accounts project nestle

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ACKNOWLEDGEMENT

We express a deep sense of gratitude to our Professor Gunjan Mehta for her guidance and valuable inputs in this Project Evaluation

NESTLE INDIA PRIVATE LIMITED

Nestle was founded in Switzerland, in 1867 as a single product producer of infant cereal. Today, Nestle has grown to become the worlds largest and most diversified food Company, and is about twice the size of its nearest competitor in the food and beverages sector.Nestle IndiaAfter nearly a century-old association with the country, today, Nestl India has its presence across India with 7 manufacturing facilities and 4 branch offices spread across the region. As a subsidiary of Nestle S.A of Switzerland, it has earned the trust & respect of the of the Indian society and is acknowledged amongst Indias Most Respected Companies and also amoungst The top Wealth creators of India. Over a period of nine decades, the companys activities have also facilitated direct and indirect employment providing livelihood to over one million people from every strata of the society- farmers, suppliers, service providers, etc. Nestle India manufactures a wide range of product Milk Products Prepared dishes & cooking aides Beverages Chocolates & ConfectioneryNestle CSR ActivitiesTo combat the challenge of rising food and commodity prices, business and government need to engage each other in new and more productive ways so that we can:

Double food production by 2050;

Head off a looming global water crisis; and

Stem unacceptable levels of both hunger and obesity around the world.

Above all, Nestl is dedicated to bringing the joy of Good Food, Good Life to people throughout their lives, throughout the world.

FINANCIAL ANALYSIS

Financial Statement Analysis: It can be used as a very useful tool for understanding a firms performance and condition. Each financial statement contains a wealth of information which when analyzed and interpreted, can provide valuable insights into a firms performance and position.

Use of financial Analysis:

Assessing Corporate Excellence: There are nine parameters, on which companies are ranked, Increase in market capitalization over 12 months Increase in revenue over an accounting period Increase in profit after tax Return on net worth Compound annual growth rate Price earnings ratio Market capitalization Sales for the latest financial year Profit after tax for the latest financial year;

They collectively assess corporate excellence

Judging Creditworthiness: of the customer, by assigning points in the range of 0-15

Forecasting bankruptcy: To analyze the future of its operations and to assess whether they are profitable in the long run so as to prevent bankruptcy, if not then it could lead to shut down of the entire business.

Valuing Equity Shares: A technique of empirically relate price-earnings multiple to key financial variables.

Predicting Bonds Ratings: Financial Ratios are used for predicting bond ratings, hence, eacEstimating Market Risk

The purpose of vertical analysis is to be able to fulfill the basic uses of financial analysis. The absolute amounts dont have much use in comparing with other companies, as a large firm for one may not be large firm for the other.E.g For Company A, its Net Sales 1000 C.O.G.S 800This data is sufficient to calculate Gross Profit, however, to analyse Income statement for either the purpose of comparing with its previous years, it is important to have a common denominator, which in this case is Net sales. Hence below financial analysis is done taking Net sales into a common denominator i.e- conversion into 100.

Income statement forthe year ended December 312010 & 1009

ItemsAmount (Rs.)Conversion in percentage terms(with respect to Net Sales)(approximate values)

2010200920102009

Net Sales62,973,96651671743100100

Cost of goods sold(materials consumed &pur. Of goods + adjustment due to dec. in stock)(30555678)(24483772)(48.5)(47.3)

Gross profit(net sales C.O.G.S)324182882718797151.452.6

Administratative& other expenses(20783507)(16591844)(33)(32.1)

Profit before impairment, contingencies and taxation(G.P Admn& other exp)116347811059612718.4720.5

Impairment & contingencies(183679)(426369)(0.29)(0.82)

PBT11451102916975818.117.7

Total Expenses(Current tax, Deferred tax & fringe benefit tax)(3264454)

(2619730)(5.1)

(5.0)

Profit After Tax

818664865500281312.6

Note :Conversion of C.O.G.S = (C.O.G.S/Net sales)*100 and similarly for the rest.

Vertical Analysis:

Similarly with the Balance sheet we have taken 2 common denominators one , taking the total of shareholders funds as 100 and the total of Application of funds as 100.

