Gremach Infrastructure Equipments & Projects Ltd

TitleGremach Infrastructure Equipments & Projects Ltd
ProductsCoke, Equipments, Refractory
Company typeManufacturer
AddressAndheri (W), Mumbai, Maharashtra, India
ProductsCoke, Equipments, Refractory
Num of employees51 - 100 People
Establish year1991
MarketsNorth America, South America, Western Europe, Eastern Europe, Eastern Asia, Southeast Asia, Mid East, Africa, Oceania
SalesUS$2.5 Million - US$5 Million

Is Coca Cola’s Shareholder Value Negative?

Wed, 01 Dec 2021 05:36:00

Impact accounting, by placing dollar values on negative externalities imposed by companies such as Coca Cola, can concentrate hearts and minds of decision makers. Engagement and dialogue with the company, not blanket divestment, is likely to lead to more productive outcomes for both the company and for society.

A sign that reads "Coco-Cola" (Photo by: Joe Sohm/Visions of America/Universal Images Group via ... [+] Getty Images)

Universal Images Group via Getty Images

While academia may have abandoned the idea of measuring stakeholder value, the concept is experiencing a resurgence in practice. The activist hedge fund Engine No.1 – which successfully challenged for seats on the board of Exxon-Mobil – has reportedly developed a new approach to measuring stakeholder value: take the sum of a company’s market capitalization of equity and subtract the estimated dollar value of the net externalities that the company imposes on society – from air pollution to depletion of natural resources like water.

The trick, of course, is in pricing these externalities well. The standard economic response to the “tragedy of the commons” problem is for government to impose penalties on companies that pollute or overfish. However, the actual penalties charged by these enforcement agencies such as the EPA and OSHA are tiny relative to the social value of these offenses. Hence, the costs imposed by these externalities tend to be borne by the public or the taxpayer. 

Colleagues ask me who is the intended audience for these calculations. I counter argue: Who is not? Do boards and socially active shareholders not want to know that the bulk of the market capitalization is overshadowed by even conservative estimates of negative externalities on society? Should the taxpayer not worry about socialized costs of negative externalities? Isn’t this the precise conversation that the socially responsible business movement wants to engage in with companies?

I am happy to admit that the exercise I am about to embark on is difficult. There is likely to be little agreement on what the identified externalities are and more important, how to value them in general for companies. In a thoughtful piece, Ken Pucker and Andy King take issue with the idea of assigning dollar values to social impact. They argue that deep markets exist to price the usual factors of production such as materials, labor, and capacity but not for negative externalities the company may impose such as carbon emissions, water, packaging abuse and the like. They advocate more regulation as the answer. 

I am not sure whether robust markets in these externalities will emerge in the next decade or two. Moreover, the solution they propose is to simply kick the problem up to the regulator. How will the regulator figure out the social cost and benefits of a new rule unless she entertains an exercise similar to the one I suggest here?

My approach

I approach the problem in four steps. I begin with the market value of the equity capitalization of the company. One can add net debt, if necessary, to come up with enterprise value but I have ignored that step for now. 

Step 2 is the hardest and potentially the most important advance. I identify the key negative externalities imposed by the company on society and assign a reasonable social cost per unit of that externality. By and large, I concentrate on externalities related to natural capital that most reasonable investors can agree on such as the carbon emissions, the use of water in irrigation, the generation of unproductive waste that is not recycled, and the tax imposed by the company on the democratic system via lobbying. I have relied on the social cost of emissions, water, and the like published by the United Nations and other quasi-governmental bodies wherever possible. Readers are free to rework my numbers based on other reasonable estimates.

In the case of Coca Cola (ticker KO), I also speculate about the incremental health care costs imposed by consumers’ excess consumption of sugary drinks. I have deliberately stayed away from attempting to value consumer surplus or the “unfair” underpayment of wages to the workforce. I view employment as a contract willingly entered into between the employer and the employee with the caveat that people can take a job they don’t like and doesn’t pay them much if that’s the only opportunity they have. I do not know how to value consumer surplus. 

