Analysis of capital structure coca cola
We expect to fund these obligations with cash flows from operating activities.
Nevertheless, the company should address the problem of cost of issuance of debt to be in a better position to issue more debt to its interested partners. By doing so, we think Coca Cola has enough free cash flow because only companies with enough free cash and do not have big projects with positive NPV to invest will attempt to pay dividends as substitutes for debt and credit to issue debts the low long- term debt to equity ratio to invest in this kind of huge project.
It allows it to serve a large population from diverse geographical and cultural backgrounds at greatly minimized costs. Need more Analysis Essay Examples?
Instead, investors prefer to invest in a potential company which is in rapid expansion or high growth stage, even though investors cannot get any money back now.
Consequently, a company ought to establish what stands out as best combination for their financing.
Capital structure of coca cola india
This translates to a projected reduction in demand for the beverages which in turn decreases profitability. In addition, the debt-to-equity ratio depends on industrial characteristics and varies among industries. This should not be surprising, as we all know; Coca Cola is such a firm which derives a great deal of its value from its brand name. Therefore, we think Coca Cola is a stable growth firm and is in the mature growth stage of life cycle. As a result, Coca-Cola Company might face limitations in its growth projections due to the stiff competition. Does it take all relevant information into account? Why is it not a bad thing? Very descriptive; you are not planning to do any analysis? Hence internal funds are used first, then debt is issued, and equity is issued as last step. Corporate Finance, 2nd Edition, Aswath Damodaran 9. Additionally, the company has invested in infrastructure plans with their bottlers with an aim of increasing the bottling system and the unit case volume for its products. Conclusion Based on our analysis above, we have two recommendations for Coca Cola. First of all, the main fund is their cash from operating earnings.
This should not be surprising, as we all know; Coca Cola is such a firm which derives a great deal of its value from its brand name. The brand has commanded a global presence with well established market dominance and distribution networks for its product portfolio.
Analysis of capital structure coca cola
Can you really conclude that there are no new profitable investments available in this industry? Consequently, the company ought to adapt to the dynamics within the current market in order to maintain its dominance and even reach out to other areas that it has not yet explored. At last, comparing with the whole industry and leader in each category, Coca Cola performs pretty well and is above average. This is because if the project is successful, stockholders get all the upside, whereas if it is unsuccessful, bondholders get all the downside. Additionally, the company has invested in infrastructure plans with their bottlers with an aim of increasing the bottling system and the unit case volume for its products. In addition, Coca-Cola is in its mature growth stage. Have you looked at other beverage companies? How is agency cost related to optimal capital structure? Consequently, the conflict could easily exist between stockholders and bondholders, resulting in agency cost when Coca Cola wants to raise fund by borrowing. Pemberton died just two years later never seeing the popularity that would eventually belong to his new invention. The following is the link of all industries beta look up. The optimal structure then would be to have virtually no equity at all. That is to say, Coca Cola should use less debt in respect that its assets are less liquid.
Eisenhower requesting material for 10 bottling plants be shipped overseas during the war.
based on 30 review