nestle financial report analysis 2013 & 2014

RATIO ANALYSIS OFNESTLE PAKISTAM

UVAS BUSINESS SCHOOLPRESENTED TO

SIR SHAHID MEHMOODPRESENTED BY

ALI RAZA FAIZA GULAM RASOOLIQRA IHSANRAMEELA SHAFIQUENAILA JAMEEL SHAHRYAR AKRAMATTIYA SHOUKAT

Ratio Analysis

Introduction• Nestlé Pakistan Ltd is a subsidiary of

Nestlé S.A. – – a company of Swiss origin

headquartered in Vevey, Switzerland. • Operating in Pakistan since 1988• Food processing company• Headquarter is in Lahore• Operates the biggest milk collection

operation in Pakistan.

NESTLÉ’S FOUNDER, GERMAN-BORN PHARMACIST HENRI NESTLÉ, LAUNCHES HIS ‘FARINE LACTÉE’ (‘FLOUR WITH MILK’) IN VEVEY, SWITZERLAND. IT COMBINES COW’S MILK, WHEAT FLOUR AND SUGAR, AND NESTLÉ DEVELOPS IT FOR CONSUMPTION BY INFANTS WHO CANNOT BE BREASTFED, TO TACKLE HIGH MORTALITY RATES. AROUND THIS TIME HE STARTS USING THE NOW ICONIC ‘NEST’ LOGO.

HISTORYIn1867

History• 1979

– MILKPAK Ltd. was founded by Syed Babar Ali• 1988

– Nestlé SA acquired 40 percent shares in MILKPAK Ltd.• 1992

– Nestlé took over the running of the company• 1996

– MILKPAK Ltd. was renamed Nestlé MILKPAK Ltd.• 2005

– Nestlé MILKPAK Ltd was renamed Nestlé Pakistan Ltd.

Nestle Pakistan• It operates four production

factories. • In Sheikhupura and Kabirwala

– multi product factories• And in Islamabad and Karachi

– produce water.

Products of Nestle Pakistan

•

Ratios Analysis

Ratios analysis is important for :• Analyzing Financial Statements• Judging Efficiency• Locating Weakness• Formulating Plans• Comparing Performance

Current Ratio(working capital Ratio )

Current assets

Current liabilities

Current Ratios

•primary measure liquidity•Relates current assets to current liabilities•2:1 or higher is satisfactory

Current Ratio

2014

=0.66 : 1

2013

=0.99 : 1

ACID TEST RATIO

CURRENT ASSETS

Current liabilities

ACID TEST

RATIO

=Current Assets - inventory

•more reliable test of short-term solvency• 1:1 is satisfactory•measures the ability to use liquid assets to pay current liabilities

STOCK AND SPARE

• STOCK IN TRADE

ACID TEST RATIO

2014

= 0.26 : 1

2013

=0.48 : 1

Long-term Solvency Ratios• Solvency ratios tells……..

• Some major solvency ratios are:-

• 1) Gearing Ratio• 2) Interest Coverage Ratio• 3)Debt Ratio

1)Gearing Ratio:-The gearing ratio is a general term describing a financial ratio that compares some form of owner's equity (or capital) to borrowed funds.

Gearing Ratio:-• Description……

Long term debt

Total capital

EmployedGEARING

ratio

Equity + LTD

Gearing Ratio:-

• As described below in comparison ………

2013 2014

(17464812/29323969)*100

=59.558%6951459/19579084*100

=35.50%

2) Interest coverage ratio:-• This ratio tells us about the ability of

company to meet its interest payments……

• If it is increasing then it is good for business ,

• If it is decreasing then it is not good for business

Interest coverage ratio:--

PBFC & TAX FINANCIAL CHARGES

Interest coverage

ratio

Interest coverage ratio:-• Comparison over 2 years:-

2013: 2014:

11471270/2113096 = 5.4286 TIMES

14113463/2155637 = 6.547 TIMES

3) DEBT Ratio:-• Debt ratio measures a firm’s totalliabilities as a percentage of its total assets.• The higher percentage indicates

more leverage and more risk.

DEBT Ratio:-

TOTAL LIABILITIES

Total ASSETS

DEBT Ratio:-• Comparison over 2 years:-

2013: 2014:

(40430364/52289521 )*100=

77.3%

(39103070/52289521)*100= 75.58%

EFFICIENCY The comparison of what is actually PRODUCED or performed with what can be achieved with the same CONSUMPTION of RESOURCES (MONEY, time, LABOUR etc.). IT is an important FACTOR in determination of PRODUCTIVITY.

“Measures the Efficiency of the Business”

TRADE RECEIVABLE COLLECTION PERIOD.TRADE PAYABLE PAYMENT PERIOD. INVENTORY PERIOD.