Step 3 is to give the business credit for the positive externalities it generates by way of employment, payments to its supply chain, and the taxes the company pays to society.

The final output, in step 4, is computation of net stakeholder value (shareholder value minus value of net externalities plus value of positive externalities).

Case Study: Coca-Cola

To make things concrete, consider the case of Coca Cola, an iconic American company, that has created a vast amount of wealth for its shareholders, millions of well-paying jobs, and has paid billions in taxes to governments around the world. However, the business model of the company continues to rely on selling sugary drinks. Production and distribution of these drinks results eventually in higher emissions, high water use, unrecycled plastic and health care bills that get socialized across the world.

Here are the highlights. Detailed calculations follow in the data appendix.

  • Coca Cola’s market capitalization of equity is $235 billion. Coca Cola follows a complicated organizational structure. Combined with that of its publicly listed affiliates, the market cap of the Coca Cola system is at least $300 billion as the value of private affiliates is not easy to ascertain.
  • At $100 per ton of scope 1, 2 and 3 carbon emitted, the present value of 53 million annual tons of carbon to be emitted by 2030 at a 5% discount rate is $106 billion.
  • Using estimates of water used in irrigating farmland that produces sugar going into Coca Cola’s drinks, the implicit social cost of water used by Coca Cola to grow sugar at 5% discount rate is $60 billion.
  • I estimate the social cost of PET (Polyethylene terephthalate) plastic bottles that are not recycled at $50 billion.
  • Using relatively conservative assumptions, I estimate that the incremental costs associated with diabetes from consumption of Coke products in U.S. and Mexico is around $168 billion.
  • The payoff to lobbying is conservatively $2.4 billion.
  • A conservative estimate of the few negative externalities I have considered is $386 billion relative to the market capitalization of $300 billion.

What about Coca-Cola’s stakeholder value?

My upwardly biased estimate of sum total of wages paid by the Coca Cola system to employees, the payments to the supplier ecosystem and taxes paid, annualized at 5% per annum, is $1,860 billion. Hence, in theory, society has access to plenty of stakeholder resources to cover the harmful effects of emissions, water usage, non-recycled packaging, and health care costs associated with diabetes. I emphasize “in theory” only because there are no ready mechanisms for transferring the value created by the Coca Cola system to taxpayer-funded public health care budgets to say deal with diabetes.

What is the way forward?

An immediate reaction is to argue that my estimates are subjective and unreliable. I welcome a debate around my estimates. I have tried to be evidence-based in my thinking. In fact, part of the idea behind this exercise, as stated before, is to highlight negative externalities that businesses impose on society. Engine No. 1 appears to address the thought experiment, "should this company be shut down or innovate around emissions?" The hope is that socially conscious investors and the electorate will challenge businesses with the cost of negative externalities. But before I apologize too much for imprecision in estimates, let me remind readers that a standard DCF (discounted cash flow) valuation of a company is as imprecise. The so-called “terminal value” is hugely imprecise and can easily account for 70-80% of the company’s estimated DCF value! 

The other reaction I often get is that some of the costs associated with these negative externalities should and will be passed on to the customer. Unlike oil, the demand for Coke drinks is probably price elastic. That is, if Coca Cola passes on these costs to its customers, demand for Coke will likely fall, which in turn, will diminish the resources Coca Cola has to address these problems and long run shareholder returns. On the flip side, lower shareholder returns in the future might concentrate hearts and minds at companies to mitigate the social costs that these companies impose. Another concern is that all reality is local and the tradeoffs I highlight are too coarse and aggregated. Detailed work, by region or country along the lines I suggest might be useful. 

A skeptic could ask that if Coke were to liquidate then people would go elsewhere for sugary drinks. I suspect that only when the government drastically raised taxes on tobacco and significantly restricted where one could smoke did the prevalence of smoking meaningfully decline. Said differently, is Coke the issue, or its customers, or the lack of regulation? My current thinking on this question is that it is better for us to have oil produced by our oil majors as there is some chance that we can engage with the oil majors or in this case with Coke to reduce their negative externalities. Otherwise, the production of oil or sugar drinks will either go underground or go to the unorganized sector that will impose the negative externality without the scale to pay for it or to innovate around these negative externalities.

