Lesson 11 of 11
Two notes that move alone
Coca-Cola carried a $12,673 million negative translation adjustment inside equity, and debt at $43,941 million whose disclosed fair value was $39,385 million.
By Javier Sanz
Founder of ValueScreener. Built Ninety Nine, a securities services provider, and sold it to a tier-one global bank; ran operations and internationalization at Alpaca, the brokerage API.
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In one minute
- A translation adjustment moves equity without any transaction, because foreign subsidiaries are restated into dollars each year end.
- It sits in accumulated other comprehensive income, not in profit, so a company can lose billions of book value with no effect on earnings.
- Fair value is disclosed in three levels by how observable the inputs are, and a disclosed fair value is not the same as a recognised one.
Two notes near the back of a filing can move very large amounts of money and never touch the income statement. Both are worth ten minutes.
The first restates foreign operations into the reporting currency. The second says how much of what is measured at fair value was measured against a real market price.
Coca-Cola's accumulated other comprehensive loss, and what is in it
- Net foreign currency translation adjustments−$12,673m
- Pension and other postretirement liabilities−$1,188m
- Net losses on derivatives−$244m
- Unrealised losses on available-for-sale debt securities−$26m
- Accumulated other comprehensive loss= −$14,131m
Translation: a loss with no transaction
A US parent with subsidiaries in Brazil, Japan and the eurozone keeps their books in their own currencies and restates them into dollars for the group accounts. Assets and liabilities are translated at the rate on the balance sheet date, and revenue and expenses at average rates for the year.
The difference goes to a translation adjustment inside equity. It is not a gain or a loss anyone realised, and it does not pass through profit.
Coca-Cola's fiscal 2025 10-K, filed on 20 February 2026, reports net foreign currency translation adjustments of negative $12,673 million (The Coca-Cola Company FY2025 10-K, accession 0001628280-26-010047) inside accumulated other comprehensive loss at 31 December 2025, against negative $15,610 million a year earlier. Total accumulated other comprehensive loss was $14,131 million against equity attributable to shareowners of $32,169 million.
The translation component alone is 39.4 percent of the shareholders' equity, negative. It improved by $2,937 million during 2025, and no transaction caused any of that movement.
Fair value, and the three levels
The second note ranks fair value measurements by the quality of their inputs.
Level 1 is a quoted price in an active market for the identical item, which is the strongest evidence there is. Level 2 is observable inputs other than a quoted price, such as a quoted price for a similar instrument or an interest rate curve. Level 3 is unobservable inputs, meaning the company's own assumptions.
The level is a statement about evidence, not about riskiness. A Level 3 measurement is not necessarily wrong; it is one nobody outside the company can check against a market.
Measured at fair value, against disclosed at fair value
That $4,556 million gap is what happens when a company's old borrowings pay less than current market rates: the debt is worth less than its face amount to whoever holds it, and the company's obligation is unchanged.
The general rule is worth carrying. Some things are measured at fair value and the change goes somewhere, into profit or into other comprehensive income. Other things are measured at cost and their fair value is only disclosed. Reading a disclosed fair value as if it were recognised is a common error.
Check yourself
A company's foreign subsidiaries are worth less in dollars after currency moves. Where does it appear?
- As a loss in the income statement
- As a translation adjustment in accumulated other comprehensive income, inside equity
- Nowhere, until the subsidiaries are sold
Show the answer
Answer: B.
Equity falls and profit does not. Coca-Cola's translation component stood at negative $12,673 million at the end of 2025, a large fraction of shareholders' equity.What does Level 3 in the fair value hierarchy mean?
- The measurement is unreliable
- The inputs are unobservable, so the value rests on the company's own assumptions
- The asset is illiquid
Show the answer
Answer: B.
The levels rank evidence rather than risk. A Level 3 figure may be perfectly reasonable and cannot be checked against any market price by an outsider.Coca-Cola's debt is carried at $43,941 million and disclosed at a fair value of $39,385 million. What does the company owe?
- $39,385 million
- $43,941 million. The fair value is disclosed for information and never enters the accounts
- The difference between them
Show the answer
Answer: B.
The obligation is the carrying amount. The fair value says what the debt trades at, which matters to a holder and to anyone pricing a buyback, not to the balance sheet.Sources
- The Coca-Cola Company, FY2025 Form 10-K, filed 20 February 2026, accession 0001628280-26-010047, for the components of accumulated other comprehensive income at 31 December 2025 and 2024, equity attributable to shareowners, and the carrying amount and fair value of long-term debt including current maturities.
- ASC 830, Foreign Currency Matters, on translating foreign operations and the cumulative translation adjustment.
- ASC 820, Fair Value Measurement, on the three-level input hierarchy and the disclosures required at each level.
What this leaves out
- Every figure here is history, read from the filing named. Nothing is a statement about Coca-Cola today and nothing is a view on any security.
- The translation component as a share of equity is computed here from two filed figures. The company does not print that ratio.
- Translation applies where a subsidiary's functional currency is not the dollar. Where the functional currency is the dollar, remeasurement gains and losses go through profit instead, which is a different treatment with a similar name.
- The debt fair value gap is attributed here to the relationship between coupon rates and market rates. Credit spreads move it too, and the note does not decompose the difference.