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Financial Management

Most of the contemporary studies indicate that most investors are strongly demanding shareholder value today, compared to the previous years. For instance, during the 1980s, the shareholder activism within the companies in the United States reached unforeseen levels (Bacidore et al. 1997). From then on, the investors in other nations, for instance, in Europe, heightened pressure on their organizations to take the entire pro of the shareholder value. The financial theory highlights that the ultimate aim of any company, whether small or large, is to maximize its shareholder’s wealth. However, this is likely to happen considering the fact that the shareholders are the real owners of the company, and thus, expect to gain a long-term yield on their investment ((Bacidore et al. 1997). It is important to bear in mind that the long lasting viability of a firm is under the ability to sustain its competitive advantage. Nonetheless, a competitive advantage comes as a result of the development of new products and services, which will delight and satisfy the target customers, through developing and restructuring business processes to reduce costs and improve quality, also regarded as adding value. This paper will consider the Coca Cola Company as the case study,  and discuss the value adding techniques applied by this organization with regard to finance, considering its impact on business in general.


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Financial jargons

Shareholder value- this is defined as the value offered to the shareholder’s due to the management’s ability to expand earnings, share price and dividends. In other words, this can be defined as the total amount of all the strategic decisions affecting the ability of the firm to increase free cash flow efficiently.

Profit margins-this is the ratio of profitability, and is calculated by dividing the company’s net profits by the sales.

Price-Trade-Off-this is also referred to as opportunity cost in the filed of economics, and refers to the sacrifice that has to be made in order to acquire a certain product.

Stock market value-this refers to the value of an index or stock and can be calculatedby market value or market capitalization.

Company Overview

Since its establishment in 1886, the Coca-Cola Company has developed to become one of the most renowned trademarks in history. With its operations in more than 195 countries globally, the Coca-Cola is ranked as the best and most popular beverage worldwide and as studies show, it is consumed by more than 773 million times on a daily basis (The Coca-Cola Company, 2006). In addition, the Coca-Cola Company is the leading producer, distributor, and marketer of the non-alcoholic beverage syrups and concentrates, having its headquarters situated in Atlanta, Georgia. It is worth noting that the Coca-Cola Company has always been a dynamic company, aiming at meeting both the present and future needs of its consumers and customers. The company has a mission to maximize its shareowner value at the end, which means that the company intends to create value for all its constituents, which include its customers, the consumers, and its bottlers, along with the communities that the company serves. One notable aspect about this company is the fact that it has taken a global approach by making entry to various countries, but insists on manufacturing standardized products locally. The company has thus changed its strategy from the local manufacturing and global marketing to the local manufacturing and local marketing.

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Value Adding Techniques Applied By the Coca-Cola Company

The Coca Cola’s main mission is to maximize the shareowner value in due course (The Coca-Cola Company, 2006).  However, it is worth noting that the company seeks to create value by implementing a comprehensive business strategy that is under six important beliefs. It is very vital to analyze these six in order to come up with a clear understanding of how this company intends to fulfill its mission of maximizing the shareowner value.

Understanding Consumer Demand

The Coca-Cola Company highlights that the bottom line of its operations is under consumer demand (The Coca-Cola Company, 2006).  It is indeed from the consumer demand that the company drives everything that it does.  The company values its customers and it has the main ambition of becoming a preferred business partner within the global context. All customers are important, whether they are restaurants, family stores, discount chains, super and hypermarkets, or even the individual buyers. The company always strives to help their customers to emerge successful considering the fact that the contemporary world of business is competitive, and thus offers training programs about key areas in the retail marketing. The company recognizes the fact that most of the contemporary traditional retail outlets represent untapped potential attributable to lack of experience, or no access to reliable information on marketing with regard to the changing shopping preferences and consumer trends, and merchandise groups. For instance, in November 2010, Coca-Cola published its foremost issue of a magazine, Common Business, which was entirely dedicated to its customers (The Coca-Cola Company, 2006). The company highlights that through this magazine, it seeks to establish a closer relationship with its customers by helping them find the underlying cause of their problems, but also rejoice for their daily success through increased profitability. The Coca-Cola recognizes the fact that this will also enable them to identify their customer needs, and will thus be able to succeed together (The Coca-Cola Company, 2006). In addition, the company also runs other educational programs, for instance, the store wisely program that is aimed at educating its wholesalers and retailers, along with the employees, with regard to good display and storage practices, as this will generate tangible benefits, not only to the manufacturers of these products, but also to the consumers. According to the company, it creates additional value to the customers through predicting their interests and demands, and through delivering viable solutions to their business-related problems (The Coca-Cola Company, 2006). While creating value for customers is beneficial to customers, the company also benefits by creating and maintain good and close relationships with their customers, which help in creating customer loyalty. Furthermore, by working together, the Coca-Cola Company intends to expand the overall profits from the products it sells, with the aim of generating strong returns for all the involved parties.