The fact that I had trouble obtaining the data to generate the negative externality estimates is a tell-tale sign that the sustainability reporting of today is coming up short at least w.r.t measuring social impact. Coca Cola’s ESG reporting, which is mostly about the company’s activities and operations, is decent but an analyst would continue to struggle to measure impact from such ESG disclosures as measuring impact involves mapping the impact of the company’s operations on social outcomes. The exercise also highlights the need for investment in measurement systems similar to accounting for GDP if we hope to have an evidence-based conversation around the magnitude and the social dollar value of negative externalities imposed by certain businesses.

I fully recognize that resolving the social tradeoffs I highlight is potentially a multi-decade endeavor. Moreover, companies can and will innovate around these externalities over time. In fact, I hope they do. Hence, these stakeholder value estimates need to be revised periodically.

Bottom line

I am optimistic along several fronts. The ESG movement has generated a much-needed conversation around the negative externalities that companies impose on society. The cost of mitigating these externalities to the company are likely far smaller than the costs paid by society because prevention is better than cure. I have little doubt that capitalism, despite its problems, is the still the best response we have come up with to create wealth or get people out of poverty. Hence, companies, when faced with the right incentives, are likely to be more agile at solving problems than regulators or public monitoring agencies.

Engagement and dialogue with the company, not blanket divestment, is likely to lead to more productive outcomes for both the company and for society. Engagement is a better alternative because promulgating effective regulation, in today’s hyper-partisan environment in the U.S., is difficult and the efficacy of public monitoring agencies and their ability to penalize bad behavior is open to debate. In contrast, investors can more quickly mobilize (although regulation would certainly help them) if they believe these negative externalities will eventually decrease long-term shareholder returns.

On to the detailed data underlying my estimates. Feedback welcome.



Step 1 What do capital providers get from Coca Cola?

As of September 18, 2021, Coca Cola’s market cap of equity is $235 billion. The market cap represents the present value of the payments to providers of capital to Coca Cola. In 2020, Coca Cola’s revenues are $33 billion and its net income is $7.7 billion, leaving us with a price-earnings ratio of 31 or an implicit cost of capital, net of growth rate, of 3.2%. Assume the growth rate is 2.5% per annum. Hence, the rough cost of capital for Coca Cola is 5.7 or say 6% for simplicity. Dividing the following annual flows by 6% assumes that these expenses do not grow proportionately with the company’s sales. Dividing by 3.2% assumes that all expenses of the company are variable in that they grow with sales. The reality lies somewhere in the middle. As a compromise, I use 5% as the cost of capital for Coca Cola. Before we proceed, we need to grapple with Coca Cola’s organizational structure.

1.2 Reporting scope confusion

It turns out that Coca Cola’s organization structure is very complex. They sell syrup to their affiliated and independent bottlers (A) plus they sell their own bottled drinks (B) plus they own less than 50% of other bottlers which they reflect in one line as investments only under the equity method of accounting (C) plus they work with completely independent bottlers (D).

Coca Cola’s 2020 sustainability report says “we pursue our ESG goals through a concerted effort by The Coca-Cola Company and approximately 225 bottling partners in more than 200 countries and territories.” However, the report is unclear and sometimes inconsistent about the scope of what is covered in the ESG numbers. Did Coca Cola consider emissions, water, packaging type externalities for all of C and D? Or, did they report the externalities only for the 25% odd it owns in C and none of D? I don’t know for sure.

