is highly regretted
2.
Using the balance sheet the current ratio, as a liquidity measure, has been taken as the indicator for a firm’s ability in meeting short term obligation of the companies in question.
Current ratio is given as:
Current ratio = Current Assets/Current Liabilities.
Current ratio thus calculated is presented in the following table:
CURRENT RATIO
COCO COLA
PEPSICO
Dr. Pepper-Snapple
PERIOD ENDING 31-12-2017
1.34
1.51
0.90
Working: Period ending 31/12/2017(31st Dec-2017)
COCO COLA
PEPSICO
Dr. Pepper-Snapple
Current Assets
36545000
31027000
1117000
Current liabilities
27194000
20502000
1238000
3.
Competitive analysis of three companies, in question , reveals that Pepsi co(Pep) has a higher current ratio than coco-cola and Dr Pepper Snapple in the soft drink beverage market. Pepsi is in a favourable position in meeting short term liabilities of the company as the company has adequate liquidity that can pay its short term obligations. Coco Cola is moderate to stable in paying off its current liabilities. The company does not face much of short term solvency risk. However the current ratio for Dr. Pepper Snapple is low (0.90) and it faces the risk of short term solvency. On a closer look of trend analysis of finacial statement of Dr. Pepper Snapple from period ending 31st December 2014 through 2017 the accounts payable in the current liability has risen considerably in 2017 while cash and cash equivalent figure in the current assets has shown a decline ternd. Thi expians why the current ratio is low in 2017. Thus Dr. Pepper Snapple faces higher short term solvency raisk.
4.
Dividend paid is provided in the following table and is taken from the cash flow statement
Souce: Yahoo Finance
CURRENT RATIO
COCO COLA
PEPSICO
Dr. Pepper-Snapple
PERIOD ENDING 31-12-2017
1.34
1.51
0.90
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