Homework Help for GCU ACC 502 Topic 8 DQ 2
COMMON SIZE ANALYSIS
Common-size ratios require the financial figures to be converted to a normalized form. The goal of this process is for all of the numbers in the set to have a standard comparative base. Common-size analysis allows managers and investors to compare companies with different size operations on an even playing field.
Using the financial statements specifically the statement of financial position as at 31st Dec 2021, we can do a common size analysis on the assets. Having a base of the total assets of the company, we can say that 24% of the total assets were contributed by the current assets. This means that total current assets contributed 24% of the total assets, (Amati 2019). In the same way, we can say that 66% of the total asset was contributed by non-current assets. This means that total non-current assets contributed 66% of the total asset.
We can conclude that Coca-Cola company is highly rely on their long-term assets. This shows that the company has a long investment horizon, and they are willing to reinvest in the business for longer term. Hence, they have high amount of non-current assets, (Monok, 2018). On the other hand, they also have high amount of total asset because of their large total asset base as well as their large capital expenditures. This shows that they have a high capital expenditure in order to expand their business.
We can use the analysis to compare companies within the same industry. Since Coca-Cola have high amount of total assets as well as high amount of non-current asset. Hence, it shows that they are focusing on long term investment and continuous expansion of their business through capital expenditure, (Soifer, 2016). This will make them to have higher level of equity relative to their total asset base which is a good indicator for a well funded and stable company.
The following is a common size analysis for Coca-Cola Balance and the Income statement
|CONSOLIDATED STATEMENTS OF INCOME – USD ($) shares in Millions, $ in Millions||12 Months Ended|
|Dec. 31, 2020||Dec. 31, 2019||Common Size analysis|
|Revenues||$ 33,014||$ 37,266||100%||100%|
|Cost of Goods and Services Sold||13,433||14,619||41%||39%|
|Selling, General and Administrative Expense||9,731||12,103||29%||32%|
|Other Cost and Expense, Operating||853||458||3%||1%|
|Equity income (loss) – net||978||1,049||3%||3%|
|Other income (loss) – net||841||34||3%||0%|
|INCOME BEFORE INCOME TAXES||9,749||10,786||30%||29%|
Common Size analysis on Income Statement
|CONSOLIDATED BALANCE SHEETS – USD ($) $ in Millions||Dec. 31, 2020||Dec. 31, 2019||Common Size analysis|
|Cash and cash equivalents||$ 6,795||$ 6,480||8%||8%|
|TOTAL CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS||8,566||7,947||10%||9%|
|Trade accounts receivable, less allowances of $526 and $524, respectively||3,144||3,971||4%||5%|
|Prepaid expenses and other assets||1,916||1,886||2%||2%|
|TOTAL CURRENT ASSETS||19,240||20,411|
|EQUITY METHOD INVESTMENTS||19,273||19,025||22%||22%|
|Deferred Income Tax Assets||2,460||2,412||3%||3%|
|PROPERTY, PLANT AND EQUIPMENT – net||10,777||10,838||12%||13%|
|TRADEMARKS WITH INDEFINITE LIVES||10,395||9,266||12%||11%|
|OTHER INTANGIBLE ASSETS||649||736||1%||1%|
|Accounts payable and accrued expenses||11,145||11,312||17%||17%|
|Notes and Loans Payable, Current||2,183||10,994||3%||17%|
|Current maturities of long-term debt||485||4,253||1%||7%|
|Accrued income taxes||788||414||1%||1%|
|TOTAL CURRENT LIABILITIES||14,601||26,973|
|Deferred Income Tax Liabilities||1,833||2,284||3%||3%|
Common Size Analysis Balance Sheet
Amati, J. (2019). Strategic performance analisys trough Financial Statement and Stock Market Data. The Coca-Cola case.
Monok, B., Montolalu, J., & Taroreh, H. S. (2018). Analisis Common Size Statement Pada PT. Asuransi Jiwasraya (Persero) Cabang Manado Kota. Jurnal Administrasi Bisnis (Jab), 6(003).
Soifer, I., Robert, L., & Amir, A. (2016). Single-cell analysis of growth in budding yeast and bacteria reveals a common size regulation strategy. Current Biology, 26(3), 356-361.