Karla Cortez

1

• Karla Cortez
• Mohammad Ghane
• Maria Mendoza
• Kristi Nguyen
• Ash Puthuchirayil
• Jesus Valdez

2
Outline

• Background Analysis
• Coca-cola History products
• The financial ratios
• Holding Period Return 2002 2003
• Board of Directors
• Free Cash Flow Cost of Equity
• Free cash flow 2000, 2001 2003
• Discounted Cash Flow Model (DCF)
• Market Efficiency
• Coca-Cola specific news
• Non-specific news

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Outline

• Risk Analysis
• Stock beta
• Unlevered beta
• Cost of equity
• Cost of Capital Optimal Capital Structure
• WACC for 2000, 2001 2002
• Capital structure
• Conclusions

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The History

• Coca-Cola is the most popular and biggest-selling
  soft drink in history, as well as the best-known
  product in the world.
• Created in Atlanta, Georgia by Dr. John S.
  Pemberton on May 8, 1886.
• Coca-Cola is the world's leading manufacturer,
  marketer, and distributor of nonalcoholic
  beverage concentrates and syrups, used to produce
  more than 300 beverage brands in over 200
  countries around the world.

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Coca-Colas Bottles
1894 early 1900s 1905 1916
1915 - today
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Coca-Cola Products
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Growth Rate
WEAKNESS in growth rate percentages
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Sale Price Ratios
STRENGTH in sale price ratios
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Profit Margins
STRENGTH in profit margins percentages
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Financial Condition
STRENGTH
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Investment Returns
VERY STRONG INVESTMENTS RETURNS
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Management Efficiency
FAIR
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Financial Ratios Conclusion

• Based on Coca Colas ratios, overall, we think
  this company has strength!

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Coca-Cola Operations
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Board of Directors
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Holding Period Returns
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Free Cash Flow
Cash Flow For Last Three Years
Coca Cola has desirable free cash flows
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Discounted Cash Flow
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Market Efficiency
Company Specific news Sprite Launches Tropical
Sprite Remix April 23, 2003 (No-Form)
4/23/03
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Market Efficiency
Non-Company Specific News Panic Over Illness
Has Bigger Impact Than SARS Itself April 14,
2003 (Weak-Form)
4/14/03
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Risk Analysis
The company is currently underpriced because K(
DCF model) K(CAPM) 0.19350.01302
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Cost of Capital
Coca-Cola has negative figures for Ke in DCF and
CAPM. We use the constant growth dividend model
to calculate the Ke in WACC.
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WACC- MM Model 3 - with-tax, bankruptcy and
agency costs
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Capital Structure
GOOD Debt Ratio
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Conclusion

• HPR Strength
• Financial Ratios Strength
• Underpriced which is consistent with HPR
• Low Beta - Strength
• WACC (somewhat stable)
• Debt Ratio (low) Strength

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Recommendations

• Average Analyst Opinion Moderate Buy
• MSN Stock Scouter Opinion 8 out of 10 (10
  being strong buy)
• Group Recommendation
• We feel that with the current HPR being positive,
  low beta and a product that dominates its
• industry, Coca-Cola stock gets our moderate
  buy rating.