financial ratios nestle.docx

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Group member Sehrash Bashir (34) Saboor Hussain(08) MBA (3.5) 5 th semester Submit to: Sir Mohsin Faraz Project on financial ratio analysis of nestle

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Page 1: financial ratios nestle.docx

Group member Sehrash Bashir (34) Saboor Hussain(08)

MBA (3.5) 5th semester Submit to: Sir Mohsin Faraz

Project on financial ratio analysis of nestle

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S.No. Contents1 Executive summary2 Vision and strategies3 Mission Statement4 Statements Financial5 Balance Sheet6 Profit and Loss Account7 Ratio Analysis

8 Liquidity Ratio9 Assets utilization Ratio10 Capital Structure Ratio

11 Market value Ratios12 Recommendation

13 conclusion

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NESTLE PAKISTAN

Executive Summary:

Nestle is undoubtedly one of the most proficient food leading companies in not only Pakistan but all over the world. The employees at Nestle have finagled to retain their standards to the most high-pitched level possible in the market. They make sure of the fact that the product of Nestle is definitely the BEST TO USE. Nestle has an assortment of products to offers and they have best to offer their product.

This project assigned by our Sir. Mohsen to identify the company position. For this project our main concern was to study the financial position or performance of the Nestle .I get the information about the Nestle Company from the internet. We study the company financial position and performance through RATIO ANALYSIS of the company. The ratios analysis is also help to the investor whether it is good to invest in the Nestle company or not and also to the financial institution that they finance to the Nestle company or not. Like Debt Management Ratio help to financial institutions, Market value ratio is provide the information to investors or Shareholders.

In the end I made some Recommendations based on me my analyses is to make them improve their overall revenue rate or performance.

INTRODUCTION

Nestle is the world's leading nutrition, health and wellness company today and was founded in 1866 by Henri Nestlé. It has employed around 250,000people and has factories or operations in almost every country in the world. Nestle is the world's leading nutrition, health and wellness company today. Being the world's leading bottled water company is based on a firm economic model: strong brands, global presence, innovation capacity, environmental stewardship and passionate people

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Financial Statements

Balance Sheet 2008 2009 2010 2011 2012 Rupees(000) Rupees(000) Rupees(000) RS.(000)

EQUITY AND LIABILITIES Share Capital and Reserves Authorized Capital 750,000 750,000 750,000 750,000 750,000Issued, subscribed and paid up capital 453,496 453,496 453,496 453,496 453,496Share premium 249,527 249,527 249,527 249,527 249,527General reserve 280,000 280,000 280,000 280,000 280,000Accumulated profit 3,405,824 3,443,932 4,598,850 6,629,393 10,577,241

4,388,847 4,426,955 5,581,873 7,612,416 11,560,264Noncurrent liabilitiesLong term finances 5,139,875 4,210,750 5,573,750 7,848,050 15,366,964Deferred taxation 1,319,333 1,531,945 1,705,508 2,476,871 3,304,091Retirement benefits 351,968 215,925 229,114 44,03,077 6,37,985Liabilities against assets subject to finance lease 77,582 118,275 55,415 13,690 --

6,988,758 6,076,895 7,563,787 10,778,988 19,309,040Current liabilitiesCurrent portion of: Current portion of non current liabilities 54,042 1,322,442 57,786 41,587 41,686Short term borrowings from associated company – unsecured - 2,105,375 2,143,750 - -Short term borrowings – secured 300,000 - - 4,950,000 3,900,000Short term running finance under mark–up arrangements – secured 1,924,287 756,362 2,780,843 41,75,236 5,937,374Customer security deposits – interest free 127,884 105,686 128,857 149,791 184,441Trade and other payables 2,798,185 3,746,286 4,633,932 7,343,507 9,743,567Interest and mark–up accrued 102,173 46,979 61,404 128,334 196,345

5,306,571 8,083,130 9,806,572 16,788,455 20,003,413CONTINGENCIES AND COMMITMENTS:

16,684,176 18,586,980 22,952,232 35,179,859 50,872,717

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Balance Sheet 2008 2009 2010 2011 2012 Rupees.(000)

Assets:Tangible fixed assets Property, plant and equipment 9,464,373 10,700,874 11,370,611 16,230,528 21,970,957Capital work–in–progress 1,382,401 914,956 3,076,472 53,70,56111,549,623

10,846,774 11,615,830 14,447,083 21,601,089 33,520,580Intangible assets 49,744 7,106 16,735 11,954 7,173Long term loans and advances 98,544 113,490 125,674 161,982 236,639Long term deposits and prepayments 5,036 5,026 9,817 9,817 98,663Goodwill - - - - 104,178Current assetsStores and spares 804,647 868,984 1,050,804 1,278,416 1,373,239Trade debts 456,813 241,715 126,499 276,858 491,842Stock in trade 2,488,573 3,895,038 4,602,019 7,064,170 8,025,653Current portion of long term loans and advances 26,615 21,012 19,149 30,914 45,735Advances, deposits, prepayments and other receivables 1,488,103 1,503,009 2,048,936 4,042,634 6,208,184Cash and bank balances 419,327 315,770 505,516 702,025 760,831

