The Coca Cola Case Solution

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Overview of Coca-Cola Case

In 1997, Coca-Cola is in a fascinating situation regarding the future. The current financial performance is magnificent and the stock market is in love with the company. However topline growth has disappeared, the company has developed a tenuous relationship with the bottlers, the company has refocused on carbonated beverages after experimenting unsuccessfully with diversification, the CEO has died, and the new CEO is a finance person who is the architect of the current strategy which has not emphasized topline growth. Coca-Cola had been thought of as a great consumer marketing company. We learn in the case that the key to Coca-Cola’s success has been distribution and not really consumer marketing. In particular the bottling strategy has generated remarkable rates of return for Coke. Does the high market capitalization of the company come from the value of the brand or is it coming from the bottling strategy?

Financial Analysis

Exhibit 10 provides the data necessary for the analysis of the current situation at Coke. DuPont system analysis reveals an after tax margin (ROS) of 22%, which is well in excess of the all industry average of 5%. Analysis of the income statement shows that gross profit has been growing more than revenues. This suggests a combination of price increases in sales of concentrate to bottlers, lower costs in producing concentrate and perhaps a favorable change in product mix. Operating income has also been growing more rapidly than revenues. This suggests that marketing expenses and new product development have not been growing rapidly. Below operating income are a number of items such s equity income and the profits from revaluation of bottlers after they go public. This income does not come not from making and selling concentrate but from Mr. Ivester’s (the former CFO and new CEO) bottling strategy (the 49% solution). These items have contributed large amounts to bottom line net income. The result is...