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The Coca-Cola Brand

The Coca-Cola brand is the core of the company’s business. Indeed, the Coca-Cola brand is generally the most valuable brand in the world (The Coca-Cola Company, 2006). A Brand-Price-Trade-Off, a market research approach applied to assess the comparative value of the brand, once highlighted that the Coca-Cola brand stands for a decent thing that has been manufacturing and carefully enhanced over the years. This indeed has enabled the company to acquire customer loyalty, as the company is well known for manufacturing high quality products. However, it is worth noting that in a market where the products appears similar, branding will carry a significant weight, particularly with regard to the amount of price, the customers are willing to pay for these products. Therefore, a brand has the ability to add value to the product or service by allowing that product or service to attract a higher price or market share in the market compared to the other products that are not under the brand. Some of the market studies have indeed highlighted a correlation between the company’s brands to the shareholder value. One such study highlighted that when you add it all together, brands account for over 33 percent of the shareholder value.  In addition, it is important to bear in mind that brands create value either as consumer brands or as corporate brands, or still in other cases, as a combination of both.  The Coca-Cola brand alone is estimated to account for approximately 51 percent of the company’s stock market value. However, this does not take into consideration of the fact that this company owns a significant assortment of other drinks brands like Fanta and Sprite (The Coca-Cola Company, 2006). This is one aspect that has enabled Coca-Cola to perform better in the market compared to other companies producing similar products.

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Deals in a Broad Selection of Beverages

The Coca-Cola Company serves consumers with a broad selection of beverages that they would prefer to drink at any time of the day. It is worth noting, that all of these beverages are the non-alcoholic ready-to-drink beverages. The company recognizes the fact that consumers have diverse experiences that are under their personal location and preferences. The company, therefore, adjusts its production approach in order to tap these discrepancies, and thus offer beverages that will help it to connect with its consumers. Basically, value is created by providing consumers with the type of beverages that would match their preferences. While this approach is beneficial to the consumers, based on the fact that their expectations are fulfilled, the company also benefits in the sense that marketing these beverages is easier. It also reduces wastage (Skyrme, 1990).

Thinking and Acting Locally

Business analysts highlight that one of the greatest strengths of the Coca-Cola Company is its ability to conduct business operations on a global scale, while maintaining a local approach (Madden et al. 2002).  Through contracts with the company or its local subsidiaries, some of the local businesses are allowed to bottle and retail in the company’s products within the specified territorial boundaries, provided uniformity and highest quality standards are maintained (The Coca-Cola Company, 2006). Most of the bottling plants owners are locally run by independent business individuals. In addition, most of the supplies often come from the local sources, thus generating more supply industries from within, along with new employment opportunities for the local people. This approach intends to help the company differentiate its products through a more specific approach, to enable it meet the different needs as well as desires of its consumers, together with enhancing the understanding of the specific market situation of the country it serves. This indeed helps in boosting the company’s profits, along with the market share, while at the same time, helping the local communities through the employment opportunities.