5,684,078 6,845,528 8,352,923 13,395,107 16,905,48416,684,176 18,586,980 22,952,232 35,179,859 50,872,717

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Profit and Loss Account 2008 2009 2010 2011 2012 Rupees(000)

Sales – net 34,183,847 41,155,822 51,487,302 64,824,364 79,087,696Cost of goods sold -25,231,532 -29,256,902 -37,608,733 -48,099,046 -57,564,265Gross profit 8,952,315 11,898,920 13,878,569 16,725,318 21,523,431Distribution and selling expenses -3,890,352 -5,238,488 -5,709,078 -6,862,113 -8,787,508Administration expenses -956,816 -1,085,121 -1,311,637 -1,405,298 -1,769,803Operating profit 4,105,147 5,575,311 6,857,854 8,457,907 10,966,120Finance cost -557,325 -442,050 -513,081 -1,050,355 -1,827,969Other operating expenses -1,382,138 -1,091,149 -819,084 -1,064,233 -1,320,319

-1,939,463 -1,533,199 -1,332,165 -2,114,588 -3,148,288Other operating income 61,800 144,145 170,491 159,545 160,142Profit before taxation 2,227,484 4,186,257 5,696,180 6,502,864 7,977,974Taxation -674,590 -1,181,124 -1,583,331 -1,834,507 -2,113,463Profit after taxation 1,552,894 3,005,133 4,112,849 4,668,357 5,864,511Earnings per share - basic and diluted (Rupees) 34.24 66.27 90.69 102.94 129.32

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Ratio analyses:

A tool used by individuals to conduct a quantitative analysis of information in a company's financial statements. Ratios are calculated from current year numbers and are then compared to previous years, other companies, the industry, or even the economy to judge the performance of the company. Ratio analysis is predominately used by proponents of fundamental analysis.

Liquidity ratios:

Current ratio= Current Assets/ Current Liabilities

2008 2009 2010 2011 2012 1.07:1 0.85:1 0.85:1 0.80:1 0.85:1

Interpretation:

In 2009 the current ratio has increasing trend, and the nestle has the ability to pay 0.85 against 1 rupees and in 2010 the company have same current ratio. In 2011 the current ratio decrease due to increase in current liabilities as compare to current assets and the company have the ability to pay 0.80 against 1 rupees liability. But in 2012 the current ratio increase due to increase in the current assets as compare to current liabilities.

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Quick ratio:

Quick ratio = Current Assets –Inventory / Current Liabilities

2008 2009 2010 2011 2012 0.60:1 0.37:1 0.38:1 0.38:1 0.44:1

Interpretation:

The quick ratio is decrease in 2009 because nestle increase in current liabilities as compare to the current assets , and the company have the ability to pay current assets without relying on inventory . In 2010 the current ratio increase due to increase in current assets and in 2011 company have same quick ratio. In 2012 Nestle increase the quick ratio and Nestle have the ability to pay current liability without relying on inventory.

Net working capital:

2008 2009 2010 2011 2012377,507 -1,237,602 1,453,649 -3,393,348 -3,097,929

Net working capital is also another measure of the liquidity of the company. Net working capital is the difference between the current assets and current liabilities. It is just like the current ratio indicating either the company has enough current assets to pay its current liabilities. If the current assets are more than the current liabilities then company has strong liquidity position indicating it has the ability to

current Asset - current lib.

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discharge it current liabilities. Net working capital is also going increase every year which means APL have enough cash after payment of current liabilities. So the liquidity position is strong.

Cash ratio based on current liabilities

2008 2009 2010 2011 20120.07902033 0.03906531 0.0515487 0.04181594 0.03803506

Cash and cash equivalents are current assets excluding inventory, prepayments and trade debts. The above ratio shows variation due to inflow or outflow of cash in business. In 2010 the ratio is very high but in 2012 ratio is very low as compared to other years which means in 2010 APL has more cash and cash equivalents but in 2012 APL have low cash and cash equivalents to pay current liabilities.

Activity Analysis

Inventory Turnover

Inventory Turnover Ratio = Sales/Inventory

2008 2009 2010 2011 201213.74 time 10.57 time 11.19 time 9.18 time 9.85 time

Cash and cash equivalents Current Liabilities

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Interpretation:

In 2008 the inventory turnover ratio reduce due to increase in inventory and inventory converted in to sale less as compare to 2008.In 2009 inventory turnover ratio increase means inventory is more converted into sale as compare to 2008.But in 2010 inventory turnover is also increase. In 2011 reduce due to decrease in cost of goods sold. But also increase in 2012 as compare to 2011.