Balance sheetAs on December 312010 & 2009

ItemsAmount (Rs.)Conversion

2010200920102009

Shareholders Funds

8554139

581265096.394.7

Shareholders finds

Deferred Tax3327243199723.75.2

Total88868636132622100100

Application of funds Fixed assets Investments Current Assests Current liabilities

13616453150678810459697(16696075)975832120325558565592(14223846)153.216.9117.6(187.8)

159.133.1139.6(231.9)

Total88868636132622100100

Findings of vertical analysis:Though there has not been any minute changes in the Income Statement between the years, the major changes has been with regard to Impairment & contingencies is a positive change as impairment/expense has declined.Investments has declined could be due to inadequate funds available for investing, thus it is a negative for the Co. Similarly, decline in liabilities is favorable due to repayment of old creditors.

Horizontal Analysis of Nestle with competitors

GlaxoSmithKline, Britannia, Kwality Diary are the major competitors of Nestle. We have compared Nestle with GlaxoSmithKline and Britannia in terms of current assets, net worth, total liabilities, sales, profit. NestleGlaxobritannia

Current assets(in crores)589.66379.63397.22

Percentage difference in current assets of nestle and Glaxo = (589.66-379.63)/379.63 = 55%% difference between nestle and Britannia = (589.66-397.22)/397.22 = 48 %We see that worth of assests of nestle is 55% more than Glaxo and 48 % more than Britannia.

NestleGlaxobritannia

Net worth (in crores)581.27960.04451.30

Percentage difference in net worth of nestle and glaxo = (960.04-581.27)/581.27 = 65 %Percentage difference in net worth of nestle and Britannia = (581.27-451.30)/451.30 = 28 %Nestle worth is more than Britannia by 28 % but less than Glaxo by 65 %


Total liabilities(in crores)581.27481.90383.76

Percentage difference in total liabilities of nestle and glaxo = (666.39-481.90)/481.90 = 38 %Percentage difference in total liabilities of nestle and Britannia = (666.39-383.76)/383.76 = 73 %


Net profit(in crores)655299.85145.29

difference in net profit of nestle and glaxo = (655-299.85)/299.85 = 1.18 cr difference in net profit of nestle and Britannia= (655-145.29)/145.29 = 3.50 crprofit of nestle is 1.18 cr more than the glaxo and 3.50 cr more than Britannia

RATIO ANALYSIS PROFITABILITY RATIO LIQUIDITY RATIO EFFICIENCY RATIO CAPITAL STRUCTURE INVESTMENT RATIO

PROFITABILITY RATIOGROSS PROFIT RATIO: Gross profit ratio shows the efficiency of the firm. This ratio shows the percantage os gross profit over sales. As Gross profit is befor tax and expenses so as high this ratio goes it shows the strength of the comapny to pay off its expenses and taxes.GROSS PROFIT RATIO = (GROSS PROFIT/ SALES)* 100

Nestle (FY 2009)Nestle (FY 2008)

17.58%17.20%

In our study the ratio has increased form 17.20% to 17.58% which shows that company's performance has improved.

NET PROFIT RATIO: The net profit margin ratio is the net profit as a proportion of sales. It shows the effectiveness of the business at converting the sales into profit. The higher the ratio the higher is the business performance.

NET PROFIT RATIO = (NET PROFIT/ SALES)* 100


12.67%12.24%

In this case the Net Profit Ratio of Nestle has increased fro 12.24% to 12.67% displaying that the business has been much more effective in the later year.RETURN ON CAPITAL EMPLOYED: The relationship between profitability and investment is considered the key ratio by many analysis. It provides a broad measure of managements operating and financial success. This ratio shows how well the capital is used to generate profit. Higher the ratio implies that high profits are earned by less capital invested in the business.RETURN ON CAPITAL EMPLOYED = (NET PROFIT BEFORE TAX/ CAPITAL EMPLOYED)* 100


160.29%163.97%

In this case the Return on Capital has decreased from 163.97% to 160.29% showing that the capital employed wasn't used effectively to generate returns in the later year.

