Business Applications Case Analyzing segments at Coca-Cola The following excerpt is from Coca-Cola Company’s 2004 annual report filed with the SEC.

Management evaluates the performance of its operating segments separately to individually monitor the different factors affecting financial performance. Segment profit or loss includes substantially all the segment’s costs of production, distribution, and administration. Our Company typically manages and evaluates equity investments and related income on a segment level. However, we manage certain significant investments, such as our equity interests in CCE [Coca-Cola Enterprises], at the Corporate segment. Our Company manages income taxes on a global basis. We manage financial costs, such as interest income and expense, on a global basis at the Corporate segment. Thus, we evaluate segment performance based on profit or loss before income taxes and cumulative effect of accounting change.

Below are selected segment data for Coca-Cola Company for the 2004 and 2003 fiscal years.

Required

a. Compute the ROI for each of Coke’s geographical segments for each fiscal year. Which segment appears to have the best performance during 2004 based on their ROIs? Which segment showed the most improvement from 2003 to 2004?

b. Assuming Coke’s management expects a minimum return of 20 percent, calculate the residual income for each segment for each fiscal year. Which segment appears to have the best performance based on their residual incomes? Which segment showed the most improvement from 2003 to 2004?

c. Your computations for Requirements a and b above should reveal that for both years the African segment had a higher ROI than the North American segment, yet its residual incomes were lower.
Explain how this occurred.

d. Assume the management of Coke is considering a major expansion effort for the next five years.
On which geographic segment would you recommend Coke focus its expansion efforts? Explain the rationale for your answer.