Effects of FED's policies on Coca-Cola Company
The Federal reserve bank (FED) is mandated to coin money and regulate the dollar's value in the United States (Buchanan and Dorf, 2017). The FED performs its functions to promote the effective operation of the United States’ economy.
The FED's policies affect the growth of businesses in the economy. Some policies promote growth, while some cause stagnation. Fed policies influence the development of Coca-Cola company by controlling the interest rates, thus affecting credit availability. The FEDs increase and reduce the interest rates depending on the country's economic conditions. When the FEDs lower the interest rates, credit becomes more available, and there is an increase in money circulation in the economy (Bernanke, 2020). Availability of credit affects the level of economic activities in the country. It influences the demand for goods and services in the economy. When there is more money in circulation, the need for Coca-Cola products increases, enabling the company to make more sales and profit, thus promoting the economic growth of the company. The vice versa also applies. When the interest rates are high, there is less money in circulation, which reduces the demand for Coca-Cola products, resulting in fewer sales made by the company, thus reducing its economic growth.
In addition to controlling interest rates, the FED policies also involve using Open Market Operations and reserve requirements to influence the money available in the economy for spending (Tymoigne,2018). These policies directly or indirectly affect Coca-Cola's economic growth through the multiplier effect. When the FED sells government bonds and trust to the general public through Open Market operations, it reduces the amount of money available for spending, thus reducing demand for Coca-Cola products, which in turn reduces the company's economic growth. On the contrary, when the FED purchases government bonds from the public, it increases the amount of money available in the economy for spending, thus increasing the demand for Coca-Cola's products. This increases profitability and boosts the company's economic growth.
From the analysis of the impact of Federal Reserve Bank policies on Coca-Cola's economic growth, we can conclude that the policies influence the circulation of money in the economy, thus influencing the demand for Coca-Cola's products. The level of demand determines the number of sales and profitability of the company, thus impacting the economic growth of the company.
Effects of fiscal policies on the key markets of Coca-Cola Company
Fiscal policies are government policies on taxes, borrowing, and expenditure to influence economic activities in the country (Cowen and Tabarrok, 2021). The policies are classified as either expansionary or contractionary. Fiscal policies affect the investment and production markets of the Coca-Cola company. Taxation policies involve the rate at which companies and individuals are taxed. This directly impacts companies' investment and production market. An increase in corporate and individual tax would likely discourage investment and production (Mukherjee et al., 2017). A high corporate tax rate will affect the profitability of the Coca-Cola company since much of the revenue collected will go to taxation; this will leave the company with little funds to invest in the company's economic activities.
Consequently, high individual taxation reduces the amount of money consumers spend, thus reducing the demand for Coca-Cola's products. The company is forced to reduce production activities when there is a low market. On the contrary, when the corporate and individual tax is low, Coca-Cola will increase its investment activities, and the demand for its products will go up, thus boosting production.
Government spending is also among fiscal policies that affect the investment and production market of the Coca-Cola company. Government spending crowd out the private sector and influences production through demand (Nguyen and Trinh, 2018). An increase in government spending will likely reduce Coca-Cola's spending on investments, thus reducing the capital investments made by the company. On the other hand, an increase in government spending will likely increase the amount of money available for spending in the economy. This will increase the demand for Coca-Cola's products and encourage production. The vice versa is true. When the government applies contractionary fiscal policies and reduces government spending, Coca-Cola company will be encouraged to make capital investments to cover the opportunities arising due to lack of government expenditure. However, the decrease in government spending will reduce the amount of money available for spending, and that reduces demand for Coca-Cola's products, thus discouraging production.
Therefore, from our analysis, we can conclude that the expansionary and contractionary fiscal policies will negatively or positively affect the investment and production market of the Coca-Cola company.
References
Bernanke, B. S. (2020). The new tools of monetary policy. American Economic Review, 110(4), 943-83.
Buchanan, N. H., & Dorf, M. C. (2017). Don't End or Audit the Fed: Central Bank Independence in an Age of Austerity. Cornell l. rev., 102, 1.
Cowen, T., & Tabarrok A. (2021). Modern Principles of economics: unabridged fifth edition. Cosimo, Inc.
Mukherjee, A., Singh, M., & Žaldokas, A. (2017). Do corporate taxes hinder innovation?. Journal of Financial Economics, 124(1), 195-221.
Nguyen, C. T., & Trinh, L. T. (2018). The impacts of public investment on private investment and economic growth: Evidence from Vietnam. Journal of Asian Business and Economic Studies.
Tymoigne, E. (2018). Government monetary and fiscal operations: generalizing the endogenous money approach. Cambridge Journal of Economics, 40(5), 1317-1332.
