Section A : Analysis of Annual Report
As this report progresses I will be analysing the financial performance of, the American multinational beverage conglomerate, termed Americas most respected brand , and Forbes most valued brand which is none other than The Coca Cola Company. The organization which is headquartered in Atlanta, Georgia manufactures over five hundred sparkling, and still beverages; However, Coca Cola is the organizations flagship product founded by the American pharmacist John Pemberton. (“The Coca Cola Company”, n.d.)
The firm’s brand value sums up to a staggering twenty billion dollars. Coca Cola, Fanta, and Sprite are among the organizations top sparkling beverages; however, in addition to sparkling and still beverages the firm also markets water, fruit juice, energy drinks and instant tea and coffee. The organization takes pride in possessing the world’s number one beverage distribution system, and as a result over 1.9 billion servings of the firms beverages are consumed daily, in over two hundred countries across the world. (“Coca Cola at a glance”, n.d.)
Since 1889 the organization has established a franchise distribution system, where The Coca Cola company only sells their syrup concentrate to over 250 of their bottling partners located across the globe. The Coca Cola company does not manage all of their bottling partners, and they do not operate as a single unit from a legal or managerial standpoint. Therefore basically The Coca Cola company owns the brand, is responsible for brand marketing, and manufactures, and sell syrups, beverage bases, and concentrates to their bottlers, where as the bottling partners “manufacture, package, merchandise and distribute the final branded beverages to customers and vending partners, who then sell the products to consumers.” (“The Coca Cola system”, n.d.)
As of today the acting CEO and chairman of The Coca Cola company is Muhtar Kent, who is ardent to significantly contribute towards the firms sustainable growth via the employment of tactical strategies catering to their long term goals. Furthermore, the multinational audit firm Earnest and Young is responsible for acting as an independent auditor for The Coca Cola Company, they also assist in the formulation of the firm’s Annual report. In terms of their financial reporting practices, The Coca Cola Company complies with The Generally Accepted Accounting Principle (GAAP) in the United States of America. (“The Coca-Cola Company Reports First Quarter 2016 Results”, 2016)
Refer annexure A for a comparison of The Coca Cola companies’ income statement, for the financial years 2015 and 2014.
In simple terms this income statement presents the revenue generated by The Coca Cola Company, within the stated time frame, and the cost incurred to generate such revenue. In terms of the Net Operating Revenue, The Coca Cola company has experience a decline in revenue from the fiscal years 2014 to 2015 by 3.70 %. The Coca Cola company also experience a decline in its operating income, within the fiscal years year’s under review, by 10%.
The rationale for the decline in revenue is owing to decreased sales in North America, in the financial year 2015. Coke has experience a loss in the sale of sparking beverages, due to increased consumer awareness on the detrimental impact of consuming such synthetic carbonated beverages; therefore, customers are opting for healthier alternatives. The Chief Executive Officer of The Coca Cola Company, Muhtar Kent state that the year 2015 is a transition year owing to the “volatile macro economic environment”. Furthermore, Kent stated that the initiatives that the organization has instigated, to overcome the existing dilemma, will take time to materialize. (Reuters, 2015)
However, global escalated growth in still beverages along with ready to drink tea, packaged water, and value added dairy significantly contributed toward the organizations revenue. (“The Coca-Cola Company Reports Second Quarter 2015 Results”, 2015)
(Refer Annexure A : Income Statement)
The Balance sheet also referred to as the statement of Financial position, can be described as “a financial statement that summarizes a company’s assets, liabilities and shareholders’ equity at a specific point in time. These three balance sheet segments give investors an idea as to what the company owns and owes, as well as the amount invested by shareholders.” Therefore, the balance sheet gives one a “snapshot” of the business entities financial position.
Refer annexure B for The Coca Cola Companies balance sheet (“Balance Sheet”,n.d.)
The asset of an organization possesses a vital monetary significance. The total assets of the Coca Cola Company, which constitute of both fixed assets and current assets, have declined from 92.02B USD in 2014 to 90.09B USD in 2015.Therefore, within the year of 2015 the average total asset growth rate was -3.50% per year, opposed to the 0.3 % Total asset growth in the past three years. The total assets are also linked with the asset turnover ratio which is basically how quickly a company turns over its asset through sales, which was 0.49 in 2015, opposed to 0.51 in 2014.
(Refer Annexure B : Balance Sheet)
The Cash flow statement enables investors to comprehend how effectively the firm is managing its cash flow. The liquidity and solvency of the organization can also be determined by analysing the cash flow statement. According to Heakal, the cash flow statement “records the amounts of cash and cash equivalents entering and leaving a company. The CFS allows investors to understand how a company’s operations are running, where its money is coming from, and how it is being spent.” (Heakal, n.d.)
