Company Analysis of Coca-Cola Enterprises (Case Study Sample)

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Company analysis of Coca-Cola enterprises
Introduction
Coca-Cola Enterprises, Inc. (CCE) is the third largest independent bottler of Coca- Cola in the world. It is the producer, marketer and distributor of Coca-Cola products. It the sole licensed for The Coca-Cola Company products in Great Britain, Belgium, Monaco, Norway, The Netherlands, continental France, Sweden, and Luxembourg. Coca-Cola Enterprises is committed to reducing the environmental impacts of its operations and products, with a specific focus on water stewardship, sustainable packaging and recycling, and energy and climate protection. Its manufacturing sites were awarded ISO 14001 certification, the premier international standard for environmental management (CCE website). Coca-Cola Enterprises has also minimized its energy ratio across most of its manufacturing operations. Also, more that 99 percent of waste at the company’s sites is now recycled or recovered.
Coca-Cola Enterprises computes and publishes the CO2 emissions that results from the manufacturing and distribution processes of all of its brands. The company partnered with Carbon Trust in 2007 to measure all of its greenhouse gas emissions that are embodied within selected products in the portfolio. Coca-Cola Enterprises manufactures, sells, delivers and distributes the following products in the Great Britain for the Coca-Cola Company: diet Coke, Schweppes Abbey Well, Coca-Cola, Fanta, Coke Zero, Glacéau, Dr Pepper, Powerade, Schweppes, Sprite, Relentless, Oasis and 5 Alive. It also produces, sells or delivers Capri Sun, Appletiser and Monster on behalf of other brand owners (CCE website). The company has an on-going product and brand innovation continuing in order to reinforce its position of having the largest share of the UK’s soft drink industry. Currently, Coca-Cola Enterprises is one of the most innovative brands in the world.
This report tries to examine, evaluate and analyze if the company experienced a drop in its performance in the ten years or if the company just made a strategic choice to consolidate so as to improve performance. It will look at the ratio analysis, its marketing activities and its weaknesses and strengths. Finally, the report provides critical reasons why either one of the two actions happened and then propose key strategic changes to be made so as to restore the performance in the future.
SWOT analysis
Strengths
customer loyalty
Strong marketing and advertising
corporate social responsibility
bargaining power over suppliers
extensive beverage distribution channel
largest market share in the UK
the best global brandWeaknesses
significant focus on carbonated drinks
high debt level resulting from acquisitions
undiversified product portfolio
brand failures Opportunities
growth through acquisitions
growth in bottled water consumption
increasing demand for beverage and healthy food
growing consumption of beverages in emerging marketsThreats
water scarcity
strong dollar
changes in consumer preferences
decreasing net profit and gross profit margins
saturated carbonated drinks market
competition from other bottlers

Analysis
From the SWOT analysis it is clear that Coca-Cola Enterprises experienced a drop in performance in the ten years. The SWOT indicates that the company’s net profit margin as well as gross profit has been decreasing over the past few years and it is predicted to continue for more years due to higher raw materials and water costs. Further, the company has approximately US$4 billion of debt which has significantly increased its interest and borrowing costs thus decreasing the profits further. The world has begun fighting obesity and many consumers are moving away from carbonated drinks towards consuming healthy drinks and food. This has also greatly impacted their performance over the past few years.
Ratio analysis
Ratio analysis is a systematic use of ratios in interpreting the financial statements of a company in order to determine its weaknesses and strengths, financial health as well as its current performance and historical performance.
Liquidity ratios
A firm’s liquidity ratios illustrate the ability of CCE to meet its short term obligations. It is the main measure of a firm’s financial health (Kapil, 120).
20132012201120102009Industry Current ratio1.171.071.451.181.205.00
The current ratio of CCE has been fluctuating for the past years; this indicates a reduction in its ability to meet short-term obligations. In comparison to the industry average, these ratios are lower than that of the industry average, an indication that CCE is less liquid.
Profitability ratios
Profitability ratios determine the bottom line of the company and the returns it gives to its investors. These ratios indicate the overall performance and efficiency of a company (Kimmel et al 290).
20132012201120102009Industry Net profit margin8.128.409.049.293.3812.00ROA7.017.288.474.994.5715.00
The profitability ratios of Coca-Cola enterprises have been fluctuating or decreasing considerably implying that the efficiency of CCE has been decreasing over the ten year period. The ratios are also below the industry average value indicating that the company is less profitable than other firms in the industry. This has made it to drop in the rank.
Asset management ratios
Asset management or efficiency ratios indicates how well a company is managing its liabilities and/or how effectively a company is utilizing its assets. They show how efficiently the assets of the company are working to generate sales revenue or income (Kapil, 120).
20132012201120102009Industry Days sales outstanding67.3464.8361.1176.9344.7441Inventory turnover12.7713.0813.656.8215.0216.00
The company’s inventory turnover has decreased throughout the period implying that Coca-Cola Enterprises is using more inventories to generate less revenue hence inefficient in their operations. Day’s sale outstanding has been on the constant rise and fluctuations. This shows that CCE is taking more time to collect its receivable. The company’s days sales outstanding is higher than that of the industry , this indicates that the firm takes more time to realize its accounts receivable than the industry hence indicating reduction in efficiency. According to efficiency ratios, the efficiency of the company has been on a constant decrease.
Debt ratios
Debt ratios shows how leveraged a company is. They measures the long-term solvency of the company by showing the proportion of the company’s activities that is funded by the borrowed funds compared to those activities that are funded by the equity (Kimmel et al 290).
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20132012201120102009Industry Debt to equity ratio1.681.291.040.7310.220.85Long-term debt to total asset0.390.300.330.250.480.30
The debt to equity and long-term to total asset ratios have been on the constant rise throughout the period. This indicates an increase in the proportion of company’s assets that is funded by borrowed funds. The ratios are relatively higher than the industry average value, this indicates that Coca-Cola Enterprises is highly leveraged, uses more debts than its competitors in the industry. Coca-Cola is, therefore, regarded to have taken on more risk than other firms in the industry. It therefore has more business risks.
Market ratios
These ratios assess the economic status of a firm in the wider marketplace. They give the company’s management an idea of what the company’s investors think of or perceive the future prospects and current performance of the company (Kapil, 120).
20132012201120102009Industry Price to earnings ratio17.9614.0911.2613.6613.0212.00Market to book value ratio4.913.482.710.000.005.00
The P/E ratio of CCE has greatly fluctuated, however towards the end of the period; it has shown an upward trend. The ratio is relatively higher than the industry average indicating that the stocks of Coca-Cola enterprises are highly valued than the industry average. The investors expected slightly higher earnings growth from CCE implying that the investors are willing to pay a slightly more per dollar of earnings than those of other firms in the industry. Even though the M/B value of the company has shown n upward trend, it is lower than the industry average. This indicates that the relative value of CCE is lower than the industry.
Critical reasons why the performance of the company declined
There are a number of factors that have caused the decline in the performance of Coca-Cola Enterprises. First, constant change in weather conditions has brought seasonality in the sales of the company’s nonalcoholic ready to drink beverages. Due mainly to the seasonal nature of the soft drink and other beverages industry, the sales of the company have greatly reduced. Unreasonably cool weather reduces consumer demand for some beverages that are packaged in containers (Flamholtz & Yvinne, 176).
Secondly, the soft drink industry is highly competitive. It consists of numerous small and large, well established companies. Such companies compete in multiple geographical areas; some are primarily local or regional in operation. Even though the company has compe...