FIN 320 Final Project Milestone Two: Financial Ratio Comparison and Short-Term Financing Report (Coca-Cola Example)

FIN 320 Final Project Milestone Two: Financial Ratio Comparison and Short-Term Financing Report (Coca-Cola Example)

Using Mergent Market Atlas data for your chosen company, calculate key ratios for the most recent fiscal quarter and the same quarter one year ago in the Final Project Financial Formulas workbook, then write a board-friendly report for new directors with limited finance backgrounds. Address:

1. Financial calculations: working capital, current ratio, debt ratio, earnings per share, price/earnings ratio, total asset turnover, financial leverage, net profit margin, return on assets and return on equity.
2. Fiscal quarter comparison: summarize the differences between the two quarters.
3. Comparison analysis: is the business healthy or unhealthy and which results show it; what might cause its success or failure; what more information is needed?
4. Short-term financing: how short-term financing sources could help the business raise funds to improve its financial health, based on its current information.

Submit a 2–3 page Word document (12-point sans serif font, double spaced, 1-inch margins, APA citations), the Mergent balance sheet and income statement and the two ratio worksheets.

Original example for study purposes (about 730 words). Figures come from Coca-Cola’s Form 10-Q filings, which report the same numbers Mergent displays; download and attach the Mergent statements for your own company, as required. The September 2025 share price is a month-end close and is approximate.

To: Board of Directors, The Coca-Cola Company
From: [Student Name], Financial Analyst, Office of the CFO
Subject: Comparison of third-quarter 2026 and third-quarter 2025 financial health

Financial Calculations

The table compares key ratios for the third quarter of 2026 (three months ended October 2, 2026) with the third quarter of 2025 (three months ended September 26, 2025), using figures from Coca-Cola’s quarterly reports (The Coca-Cola Company, 2025, 2026). Dollar figures are in millions except per-share amounts. Because income figures cover one quarter, turnover and return ratios are quarterly, not annual.

Fiscal Quarter Comparison

Compared with a year ago, Coca-Cola’s short-term position strengthened noticeably. Working capital nearly doubled, from about $4.7 billion to $9.1 billion, and the current ratio rose from 1.21 to 1.38, meaning the company now has $1.38 in current assets for every $1 of bills due within a year. The debt ratio fell from 68.6% to 63.4%, so a smaller share of assets is financed by borrowing. Revenue grew about 7%, from $12.5 billion to $13.4 billion, and net income grew about 8%, from $3.7 billion to $4.0 billion, lifting diluted earnings per share from $0.86 to $0.93. Profitability per dollar of sales stayed very strong at about 30 cents, and return on assets improved slightly. Investors also valued the company more highly: the share price rose from about $66 to about $86, raising the price-to-earnings ratio. The one measure that declined was return on equity, which fell from 11.8% to 10.7% for the quarter.

Comparison Analysis

Is the business financially healthy? Yes. Several results point to strong health: rising sales and profits, a net profit margin near 30%, improving liquidity (higher working capital and current ratio) and less reliance on debt. A board member can think of it this way: the company is earning more, keeping a high share of each sales dollar as profit and has more cushion to pay its short-term bills than it did a year ago.

What explains the results? Likely causes include pricing and continued demand for Coca-Cola’s global brands, which raised revenue faster than costs. The lower debt ratio and financial leverage reflect lower long-term debt and higher shareholders’ equity, as retained profits added to equity. The decline in return on equity is not a sign of weakness; it occurred mainly because equity grew faster (about 20%) than profit (about 8%), so each dollar of equity earned slightly less. A company that uses less borrowed money naturally shows a somewhat lower return on equity.

Is more information needed? Yes. Quarterly results can be affected by timing and one-time items, so the board should also review the cash flow statement (especially operating cash flow and capital spending), full-year and trailing-twelve-month results, the maturity schedule of the company’s debt, currency effects on international sales and comparisons with competitors such as PepsiCo and industry averages. Any large one-time gains or charges in either quarter should be identified, because they could distort profit comparisons.

Short-Term Financing

Coca-Cola’s current financial position is strong, so short-term financing would not be needed to rescue the business; instead, it would give management flexibility. Three sources are most relevant. Commercial paper, short-term unsecured notes sold to investors, is inexpensive for highly rated companies such as Coca-Cola and can fund seasonal inventory, dividend payments or the repayment of maturing long-term debt without selling assets. Bank lines of credit provide a backup source of cash that can be drawn quickly if markets tighten or an unexpected expense arises. Trade credit, negotiating longer payment terms with suppliers, allows the company to keep more cash on hand. Because the current ratio is comfortably above 1.0 and the debt ratio is falling, any short-term borrowing should be used carefully so that it supports growth, such as marketing or acquisitions, without reversing the improvement in liquidity. In summary, the board can view Coca-Cola as financially healthy, with short-term financing serving as a tool for flexibility rather than a necessity.

References

The Coca-Cola Company. (2025). Form 10-Q for the quarterly period ended September 26, 2025. U.S. Securities and Exchange Commission. https://investors.coca-colacompany.com/filings-reports/all-sec-filings

The Coca-Cola Company. (2026). Form 10-Q for the quarterly period ended October 2, 2026. U.S. Securities and Exchange Commission. https://investors.coca-colacompany.com/filings-reports/all-sec-filings

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