Dear jessmcr,
Coca-Cola is such a huge beverage company, with a net worth of $247.1 billion. A recent article by CNBC states how high-interest rates may affect the company's stocks. As you said central banks influence interest rates based on how the economy is going. Due to the pandemic, the US economy has taken a major blow and is trying to recover, however interest rates have increased. How does this affect Coca-Cola? They still depend on commercial paper that helps generate most of their income. However, it exposes them to short-term debt that is affected by the interest rates on commercial paper. So "Assuming Coke had $20 billion in short-term debt and its average rate increased by 2 percentage points, the annual expense would rise by $400 million. For context, average commercial paper rates averaged 3.2 percent in 2005 and 5 percent in 2006 and 2007."(Jannarone, 2015). But fortunately for Coca-Cola, this isn't an alarming problem for them for now. However, if things continue like they are they may be in for some trouble.
References
Jannarone, J. (2015, January 22). Higher rates mean a double whammy for Coca-Cola. CNBC. https://www.cnbc.com/2015/01/22/higher-rates-mean-a-double-whammy-for-coca-cola.html
Hey Jess, great post in regards to Monetary Policy showing affect on Large companies, and not just the average consumer. My only question would be in regards to the average consumers likelihood to spend money on products like Coca-Cola if a recession were to happen. If the Economy was to tank would that then influence the Consumers likelihood to purchase a product that is merely a want and not a need? Other than that, great post!
Jess,
Thank you for your contributions on this blog. I also did my work and research on Coca-Cola. According to a source, former Coca-Cola CEO Muhtar Kent recently discussed the difficulties his company and others face due to US tax legislation. According to Kent, major capital exporting nations such as Australia, the United Kingdom, France, Germany, and Switzerland, as well as the other 21 OECD members, have territorial tax systems for their multinational corporations. A small number of governments, including the United States, use deferral to level the playing field for its foreign industry. This means, according to Rubenstein (2010, p. 11), that international corporations are only required to pay taxes in the country where their activities are headquartered, whereas American companies will be taxed twice if they chose to repatriate their abroad earnings back to the United States. "Under plans currently under consideration in the United States, the benefits of deferral would be reduced further, putting U.S. enterprises at an even greater disadvantage compared to their international competitors operating under territorial tax regimes," adds Kent ( Rubenstein, 2010, para 14). One can see how this would be detrimental to American corporations such as Coca-Cola. With one of the highest corporate tax rates and the most burdensome system for taxing revenue earned abroad, the United States poses a significant danger to the economic security of its residents and enterprises.
References
Rubenstein, D. (2010, September 8). Archived content. Retrieved July 29, 2022, from https://www.businessroundtable.org/archive/media/news-releases/remarks-by-ceomuhtar-kent-on-trade-and-global-competitiveness
Your post sheds light on how the money policy not only affects that it has on the everyday consumer but larger organizations. My chosen organization is Pepsi, the long time rival to Coke. Pepsi is combatting inflation by influencing consumers to pay more for less of their product (Pulley, 2022). Despite the rising prices due to inflation, orgainizations such as Pepsi continue to have a positive outcome.
https://www.bloomberg.com/news/articles/2022-07-12/pepsico-boosts-outlook-as-consumer-demand-remains-robust
Your post is very informative. It shows how the Fed and government fiscal policy can affect something as simple as the soft drink we choose to consume. Though Forbes magazine states, “We don’t think a recession will meaningfully hurt Coca-Cola. A recession is unlikely to hamper the demand for soft drinks significantly. With a rise in the number of social events, restaurants back to full-scale operations, and, more importantly, people venturing out, these factors are aiding beverage sales growth, a trend expected to continue going forward, as well.” I think the recession will drive all costs way up and people will have to choose between food and soft drinks.
References
Team, T. (July 11, 2022) What recession would mean for Coca-Cola stock. https://www.forbes.com/sites/greatspeculations/2022/07/11/what-a-recession-would-mean-for-coca-cola-stock/?sh=1366717a36b7
You did an excellent job with this analysis. I felt it was very informative and easy to understand. You clearly stated how the FED influences the economy through interest rates and how when interest rates are low people are able to have more spending and that impacts Coca-Cola. Same with fiscal policy, although they are different they have similar effects on the the economy and how they effect businesses like Coca-Cola. You did a fantastic job and I feel like someone who does not have a strong economic background could easily understand the information you are putting out.
This post and the analysis of the Federal Reserve as it relates to Coca Cola, is absolutely wonderful. As we can see, one thing that the federal government does, whether it is major or minor, affects the economic growth of Coca Cola. "The Coca-Cola corporation is affected by all aspects of the Federal Reserve and therefore as a corporation conducting business in the US, we must pay particular attention to the discount rate, the reserve ratio requirement, and the open market operations. Therefor Coca-Cola marketing and operation leadership focuses particularly on the production volatility by maintaining low prices, controlling logistics cost and maintaining inventory levels (2014-2015 Sustainability Report. 2015)."