Financial Research Report

1 Financial Research Report Introduction The client is my 65-year-old aunt, whose career as a secretary and personal assistant spanned forty years. She retired with a savings of $500,000 that she withdrew on retirement from her 401(k) plan and a pension package that she got from her company of a similar amount. She lives with her husband in their family home, worth $900,000. Additionally, together with her husband, she owns rental property where they collect $40,000 per month. Currently, her savings and pension are all in a savings account as she tries to decide the best way to invest it. Her goals are to have a comfortable retirement where she will continue to maintain her lifestyle without exposing her assets to too much risk. She is, therefore, risk-averse. As such, it is crucial for me, as a financial manager to research the most suitable investment for an individual who has a relatively large sum of money to invest but has a diminished earning capacity. To ensure the safety of her money, it should be invested in stocks that guarantee low risk.

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2 Rationale for Choosing The Coca-Cola Company To protect her wealth, I will invest her money in one of the most stable stocks in the US stock market, Coca-Cola. With over 200 well-recognized brands worldwide and a long history of profitability, Coca-Cola is one of the most stable publicly listed companies in the US stock market (Siegel, 2014). It ranks as the fifth strongest brand in the world and is valued at approximately $60 billion. Even during periods of economic recession, the value of Coca-Cola’s stock only shrinks dismally, and it still issues dividends to its investors.

Stable and Consistent Growth For several decades, Coca-Cola has had consistent and robust growth. It derives its competitive advantage from having a wide range of brands under its umbrella, an effective marketing strategy and an unparalleled supply chain and distribution system. It is one of the most recognizable brands in the world. Coca-Cola has products for every market segment, from herbal teas and diet soda to those who are health conscious, to energy drinks, and also in carbonated soda. Additionally, Coca-Cola is renowned for its constant innovation and reinvention.

Therefore, its market share is projected to continue to rise steadily for many years (Smith, 2020).

These factors, when combined, make it a safe choice to invest one’s retirement.

Dividends For the last 58 years, Coca-Cola has offered its shareholders a steady dividend. The value of dividends has increased for each of these years. Currently, the shares of the company give a 3.6% yield, therefore, investing my aunt’s $1,000,000 in the company’s stocks will earn her $36,000 per year, and possibly even more if she chooses to grow her portfolio.

3 For over six decades, Coca-Cola’s revenues have continued to rise despite intense competition from a growing number of rival brands. For instance, in the three years between 2016 and 2019, the stock price has risen by almost 50% ("Stock Information", 2020).

Ratio Analysis (from 2019 financial statements) Liquidity Ratio Current Ratio = Current Assets / Current Liabilities = 20,411 / 26,973 = 0.75 ("Coca-Cola Income Statement 2005-2020 | KO", 2020) This shows that Coca Cola’s current liabilities exceed its current assets. This may affect its liquidity position.

Debt Ratio Debt Ratio = Total Liabilities / Total Assets = 65,283 / 86,381 = 0.76 ("Coca-Cola Income Statement 2005-2020 | KO", 2020) This ratio shows that the company has the ability to pay its debts.

Profitability Ratio Gross Profit Margin = Gross Profits / Sales = 22,467 / 37,266 = 0.6 / 60% The ratio is high, which indicates a favorable gross profit margin. Coca Cola is therefore a profitable firm that is worth investing in.

Market Ratio P/E Ratio = Market Price Per Share / Earnings Per Share

4 = 52.35 / 2.07 = 25.3 ("Coca-Cola Income Statement 2005-2020 | KO", 2020) The higher the P/E ratio, the more investment-worthy the shares of the company are. CocaCola’s P/E ratio is high, which indicates it is a good investment.

Stock Price Analysis Coca-Cola’s stock price has consistently had a high P/E ratio, and has been able to increase the dividends it issues its shareholders for 58 consecutive years (Smith, 2020). The company has a long history of success and stock price stability, even during periods of economic recession. It is therefore a safe investment option for a long-term investor.

Recommendation I selected Coca-Cola Company to invest my aunt’s wealth due to its consistently stable performance over the decades, and the ever-growing strength of the brand. The company’s stock also matches her needs as a retiree. She is not in a rush to withdraw her money. She intends to earn dividends that can afford her the lifestyle that she was accustomed to during her working years. If she invests the entire $1,000,000, she will earn dividends of approximately $36,000 per year. This, together with the money she earns from rental property, is enough to sustain her.

5 References Siegel, J. J. (2014). Stocks for the Long Run 5/E: The Definitive Guide to Financial Market Returns & Long-Term Investment Strategies. McGraw Hill Smith, E. L. (2020). Common Stocks As Long Term Investments. Medina University Press International Stock Information. (2020). Retrieved 20 May 2020, from https://investors.cocacolacompany.com/stock-information