Coca Cola holds between 19-28 percent of the following affiliate bottlers held as equity method investees under note 6 of their 2020 10-K: Coca-Cola European Partners plc ("CCEP"), Monster, AC Bebidas, Coca-Cola FEMSA, Coca-Cola HBC AG ("Coca-Cola Hellenic") and Coca-Cola Bottlers Japan Holdings Inc. ("CCBJHI"). The extent of detail disclosed in the sustainability reports for the year 2020 differs. For instance, CCEP, Monster. FEMSA, present extensive reports with varying levels of granular data. Coca-Cola Hellenic discloses an integrated report with somewhat limited sustainability data for 2020. AC Bebidas’ 2020 sustainability information is sketchy to non-existent. Coca Cola Japan presents a limited 32 page 2020 report. Coca Cola Icecek, the Turkish bottler held as an equity method investment, that services Turkey, Pakistan and several neighboring countries has posted a 2019 sustainability report. The nature of disclosure across the independent bottlers is patchy. Coca Cola lists a total of 225 bottlers across the world. An independent bottler, The Aberdeen Coca Cola Bottling Inc, for instance, does not appear to publish a sustainability report.

How does one deal with this complexity in the analysis? I focus on Coca Cola as reported and extend the analysis to the bottling affiliates listed as equity method investees. I have ignored independent bottlers because many are private companies and finding financial and sustainability data for them is non-trivial.

The market capitalization of equity for Monster, CCEP, Coca-Cola FEMSA, Coca-Cola HBC AG, Coca-Cola Consolidated, Inc, Coca-Cola Bottlers Japan Holdings Inc. Coca-Cola İçecek A.Ş. and Embotelladora Andina S.A. are $45 billion, $25 billion, $27 billion, $9 billion, $4 billion, $3 billion, $ 20 billion and $2 billion. These cumulate to $90 billion. Coca-Cola Amatil Limited, one of their equity method investees, appears to have delisted. Note 6 in Coca Cola’s 10-K states that Coca Cola’s ownership stake in these affiliates adds up to $23 billion roughly. Hence, Coca Cola’s market cap already includes this number. The non-overlapping market cap of equity is hence $67 billion.

To summarize, total shareholder value of the Coca Cola system is roughly $300 billion.

Step 2: Coca Cola’s negative contributions to society

I consider the monetary value of the negative externalities imposed by Coca Cola on society under three broad categories: (i) environment; (ii) people, both employees and customers; and (iii) lobbying regulators.


2.1 Climate change

Coca Cola’s 2020 sustainability report reports that its direct (scope 1) and indirect (scope 2) emissions are 5.24 million tons. Incidentally Coca Cola’s sustainability report seems to suggest that this number does not cover emissions for the whole Coca Cola system and is restricted to Coca Cola. However, page 18 of Coca Cola’s 2020 report to the CDP claims that the combination of scope 1,2 and 3 emissions is 70 million tons in 2015. By 2030, Coca Cola plans to reduce absolute emissions by 25% to say 53 million tons. At $100 a ton a carbon, the yearly cost of carbon emitted at the reduced 25% target from today is $5.3 billion. Interestingly, the carbon cost today at $5.3 billion is uncomfortably close to Coca Cola’s 2020 net income of $7.7 billion.

At a 5% discount rate, the annualized value of climate change induced externality of $5.3 billion is $106 billion.

2.2 Fresh water consumption

Coca Cola’s 2020 sustainability report states that the company uses 1.84 liters of water for a liter of drink produced across the whole Coca Cola system. At 165 billion liters of the drink sold, we are looking at the consumption of 304 billion liters of water. Coca Cola claims that 278 billion liters of water are replenished. Coca Cola A also claims that it is the first water neutral Fortune 500 company. But two factors that dampen my enthusiasm for this claim. First, most of this neutrality appears to have been achieved via water offset projects. In 2019, Coca Cola’s water replenishment project suggests that the water is replenished at venues or countries that are different from the location of plants or factories where the water is used. Second, it appears as though the water consumed is the direct water usage at the plants, as opposed to the water used in irrigating crops such as apple, sugarcane etc. that Coca Cola uses in its production. The U.S. Dept. of the Interior estimates that about 70 percent of all the world's freshwater withdrawals go towards irrigation uses. 

