ATC 15-4 Business Applications Case Analyzing segments at Coca-Cola

The following excerpt is from Coca-Cola Company's 2011 annual report filed with the SEC.

Management evaluates the performance of our operating segments separately to individually monitor the different factors affecting financial performance. Our Company manages income taxes and certain treasury-related items, such as interest income and expense, on a global basis within the Corporate operating segment. We evaluate segment performance based on income or loss before income taxes.

Below are selected segment data for Coca-Cola Company for the 2011 and 2010 fiscal years. Dollar amounts are in millions.

Required

Compute the ROI for each of Coke's geographical segments for each fiscal year. Which segment appears to have the best performance during 2011 based their ROIs? Which segment showed the most improvement from 2010 to 2011?

Assuming Coke's management expects a minimum return of 30 percent, calculate the residual income for each segment for each fiscal year. Which segment appears to have the best performance based on residual income? Which segment showed the most improvement from 2010 to 2011?

Explain why the segment with the highest ROI in 2011 was not the segment with the highest residual income.

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.

North Eurasia & Africa Latin Europe America America Pacifi 2011 Fiscal Year Net operating revenues Income before taxes Identifiable operating assets 2010 Fiscal Year Net operating revenues Income before taxes Identifiable operating assets $2,689 $4,777 $4,403 $20,559 $5,454 2,325 2,154 33,422 2,085 1,089 1,245 3,134 3,204 2,832 2,446 $2,426 $4,424 $3,880 $11,140 $4,941 1,523 2,049 32,793 1,827 1,000 1,278 3,020 2,426 2,724 2,298