Managerial Economics : The Coca-Cola Company
Almost all decisions in a company have an economic consequence. Managerial economics is an integral, relevant part of business management processes that involves cost, revenues and profits, considering not only the monetary costs, but nonmonetary costs as well – monetary, in terms of cash flow in and out and any excess revenue over costs or profit; nonmonetary, in terms of benefit for the consumer – whether its affect psychically is good or bad causing utility or disutility of the product. “Costs can be classified by behavior. Managers who understand how costs behave can predict how costs will change under various alternatives” (Noreen, Garrison and Brewer, 2010, p. 75). “The profit concept is central to the pursuit of business and is thus central to the study of managerial economics. As discussed previously, profit is defined as the excess of revenues over costs. For not-for-profit and public-sector organizations, an excess of revenues over costs is called a “surplus.” Conversely, if costs exceed revenues, there is a loss, which is known as a “deficit.” Regardless of the terms used, no firm or organization can sustain losses or deficits forever. The decision-making problems facing managers of for-profit firms and not-for-profit organizations are essentially similar, involving revenue enhancement if possible and cost control wherever possible.” (Douglas, 2012, p. 5) Analysis of the economics within a firm becomes a primary analytical tool used to help managers assess where an organization stands and what direction it should take in the future. For most companies today to efficiently and effectively make sound, managerial decisions, a viable strategy needs to be in place that analyzes, summarizes and evaluates various ways to increase consumer demand and at the same time assess what it takes to produce the product at value to the consumer. The Coca-Cola Company (TCCC) was established in 1886, and is one of the most recognized brand names on the planet. TCCC sells more than 500 types of beverages including diet or light beverages, sports drinks, water, teas, and coffee. Its headquarters are located in Atlanta, Georgia where it employs more than 146,200 people. The Coca-Cola Company is the world’s leading owner and marketer of nonalcoholic beverage brands and the world’s largest manufacturer, distributor and marketer of concentrates and syrups used to produce non-alcoholic beverages. Incorporated in 1919, Coca-Cola is one of many companies in the beverage industry and on average out of the 54 billion beverage servings consumed daily, beverages owned and marketed by The Coca-Cola Company account for approximately 1.6 billion servings consumed in 2009 and 1.7 billion consumed in 2011 worldwide. (Form 10-K, 2009-2012) Its operation structure consists of product sold in Eurasia and Africa, Europe, Latin America, North America, and the Pacific as well as within the operating segments of bottling investment and corporate. In 2007, the Coca-Cola Company instituted a productivity program realizing $500,000,000 million dollars in savings for the company. From 2009 to 2011, net operating revenues and operating income increased.
With any business, there are risk factors that could materially affect a business and its operations. Those risk factors associated with the Coca-Cola Company are obesity and other health concerns that could reduce demand for some of its products; water scarcity and poor quality could negatively impact the Coca-Cola system’s production costs and capacity; changes in the nonalcoholic beverages business environment due to consumer tastes changing, as well as increased competition in a highly competitive beverage industry are all risk factors for Coca-Cola. Also, if they are unable to expand operations in developing and emerging markets, the growth rate could be negatively affected. Financial reports are...
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