The cash in hand for the fiscal year 2015 7.37 billion USD, opposed to 7.12 billion USD in 2014. However, an increase of the firm’s cash in hand may not necessarily be an positive indicator. It is critical for the firm to have a healthy amount of cash in hand, but too much may indicate that the firm posses limited growth plans, hence we can say that there is an opportunity cost associated with the latter.
The Cash Flow from Operating Activities
The Coca Cola Company experience a decline in cash flow from operating activities by 0.82% in 2015 in comparison to the previous year. In the fiscal year 2015 the cash flow was 10.53 billion USD, opposed to 10.62 Billion USD in 2014. The operating cash flow is generated from primary business activities; hence, investors seek positive cash flow from operating activities.
The Cash Flow From Investing Activities
The cash flow from investing which in simple terms refers to the cash generated or spent on long term assets which the firm has purchased or sold. In the fiscal year the cash flow from investing stood at -6.19 Billion USD, opposed to -7.15 Billion in the previous year. However, these negative cash flows are not necessarily bad, as the firm may be spending money on investments which may pay off in the future, but if the firm is receiving the negative cash flow from poor investment decisions then clearly it’s not a positive indicator.
The Cash Flow from Financing Activities
Furthermore, the cash flow from financing activities is merely the cash that enters the company in the form of loans or interest earned or shareholders money, as well as the cash that exits. The Coca Cola Companies net cash spent on finance activities was -5.11 billion USD in the fiscal year 2015, opposed to -3.63 billion in the previous year. These figures are a result of the money utilized for the payment of loans, interest and dividend.
(Refer Annexure C : Cash Flow Statement)
As I mentioned in the beginning of this report The Coca Cola Company is experiencing a decline in revenue over the past few years owing to the change in consumer preference for artificially sweetened carbonated drinks, and consumers are shifting towards healthier alternatives. Over the past few years Coca Cola is failing to retain its 3-4% volume growth, the diagram below illustrates such a decline in global beverage volume over the years.
It is not merely The Coca Cola company which is experiencing this predicament, it is the entire soda industry, however emphasis is place on The Coca Cola Company as it’s the industry leader possessing the largest market share. If the Coca Cola Company does not initiate significant strategic plans to rectify this issue, we may see the gradual demise of this global giant in this mature market.
Mark Ritson, the associate professor of marketing and branding at the Melbourne School of Business, state that the value of the cola market will plummet over the next two decades, and Coca Cola will no longer be the world’s most valued brand. However, the brand will always be the leader of the in this dying market; thus he stated that “It’s no good being a big fish in an ever smaller pond.” (O’Reilley, 2015)
However, Muhtar Kent, the CEO of The Coca Cola Company, stated that the fiscal year 2015 is a transitional year. Kent stated that the organization has initiated strategies to overcome the existing dilemma, but it would take time for results to materialize. One such strategic initiative the firm has employed is a USD 3 billion cost cutting plan, which aims to dispose marketing campaigns for individual brands such as diet Coke and Coke Zero. Kent aims to consolidate all the marketing under the master brand Coca Cola, by doing this the firm aims to shift the consumer focus and attention away from the firms unhealthier products, and stress upon their healthier product portfolio. In early 2015 The Coca Cola company launched a premium milk termed Fair life in the united states, and “Coca-Cola paid $2.15 billion for a 16.7% stake in Monster Energy to help expand its reach in the energy drinks market”, all of these are initiatives for Coca Cola to diversify, and cater to the growing health conscious consumer base . (O’Reilley, 2015)
2.1 The role of information systems in an organization, and how information and information systems could result in performance improvement in the organization.
In technical terms Information systems can be defined as “an collection of multiple pieces of equipment involved in the dissemination of information. Hardware, software, computer system connections and information, information system users, and the system’s housing are all part of an IS.” (“Information Systems,”n.d.)
In simple terms, Information systems refers to a software that aids one to analyse and organize data. Data refers to raw unorganized facts, values and figures; Whereas, information refers to data which has been systematically organized to assist in problem solving. Therefore, an Information serves to transform raw data into useful information, that assists in organizational decision making, and problem solving. (Zandbergen,n.d.)
Today Information Systems play a significant role in numerous organizations, as it enables the firm to compete in the market by managing business activities and aiding decision making. These information systems gather the raw data, and process it to cater to the requirement. (Davoren, n.d.)
