Discuss the relations between net income and cash flow from operations and among cash flows from operating, investing, and financing activities for the firm over the three-year period. Identify characteristics of Coca-Cola’s cash flows that you would expect for a mature company.

FINANCIAL ACCOUNTING
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ISBN:9781259964947
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Chapter1: Financial Statements And Business Decisions
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Interpreting the Statement of Cash Flows. The Coca-Cola Company (Coca-Cola) manufactures and markets a variety of beverages. Exhibit 3.16 presents a statement of cash flows for Coca-Cola for three years.

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Discuss the relations between net income and cash flow from operations and among cash flows from operating, investing, and financing activities for the firm over the three-year period. Identify characteristics of Coca-Cola’s cash flows that you would expect for a mature company.

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Exhibit 3.16 The Coca-Cola Company Statement of Cash Flows (amounts in
millions) (Problem 3.18)
Year Ended December 31,
Year 3
Year 2
Year 1
OPERATING ACTIVITIES
$ 5,807
$ 5,981
$ 5,080
Net income
Depreciation and amortization
Stock-based compensation expense
1,228
1,163
938
266
313
324
Deferred income taxes
(360)
109
(35)
Equity income or loss, net of dividends
Foreign currency adjustments
Gains on sales of assets, including bottling interests
Other operating charges
1,128
(452)
124
(42)
52
(130)
(244)
(303)
209
166
159
Other items
153
99
233
Net change in operating assets and liabilities
Net Cash Provided by Operating Activities
(688)
$ 7,571
(615)
$ 7,150
$ 5,957
INVESTING ACTIVITIES
Acquisitions and investments, principally beverage and bottling
companies and trademarks
$ (759)
$ (901)
$(5,653)
Purchases of other investments
(240)
(99)
(82)
Proceeds from disposals of bottling companies and other
investments
479
448
640
Purchases of property, plant, and equipment
Proceeds from disposals of property, plant, and equipment
Other investing activities
Net Cash Used in Investing Activities
(1,968)
(1,648)
(1,407)
129
239
112
(4)
$(2,363)
(6)
$(6,719)
(62)
$(1,700)
FINANCING ACTIVITIES
Issuances of debt
$ 4,337
$ 9,979
$ 617
Payments of debt
(4,308)
(5,638)
(2,021)
Issuances of stock
586
1,619
148
Purchases of stock for treasury
(1,079)
(1,838)
(2,416)
Dividends
(3,521)
$(3,985)
$ (615)
(3,149)
$ 973
$ 249
(2,911)
Net Cash Provided by (Used in) Financing Activities
Effect of exchange rate changes on cash and cash equivalents
$(6,583)
$ 65
CASH AND CASH EQUIVALENTS
$ 1,653
$ 608
4,093
$ 4,701
$(2,261)
Net Increase (Decrease) During the Year
Balance at beginning of year
2,440
4,701
Balance at End of Year
$ 4,093
$ 2,440
Source: The Coca-Cola Company, Form 10-K for the Fiscal Year Ended 2008.
Transcribed Image Text:Exhibit 3.16 The Coca-Cola Company Statement of Cash Flows (amounts in millions) (Problem 3.18) Year Ended December 31, Year 3 Year 2 Year 1 OPERATING ACTIVITIES $ 5,807 $ 5,981 $ 5,080 Net income Depreciation and amortization Stock-based compensation expense 1,228 1,163 938 266 313 324 Deferred income taxes (360) 109 (35) Equity income or loss, net of dividends Foreign currency adjustments Gains on sales of assets, including bottling interests Other operating charges 1,128 (452) 124 (42) 52 (130) (244) (303) 209 166 159 Other items 153 99 233 Net change in operating assets and liabilities Net Cash Provided by Operating Activities (688) $ 7,571 (615) $ 7,150 $ 5,957 INVESTING ACTIVITIES Acquisitions and investments, principally beverage and bottling companies and trademarks $ (759) $ (901) $(5,653) Purchases of other investments (240) (99) (82) Proceeds from disposals of bottling companies and other investments 479 448 640 Purchases of property, plant, and equipment Proceeds from disposals of property, plant, and equipment Other investing activities Net Cash Used in Investing Activities (1,968) (1,648) (1,407) 129 239 112 (4) $(2,363) (6) $(6,719) (62) $(1,700) FINANCING ACTIVITIES Issuances of debt $ 4,337 $ 9,979 $ 617 Payments of debt (4,308) (5,638) (2,021) Issuances of stock 586 1,619 148 Purchases of stock for treasury (1,079) (1,838) (2,416) Dividends (3,521) $(3,985) $ (615) (3,149) $ 973 $ 249 (2,911) Net Cash Provided by (Used in) Financing Activities Effect of exchange rate changes on cash and cash equivalents $(6,583) $ 65 CASH AND CASH EQUIVALENTS $ 1,653 $ 608 4,093 $ 4,701 $(2,261) Net Increase (Decrease) During the Year Balance at beginning of year 2,440 4,701 Balance at End of Year $ 4,093 $ 2,440 Source: The Coca-Cola Company, Form 10-K for the Fiscal Year Ended 2008.
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