How Coke Juiced Its Cash Flow by $600 Million

The Presentation inside:

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Corporate Strategies of Multinational Giants: The Coca-Cola Company How Coke Juiced Its Cash Flow by $600 Million

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The Business Problem In 2013, The Coca-Cola Company targeted increased cash flow. Coke is highly regarded for its ample cash generated from operations. But its needs are only growing: Capital expenditures Equity investments ( i.e. Monster Beverage Corporation) Brand investments (i.e. Suja Life, LLC) Share buybacks Dividend payments Joint ventures with bottling partners

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Solution Coca-Cola instituted a working capital management program in 2013. Working capital is the difference between current assets (like cash, receivables, and inventory) and current liabilities (payables and all other obligations due in one year or less). By managing how current assets grow and current liabilities are incurred, a company can change the amount of real time cash flowing into its bank accounts.

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Collect monies owed to Coke faster, reducing accounts receivable on the balance sheet. Take more time to pay vendors, increasing accounts payable on the balance sheet. The Big Idea

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Coke’s working capital program improves receivables and payables “float.” Receivables float is the time gap between billing customers and receiving payment. Payables float is the time gap between recording vendor invoices and writing checks for the money owed.

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Decrease Receivables Float Receivables Balance $4.46 Billion 10/2/2015 Collect receivables faster, bringing down the total receivables balance. Receivables Balance $4.02 Billion 12/31/2014

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Increase Payables Float Accounts Payables Balance $9.23 Billion 10/2/2015 Stretch vendor payments, increasing the total payables balance. Accounts Payables Balance $9.87 Billion 12/31/2014

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Even after factoring in changes within other current assets and liabilities on Coca-Cola’s balance sheet, it’s clear that the company’s cash flow has improved from implementing the program. In the following slide, Coke’s CFO Kathy Waller speaks to both the faster cash generation cycle and the net dollar impact to date: “Coca-Cola Life” cans image:

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In 2013, we initiated a program to better manage our working capital, with an initial focus on trade receivables and payables. And as a result of this program, we have improved our cash conversion cycle, which resulted in $600 million of incremental cash flow for the first nine months of 2015 versus prior year.

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Going Forward Gunning for a cool $1 billion? Coke’s working capital management program is still in progress, and there are many other areas of current assets and liabilities to focus on (examples include inventory and accrued expenses). But it's only a matter of time before Coke sees incremental cash flow improvement of $1 billion from this program.

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