LIQUIDITY RATIO

CURRENT RATIO: The ratio indicates the companys ability to meet its short term debt obligations. A higher ratio indicates that comapny has the ability to pay off its obligations in time but a lower ratio says that the company is not a position to pay of its debts. 2:1 is considered as an appropriate ratio for a company.CURRENT RATIO = CURRENT ASSETS / CURRENT LIABILITY


.60 TIMES.66 TIMES

In our case the ratio is approximately 6:10 which is near to 2:1 hence shows company is in a normal position to pay off its short term debts. QUICK RATIO: The acid test or quick ratio measures the ability of a company to use its near cash or quick assets to immediately extinguish its current liabilities. Quick assets include those current assets the presumely can be quickly converted to cash at close to their book value. Such items are cash, stock, investments, and accounts receivable.QUICK RATIO = LIQUID ASSETS / CURRENT LIABILITY


.24 TIMES.29 TIMES

The standard ratio is 1:1 but in our case the ratio comes out to be decreased from 0.29 to 0.24 showing that the company's ability to pay off its liabilities has decreased significantly which is not a good sign.

EFFICIENCY RATIO

DEBTORS TURNOVER RATIO: Sundry debtors always hold more core part in the total current assets of the firm. This ratio helps the management to find out that in how many days average sales are locked up in the amount of debtors. The higher this ratio indicates that management is efficient enough to handle debtors or how liquid the debtors are.DEBTORS TURNOVER RATIO = SALES / AVERAGE DEBTORS


93.68TIMES87.37TIMES

In this case the ratio has significantly increased from 87.37 to 93.68 times hence indicating that in the later year Nestle has been efficient enough to turn its debtors into liquid assets.AVERAGE COLLECTION PERIOD: The average collection period ratio represents the average number of days for which a firm has to wait before its debtors are converted into cash. The lesser the days the better it is for the company as the cash comes back early.AVERAGE COLLECTION PERIOD = 365/ DEBTOR TURNOVER RATIO


3.9 DAYS4.2 DAYS

In our case the period has decreased from 4.2 days to 3.9 days indicating that debtors are turning into cash faster as compared to the last financial year.

STOCK TURNOVER RATIO: Stock turnover ratio and inventory turnover ratio are the same. This ratio is a relationship between the cost of goods sold during a particular period of time and the cost of average inventory during a particular period. A higher ratio indicates that the investment in the stock jas been judicious enough to get enough sales.

STOCK TURNOVER RATIO = COST OF GOODS SOLD/ AVG INVENTORY


11.61TIMES11.39TIMES

In our case the ratio has increased from 11.39 to 11.61 times indicating that the investments in stock have been showing better results in the later year.

AVERAGE DAYS INVENTORY: The number of days inventory is also known as average inventory period and inventory holding period.A high number of days inventory indicates that their is a lack of demand for the product being sold.A low days inventory ratio (inventory holding period) may indicate that the company is not keeping enough stock on hand to meet demands.AVERAGE DAYS INVENTORY = 360/ STOCK TURNOVER RATIO


31DAYS31.6DAYS

In our case the days have gone down from 31.6 to 31 days implying that the company's stock holding has decreased.FIXED ASSET TURNOVER RATIO: A financial ratio of net sales to fixed assets. The fixed-asset turnover ratio measures a company's ability to generate net sales from fixed-asset investments - specifically property, plant and equipment. A higher fixed-asset turnover ratio shows that the company has been more effective in using the investment in fixed assets to generate revenues.