Coca Cola’s report to the Carbon Disclosure Project (CDP) estimates that the water footprint of cane sugar is 1700 liters of water per kilogram of sugar, 1200 liters of water per kilogram of corn and 920 liters of water per kilogram of beet. Coca Cola, in the same report, claims that in 2019, it sourced 69% of its beet sugar, 32% of its cane sugar, and 67% of its corn is grown sustainably. 

I am not sure whether that means the water used in farming these crops is replenished. As far as I can tell, the 1.84 liters of water per liter of Coke refers to water withdrawn, as opposed to water embedded in farming these crops.

How many units of sugar, corn and beet did Coca Cola use in its production process so that we can calculate the water used in irrigation? To simplify matters, consider sugar. The product label of Coca Cola’s classic Coke can states it contains 355 milliliters of drink and 39 grams of sugar. That translates to roughly 0.11 kilos of sugar per liter of Coke. The 165 billion liters of drink sold per annum hence contains roughly 18 billion kilos of sugar. If irrigation consumes 1700 liters of water per kilogram of sugar produced as stated by Coca Cola’s water report to the CDP, we are looking at 31 billion cubic meters of water consumed per annum (18*1700 billion liters or 31 billion cubic meters).

Why is the irrigation-based estimate of water use (31 billion cubic liters) so different from the 304 billion liters of water reported as withdrawn by Coca Cola? My guess is Coca Cola does not explicitly report the water embedded in sugar in its water withdrawn number. But, I don’t know for sure although reports suggest that I may be right.

Was Coca Cola charged the “social cost” of that water? What is the “social cost” of water? The USDA states that the average cost of irrigating an acre is $32 an acre per annum. An acre of farmland typically annually yields 70 tons of sugarcane as the FAO of the United Nations. A ton of sugarcane, on average, yields 220 pounds of sugar. These data points suggest that the water costs related to irrigation work out to roughly 15 cents per pound of sugar. The water cost embedded in 18 billion kilos of sugar annually works out to 40 billion pounds. At 15 cents per pound of sugar, that’s $6 billion a year. The numbers I have used at U.S. estimates and hence higher than that for other less developed countries. I am arbitrarily slashing 50% of that estimate as most sugar production happens overseas leaving us a water cost of $3 billion a year. Discounted at 5 per annum, the annualized value of water consumed in irrigation is $60 billion. That number is almost as high as that for carbon emissions.

2.3 Packaging

Coca Cola reports that the Coca Cola system produces 112 billion bottles of PET (polyethylene terephthalate or polyester) bottles and 62 billion aluminum cans a year. Approximately 60% of these bottles are recycled as per the sustainability report. I ignore aluminum cans because these are presumably fully recycled. Hence, roughly 49 billion PET bottles presumably get burned or left in landfills or enter the natural environment. How does one place a price on that environmental damage? The WWF estimates that the social cost of plastic is roughly 10 times as much as the actual price of plastic which appears to be $0.50 per kilogram. Assuming that a half liter bottle of Coke uses 10 grams of PET plastic, the social cost of non-recycled plastic is roughly $2.5 billion (0.01 kilos*49 billion bottles*$0.5*10 per kilogram) annually. Discounted at 5% per annum, the annualized cost of packaging externality is $50 billion.


2.4 Health and safety of customers

Thinking through the incremental cases of diabetes attributed to excess Coca Cola consumption is difficult, given the data available. As a start, I consider four major markets: U.S., Mexico, China and India. Coca Cola states that 18% of the 165 billion liters of its products are sold in North America, 28% in Latin America and 23% in Asia Pacific. It turns out that 95% of North American volume is sold in the U.S, 47% of the Latin American volume comes from Mexico, 40% of 2020 Asia Pacific case volume comes from China and 12% from India.

Thus, of the 165 billion liters of product sold, the Coca Cola system sells 29 billion liters of Coke products in the U.S., 22 billion liters in Mexico, 15 billion liters in China and 5 billion liters in India. The annual per capita consumption of Coke products per U.S. consumer, assuming 350 million consumers, is 83 liters. An analogous number, given 129 million Mexican citizens, is 170 liters for Mexico. The per capita numbers are smaller for China and India, at 11 liters and 4 liters, respectively, because of their large populations of roughly 1.4 billion people in each country. 

