Coke Financial Structure
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Andrea R. Hart
GB550: Financial Management
August 24, 2011
The Abstract
The topic of this research paper will be about the capital structure of Coca Cola, This paper serves as a comparison of debt and equity. It will help determine the true value of the company while also determining what their free cash flow is and the risk level for the organization. The question that this research will try to answer is if the 125 year old company is financially ready for another 125 years. The company needs to remain liquid and keep its operating costs low during times of inflation. The methodology that will be used will be multiple financial ratios to determine how the organization is operating and compare to times of exponential increases in profits. My expected findings will be that Coca Cola will have a minimal amount of free cash flow. There would be enough to remain liquid but also to remain flexible in starting new product lines or new investments. Coca Cola already operates in over 200 countries and should seek to expand advertising efforts in recently adopted countries. I anticipate that the company has endured over 125 years of economical, political and social upheavals. I hope to conclude that although there could be unpredicted unprecedented environmental events that Coca Cola will be able to continue operate.
Table of Contents
A preview of capital structure issues……………………………………………...………………4
Business and financial risks related to capital structure…………………………………………..5
Modigliani and Miller’s [MM] capital structure theory ………………………………………….6
Criticisms of the MM model and assumptions……………………………………………………6
Capital structure evidence and implications………………………………………………………7
Estimating the firm’s optimal capital structure……………………………………………………8
References…………………………………………………………………………………………9
A preview of capital
Andrea R. Hart
GB550: Financial Management
August 24, 2011
The Abstract
The topic of this research paper will be about the capital structure of Coca Cola, This paper serves as a comparison of debt and equity. It will help determine the true value of the company while also determining what their free cash flow is and the risk level for the organization. The question that this research will try to answer is if the 125 year old company is financially ready for another 125 years. The company needs to remain liquid and keep its operating costs low during times of inflation. The methodology that will be used will be multiple financial ratios to determine how the organization is operating and compare to times of exponential increases in profits. My expected findings will be that Coca Cola will have a minimal amount of free cash flow. There would be enough to remain liquid but also to remain flexible in starting new product lines or new investments. Coca Cola already operates in over 200 countries and should seek to expand advertising efforts in recently adopted countries. I anticipate that the company has endured over 125 years of economical, political and social upheavals. I hope to conclude that although there could be unpredicted unprecedented environmental events that Coca Cola will be able to continue operate.
Table of Contents
A preview of capital structure issues……………………………………………...………………4
Business and financial risks related to capital structure…………………………………………..5
Modigliani and Miller’s [MM] capital structure theory ………………………………………….6
Criticisms of the MM model and assumptions……………………………………………………6
Capital structure evidence and implications………………………………………………………7
Estimating the firm’s optimal capital structure……………………………………………………8
References…………………………………………………………………………………………9
A preview of capital
References: Coca Cola (KO) Stock Research, Equity Ratings, News & Analysis . (2911). Retrieved August 23, 2011, from ValueInvesting 2.0: http://www.wikiwealth.com/research:ko COCA COLA CO (NYSE:KO ) Ehrhardt, M. C., & Brigham, E. F. (2009). Financial Management: Theory and Practice. Mason: South-Western. Hines, J. J. (2007, March). Capital Structure with Risky Foreign Investment. Retrieved August 11, 2011, from Harvard Business School: http://www.people.hbs.edu/ffoley/riskycap.pdf Investors Information ITEM 1A. RISK FACTORS. (2010). Retrieved August 23, 2011, from The Coca Cola Company.Com: http://www.thecoca-colacompany.com/investors/pdfs/10-K_2009/04_Coca-Cola_Item1A-1B.pdf ITEM 7A Kale, J. R., Noe, T. H., & Ramirez, G. G. (Dec., 1991). The Effect of Business Risk on Corporate Capital Structure: Theory and Evidence. The Journal of Finance , 1693-1715. Kathman, D. (2002, December 20). Why Discount Rates Matter. Retrieved August 23, 2011, from MorningStarNews.Com: http://news.morningstar.com/articlenet/article.aspx?id=84699&_QSBPA=Y Kent, M MacMinn, R. (2011). Theorems in Corporate Finance . Retrieved August 23, 2011, from MacMinn.ORG: http://macminn.org/Fin374/theorems/theorems.html The Coca Cola Company Villamil, A. P. (2010, March 10). The Modigliani-Miller Theorem. Retrieved August 9, 2011, from Econometrics at the University of Illinois: http://www.econ.uiuc.edu/~avillami/course-files/PalgraveRev_ModiglianiMiller_Villamil.pdf