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Effective Marketing Strategies

The Coca-Cola Company seeks to be the best marketer in the world (The Coca-Cola Company, 2006). This is because the company provides its consumers with beverages that fit their different lifestyles and preferences. Basically, the company has set up other subsidiary plants across several countries. One of the major reasons as to why this company is maintaining a business strategy of the local manufacturing and local marketing is for it to be able to understand the diverse market situation, so that the products manufactured meet the expectations of the specific area.  Furthermore, the company produces more products that are soled together with the core brands. Frisco, for instance, is a product line that is produced in Lithuania, together with Kvass. One thing that makes Frisco more competitive in the Lithuania market is because it is cheaper compared to Coca-Cola. The concept of added value in marketing thus implies that the customers gain some additional benefits without necessarily having to pay for such benefits. This can also assist in differentiating products from the rest that are available in the market. As market analysts highlight, this indeed makes it difficult to make price comparisons, especially for the prospective customers, hence increasing the profit margins (Copeland & Weston, 1992).  The manner in which the company packages and presents its products is also attractive to the customers thus, it is perceived to be of great value. The effective marketing strategies the company employs enables it increase its annual sales. For instance, looking at the company’s financial performance from 2008, it is apparent that the company has been increasing its annual income, as illustrated in the table below.

Income Statement
  All numbers in thousands
Period Ending Dec 31, 2010 Dec 31, 2009 Dec 31, 2008
Total Revenue 35,119,000   30,990,000   31,944,000  
Cost of Revenue 12,693,000   11,088,000   11,374,000  
Gross Profit 22,426,000   19,902,000   20,570,000  
  Operating Expenses
  Research Development -   -   -  
  Selling General and Administrative 13,977,000   11,671,000   11,774,000  
  Non Recurring -   -   350,000  
  Others -   -   -  
  Total Operating Expenses -   -   -    
Operating Income or Loss 8,449,000   8,231,000   8,446,000    
  Income from Continuing Operations  
  Total Other Income/Expenses Net 5,502,000   289,000   305,000    
  Earnings Before Interest And Taxes 14,976,000   9,301,000   7,877,000    
  Interest Expense 733,000   355,000   438,000    
  Income Before Tax 14,243,000   8,946,000   7,439,000    
  Income Tax Expense 2,384,000   2,040,000   1,632,000    
  Minority Interest (50,000) (82,000) -    
  Net Income From Continuing Ops 12,834,000   7,605,000   5,807,000    
  Non-recurring Events  
  Discontinued Operations -   -   -    
  Extraordinary Items -   -   -    
  Effect Of Accounting Changes -   -   -    
  Other Items -   -   -    
Net Income 11,809,000   6,824,000   5,807,000    
Preferred Stock And Other Adjustments -   -   -    
Net Income Applicable To Common Shares 11,809,000   6,824,000   5,807,000    

The Coca-Cola Company realizes the importance of communicating its values and expectations to its suppliers and customers. This seeks to emphasize the significance of maintaining responsible workplace and environment practices and policies. Furthermore, all the suppliers are often trained on the need to ensure good practices are promoted. Not only is the company concerned with attaining profitability, but also is concerned about the communities being served. This is the reason as to why the Coca-Cola intends to emerge as the leader in corporate citizen. For instance, it provides valuable information to its customers, who are particularly the small business units on effective marketing strategies that aim at ensuring their profitability. The company also offers information on how to display and store the products to ensure their quality standards, along with other nutritional trainings. Apart from the trainings, the company is also concerned with the provision of employment opportunities to the communities. Considering the fact that local manufacturing and local marketing is the business strategy that is being applied by the company, implying that the establishment of the local plants generates the employment opportunities for the surrounding communities. It also sponsors other activities and events such as sports. It is, therefore, through such practices that the Coca-Cola Company seeks to ensure it emerges the leader in corporate citizen.

It is apparent that most of the contemporary businesses are demanding to maximize the shareowner value. Looking at the case of the Coca-Cola Company, the company has the main mission to maximize the shareowner value over time. The company has, therefore, executed six key business strategies that aim at creating value. These include understanding its consumer demands, strengthening its brand, providing a wide selection of beverages to its customers, thinking and acting locally, becoming the lead as a model corporate citizen, and becoming the lead marketer in the world. The company considers these beliefs as important in attaining its mission of maximizing the company’s shareowner value.



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