Unfortunately, these numbers are averages. We do not know how many actually consume more than 127 liters a year. That cutoff is relevant because medical research seems to suggest that consuming one 12 ounce sugary drink a day or equivalently 127 liters a year over 10 years is associated with a 22% high chance of getting Type 2 diabetes. I have ignored the occurrence of diabetes in other nationalities for simplicity as of now.

Assume 1% of the consumer base in both the U.S. and Mexico consumes more than 127 liters a year for over 10 years. That works out to 18 million Americans and 7 million Mexicans roughly. I have deliberately ignored India and China as it is hard to estimate how many Indians or Chinese consume more than 127 liters of sugar drinks a year.

The American Diabetes Association estimates that a patient with diabetes needs to spend at least $10,000 more year for her life in medical bills. This estimate does not include lost productivity. Let us halve that number for a Mexican patient and assume that patients live for an average 20 years after contracting diabetes. Given the higher consumption of Coke products in Mexico, let us assume that getting diabetes is twice as likely in Mexico. The probability weighted incremental health costs borne by individuals on account of Coke products consumption then becomes ((0.22*3.5 million*$125,000, which is the present value of $10,000*20 years at 5%) plus 0.44*1.3 million*$125,000) or a total of $168 billion. This number will repeat every 10 years, a consideration I have ignored for now. 

 2.5 Lobbying

Coca Cola spent $6 million  lobbying rule makers in 2020 as the Open Secrets database in terms of paying lobbyists and via PAC contributions. My co-authored work suggests that the payoff to a dollar of lobbying is roughly 20X. Assuming that payoff generalizes to Coca Cola, the company derives a benefit of $120 million every year. Arguably, this $120 million is a tax on other stakeholders. Discounted at 5% per annum, the annualized value of that tax is $2.4 billion (120/5%).

A cumulated tally of the negative externalities works out to $386 billion.

Step 3: Shareholder value net of monetary value of negative externalities

Some would argue that it is unfair for the shareholder to pay the price of these externalities. Perhaps, the other stakeholders such as labor and the supply chain should also be brought into analysis both to recognize the positive contributions Coca Cola makes to society and to understand how the negative externalities, in effect, pay for these positive contributions. To do so, we proceed to step 4.

Step 4 Coca Cola’s positive economic contributions to society 

4.1 Employees

If Coca Cola were to liquidate, its 80,300 employees (as per its 10K as of December 31, 2020) would be unemployed. Many will find alternate employment. But ignoring their alternate opportunities in the interest of giving Coca Cola the benefit of the doubt, employees will lose an annuity stream of roughly $1.75 billion annually. Assuming a discount rate of 5% per annum, that annuity stream of lost wages is worth roughly $35 billion ($1.75 billion/5%).

As an aside, coming up with the compensation costs paid by Coca Cola is not trivial as Coca Cola does not disclose that number. Coca Cola’s latest proxy statement indicates the median annual total compensation of its 80,300 employees is only $11,342. The U.S. workers (9,300 of these 80,300) are surely paid more. We don’t know how much. Assume these workers are primarily based in Atlanta, GA and that half of these workers are managers and half are business operators. The Bureau of Labor Statistics suggests that the average wage for managerial positions for the Atlanta-Sandy Springs-Roswell GA area is $123,000 and that for business operators is $80,000. Assuming median and the mean compensation for the non-U.S. workers is somewhat close, we would conclude that the total compensation cost paid by Coca Cola in 2020 is approximately $1.54 billion (4650 U.S. employees*$123,000 + 4650 U.S. employees*$80,000 + + 71,000 non-U.S. employees*$11,342). To focus on negative externalities, we will assume that the overseas workers are paid a living wage by Coca Cola. 

What about the positive multiplier effect that Coca Cola’s employees have on the Atlanta economy or wherever they work? We do not know how to estimate that multiplier effect with any sort of precision. We would argue that years of effort on the macro front have continued to raise questions on the positive multiplier effect of government spending. This discussion again highlights the need for investment in ESG and impact measurement systems akin to the infrastructure supporting accounting for national and global GDP.

