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International Finance Paper

In: Business and Management

Submitted By kostwald
Words 1703
Pages 7
International Finance
Regina Ingel, Teri-Lee Begay, Kyle Oswald, and Clint Gray
FIN/419
May 25, 2015
Jon Payne

International Finance Coca Cola (CCE) has a huge footprint across the world. They are located in over 200 countries. With a footprint of that size it is vital for CCE to work with an investment bank. A discussion of the global banking process and how it has assisted CCE, how regulatory bodies affect financial decisions, and evaluate contemporary issues in international financial management.
Global Investment Banking Investment banks are institutions that support companies, for instance, Coca Cola (CCE) in many different ways. First, they assist CCE in raising capital. Second, they offer advice on major transactions including mergers and financial restructuring. Finally, they engage in trading and market making activities for CCE (Gitman, 2014).
Coca Cola is sold in over 200 countries. In fact there are only 2 countries in which Coca Cola is not sold, Cuba and North Korea. Both of these countries are under long-term US trade embargoes. However, the rest of the world is able to sell Coca Cola without any issues. In the last six months Coca Cola has acquired SABMiller, Appletiser brands and 19 non-Alcoholic ready to drink brands in Africa and Latin America (Bloomberg, 2014). The acquisition cost CCE $260, but gives them a bigger presence in Africa and Latin America. An acquisition of this nature is done with the help of an investment bank who in most cases will help with the financing of the purchase of the new company. In 2014 Coca Cola also added Gold Peak tea, sold in the United States, FUZE TEA, which is sold in almost 40 countries, and I LOHAS mineral water, which is sold in Japan. Investment banks aided in the acquisition of these three companies as well. In return, CCE has added three brands that generate annual sales of over $1 billion (Coca-Cola, 2015). CCE now has 20 billion dollar brands within their company’s portfolio. Investment banks have played a vital role in getting CCE where they are today because of these acquisitions.
Another way investment banks help CCE is with the sale of bonds. In February of 2015 CCE sold 8.5 billion euros worth of new bonds on the European bond market. That translates to $9.5 billion in US dollars. They sold these bonds because it allows them to better match liabilities with revenues in the same currency (Cherney, 2015). It also allows CCE to lower their cost of borrowing by selling to a new set of buyers.
Regulatory Bodies
Coca Cola Enterprise’s international presence makes the company subject to the policies of American and international regulatory agencies, which ultimately affects financial decision-making. Regulatory agencies are institutionalized within various industries to help set precedence, regulate, and enforce legislation. According to Coca Cola (2015), CCE is “one of the world’s largest independent Coca-Cola bottlers, serving Belgium, continental France, Great Britain, Luxembourg, Monaco, the Netherlands, Norway, and Sweden, with 2014 net sales of $8.3 billion and total assets of $8.5 billion” (Coca Cola, Annual Report 2015). Several agencies, national and international, that affect CCE are the Securities and Exchanges Commission (SEC), the U.S. Food and Drug Administration (FDA), and the World Trade Organization (WTO).
The SEC
The SEC affects Coca Cola’s financial decision-making in that CCE must allocate funds for required audits in order to remain in compliance with the agency. After the passing of the Sarbanes-Oxley Act, corporations are required to conduct an internal audit to ensure accurate reporting of data. An audit can run a corporation millions of dollars, an expense that must be accounted for when budgeting quarterly. This affects CCE directly as legislation for internal audits of corporations with market caps larger than $75 million were made permanent by the Dodd-Frank Act in 2007(Hanna, 2014).
The FDA
The FDA rules and regulations reflect on CCE’s financial decision-making by requiring CCE to conduct ongoing safety tests on products as well as comply with labeling laws. Coca Cola must have enough funds allocated testing and regulation compliance in order to withstand any product recalls or drop in sales due to media coverage. CCE must also apportion enough capital to pay for additional safety testing, and the possibility of making any necessary changes in labeling, or materials used in order to remain within the confines of the rules and regulations. If a change in labeling occurs, then CCE must consider the costs and benefits of recalling the product and changing existing labels versus not recalling the product and paying the government fine. The financial team analyzes these calculations in order to keep CCE in the green.
The WTO
The World Trade Organization is the governing body that helps to maintain industry standards, product safety, as well as food sanitation regulations (World Trade Organization, 2015). CCE must consider the cost of conducting business overseas and allocate funds appropriately for international lawyers, taxes, HR training, and additional training to adhere to the policies of the country in which CCE plans to conduct business. The General Agreement on Tariffs and Trade (GATT) was signed into law by 23 countries and established the WTO in order to govern international transactions between participating countries. The GATT outlines international tariffs, legal principals, and concessions. Financial analysts must clarify the cost effectiveness of doing business internationally so that executives can make a decision that will affect the shareholders in a positive way.
Contemporary Issues in International Finance Management
Taxes
Corporate tax rates vary among the different countries and Coca-Cola can expect rates from zero on intra-MNC dividends to even 40% in Germany, Japan, and in the United States. Coca-Cola will also have the question as to what taxable income is. Some countries tax profits as received on a cash basis, whereas others tax profits earned on an accrual basis goes on to state that differences can also exist in treatments of noncash charges, such as depreciation, amortization, and depletion. Agreements between the United States and other countries can also influence the total tax bill for the Coca-Cola organization. United States tax rules is also an issue for Coca-Cola operating in foreign countries. Although the United States government claims jurisdiction over all the income of a multinational company, it is possible for multinational companies to be taxed in both the United States and in the foreign countries to which the organization operates which could make a difference in the organization’s tax bill.
Exchange Rates Any organization including Coca-Cola has an exchange rate risk when conducting business in foreign countries. This risk is explained as the danger that an unexpected rate between the dollar and the currency in which a project’s cash flows are dominated will reduce the market value of that project’s cash flow. Further fluctuations in foreign exchange markets can affect foreign revenues and profits as well as the overall value of the firm. What this means to Coca-Cola is that if a foreign country’s currency such as the Euro gains in value over the U.S. dollar, Coca-Cola stands to lose a tremendous amount of revenue in these countries which would in turn affect the overall performance of Coca-Cola. Organizations operating in foreign countries can expect to have contemporary issues in finance management. These issues include foreign ownership, taxes, and foreign exchange rates. Expanding to a global market is an excellent decision for any business to make, and it must take advantage of the resources available to it, and be ready for the issues that arise. Global investment banking provides investors with a wide range of options for enlarging proceeds or raising funds for future projects. The Federal Trade Commission and the Securities and Exchange Commission set forth laws and regulations that must be followed when it comes to making financial decisions. Contemporary issues in international finance management include foreign ownership, taxes, and foreign exchange rates.

