FIN 456 CORPORATE RESEARCH PAPER

FIN 456 CORPORATE RESEARCH PAPER - FIN 456 ONYEMAECHI...

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ONYEMAECHI ODOEMELAM CORPORATE RESEARCH PAPER GENERAL The Coca-Cola Company is the world's leading owner and marketer of nonalcoholic beverage brands and the world's largest manufacturer, distributor and marketer of concentrates and syrups used to produce nonalcoholic beverages. The Company's operating structure is the basis for internal financial reporting. As of December 31, 2009, its operating structure included the following operating segments, the first six of which are sometimes referred to as "operating groups" or "groups": These include Asia, Africa, Europe, Latin America, North America, Pacific, Bottling Investments, and Corporate. RISK FACTORS Fluctuations in foreign currency exchange rates affect the company’s financial results through revenues and expenses. They earn revenues, pay expenses, own assets and incur liabilities in countries using currencies other than the U.S. dollar, including the euro, the Japanese yen, the Brazilian real and the Mexican peso. In 2009, it used 71 functional currencies in addition to the U.S. dollar and derived approximately 74 percent of net operating revenues from operations outside the United States. Because Coca Cola’s consolidated financial statements are presented in U.S. dollars, they must translate revenues, income and expenses, as well as assets and liabilities, into U.S. dollars at exchange rates in effect during or at the end of each reporting period. Therefore, increases or decreases in the value of the U.S. dollar against other major currencies affects their net operating revenues, operating income and the value of balance sheet items denominated in foreign currencies. In addition, unexpected and dramatic devaluations of currencies in developing or emerging markets, such as the recent devaluation of the Venezuelan bolivars, negatively affected the value of its earnings from, and of the assets located in, those markets. Because of the geographic diversity of the company’s operations, weaknesses in some currencies might be offset by strengths in others over time. They also use derivative financial instruments to further reduce or net out exposure to currency exchange rate fluctuations. However, the company cannot give any assurance that fluctuations in foreign currency exchange rates, particularly the strengthening of the U.S. dollar against major currencies or the currencies of large developing countries, would not materially affect their financial results. Also if, interest rates increases, their net income could be negatively affected. They therefore maintain levels of debt that may be considered prudent based on their cash flows, interest coverage ratio and percentage of debt to capital. They equally use debt financing to lower their cost of capital, which increases the corporation’s return on shareowners' equity. This exposes them to adverse changes in interest rates. When appropriate, they also use derivative financial instruments to reduce exposure to interest rate risks. However they cannot give
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This note was uploaded on 03/13/2010 for the course SBA 43212 taught by Professor Rogers during the Spring '10 term at Portland State.

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FIN 456 CORPORATE RESEARCH PAPER - FIN 456 ONYEMAECHI...

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