FIXED ASSET TURNOVER RATIO = SALES / FIXED ASSETS


3.24 TIMES3.20 TIMES

In our case the ratio has increased from 3.20 to 3.24 so the fixed assets are being used in a better manner than previous yearCAPITAL STRUCTURE RATIODEBT EQUITY RATIO -It indicates what proportion of equity and debt the company is using to finance its assets. A high debt equity ratio generally means that a company has been aggressive in financing its growth with debt.DEBT EQUITY RATIO = DEBT/ EQUITY


< .01< .01

INVESTMENT RATIO

EARNING PER SHARE: The portion of a company's profit allocated to each outstanding share of common stock. Earnings per share serve as an indicator of a company's profitability.EARNING PER SHARE =( NET PROFIT AFTER TAX LESS PREFRENCE DIVIDEND)/ NUMBER OF SHARES OUTSTANDING


67.9455.39

Balance Sheet of GlaxoSmithKline Consumer Healthcare------------------- in Rs. Cr. -------------------

Dec '10Dec '09Dec '08Dec '07Dec '06

12 mths12 mths12 mths12 mths12 mths

Sources Of Funds

Total Share Capital42.0642.0642.0642.0642.06

Equity Share Capital42.0642.0642.0642.0642.06

Share Application Money0.000.000.000.000.00

Preference Share Capital0.000.000.000.000.00

Reserves917.98863.04718.82604.29500.66

Revaluation Reserves0.000.000.000.000.00

Networth960.04905.10760.88646.35542.72

Secured Loans0.000.000.000.000.00

Unsecured Loans0.000.000.000.000.00

Total Debt0.000.000.000.000.00

Total Liabilities960.04905.10760.88646.35542.72



Application Of Funds

Gross Block598.96558.48539.47523.68521.69

Less: Accum. Depreciation396.71364.00329.24297.65270.32

Net Block202.25194.48210.23226.03251.37

Capital Work in Progress108.3337.7916.3317.316.53

Investments0.000.000.00297.84219.68

Inventories312.00266.03277.17194.82145.57

Sundry Debtors50.5331.3643.2527.3628.09

Cash and Bank Balance17.1036.6020.4832.1736.42

Total Current Assets379.63333.99340.90254.35210.08

Loans and Advances852.76620.1573.6162.1580.77

Fixed Deposits959.00783.20450.5061.5011.50

Total CA, Loans & Advances2,191.391,737.34865.01378.00302.35

Deffered Credit0.000.000.000.000.00

Current Liabilities481.90393.79268.24243.65216.88

Provisions1,060.04670.7162.4529.1720.32

Total CL & Provisions1,541.941,064.50330.69272.82237.20

Net Current Assets649.45672.84534.32105.1865.15

Miscellaneous Expenses0.000.000.000.000.00

Total Assets960.03905.11760.88646.36542.73

Contingent Liabilities335.0959.9272.857.033.86

Book Value (Rs)228.28215.21180.92153.69129.05

Balance Sheet of Nestle India------------------- in Rs. Cr. -------------------



Sources Of Funds

Total Share Capital96.4296.4296.4296.4296.42

Equity Share Capital96.4296.4296.4296.4296.42

Share Application Money0.000.000.000.000.00

Preference Share Capital0.000.000.000.000.00

Reserves484.85376.93322.01292.47257.72

Revaluation Reserves0.000.000.000.000.00

Networth581.27473.35418.43388.89354.14

Secured Loans0.000.822.8716.2714.30

Unsecured Loans0.000.000.000.000.00

Total Debt0.000.822.8716.2714.30

Total Liabilities581.27474.17421.30405.16368.44



Application Of Funds

Gross Block1,640.791,404.851,179.771,058.27942.40

Less: Accum. Depreciation744.59651.85577.96516.48468.63

Net Block896.20753.00601.81541.79473.77

Capital Work in Progress79.63109.1773.7038.2422.83

Investments203.2634.9094.4077.77104.43

Inventories498.74434.91401.22276.22253.10

Sundry Debtors64.1945.5953.4955.7630.52

Cash and Bank Balance26.7312.6615.756.533.64

Total Current Assets589.66493.16470.46338.51287.26

Loans and Advances184.85162.67186.23175.12194.33

Fixed Deposits128.86181.0322.0169.8233.00

Total CA, Loans & Advances903.37836.86678.70583.45514.59

Deffered Credit0.000.000.000.000.00

Current Liabilities666.39582.44529.51440.82381.68

Provisions834.79677.32497.79395.28365.50

Total CL & Provisions1,501.181,259.761,027.30836.10747.18

Net Current Assets-597.81-422.90-348.60-252.65-232.59

Miscellaneous Expenses0.000.000.000.000.00

Total Assets581.28474.17421.31405.15368.44

Contingent Liabilities63.0784.9063.2735.9350.04

Book Value (Rs)60.2949.0943.4040.3336.73

Key Financial Ratios of Nestle India------------------- in Rs. Cr. -------------------


