1

INDUSTRY

Food & Beverages Industry

Introduction

The Food and its allied products industry is considered Pakistan largest industry, and is believed to account for 27% of it value added production. Trade sector estimate the sector total value of production is Rs. 46 Billion (RS.58.00 equal USD 1.00 at the current exchange rate). Pakistan Food industry produces cooking oil, Hydrogenated vegetable oil, sugar, flour, dairy products such as milk, butter, yogurt, cheese and ice-cream, biscuits, breads and confectionary, fruit juices and fruit juice drink, Carbonated beverages, snacks , potatoes, corn and pulses. Fish, meat, fruit and vegetable sector are underdeveloped partly for lack of adequate infrastructure including storage and transportation facilities. Government policies and plans are expected to greatly increase the development of food industry.

According to the Census of Manufacturing Industries there were 822 units engaged in the manufacture of Food and Beverages. According to the UNIDO it is the largest manufacturing industries of the country. Value of production stood at Rs.46.170 billion and manufacturing value added (MVA) stood at Rs.12.187 billion. Food processing is a relatively capital intensive industry. The share of food in the manufacturing industry is declining. It was 22.66 per cent in 1981-82 declined to 15.95 per cent in 1987-88. Figures for 1993-94 are not available.

The growth rate in the food industry has been estimated at 7.46 per cent per annum. The most rapidly.

CREDIT RISK ANALYSIS

5 YEARS FINANCIAL ANALYSIS

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Nestle InternationalEver since Nestlé was established, it has been committed to nurturing people worldwide. Today, as the worlds leading Food and Beverages Company, and leaders in health and wellness, Nestle try to cater to all family’s nutritional needs, no matter where in the world you live.

Nestle story begins in 1867, when Henri Nestlé developed a baby formula that saved a child's life and marked the beginning of Nestlé's decades-old commitment to nutrition. In the 140 years since then, it had expanded around the world and developed a range of products designed to suit every taste, need and cultural preference. It distinctive seal is recognized everywhere as a guarantee of quality and healthfulness.

Nutrition, quality and convenience remain the keystones of Nestle products and even as we confront the new century's challenges, we feel it is our duty to adapt to the changing needs of our consumers.

Nestle responsibility does not simply lie in perfecting the products it develop R&D centers spanning four continents, but the role of products play in making lives better - both for their consumers and for communities in the countries it serve. Thus, along with old favorites such as NESTLÉ™ KITKAT® chocolates and NESCAFÉ®, the world's most popular coffee, it keep on introducing new, exciting options worldwide.

Understanding that people in every country have different tastes and needs, we have developed a range of food and lifestyle products. In India consumers enjoy healthy and convenient MAGGI® Noodles Atta Noodles, in Pakistan you can find NESTLÉ® Raita and in China, flavored water is strengthened with Prebio1™ dietary fiber and traditional Chinese ingredients such as Aloe Vera and Chrysanthemum. Our popularity has come not just from acquisition and corporate expansion, but also from a care for the ever-evolving needs of customers at every point in their lives.

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NESTLE PAKISTAN

Nestlé has been serving Pakistani consumers since 1988, when their parent company, the Switzerland-based Nestlé SA, first acquired a share in Milkpak Ltd. Today they are fully integrated in Pakistani life, and are recognized as producers of safe, nutritious and tasty food, and leaders in developing and uplifting the communities in which they operate. Nestlé Pakistan ensures that their products are made available to consumers wherever in the country they might be. Convenience is at the heart of the Nestlé philosophy, and their aim is to bring products to people's doorsteps.

MARKETING AND SALES

Nutritional value and quality remain the most essential ingredients in all our brands. Over the years, food products have evolved from mere commodities to a statement of lifestyle. As consumers get more health and quality conscious, consumer empowerment surges.