TRADE RECEIVABLE COLLECTION PERIOD

TRADE RECEIVABLES

2013

=1.38 days

2014

= 1.03 days

365 (DAYS)SALES (CREDIT)

TRADE PAYABLES PAYMENT PERIODThe trade payables payment period ratio represents the time lag between a credit purchase and making payment to the supplier. As trade payables relate to credit purchases so credit purchases figure should be used in calculating this ratio. However as the amount of credit purchase is usually not separately available in the income statement so in that case total purchases could be used.

TRADE PAYABLE PAYMENT PERIOD

2013 2014

= 55 days

2014

= 75 days

INVENTORY PERIODIn accounting, inventory period is a measure of the average number of days inventory is

held, calculated by dividing the inventory by the average daily cost of goods sold. It is

also called days in inventory.

Inventory Conversion Period

INVENTORY COST OF SALES

2013

= 46 days

2014

= 51days

365

INVESTMENT RATIOS

• DIVIDEND YIELD (%)• DIVIDEND PAYOUT(%)• EARNING PER SHARE• PRICE / EARNING RATIO• TOTAL SHARE HOLDER RETURN

DIVIDEND YIELD (%)

ANNUAL DIVIDEND PAID PER

SHARE

MARKET PRICE PER

SHARE

DIVIDEND YIELD

The dividend yield is a financial ratio that measures the amount of cash dividends distributed to common shareholders relative to the market value per share.

DIVIDEND PAYMENT FTOTAL NUMBER OF

SHARE OUTSTANDING

CALCULATION

2014

78/1700

=0.111*100

=11.1%

2013

=75/1700

=0.0441*100

=4.41%

DIVIDEND PAYOUT (%)

TOTAL DIVIDEND

PAID

PROFIT AFTER TAX & PRFERENCE DIVEDEND

DIVIDEND PAYOUT

The dividend payout ratio measures the percentage of net income that is distributed to shareholders in the form of dividends during the year.

CALCULATION

TOTAL DIVIDEND PAID

PROFIT AFTER TAX & PRFERENCE DIVEDEND

2014

=

=89%

2013

= 0 .92

=92%

EARNING PER SHARE

Definition:“This ratio tells us about earning on “1” share”.

EARNING PER SHARE

=5866763000 / 45349584= 129.36

=7929271000 / 45349584= 174.8

2013

2014

=Profit after tax /

no. of share

outstanding

Definition of 'Price / Earnings Ratio - P/E Ratio'

A valuation ratio of a company's current share price compared to its per-share earnings.

PRICE EARNING RATIO

=Market price per

share\ earning

per share

=1700/127.36=13.34 TIMES

=1700/174.8=9.7 TIMES

2013

2014

TOTAL SHARE HOLDER RETURN

• The internal rate of return of all cash flows to an investor during the holding period of an investment.

TOTAL SHAREHOLDER RETURN

• Comparison over 2 years:-

2013: 2014:

=5439789+249527/10= 5464741

=7032581+249527/10=7057533.7

Return on total capital employed (ROCE) %

A ratio that indicates the efficiency and profitability of a company's capital investments.

Ways to calculate

OR

PROFIT MARGIN

ASSETS TURN OVER

Capital employed

EQUITY

+LONG TERM

DEBTS OF COMPANY

=11859157+22429375=34288532

=11325830+12627625=23953455

2013

2014

ROCE %

2014

=58.9%

2013

=33.45%

ROCE

Profit margin= EBIT / SLAES

Assets turn over=sales / capital employed

ROCE= profit

assets turn

over

PROFIT MARGIN %

201311471270/86226869

=0.13303591

201414113463/96457743

=0.146317574

PROFIT MARGIN=EBIT / SALES

ASSETS TURNOVER

2014=96457743/23953455

=4.02688226

SALES /

CAPITAL

EMPLOYED

2013=86226869/34288532

=2.514743676

ROCE %

ROCE= PROFIT

ASSETS TURNOVE

=0.133*2.514=33.45%

=0.1463*4.0268= 58.9 %

2013

2014

Return On Equity

“Desired to work out the profitability of the company”

Formula:

RETURN ON EQUITY

Net profit /

equity

=49.4%2013

2014=62.79%

GROSS PROFIT RATIO

“Ratio of gross profit to Net sales”

Formula

Net sales= Sales –Returns Inward

Gross profit margin %

2014

=62.79%

Gross profit

/Sales*100

2013

=49.4%

Operating expense %

100salesOperating expense

Operating expense

ratio

Operating expense

2014

=13.69%

2013

=14.71%

Operating Profit Ratio

“Calculated by dividing the Operating Net Profit by Sales”

Formula:(Operating Profit/Net sales)*100

Determined the Ability Of

the Management

in Running the Business

Operating Profit Ratio

2013=11471270/86226869*100

=13%

2014 14113463/96457743

=14%

(Operating

Profit/Net

Sales)*100

CONCLUSIONThe company performance not bad and still nestle is the market leader in Pakistan . But the company have more chance to increase its growth and market share.So we can say company performance is satisfactory.