Investment Valuation Ratios

Face Value10.0010.0010.0010.0010.00

Dividend Per Share48.5042.5033.0025.5025.00

Operating Profit Per Share (Rs)105.3186.8170.8455.1752.11

Net Operating Profit Per Share (Rs)533.31448.96363.11292.40256.71

Free Reserves Per Share (Rs)50.2439.0433.3730.3126.70

Bonus in Equity Capital76.1476.1476.1476.1476.14

Profitability Ratios

Operating Profit Margin(%)19.7419.3319.5018.8620.29

Profit Before Interest And Tax Margin(%)17.4817.0717.2416.3917.83

Gross Profit Margin(%)17.5817.2020.0519.4421.02

Cash Profit Margin(%)15.0814.4313.8513.4314.66

Adjusted Cash Margin(%)15.0814.4313.9613.6114.64

Net Profit Margin(%)12.6712.2411.7311.0912.39

Adjusted Net Profit Margin(%)12.6712.2411.8411.2812.36

Return On Capital Employed(%)160.29163.97150.33120.01127.18

Return On Net Worth(%)112.68112.8398.9081.0387.42

Adjusted Return on Net Worth(%)114.98113.4799.8282.3887.22

Return on Assets Excluding Revaluations60.2949.0943.4025.3927.75

Return on Assets Including Revaluations60.2949.0943.4025.3927.75

Return on Long Term Funds(%)160.29164.25151.36125.03132.32

Liquidity And Solvency Ratios

Current Ratio0.600.660.660.670.66

Quick Ratio0.240.290.230.310.28

Debt Equity Ratio----0.010.040.04

Long Term Debt Equity Ratio----------

Debt Coverage Ratios

Interest Cover666.25473.22741.201,103.092,208.29

Total Debt to Owners Fund--0.000.010.040.04

Financial Charges Coverage Ratio745.81529.44828.671,253.462,476.14

Financial Charges Coverage Ratio Post Tax548.92382.28572.74866.201,727.72

Management Efficiency Ratios

Inventory Turnover Ratio11.6111.398.7910.289.87

Debtors Turnover Ratio93.6887.3764.0965.3587.32

Investments Turnover Ratio11.6111.3910.0212.0112.02

Fixed Assets Turnover Ratio3.243.206.105.775.61

Total Assets Turnover Ratio9.7510.299.528.027.67

Asset Turnover Ratio3.243.203.112.812.76

Average Raw Material Holding30.9525.1931.0325.5726.26

Average Finished Goods Held22.1726.4628.5424.2625.96

Number of Days In Working Capital-41.86-35.17-35.85-32.26-33.83

Profit & Loss Account Ratios

Material Cost Composition48.2149.7550.3747.8245.88

Imported Composition of Raw Materials Consumed9.345.966.7111.2414.55

Selling Distribution Cost Composition10.0410.389.719.8710.85

Expenses as Composition of Total Sales6.347.799.339.7810.40

Cash Flow Indicator Ratios

Dividend Payout Ratio Net Profit83.5289.7689.5088.9788.78

Dividend Payout Ratio Cash Profit71.3976.5275.8173.5075.01

Earning Retention Ratio18.1510.7511.3312.5011.03

Cash Earning Retention Ratio29.8323.8524.7927.5024.86

AdjustedCash Flow Times--0.000.010.040.04


Earnings Per Share67.9455.3942.9232.6832.11

Book Value60.2949.0943.4040.3336.73

Sources:http://www.moneycontrol.com/competition/nestleindia/comparison/NI

http://www.moneycontrol.com/india/stockpricequote/foodprocessing/glaxosmithklineconsumerhealthcare/GSC04

http://www.nestle.in/pdf/NESTLE%20AR%20LRP1.pdf

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