MBA 599 SLU Business Coca Cola Financial Analysis Discussion

Description

Part 1(a)

This is a discussion post.

Challenge

Step 1: Calculate the financial worth of Coca-Cola based on four approaches:
- (1) the net worth method,
- (2) the net income method,
- (3) the price-earnings ration method, and
- (4) the outstanding shares method.
Step 2: Get an average of the four methods. In a dollar amount, how much is Coca-Cola worth?
Step 3: Compare your analyses and conclusions with those of other students.

Part 1(b)

This is a discussion response to Part 1(a).

Starting from the bottom (please see attached spreadsheet), using the “Outstanding Share Method” which is also called Market Capitalization (Market Cap), this amount came to approximately $193M (David et al. 2019, pg. 257). I mention this first because I wanted to compare the 2017 data (found in the Cohesion Case/our text) to what I found on the S&P NetAdvantage today, to see how close the 2017 numbers were to the 2023 numbers which came in at $261M. The 2017 numbers are consistent given a 6-year difference and the current share price of $60.48 (S&P NetAdvantage, 2023).

I was expecting the Price Earning Method to be the same as the Outstanding Share Method as demonstrated/depicted in the Proctor & Gamble example in Table 8-12 of our text, but clearly this did not occur (David et al., 2019, pg. 257). Also, I can’t see the value in averaging these four methods.

Net Worth Method

SE –

(Goodwill+

Intangibles)

$9,208

$18,977

$9,401

$368

David et al, 2019

Pg. 30

Net Income Method

Net Income X

Five

$6,240

$1,248

David et al, 2019

Pg. 29

Pg. 256

Price Earning Method

(Stock Price /

EPS) x

Net Income 5-yr Average

$59,825.18

$45.54

$0.95

$1,248

David et al, 2019

Pg. 263

Pg. 257

Outstanding Share Method

# Shares Out

x Stock Price

$193,271.76

4,244

$45.54

David et al, 2019

Pg. 263

Average All Four Methods

$67,136.23

Part 1(c)

This is also a discussion response to Part 1(a).

Hello Fellow Classmates,

As shared by David & David (2019), “Evaluating the worth of a business is central to strategy implementation…and is not an exact science” (p. 256). It is important to know your company’s worth, especially when acquiring or divesting becomes part of the plan. It is vital to note that both quantitative and qualitative evaluation must occur; financial facts are crucial but so is consumer loyalty, growth history, current lawsuits, employee commitments, credit and rental state, valuable patents, and so on (David & David, 2019).

There are four main valuation methods used to determine a company’s worth; however, they yield different results. I did my best in compiling Coca-Cola’s company worth from our text’s Cohesion Case. My calculations are with the 2017 data. The first two methods result low corporation valuation. If Coca-Cola were wanting to sell, they would not want to use these methods in negotiating a selling price. The third and fourth method result the same, much higher valuation. It they can sell above this price, it yields them a premium. If they sell below this price, it yields the buyer a discount (David & David, 2019).

My analysis concluded that Coca-Cola, in 2017, was worth just over $99 million. Today, it is worth $213 billion (Macrotrends, 2023).

CocaCola’s Company Worth Analysis (in millions)

The Input Data

2017

Shareholder’s Equity

$18,977

Net Income

$1,248

Stock Price

$44

EPS (net income/outstanding shares)

$0.29

Number of Shares Outstanding

4,324,000

Goodwill

$9,401

Intangibles

$368

The Four Valuation Methods

Stockholders’ Equity – (Goodwill + Intangibles)

$9,208

Net Income x 5

$6,240

(Share Price/EPS) x Net Income

$190,645

Number of Shares Outstanding x Share Price

$190,645

Average of Four Methods

$99,185