Coca-Cola DCF Analysis

For my first piece, I have attempted a Discounted Cash Flow (DCF) analysis on Coca-Cola. One of the most famous brands in the world, whose logo would be recognised by all. Although I prefer its sweeter cousin Pepsi, I am starting with the brand which gave Santa his red suit.

My knowledge of how DCF analysis so far, is thanks to two brilliant YouTube videos by The Plain Bagel and Financeable Training respectively. All credit to them, whose expert explanations allowed me to combine their methods into the following 5-step system for DCF analysis.

1.        Forecast Free Cash Flow FCF

2.        Calculate WACC

3.        Estimate Terminal Value

4.        Discount both FCF and Terminal Value

5.        Final Calculations

Step 1) Forecast Free Cash Flow

I have taken data from Yahoo!Finance for Coca-Cola, listed as The Coca-Cola Company (KO), which has information from the last 4 years. Given that 2021 was still heavily affected by COVID restrictions and 2024 took a massive downturn in free cash flow, I have only used data from 2022 and 2023 to calculate growth rate.

This downturn is described in their Third Quarter 2024 Results report, available on their investor relations page, as ‘a $6.0 billion payment made to the IRS related to ongoing tax litigation.'The company reported adjusted free cash flow (non-GAAP) of $7.6 billion, excluding this litigation payment. This adjusted figure will be used as the starting point for projections. I used a simple growth model of a 2.2% cash flow growth rate.

Equation 1: Growth Rate

Table 1: Projected FCF for Coca-Cola for 2025-2029

Step 2) Calculate WACC

WACC = Weighted Cost of Capital. Financeable Training's video explains this really well so I shall leave a link here. The calculated WACC will act as our discount rate.

Equation 2: WACC formula

The following WACC inputs were sourced from publicly available financial data.

KD = 5.8% (Cost of debt)

t = 18.6% (Corporate tax rate)

D = $44.52B (Debt market value)

E = $314.16B (Equity market value)

KE = 7.64% (Cost of equity)

This gives us an estimated WACC value for Coca-Cola in 2024 of 7.28%

Step 3) Forecast Terminal Value

I have decided to use the Gordon Growth model to forecast Terminal Value. It is common practise for g to be similar to the GDP growth rate of the country of operations (USA) in this case. Using data from Trading Economics I calculated a mean GDP growth rate from quarterly reports between 2022-2024 of 2.44%. Terminal value is the estimated value of the company after the projection period.

Equation 3: Gordon Growth model formula

FCF final year = $8.39B

r= 7.28% Discount rate

g= 2.44% Growth rate

Terminal Value (TV) is estimated to be $178B.

Step 4) Discount back both TV and FCF

Equation 4: TV discount formula Equation 5: FCF discount formula

n= how many periods are being discounted back to original value

Applying the formula to both gives a present value of projected FCFs of $33B and a present value TV of $126B, which gives a total DCF value of $159B.

Step 5) Final calculations

The DCF value is the same as Enterprise Value ($159B), the value of all the firm’s operations to all capital providers. Equity Value (value to the owners) is calculated using the following formula.

Equity Value = Enterprise Value – Debts + Cash

Equation 6: Equity Value formula

Using the 2024 data on Yahoo!Finance which states, Cash = $14.6B and Total Debt = $44.5B, Equity Value is estimated to be $129B. The site also reports shares outstanding as 7.04B so earnings per share (EPS) is $

Table 2: Summary of key figures

Thank you for taking the time to read my first piece, a DCF analysis on Coca-Cola. All feedback is much appreciated and do please check out the rest of my work.