Description
Please reply to classmates . Each reply must include at least one APA reference
Reply 1
The SEC requires that cash flow statements are required to be a part of the financial statements that all publicly traded companies must provide. The primary purpose of a cash flow statement is, to sum up, the cash receipts and payments within a company for a specific time period (SEC.gov 2022). The operating cash flow at the end of the fiscal year 2021 was 12,625,000, compared to 9,844,000, at the end of the fiscal year 2020 (Yahoo finance 2022). Appendix a show the fiscal year 2021 cash flow statement for review. The 2021 cash flow statement shows that there is more than enough capital set aside to pay all creditors.
Coca cola’s total revenue is up from the previous four years as well as their gross profits. At the end of the fiscal year 2021, Coca Cola total revenue was 38,655,000, up from 33,014,000 at the end of the fiscal year 2020 (Yahoo Finance 2022). Coca-Cola’s gross profit at the end of the fiscal year 2021 was 24,183,000 compared to 23,298,000 at the end of the fiscal year 2020 (Yahoo finance 2022). Coca-Cola did quite well during the pandemic despite most companies having ill effects from it. The performance of recoverability and impairment test of current and non-current assets involved critical accounting estimates. These estimates require significant management judgment including inherent uncertainties and are often interdependent. Factors that management must estimate include the economic lives of the assets, sales volume, pricing, royalty rates, cost of raw materials, delivery costs, the impact of any supply chain distribution disruptions, inflation, long-term growth rates, cost of capital, marketing spending, foreign currency exchange rates, a tax rates, capital spending, proceeds from the sale of assets and customers financial conditions (SEC.gov 2022). Because of all these factors, Coca-Cola’s accounting estimates may change from period to period. However, even with all these uncertainties, Coca-Cola expects to see continued improvements in its business.
Over the years Coca Cola has bought back some of its own stock and its cash flow strength shows that Coca-Cola will continue to increase in the future (Yahoo Finance 2022). In 2019 Coca Cola authorized the repurchase of 150 billion shares of stock in the Coca-Cola company (Coca-Cola 2022). Coca cola’s global unit case volume grew by 8% in the last quarter, its net revenues grew by 16% and its organic revenues grew by 18%. Their operating income grew by 25% and their operating margin was 32.5%, which had gone up since the previous year. Their EPS grew 23% to 64 cents (Coca-cola 2022). In addition to Yahoo finance and the SEC website Coca Cola also offers all of these documents on their company website that date back several years.
Yahoo! (2022, June 22). The Coca-Cola Company (KO) stock price, news, Quote & History. Yahoo! Finance. Retrieved December 5, 2022, from https://finance..com/quote/KO?p=KO
What we do. SEC Emblem. (2020, February 19). Retrieved December 5, 2022, from https://www.sec.gov/about/what-we-do
Reply 2
SEC (2007) claimed that the four key annual financial reporting areas, published by publicly traded firms in the United States, are used as an indicator of a firm’s overall financial health. A balance sheet, income statement, cash flow statement, and shareholders’ equity statement are used by firms to inform and attract current and potential investors, business partners, and customers (SEC, 2007). According to the Netflix cash flow statement, the company had a net cash income in 2021 of $5,116,228 and reported $44,584,663 in total shareholder equity (Netflix, Inc., 2022, p. 42). Netflix ended 2021 with nearly five million in revenue over prior year and a roughly five dollars increase in earnings per share because of the additional 26.3 million paid memberships (Netflix, Inc., 2022, p. 39). The consolidated cash flow statement submitted in 2022 revealed significant fluctuation in net cash provided by operating activities between 2021 and 2019. In 2019, Netflix had $(2,887,322) net cash from operating activities, in 2020 it was $2,427,077, and in 2021 declined to $392,610 (Netflix, Inc., 2022, p. 41). The shift in net cash provided by operating activities is a result of changes in revenue and costs (Brigham & Ehrhardt, 2020). The total assets on the consolidated balance sheet indicated a roughly $5 million increase in 2021 over previous year, while total liabilities remained nearly unchanged within the same time frame (Netflix, Inc., 2022, p. 42).
A variety of ratios serve as helpful information when reviewing potential investments. Brigham and Ehrhardt (2020) proposed that financial ratios use numeric information from financial statements to provide a level of insight into a company not found by simply reviewing financial statements. Ratios are used to complete a quantitative analysis that aids in assessing a company’s valuation, liquidity, projected growth, and rate of return, along with other essential factors to understand before entering a financial partnership with a company. The debt to asset ratio is used to determine the level in which a company can raise funds from new debt (Brigham & Ehrhardt, 2020). Netflix had a debt to asset ratio between .3 and .4 from 2019-2021 meaning that the company carries more assets than liabilities. Having a debt to asset ratio higher than 1 indicates a risky investment (Brigham & Ehrhardt, 2020). Netflix had the ability to raise funds from new debt based on the analysis using the debt to asset ratio and would be considered a low-risk investment. The return on assets ratio is a profitability indicator that aids in the determination of how a company generates earnings (Brigham & Ehrhardt, 2020). Netflix experienced a dip in 2019 at 4.95% but experienced large increases in the following two years reaching 12.39% in 2021(Macrotrends, 2022a). Brigham and Ehrhardt (2020) stated that a return on assets rate of 5% or higher is considered favorable. The cash return on assets ratio is used as a comparison within industries. This ratio is used to determine how a company performs, in terms of net income per one dollar of assets (Brigham & Ehrhardt, 2020). Netflix had a .08% cash return on assets in 2021 indicating that the company had inefficiencies. The return on equity ratio is used to evaluate how well a company is utilizing money that shareholders have invested (Brigham & Ehrhardt, 2020). Netflix had maintained a return on equity of over 20% over the past five years (Macrotrends, 2022b) indicating that the company managed capital from shareholder investments very well.
Three of the four ratios reviewed above indicate good overall financial performance by Netflix within a five-year time frame. Ratios that meet or exceed standards provide valuable information used by investors to evaluate investment opportunities (Brigham & Ehrhardt, 2020). An area of opportunity that may also turn potential investors away is the low cash return on assets. The low rate indicated inefficiencies and the company’s inability to earn net income on assets. This could be a result of the change in focus from memberships to content. Money has to be spent to create content and considering the industry, content is an asset, but the company could be spending more money on content than it will earn in return.
References
Brigham, E.F. & Ehrhardt, M.C. (2020). Financial Management: Theory and Practice (16th ed.). Mason, OH: Southwestern, Cengage Learning.
Macrotrends. (2022, October 1a). Netflix ROA 2010-2022 | NFLX. https://www.macrotrends.net/stocks/charts/NFLX/netflix/roa
Macrotrends. (2022, October 1b). Netflix ROE 2010-2022 | NFLX. https://www.macrotrends.net/stocks/charts/NFLX/net…
Netflix, Inc. (2022, June 2). Netflix 10-K for the fiscal year end December 31, 2021 Annual reports and proxies. Netflix Investors. https://ir.netflix.net/financials/annual-reports-and-proxies/default.aspx
U.S. Securities and Exchange Commission. (2007, February 5). Beginners’ guide to financial statements. Investor Publications. https://www.sec.gov/
