joe - final group - fm

8/3/2019 Joe - Final Group - Fm

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AN EXECUTIVE SUMMARY

This report is concentrating on the financial position of

THE COCA-COLA COMPANY, based in Atlanta,Georgia, USA First listed on the New York Stock

Exchange in 1986 (NYSE: CCE), our roots go back to the

birth of the Coca-Cola bottling business in the 19th

century.



THE COCATHE COCA--COLA COMPANY (KO)COLA COMPANY (KO)

The COCA-COLA COMPANY, the world

leading soft drinks maker, operates in more than 200

countries and sell 400 brands of non-alcoholic

beverages. COCA-COLA is also the most valuable

brand in the world. COCA-COLA is a globally

recognized successful company.



Continue«.Continue«.

CCE first expanded from its North American roots to Europe in 1993

with the purchase of bottling rights in the Netherlands. Our European

reach grew in the late 1990s with the addition of Belgium, France,

Great Britain, and Luxembourg.

In 2010, The Coca-Cola Company acquired our North American

operations, and today, we serve customers and consumers in Belgium,

Great Britain, France, Luxembourg, the Netherlands, Norway, and

Sweden.

In each nation and local community, we strive to be an outstanding

corporate citizen and work in partnership with our constituents at

every level.

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MissionMission

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Our vision target:

People

Portfolio

Partner Planet

Profit

Productivity

People

PortfolioPartners

Planer

Profit

Productivity



Major BrandsMajor Brands

Coca-Cola

Diet Coca-Cola

Sprite

Fanta

Barq's Root Beer

Glaceau Vitamin Water

Coke Zero

Dasani bottled water

Aquarius sports drinks

Nestea

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Packaging Details:

The Coca-Cola products are available in different packing

24 regular bottle shell

6 bottle pack for 1.5 pets12 bottles in a pack for disposable bottle

24 cans in one pack.

Principal Activities:

The three principal activities of the Coca-Cola business system whichcreate greenhouse gases are:-

1. Manufacturing plants

2. The distribution fleet

3. Cold drink equipment.

Packaging and Principal Activities



DERIVATIVESDERIVATIVES

Understanding the word itself, Derivatives is a key to mastery of the

topic. The word originates in mathematics and refers to a variable,

which has been derived from another variable. For example, a

measure of weight in pound could be derived from a measure of weight

in kilograms by multiplying by two.

In financial sense, these are contracts that derive their value from

some underlying asset. Without the underlying product and market it

would have no independent existence. Underlying asset can a Stock,

Bond, Currency, Index or a Commodity. Someone may take an

interest in the derivative products. Without having an interest in the

underlying product market, but the two are always related and maytherefore interact with each other.



CHARACTERISTICS OF DERIVATIVESCHARACTERISTICS OF DERIVATIVES

1. Their value is derived from an underlying

instrument such as stock index, currency,

etc.

2. They are vehicles for transferring risk.

3. They are leveraged instruments

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Some of the characteristics of derivativeSome of the characteristics of derivative

Zero Net Supply

Element of Futurity

Expiration of Derivative Contracts

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TYPES OF DERIVATIVESTYPES OF DERIVATIVES

Forwards:

A forward contract is a customized contract between two entities

where settlement takes place on a specific date in the futures at today¶s

pre-agreed price. Forward contracts offer tremendous flexibility to the

party¶s to design the contract in terms of the price, quantity, quality,delivery, time and place. Liquidity and default risk are very high.

Futures:

A futures contract is an agreement between two parties to buy or sell

an asset at a certain time in the future at a certain price. Futures

contracts are special types of forward contracts in the sense, that theformer are standardized exchange traded contracts.

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Options are two types - Calls and Puts. Calls give the buyer the right

but not the obligation to buy a given quantity of the underlying asset at

a given price on or before a given future date. Puts give the buyer the

right but not the obligation to sell a given quantity of the underlying

asset at a given price on or before a given date.

W arrants:

Longer ± dated options are called warrants and are generally tradedover ± the ± counter. Options generally have lives up to one year, the

majority of options traded on options exchanges having a maximum

maturity of nine months.

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Options:



L EAPS :

The acronym LEAPS means Long Term Equity

Anticipation Securities. These are options having a

maturity of up to three years.

Baskets:

Basket options are options on portfolios of underlying

assets. The underlying asset is usually a moving average of

a basket of assets. Equity index options are a form of basket options.

