CFO Studio Magazine - Curt Allen, CFO, Subaru

1st QUARTER 2015 WWW.CFOSTUDIO.COM 45 2 CFO CFO By Mark D. Mishler MBA, CPA, CMA Financial Executive & Adjunct Professor Learn more about the author www.CFOstudio.com When Coca-Cola Changed Course HOWFINANCIAL STATEMENTS COMMUNICATE BUSINESS STRATEGY C oca-Cola is the world’s largest nonalcoholic, ready-to-drink beverage company, with 2013 sales of almost $47 billion and net income of $8.6 billion. Its public document filings reveal its vertical integration strategy. Beverage industry market players have had different strategies regarding the relationships between beverage marketing and their bottling and distributing operations. Beginning in 1986 when Coca-Cola spun off its bottling operations, its strategy became keeping its bottlers at arm’s length, believing this would encourage entrepreneurship from its bottlers. Coca-Cola’s relationship structure with its bottlers was through minority stakes and equity-method investments, which are not consolidated. The benefits of this de-vertical integration strategy were lower business risk during downturns and lower capital investment. The trade-offs were less operating control of a) the number and types of products offered, b) production, and c) customer service — all the result of becoming further removed from the customer. Concurrent with this de-vertical strategy, one of Coca-Cola’s key performance measurements became ROA (Return on Assets). Bottling operations are highly asset-intensive. The spin-off and nonconsolidated financial structure significantly reduced Coca-Cola’s assets and improved ROA. In 2010, Coca-Cola changed its strategy and reacquired its former bottling operations. Sales Gross Profit GP% Operating Income OI% Interest Expense Net Income NI% Tax Rate Total Assets Total Debt Total Equity ROA ROE Debt/Equity % THE COCA-COLA COMPANY Selected Financial Information ($ Billions) $ 31.0 $ 46.5 $ 46.9 $ 19.9 $ 28.3 $ 28.4 64% 61% 61% $ 8.2 $ 10.2 $ 10.2 27% 22% 22% $ 0.4 $ 0.4 $ 0.5 $ 6.8 $ 8.6 $ 8.6 22% 18% 18% $ 48.7 $ 80 $ 90.1 $ 11.9 $ 31.9 $ 28.6 $ 37.1 $ 25.3 $ 33.4 15% 11% 10% 27% 47% 111% 23% 25% 25% 2009 2011 2013 89% 27% 26% Source: Form 10-K SEC filings, Coca-Cola The opinions expressed in this article are those of the author. The publisher disclaims any liability that may arise therefrom.