The Coca-Cola Company (NYSE: KO) is the world's largest soft drink company with a market capitalization of $184.57 billion as of Feb. 5, 2016. In February 2015, Coca-Cola sold 8.5 billion euros in bonds, which was the biggest sale issued by a U.S. company in history. The maturities of these notes ranged between two and 20 years. This massive notes sale is highly beneficial for a company such as Coca-Cola; it has a large presence in Europe, so it will allow the company to mitigate some currency risk.
In October 2015, Moody's assigned an Aa3 credit rating to Coca-Cola's notes maturing in two-, five- and 10-year tranches. This indicates that Coca-Cola's notes are high-quality and carry a low degree of credit risk in the long term. In the short term, Coca-Cola has a satisfactory ability to repay its debt obligations. The notes belonging to the two-, five- and 10-year tranches amount to nearly $4 billion. To further determine Coca-Cola's financial health and risk, analyses of some key debt ratios, such as the debt ratio, cash flow-to-debt ratio and debt-equity (D/E) ratio are necessary.
Coca-Cola's Debt Ratio
Based on its most recent quarterly financial statements, Coca-Cola had total assets of $93 billion, which is down from $96.31 billion during the fiscal period ending in September 2014. Coca-Cola had total liabilities of $66.96 billion for the fiscal quarter ending in September 2015, which was an increase from $62.89 billion from the same quarter during 2014. Coca-Cola had a debt ratio of 65.3% for the fiscal quarter ending in September 2014. For the fiscal quarter ending in September 2015, Coca-Cola had a debt ratio of 72%. This indicates that Coca-Cola has been dependent on leverage and may carry a moderate degree of risk, since the bulk of its assets are financed through debt.
Coca-Cola's Cash Flow-to-Debt Ratio
As of February 2016, Coca-Cola has not released its full-year 2015 financial statements. Based on Coca-Cola's 2014 cash flow statement, it had a total cash flow from operating activities of $10.62 billion for the fiscal period ending in December 2014. It had a total cash flow from operating activities of $10.54 billion for the fiscal period ending in December 2013. Coca-Cola reported total liabilities of $61.7 billion during the 2014 fiscal year and $56.88 billion during the 2013 fiscal year.
To calculate the cash flow-to-debt ratio, divide the total cash flow from operating activities by total liabilities. For the fiscal year ending in December 2014, Coca-Cola had a cash flow-to-debt ratio of 17.12%. Coca-Cola had a cash flow-to-debt ratio of 18.67% for the fiscal year ending in December 2013. Although Coca-Cola's cash flow-to-debt ratios in 2013 and 2014 may seem low at first glance, these levels are not extraordinary. Over the past five years, the company has an average annual cash flow-to-debt ratio of 19.61%. However, Coca-Cola's cash flow-to-debt ratio has been decreasing over the past five years, caused by the aggressive increase in its total liabilities and the slowed growth in its operating cash flows.
Coca-Cola's Debt-to-Equity Ratio
Coca-Cola reported total shareholders' equity of $26.05 billion for the fiscal quarter ending in September 2015. The company reported total shareholders' equity of $33.43 billion in the same quarter during the 2014 fiscal year. Therefore, Coca-Cola had a D/E ratio of 188% during the third quarter of 2014. During the third quarter of the 2015 fiscal year, it had a D/E ratio of 257%. This indicates that Coca-Cola has increased its leverage and has a weaker equity position during the third quarter compared to its figure during the same quarter in the previous year. Additionally, its high D/E ratio indicates that creditors have a larger portion of money than equity holders.