Here’s an interesting item: the SEC has asked Coca-Cola ($KO) about a supply chain financing program the company has apparently launched, and how that program might affect Coke’s cash flows and financial metrics.

The questions came in a comment letter the SEC sent to Coke on June 2. Per SEC policy, comment letters aren’t posted publicly until a few weeks after they’re sent, so this particular item only came to our attention recently.

The comment letter notes that Coke’s accounts payable increased $1.1 billion in 2019 due to extension of payment terms with Coke’s many suppliers; and that “we further note from external sources that it appears you have in place a supply chain finance program.”

So, the SEC asked…

To the extent supply chain finance arrangements are reasonably likely to affect your liquidity in the future, please disclose the following:
  • The impact the arrangements have on operating cash flows;
  • The material and relevant terms of the arrangements;
  • The general risks and benefits of the arrangements;
  • Any guarantees provided by subsidiaries and/or the parent;
  • Any plans to further extend terms to suppliers;
  • Any factors that may limit your ability to continue using similar arrangements to further improve operating cash flows; and
  • Trends and uncertainties related to the extension of payment terms under the arrangements.

In addition, please consider disclosing and discussing changes in your accounts payable days outstanding to provide investors with a metric of how supply chain finance arrangements impact your working capital.

This comment letter caught our eye because it’s not the first time the SEC has recently asked a large consumer products manufacturer to say more about its supply chain financing program. Last fall the SEC sent a similar inquiry to Procter & Gamble ($PG), also asking about possible effects to cash flows and days payable outstanding.

For corporate financial executives, what’s interesting is that the SEC isn’t asking just asking simple questions about what Coke’s supply chain financing does. The SEC is outright telling Coke to say more about the program in future quarterly reports (“please disclose the following…”).

To that extent, Calcbench can help other firms in similar situations. You can visit our Data Query Tool, which lists all sorts of data points you can research. DPO is one of the liquidity ratios listed at the bottom.

In fact, when we wrote about Procter & Gamble’s change in days payable outstanding, we compare P&G to peer firms — including Coca-Cola, which actually saw more of an increase in DPO from 2018 to 2019 than Procter & Gamble.

So nobody should be surprised that the SEC is asking Coke about its supply chain financing now. And if your firm also dabbles in supply chain financing, you may want to look at what P&G and others are disclosing about their programs, so you can get ahead of the SEC sending its next comment letter to you.


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