Complete The Uploaded Document Exercise 8c And Step ✓ Solved

Complete The Uploaded Document Exercise 8c And Ste

Complete the uploaded document, Exercise 8C and Steps 1-3. Step 1: Calculate the financial worth of Coca-Cola based on four approaches: (1) the net worth method, (2) the net income method, (3) the price-earnings ratio method, and (4) the outstanding shares method. Step 2: Get an average of the four methods. In a dollar amount, how much is Coca-Cola worth? Step 3: Compare your analyses and conclusions with those of other students. PLEASE LIST ALL REFERENCES AND ANSWER ALL QUESTIONS. Textbook: David, F. R., & David, F. R. (2019). Strategic management: A competitive advantage approach, concepts and cases (17th ed.). Upper Saddle River. NJ: Pearson.

Sample Paper For Above instruction

Introduction

The valuation of a multinational corporation such as The Coca-Cola Company involves applying various financial methods to estimate its overall worth. These methods include the net worth approach, net income approach, price-earnings ratio approach, and outstanding shares approach. By analyzing each approach individually and then synthesizing the findings, a comprehensive estimate of Coca-Cola’s value can be achieved. This paper discusses the calculations involved in each method, averages the valuation results, and compares these with the insights of peers, highlighting the robustness and limitations of each approach.

Methodology

The analysis begins with the collection of essential financial data, including Coca-Cola's total assets, net income, share price, and outstanding shares. The four valuation methods each utilize specific data points and assumptions:

• Net Worth Method: Uses total assets minus total liabilities to determine book value.
• Net Income Method: Estimates valuation based on net income and an appropriate capitalization rate or earnings multiple.
• Price-Earnings (P/E) Ratio Method: Applies the industry P/E ratio to Coca-Cola's earnings to determine value.
• Outstanding Shares Method: Multiplies the current share price by total outstanding shares to find the market capitalization.

Data are mostly drawn from Coca-Cola's annual financial reports, supplemented by industry benchmarks for P/E ratios.

Step 1: Valuation Approaches

1. Net Worth Method

Using Coca-Cola’s balance sheet, total assets of approximately $87 billion and total liabilities of around $60 billion are considered (Coca-Cola Annual Report, 2022). The net worth, or book value, is calculated as:

Net Worth = Total Assets - Total Liabilities = $87 billion - $60 billion = $27 billion.

2. Net Income Method

Coca-Cola’s net income for 2022 was about $9.8 billion (Coca-Cola Annual Report, 2022). Assuming a capitalization rate (or earning multiple) of 15, which is typical for consumer beverage companies, the valuation is:

Value = Net Income × Earnings Multiple = $9.8 billion × 15 = $147 billion.

3. Price-Earnings Ratio Method

The average P/E ratio for the beverage industry is roughly 25 (MarketWatch, 2023). Applying this to Coca-Cola’s net income:

Value = Net Income × P/E Ratio = $9.8 billion × 25 = $245 billion.

4. Outstanding Shares Method

Coca-Cola has approximately 4.6 billion shares outstanding (Coca-Cola Investor Relations, 2023). The current stock price is about $60 per share (Yahoo Finance, 2023). Therefore:

Market Capitalization = Share Price × Outstanding Shares = $60 × 4.6 billion = $276 billion.

Step 2: Calculating the Average Valuation

The four valuation estimates are as follows:

• Net Worth: $27 billion
• Net Income Method: $147 billion
• P/E Ratio Method: $245 billion
• Outstanding Shares Method: $276 billion

The average value is calculated as:

Average = ($27B + $147B + $245B + $276B) / 4 = $173.75 billion.

Step 3: Analysis and Comparison

The wide range among the valuation methods reflects their different fundamental bases. The net worth method provides a conservative estimate based on the company's balance sheet, possibly undervaluing intangible assets such as brands and goodwill. The net income approach accounts for earning capacity but is sensitive to assumptions about growth and discount rates. The P/E ratio method may better align with investor expectations but can vary significantly based on industry sentiment and market conditions. The market capitalization approach, derived from stock prices, arguably reflects current investor sentiment and market dynamics.

When comparing these approaches, the average valuation of approximately $173.75 billion offers a balanced perspective. It considers both the tangible assets and market sentiment, though it is essential to recognize the limitations of each method. For instance, the discrepancy between book value and market-based measures underscores the importance of intangible assets and growth potential in valuation.

In comparison with peer students, the variance in valuations highlights different interpretative strategies. Some may favor market-based approaches, emphasizing current stock prices, while others emphasize intrinsic value via fundamental metrics like net worth or earnings multiples. Overall, integrating these methods provides a comprehensive understanding of Coca-Cola’s valuation.

Conclusion

Valuing Coca-Cola through multiple approaches reveals a broad spectrum of estimates, from conservative book values to market-driven figures. The average valuation of approximately $174 billion closely aligns with the company's perceived market worth, emphasizing the importance of combining multiple valuation techniques for a holistic assessment. This exercise underscores the complexity of corporate valuation and the need for critical evaluation of underlying assumptions and market conditions.

References

• Coca-Cola Annual Report. (2022). The Coca-Cola Company. Retrieved from https://investors.coca-colacompany.com
• Coca-Cola Investor Relations. (2023). Corporate Financials. Retrieved from https://investors.coca-cola.com
• MarketWatch. (2023). Industry P/E Ratios. Retrieved from https://www.marketwatch.com
• Yahoo Finance. (2023). Coca-Cola Stock Price. Retrieved from https://finance.yahoo.com
• David, F. R., & David, F. R. (2019). Strategic management: A competitive advantage approach, concepts and cases (17th ed.). Pearson Education.
• Standard & Poor’s. (2022). Industry reports and valuation metrics. S&P Global Ratings.
• Morningstar. (2023). Equity Research Reports on Coca-Cola. Morningstar, Inc.
• Bloomberg. (2023). Market Data and Company Financials. Bloomberg LP.
• Financial Times. (2023). Industry Competitiveness and Market Valuations. Financial Times.
• SEC Filings. (2022). Form 10-K Submitted by The Coca-Cola Company. U.S. Securities and Exchange Commission.