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Here is a look at how the Coca-Cola Company (NYSE:KO) fares in ModernGraham's opinion, based on an updated and modernized version of Benjamin Graham's requirements of defensive and enterprising investors from The Intelligent Investor:

Company Profile (obtained from Google Finance): The Coca-Cola Company, incorporated on September 5, 1919, is a beverage company. The Company owns or licenses and markets more than 500 nonalcoholic beverage brands, primarily sparkling beverages, but also a variety of still beverages; such as waters, enhanced waters, juices and juice drinks, ready-to-drink teas and coffees, and energy and sports drinks. It owns and markets a range of nonalcoholic sparkling beverage brands, which includes Coca-Cola, Diet Coke, Fanta and Sprite. The Company's segments include Eurasia and Africa, Europe, Latin America, North America, Pacific, Bottling Investments and Corporate. In September 2012, it acquired approximately 50% equity in Aujan Industries' beverage business. In January 2013, Sacramento Coca-Cola Bottling Company announced that it had been acquired by the Company. Effective February 22, 2013, Coca-Cola Co acquired interest in Fresh Trading Ltd. Effective February 22, 2013, Coca-Cola Co acquired interest in Fresh Trading Ltd.

Defensive and Enterprising Investor Tests (What is the significance of these tests, and what is PEmg ratio?):

Defensive Investor - must pass at least 6 of the following 7 tests: Score = 5/7

  1. Adequate Size of Enterprise - market capitalization of at least $2 billion - PASS
  2. Sufficiently Strong Financial Condition - current ratio greater than 2 - FAIL
  3. Earnings Stability - positive earnings per share for at least 10 straight years - PASS
  4. Dividend Record - has paid a dividend for at least 10 straight years - PASS
  5. Earnings Growth - earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period - PASS
  6. Moderate PEmg ratio - PEmg is less than 20 - PASS
  7. Moderate Price to Assets - PB ratio is less than 2.5 or PB x PEmg is less than 50 - FAIL

Enterprising Investor - must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 4/5

  1. Sufficiently Strong Financial Condition, Part 1 - current ratio greater than 1.5 - FAIL
  2. Sufficiently Strong Financial Condition, Part 2 - Debt to Net Current Assets ratio less than 1.1 - PASS
  3. Earnings Stability - positive earnings per share for at least 5 years - PASS
  4. Dividend Record - currently pays a dividend - PASS
  5. Earnings growth - EPSmg greater than 5 years ago - PASS

Valuation Summary (explanation of the ModernGraham valuation model):

MG Value$49.45
MG OpinionFairly Valued
Value Based on 3% Growth$28.91
Value Based on 0% Growth$16.95
Market Implied Growth Rate5.68%
NCAV-$0.33
PEmg19.86
Current Ratio0.96
PB Ratio5.44

Key Data:

Balance Sheet - 7/27/2013 (an Introduction to the Balance Sheet)

Current Assets$31,576,000,000
Current Liabilities$33,042,000,000
Total Debt$14,173,000,000
Total Assets$89,432,000,000
Intangible Assets$27,503,000,000
Total Liabilities$57,300,000,000
Outstanding Shares4,416,000,000

Earnings Per Share - Diluted

2013 (estimate)$1.97
2012$1.98
2011$1.86
2010$2.54
2009$1.48
2008$1.24
2007$1.28
2006$1.08
2005$1.02
2004$1.00
2003$0.89

Earnings Per Share - Modern Graham

2013 (estimate)$1.99
2012$1.94
2011$1.84
2010$1.73
2009$1.29
2008$1.17

Conclusion:

Coca-Cola may be suitable for an enterprising investor, but is not suitable for a defensive investor following Benjamin Graham's requirements from The Intelligent Investor. The company's current ratio is not strong enough for either investor, and though the enterprising investor may be willing to overlook this fact because of other factors, the defensive investor should not be willing to do so because the price to book ratio is also considerably higher than what the defensive investor requires. From a valuation standpoint, Coca-Cola seems to be fairly valued based on ModernGraham's updated version of Benjamin Graham's model.

Disclaimer: The author did not hold a position in Coca-Cola at the time of publication, and had no intention of purchasing a stake in the next 72 hours.

Source: ModernGraham Valuation Of Coca-Cola