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S waps:

Swaps are private agreements between two parties to exchange cash

flows in the future according to a pre-arranged formula. They can be

regarded as portfolios of forward contracts. The two commonly used

swaps are: - I nterest rare swaps:

These entail swapping only the interest related cash flows between the

parties in the same currency.

C urrency swaps:

These entail swapping both the principal and interest between the

parties, with the cash flows in one direction being in a different

currency than those in opposite direction.

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Advantage of derivatives Advantage of derivatives

Flexibility:

Derivatives can be used with respect to commodity price, interest and

exchange rates and equity price. They can be used in many ways.

Risk Reduction:

Derivatives can protect your business from huge losses. In fact,

derivatives allow you to cut down on non-essential risks.

Stable Economy:

Derivatives have a stabilizing effect on the economy by reducing the

number of businesses that go under due to volatile market forces.

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Disadvantage of derivativesDisadvantage of derivatives

Credit Risk:

While derivatives cut down on the risks caused by a fluctuating

market, they increase credit risk. Even after minimizing the credit risk

through collateral, you still face some risk from credit protection

agencies. Crimes:

Derivatives have a high potential for misuse. They have been the

caused the downfall of many companies that used trade malpractices

and fraud.

Interest Rates:

Wrong forecasts can result in losses amounting to millions of dollars

for large companies; it can wipe out small businesses. You need to

accurately forecast the long term and short term interest rates,

something that many businesses cannot do.

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H ow derivatives traded in Singapore market H ow derivatives traded in Singapore market

Securities

- Turnover fell 21% year on year to $30 billion, in line with global

markets, due to economic and fiscal uncertainties. Securities daily

average value was $1.4 billion, down 25% from a year earlier.

Derivatives

- Total volume increased 33% year on year to 7.2 million contracts;

derivatives daily average volume was 349,378 contracts.

Commodities and Clearing

- SICOM rubber futures trading rose 62% year on year to 24,512contracts following the migration of the contracts onto the SGX

platform in May.

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Capital Asset Pricing ModelCAPM )

It is used to determine a theoretically appropriate

required rate of return of an assetif that asset is

to be added to an already well-diversified portfolio,

given that assets non-diversifiable risk.

Financial Assess: CAPM



Formula E (Ra) = Rf + (E (Rm) - Rf )

E (Ra) is the expected return on the capital asset

Rf is the risk-free interest rate

Beta Coefficient is the sensitivity of the expected excess asset returns to theexpected excess market returns.

E (Rm) is the expected return of the market

(the expected market rate of return is usually estimated by measuring

the Geometric Average of the historical returns on a market portfolio)




Risk free rate of interest 3.0%

Beta coefficient of KO: 0.55

We used SP&500 to estimate the expected return of market, itequals to 14%.




expected return on the capital asset:

E (Ra) = 3% + 0.55(14% -3%) = 9.6%

If the expected rate is higher than our

required rate, then it should be taken

If it is lower, then, it should be given up




Advantage:

divided all the securities risk into three pieces.

(Risk free rate of return, risk and price risk unit risk )

Usefulness.

It allows investor assess and select the financial assets based

on the absolute risk instead of overall risk




Limitations:

the model assumes the market is a perfect competition.

the model assumes investors have same investing time limit

and not take the later period of investment into consider.

the model assumes investors can get loan with an unlimited,stable and risk free rate.

the model assumes market is frictionless

the model assumes all the investor are rational




Discussion on result finding



SML

Security Market Line

SML says

about

the fair

value



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SML

Point A: with same Beta

Return is higher than SML

Expected return > Required return

Low price

Worth buying

Point B: with same Beta

Return is lower than SML

Expected return < Required return

High price

Not worth



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Result captured

E (Ra) = 3% + 0.55(14% -3% ) = 9.6%



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Discussion

To decide whether we take the investment,

we should focus on:

If the expected return is higher than

required rate, then it should be taken.

If the expected return is lower than requiredrate, then the investment should be given

up



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Discussion

Depends on the research, usually,

the CAPM value for othercompanies will be around 10%-

15%. As a result, Coca cola is not

good enough for investment.



ConclusionConclusion

Coke combination of people's taste and production of the

appropriate "derivatives."

From only focus on the business of Coca-Cola beverage

derivatives, Coca-Cola is innovative a variety of methods

of communication with consumers, which will help

increase consumer brand loyalty for Coca-Cola



Feasibility for the financial derivatives

market development

Risks and regulatory issues should not be

underestimated,in order to use credit

derivatives to better manage credit risk.

joe - final group - fm

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