Days Sales Outstanding (DIO)

Days sales outstanding = Receivables/Average Sale per day

2008 2009 2010 2011 2012 4.81 days

2.11 days

0.88 days 1.54 days

2.24 days

Interpretation: In 2009 Nestle company Days outstanding ratio is low as compare to 2008 and company can recover the sale receivables more quickly and in 2010 the ratio is more low as compare to 2009.In 2011 the ratio increase which show that the company sales receivable not converted into cash quickly as compare to 2010, and this ratio also increase in 2012 .

Fixed Asset Turnover

Fixed Assets Turnover= Sales/Net Fixed Assets

2008 2009 2010 2011 2012 3.15 time

3.54 time

3.56 time 3.00 time

2.36 time

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Interpretation:

In 2009 the fixed assets turnover ratio is high as compare to 2008 means the company use more fixed assets as compare to 2008 and also in to 2010.But in 2011 the ratio is reduce which show that the company use less fixed assets to generate sales and in 2012 the ratio is reduce which is good because company use generate more sale by using less fixed assets.

Current asset turnover =_Sale___________current Asset

2008 2009 2010 2011 20126.01 times 6.01 times 6.16 times 4.83 times 4.67 times

Cash and cash equivalents are current assets excluding inventory, prepayments and trade debts. The above ratio shows variation due to inflow or outflow of cash in business. In 2010 the ratio is very high but in 2012 ratio is very low as compared to other years which means in 2010 APL has more cash and cash equivalents but in 2012 they have low cash and cash equivalents to pay current liabilities.

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Total Asset Turnover

Total Assets Turnover= Sales/Total Assets

2008 2009 2010 2011 2012 2.05 time

2.21 time

2.24 time 1.84 time

1.55 time

Interpretation:

The ratio show how mach total assets use to generate the sale. In 2009 the Total assets turnover ratio is high compare to 2008 which show that the company use more fixed to generate the sale , the ratio of 2010 is increase as compare to 2009. In 2011 the ratio reduce which show that the company generate more sale by using less total assets and in 2012 the ratio reduce more compare to 2011.

Solvency Ratios:

Total Debt to Total Assets

Total Debt to Total Assets= (Total Debt/Total Assets)*100

2008 2009 2010 2011 2012 73.69% 76.18% 75.68% 78.36% 77.28%

Interpretation:

In 2009 the Total debt to total assets ratio is high as compare to 2008 which show that the 76.18% company assets are generated from the total debt . In 2010 the ratio reduce which show that the generate more assets from less total debt

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compare to 2009.But high in 2011 and produce 78.68 % total assets from total debt . In 2012 the ratio decrease from 2011 which is good for the nestle company.

Time-Interest-Earned Ratio:

Time-Interest-Earned Ratio= EBIT/Interest Charges

2008 2009 2010 2011 2012 5.00 time

10.47time

12.10 time

7.19 time

5.36 time

Interpretation:

The time earned ratio is high in 2009 as compare to 2008 and which show that the company has ability to pay its interest charges easily compare to the 2008 and also increase in 2010 which that the company is increase and pay interest charges .But the ratio is reduce in 2011 which show that the company interest charges increase and 2012 interest charges are increase that’s way the ratio is reduce as compare to 2011.

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EBITDA coverage Ratio:

EBITDA coverage Ratio= EBITDA +Lease payment/Interest charges +Lease payment+Principle amount

2008 2009 2010 2011 2012 1.18 time

1.81 time

1.71 time 1.41 time

1.02 time

Interpretation:

In 2009 the EBITDA coverage ratio is higher than the ratio of 2008 which show that the Nestle company earning is higher to met the loan and its charges but this ratio decrease in 2010 and show that the cash flow available is flow for the payment of fixed and financial charges. The ratio is also decrease in 2011 and 2012.

LTD to fixed assets = Long term debts / fixed Asset

2008 2009 2010 2011 20122.04887835 2.214229 2.243237 1.842656 1.554619

Interpretation:

Long term liability to fixed asset ratio is one of the measures of the solvency of the company. It measures that how much fixed assets are financed by the long term liabilities. This ratio is in increasing trend throughout the five years. In 2009 2.214229 mfixed assets and in 2013 1.554619 fixed assets are financed by long term liabilities.

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Profitability Ratios:

Profit Margin on Sales = ( Net income/Sales)*100

2008 2009 2010 2011 2012 4.54% 7.30% 7.99% 7.20% 7.42%

Interpretation:

In 2009 the Profit margin on sales ratio is higher than the ratio of 2008 that show that 7.30% income is generate from 1 rupees sale .That ratio is increase in 2010 and show that the company that the net income is increase per rupees sale. But ratio decrease in 2011 , the net income decrease as compare to 2010.But ratio increase in 2012 and company can get 7.20% net income from 1 rupees.