4.2 Materials suppliers

If Coca Cola were to liquidate, Coca Cola’s supply chain will lose contracts, their own value added which, in turn, will result in layoffs of the supplies’ workers. The supply chain is long and involved and includes bottlers, advertising agencies, contractors that transport cases of the drink from the bottler to the distribution center and to retail units and so on. How does one come up with a dollar number to capture these costs to society? 

Again, many of these suppliers will find alternate business opportunities. But ignoring these alternate opportunities to give Coca Cola the benefit of the doubt, the annual operating costs incurred by Coca Cola in 2020 as per 10K is $13.4 billion in cost of goods sold and $9.7 billion in selling, general and administrative costs. Let us eliminate the labor costs of $1.75 billion we considered above to avoid double counting. Let us also eliminate the $1.53 billion of depreciation as we consider payments to suppliers of the capex spending incurred by Coca Cola separately. That leaves us with a total payment of roughly $20 billion by Coca Cola to its supply chain.  Assuming a discount rate of 5% per annum, that annuity stream of lost payments to the supply chain is worth roughly $400 billion ($20 billion/5%).

4.3 Capex suppliers

If Coca Cola were to liquidate, Coca Cola’s supply chain related to capex will also lose contracts. The capex supply chain would involve companies that build bottling factories, office buildings and the like. Capex tends to be lumpy in time and averages are hence more representative. Acquisitions of businesses and capex spending for the last three years average to $4.1 billion ($2.2 billion in 2020, $7.5 billion in 2019 and $2.8 billion in 2018). The annuity of lost capex payments would be worth roughly $ 82 billion ($4.1 billion/5%). 

4.4 Taxes paid by Coca Cola

Coca Cola owed taxes of $1.98 billion to the U.S. and international governments as per its 10-K. If Coca Cola were to liquidate, these governments would lose an annuity stream of approximately $40 billion ($1.98 billion/5%).

4.5 Charitable contributions

In its 2020 sustainability report, Coca Cola reports that it gives one percent of its operating income to charity. That amounted to $186 million in 2020. Annualized, that would amount to $3.7 billion ($186/5%).

We come up with a $300 billion value in equity for the Coca Cola system. Gross stakeholder value, defined as the sum of equity value plus the value of all the payments made along the value chain to employees, materials and capex suppliers, tax authorities and charitable organizations is $821 billion (300+35+400+82+3.7).

4.6 Bottling ecosystem

Note 6 of Coca Cola’s 10-K reports the combined income statements of its equity method investments (CCEP, Monster, AC Bebidas, Coca-Cola FEMSA, Coca-Cola HBC AG and CCBJH). It turns out that these affiliates report sales of $69 billion for 2020, Cost of Goods Sold (COGS) of $41 billion and hence gross profits of $28 billion, operating income of $7 billion, and net income of $4 billion. 

We have to account for inter-company transactions between Coca Cola and its equity method affiliates to avoid double-counting. Coca Cola reports it sells $13.1 billion of syrup to its equity method affiliates but it purchased $0.4 billion of materials from its investees. Coca Cola made $0.6 billion of marketing payments to its affiliates. Roughly speaking, the purchases and marketing support offset each other.

Eliminating syrup revenue of $13 billion from the combined COGS to avoid double-counting leaves us with COGS of $28 billion. On top of that, $24 billion is paid to several members of the value chain such as labor and suppliers in the affiliate system ($28 billion in gross profits - net income of $4 billion). We are going to ignore capex suppliers by assuming that depreciation is the same as capex for the affiliates. Bottomline, if Coca Cola’s affiliate system were liquidated, $52 billion of payments per annum would be negatively affected (28+24). At a 5% discount rate, that stakeholder value adds up to $1040 billion. This number, undoubtedly, is upwardly biased as the affiliate bottlers sell non-Coke products as well.

The sum-total of stakeholder value then is $820 billion + $1040 billion or $1860 billion.