Exercise | November 2012

Coca-Cola: Residual Income Valuation Exercise

by Suraj Srinivasan, Beiting Cheng and Edward J. Riedl

Abstract

The exercise illustrates the use of the residual income (also known as the abnormal earnings) valuation approach. Students are asked to provide a valuation of Coca-Cola Company using the residual income valuation methodology and understand how it maps into the discounted cash flow method. Students learn how forecasts of sales, performance, dividends, and other valuation inputs feeds into a valuation model. Students also learn the modified Dupont decomposition technique and how to reclassify financial statements to perform the modified Dupont analysis.

Keywords: Business analysis; valuation; residual income valuation; accounting; Financial Accounting; financial analysis; financial statement analysis; financial statements; discounted cash flows;

Citation:

Srinivasan, Suraj, Beiting Cheng, and Edward J. Riedl. "Coca-Cola: Residual Income Valuation Exercise." Harvard Business School Exercise 113-056, November 2012.