Return on Total Assets:

Return on Total Assets Ratio = Net income/Total Assets

2008 2009 2010 2011 2012 9.31% 16.17% 17.92% 13.27% 11.53%

Interpretation:

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The ratio of 2009 is increase as compare the ratio of 2008 which show that the company net income is increase from the use of total assets .And the ratio of2010 is increase 16.17% to 17.92% and the company get more income by using its total assets .But in 2011 and 2012 the ratio is decreasing which show that the company use more debt on which the pay interest that’s way its net income is decrease and the ratio.

Basic Earning Power Ratio :

Basic Earning Power Ratio = (EBIT/Total Assets)*100

2008 2009 2010 2011 2012 16.69% 24.90% 27.05% 21.47% 19.28%

Interpretation: In 2009 the Basic earnings power ratio is increase from 2008 that show that the company total assets have the availability to generate the 24.90% EBIT and the ratio is also more increase in 2010 which is every good as compare to 2008 and 2009.But the ratio decrease in 2011 that the company EBIT decrease which the company generated from company total assets and also decrease in 2012.

Return on Common Equity:

Return on Common Equity = (Net Income/Common equity)*100

2008 2009 2010 2011 2012 35.38% 67.88% 73.68% 61.33% 50.73%

Interpretation:

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In 2009 the company ratio increase from35.38% to 67.88% that show that the company net income increase on the investment of the shareholders and the ratio of 2010 is also high. But the ratios of 2011 and 2012 is decreasing which show that the company net income is reduce on the investment of the shareholders.

Market Value Ratios:

Price/Earnings per share= Price per share/Earning per share

2008 2009 2010 2011 2012 0.29 time

0.15 time

0.11 time 0.10 time

0.08 time

Interpretation:

The price/earning per share ratio of the company reduce in 2009 and it indicate that the investors are paying 0.15 for every rupees 1company earning .The ratio of company continuously decreasing from 2009 to 2012, which show that the company earning per share is continuously from year to year.

Price/Cash Flow Ratio:

Price/Cash Flow Ratio = Price per share/Cash flow per share

2008 2009 2010 2011 2012 -301.33time -1029.29

time -199.31time

-130.60 time

-87.61 time

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Interpretation:

In 2009 cash flow per share is high as compare to 2008 but the is decreasing from 2010 which means that the denominator which cash flow per share is increasing year to year.

Cash reinvestment ratio:

2009 2010 2011 2012 20132.56% 8.96% -18.84% 3.06% 12.60%

Cash reinvestment ratio measures how much cash is available for the investment in business assets. In 2009 company has low cash to reinvest but in 2013 company has high cash to reinvest in the business assets.

Cash flow and solvency ratio:

2009 2010 2011 2012 201317.88% 27.52% -20.63% 23.22% 37.60%

This ratio is used to measure the solvency of the company either the company has enough cash to pay its total debts. In 2013 company has 37.60% cash to pay its debts.

Cash per share:

2009 2010 2011 2012 201334.74 58.32 -38.61 60.96 87.32

Cash flow per share measures the availability of cash against one share of equity. The ratio is in increasing trend except in 2011. In 2011 due to the loss in cash flow from operations company has no cash against one share of equity. In 2012 and 2013 company has 60.96 rupees and 87.32 rupees cash against one share which shows phenomenal performance of APL.

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Market/Book Ratio:

Market/Book Ratio = Market price per share/Book price per share

2008 2009 2010 2011 2012 66440.64 time

65868.71 time

52240.14time 38305.56 time

25224.15 time

Interpretation:

In2009 the Market/Book ratio is decrease as compare to 2008 which show that the company accumulated profit of 2009 is increase from 2008.And in the ratio is decrease more quickly in2010-11 and12 which means that the company performance is going good because its accumulated profit increase that’s way its nominator is greater than the denominator which result in decrease of Market/Book ratio of the company continuously .

Recommendations:

Employees should be trained according to the changing standards of the organization.

  Company should conduct survey from time to time, according to which

changes can be introduced in the organization to stay updated in the market.

  They should introduce creativity into the work, so that the employees Cando

their work active mindedly.

Employee should be given compensation in order to keep them loyal.

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Employee should be more involved in decision making to become more differentiated.

Company should provide incentives to shop keepers

As far as the Liquidity ratios are concerned then liquidity position of nestle is not good so the company should improve current ratio and should be able to pay off its current liabilities in this regard the company should increase cash and cash equivalents

Conclusion:

the company performance not bad, and still nestle is the market leader in pak but the company have more chance to increase its growth and market share because uniliver is the big competitor and he give more challenge in the market.

So we can say company performance is satisfactory