Information systems possess three elements which are significantly contribute towards the efficiency and effectiveness of an organization, regardless of its industry of operation. These three elements are; Communication, Operations, Decisions and Records;
Information systems have the capacity to vastly contribute towards efficient management, as it plays a significant role in contributing towards efficient communication, enabling employees to collaborate in a systematic manner. This system can enable managers to communicate swiftly, by gathering and distributing information efficiently. For instance, managers can employ information systems to systematically store documents in folders, which can be shared other employees within the firm who require the said information. “Each employee can communicate additional information by making changes that the system tracks. The manager collects the inputs and sends the newly revised document to his target audience.” (Markgraf,n.d.)
The management of an organizations operations are primarily determined by the availability of information. Information systems contribute towards organizational efficiency, by providing recent and complete information. For instance, information systems will enable organizations to review sales data, and gain an insight regarding customer buying patterns, enabling the firm to stock products accordingly. Thus, information systems can be employed to either gain a cost advantage or aid in product differentiation. Furthermore, information systems will assist organization in streamlining their operations. (Markgraf,n.d.)
Information systems can greatly assist organizations in decision making practices by delivering a vast array of required information, and sculpting the results of the decision made intern. “A decision encompasses choosing a course of action from several alternatives and carrying out the corresponding tasks. When you have accurate, up-to-date information, you can make the choice with confidence.” Furthermore, information systems can be employed to analyse varied scenarios, if more than one choice seems to be appealing. For each possibility, the system can calculate key indicators such as sales, costs and profits to help you determine which alternative gives the most beneficial result. (Markgraf,n.d.)
Information systems significantly assist organizations, in terms of recording, by storing documents, revision histories, communication record and operational data. These records are critical for financial and regulatory purposes and when determining the root of problems to derive corrective action. Essentially, the information system processes, and present historical data in a useful systematic manner. For example, such information can be employed to construct cost estimates and forecasts and to analyse how actions affected the key company indicators. (Markgraf,n.d.)
There are varied types of Information systems that an organization can employ. Some of these information system are; Transaction Processing Systems, Customer Relationship Management systems, Business Intelligence Systems, and Knowledge Management Systems are among them.
Transaction Processing Systems (TPS)
The Transaction Processing Systems caters to enhancing the central business operations by facilitating data collection, storage, processing and outputting operations. The TPS system generates an output based on the information gather from the initial user input. An ideal example, of the manner in which the TPS system is employed in organizations, is the novel online Air ticket booking technique. In this scenario, the input involves the flight schedule and seat opted for by the customer. The IS processing involves presenting the available seats to the customer, based on the constant updating of the list by eliminating those selected previously by customers. Lastly, the output consists of the bill and ticket copy generated by the system .TPS Information systems enable organizations to meet escalating consumer demands, without the need to employ extra staff. This information system can either operate in real time or batch processing. (Davoren, n.d.)
Customer Relationship Management Systems (CRM)
Customer Relationship Management Systems, gather and track sales activities, which encompass, purchasing trends, product defects and customer quarries. These features enable organizations to employ this information system to synchronize sales and marketing initiatives. Furthermore, the CRM system enables customers to interact with organization, and communicate information regarding service and product feedback, and problem resolutions. In addition, CRM information systems also enable business partners to interact with one and other, and share ideas. Thus, it is typical for this system to work as an element of a firm’s collaboration scheme. (Davoren, n.d.)
Business Intelligence Systems (BIS)
This information system assists organizations in various operation, but particularly for decision making, as it has the capacity to identify, extract and analyse data. Business Intelligence systems have the potential to provide vital analyses such as future sales patterns, and forecast sales revenue. They do this by gathering data , from data warehouses, and process the said data to generate such analyses in accordance with business or management requirements. “For example, financial institutions use BIS systems to develop credit risk models that analyze the number and extent of lending or credit given to various sectors. These systems may use various techniques and formulas to determine the probability of loan defaults.” (Davoren, n.d.)
Knowledge Management Systems (KMS)
Knowledge Management Systems enables organizations to enhance innovation, and performance, bring integration, and retain knowledge. The KMS facilitates such possibilities by organizing and analysing data, and distributing this information within the firm. Such knowledge harvesting enables the organization to employ the KMS system as “a central repository and retain information in a standard format. These systems can help business owners maintain consistency and enable speedy responses to customer and partner inquiries.”
“The purpose of an accounting information system (AIS) is to collect, store, and process financial and accounting data and produce informational reports that managers or other interested parties can use to make business decisions.” (Wiley, 2013)
On the other hand, “Management information system, or MIS, broadly refers to a computer-based system that provides managers with the tools to organize, evaluate and efficiently manage departments within an organization.” (Beal, n.d.)