Conclusion
A look at the global investment banking process provides CCE with the capability to increase capital, as well as assist with advice on mergers and financial restructuring. Also, the engagement of market making activities and facilitate trading (buy and sell securities). Global investment banking process assists CCE with several opportunities to increase capital, securities (bonds and equities) and manage mergers. A variety of regulatory bodies affects Coca Cola Enterprise’s financial decision-making through established policies. The regulatory bodies include agencies ranging from Securities and Exchange Commission (SEC), U.S. Food and Drug Administration (FDA), and the World Trade Organization (WTO). The SEC, FDA, and WTO are agencies that manage CCE’s effectiveness and efficiency of financial goals. The goal of identifying and evaluating contemporary issues in international financial management supports maximizing shareholder wealth. The assessment of financial information provides insight into financing and investment decision-making, as well as increase shareholder wealth utilizing internal and external resources. Also, risk management is a form of contemporary issues associated with international financial management. Analyzing financial information provides capabilities through global investment banking, align with regulatory bodies’ policies, and identify issues in international financial management.

Reference
Coca-Cola Enterprises. (2015). 2014 Annual Report. Retrieved from http://ir.cokecce.com/phoenix.zhtml?c=117435&p=irol-reportsannual Gitman, L. J., & Zutter, C. J. (2015). Principles of Managerial Finance, (14th ed). Prentice
Hall. Pearson Education, Inc.
World Trade Organization. (2015). World Trade Organization. Retrieved from https://www.wto.org/english/thewto_e/whatis_e/tif_e/fact4_e.htm
Hanna, J. (2014, March). The Costs And Benefits Of Sarbanes-Oxley. Forbes, (), 1-2. Retrieved from http://www.forbes.com/sites/hbsworkingknowledge/2014/03/10/the-costs-and-benefits-of-sarbanes-oxley/
Cherney, M., Cox, J. (February, 2015). Coca-Cola Sells $9.5 Billion in Euro-Denominated
Bonds. Retrieved from http://www.wsj.com/articles/coca-cola-sells-9-5-billion-in-euro- denominated-bonds-1424992985 Coca-Cola. (February, 2015). Coca-Cola reports Q4 and Full-Year 2014 Results. Retrieved from http://www.coca-colacompany.com/coca-cola-unbottled/coca-cola-reports-q4-and- full-year-2014-results
Bloomberg Business. (November, 2014). Coca-Cola CO/The (KO:New York Consolidated). Retrieved from http://www.bloomberg.com/research/stocks/transactions/
transactions.asp?ticker=KO

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