The employment of Information systems have revolutionized the Airline industries, the industry was able to significantly enhance its effectiveness and efficiency by employing the latter. One such organization, which has reaped the benefits of employing Management Information systems and Accounting information systems, to enhance performance and productivity is ,India’s leading Airline company, Jet Airways.
Jet Airways operates over 300 hundred flights per day, to over sixty eight destinations globally. The organization posses a 21.2% passenger market share, and is the second largest airline company in India. The organizations revenue for the year 2015 was over 216.6 billion Indian Rupees, and the firm employs over 13,000 employees. In order for a colossal organization, such as Jet Airways to operated efficiently, they have adopted innovative Management and Accounting Information Systems. (Jet Airways, n.d.)
Jet Airways employ management information systems to enhance efficiency, speed, safety and comfort. One such management information system which the firm has employed is Kiosk check in. Kiosk check in refers to self service mechanism, where a computerized system has replaced customer service representatives, and one can independently print their e-tickets when they arrive at the air port. This enables customers to avoid standing in tiresome queues at ticket counters. Further, Kiosk check in enables Jet customers to print their boarding pass, with simply a touch of a button, and customer also have the ease of selecting their seat via the real time seat map displayed on the screen. Employing such a Management Information system enables Jet Airways to drastically escalate the speed of customer processing, enhanced customer service, reduced staffing cost, and assists in congestion management within peak hours. By adopting this information system Jet Airways is able to optimizing revenues while maximizing customer relationships. (“5 Management Information System In Jet Airlines Commerce Essay”, 2013)
Jet aways employs management information systems for a number of other processes, such as “employee transition, data centre operations, helpdesk support and storage operations, internet security services, network management, SAP and various other operating systems.”
Another management Information System employed by Jet Airways, is EPSILON email solutions. This IS is employed to enhance Customer Relationship Management (CRM). The EPSILON email platform enables Jet Airways to gather a precise view of its customers. such an overview allows the airways to design solutions for targeted customers which also increase its brand equity and nurtures great profits with loyalty. This platform speeds up email delivery, and possesses a tracking and reporting feature. “It also allows Jet Airways to monitor and track the position and status of specific email communication all the way from booking to enquiry transaction. This allows the airline to improve its profile and transaction behaviour data to ultimately achieve one-to-one relationship with its customers.” (“5 Management Information System In Jet Airlines Commerce Essay”, 2013)
The diagram below illustrates the manner in which Jet Airways employs Management Information Systems;
Source : http://www.prenhall.com
Jet Airways employs Accounting Information Systems that “keep track of the airlines financial data and the funds which flow in and out of the airlines. Jet airways is using a revenue accounting system for passenger transactions which has been founded on the years of expertise and studying of the various parameters which are to be included in the system. The Airlines Financial Management system which is being used by Jet Airways is from Kale Industry solutions. The software which is used is also provided by Kale.” The financial system employed by Jet Airlines comprise of 4 elements which are; Dashboard, DOC Audit, Finesse MBS and FPS. (“Finance And Accounting Information System”,n.d.)
The KALE Accounting Information system enables the organization to enhance productivity, and profits, and the software solution also facilitates detailed analysis of raw data. The KALE accounting system replaced old, timely manual accounting practices with automated systems. The accounting department at Jet Airways is responsible for monitoring the airline expenses with regard to various activities, ranging from fuelling to entertainment. Previously Jet airways had to manually enter expense data using spreadsheets, use calculators, and the debit and credit functions were entered manually. But now, the KALE information system analyses the raw data and generate an output in a fraction of the time. (“Finance And Accounting Information System”,n.d.)
Furthermore, The financial department of Jet Airlines is responsible for gathering data from various airports, and analysing it to generate financial reports. For instance, The total expense budget had to be calculated manually which is time and manpower consuming. However, with the implementation of Accounting Information Systems, such reports can be generated in a fraction of the time. (“Finance And Accounting Information System”,n.d.)
It is cumbersome and time consuming to manually manage the information, of a colossal multinational such as Jet Airways. Thus, it is critical for the firm to automate all accounting and management practices if they are to enhance effectiveness and efficiency. Adopting Accounting and Management information systems enabled the organization to conserve time and money, and also enhance revenue, and customer service.
Annexure A- Income Statement
Coca-Cola Co., Consolidated Income Statement
USD $ in millions
Source: Coca-Cola Co., Annual Reports
Annexure B – Income Statement
Source : http://www.nasdaq.com
Annexure C – The Cash Flow Statement of The Coca Cola Company
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