We continue to play our part in facilitating this revolution by launching value-added products such as NESTLÉ® CERELAC®, NESTLÉ® Raita, NESTLÉ® NESVITA® and NESTLÉ® NIDO® NNS and many other dairy and non-dairy products. Consumers can avail many of our products with branded active benefits that no competitor product offers. Nestlé brands are designed to suit your lifestyle and your needs. You can take advantage of the best nutrition in a way that is suitable for your tastes and lifestyle. For instance, you can purchase NESTLÉ® Juices in several different sizes depending on your needs: a personal-sized 200 ml for on-the-go consumption, or a liter pack for your fridge. All our key brands are equipped with the Nutritional Compass that ensures all the nutritional information about the product is accessible thanks to our user-friendly nutritional labeling and guidelines.

We're proud to be among the only companies in Pakistan to venture outside the commercial mode of communication, offering programmed catering to better child nutrition and good parenting.

We have developed an intensive distribution strategy that brings our products to your door, through effective communication, door-to-door sampling, and exciting consumer promotions. We focus especially on Pakistan's smaller towns, where activities such as town storming, distribution drives and intensive distributor training ensure that products are easily accessible and visible, giving us a strong competitive edge.

Our widespread global network presents opportunities to learn from innovative techniques used in faraway countries. Pakistan has contributed in a big way towards this by introducing Nestlé PURE LIFE™ to the world. Pakistan’s favorite water is now available all around the world!

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NESTLE PRODUCTS

VISION

The Nestle global vision is to be the leading nutrition, health, and Wellness Company in the world.

In particular, we envision to;

Lead a dynamic, motivated and professional workforce- proud of its heritage and bullish about the future.

Meet the nutrition needs of consumers of all age groups- from infancy to old age, from nutrition to pleasure, through an innovative portfolio of branded food and beverage products of the highest quality.

Deliver shareholder value through profitable long-term growth, while continuing to play a significant and responsible role in the social, economic, and environment sectors of the country.

Nestle’ Pakistan Limited

Good Food, Good Life

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Nestle Philosophy

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Good Food, Good Life

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Five Year Balance Sheet

(Rupees in '000s') 2008 2007 2006 2005 2004

Assets

Tangible Fixed Assets

Property, plant and equipment 9,464,373 9,074,428 6,941,332 3,298,880 2,351,281

Assets subject to finance lease 0 0 44,717 20 0

Capital Work-in-progress 1,382,401 971,183 1,107,052 1,788,475 824,595

Total 10,846,774

10,045,611

8,093,101 5,087,375 3,175,876

Intangible Assets 49,744 92,382 135,020 177,658

long term investments 45,911

long term loans and advances 98,544 80,670 66,008 47,691 20,287

long term security deposits 5,036 6,088 6,088 5,338 5,036

Current Assets

Stores and spares 804,647 436,573 329,346 249,921 261,852

Stock in trade 2,488,573 2,393,306 1,907,300 1,492,983 1,693,783

Trade debts 456,813 344,053 238,291 47,298 30,806

Current portion of long term loans and advances 26,615 21,279 8,771 3,624 3,036

Advances, deposits, prepayments and other receivables 1,488,103 2,022,387 2,109,314 865,897 281,297

Cash and bank balances 419,327 406,225 34,663 858,995 93,338

Total Current Assets 5684078 5,623,823

4,627,685

3,518,718

2,364,112

8

Total Assets 16684176

15,848,574

12,927,902

8,836,780

5,611,222

9

Equity And Liabilities

Equity

Share capital and reserves2008 2007 2006 2005 2004

Authorized capital, 75000000 750,000 750,0

00 750,00

0 750,00

0 750,000

(2008:75000000) ordinary shares of Rs. 10 each

Issued, subscribed and paid up capital 453496

453496 453,496 453,496 452,730

Share premium 249527

249527 249,527 249,527 249,527

General reserve 280000

280000 280,000 280,000 280,000

Accumulated profit 3405824

3128682 1,548,057 974,024 577,973

Total Equity 4388847

4111705 2,531,08

0 1,957,04

7 1,560,230

Non current Liabilities

Long term finances 5139875

4,028,700 3,963,700 1,946,850 1,450,000

Deferred taxation 1319333

1,371,675 942,858 444,414 175,271

Retirement and other benefits 351968

238,370 234,305 74,769 67,572

customer security deposits-interest free 80,472 55,298

Liabilities against assets subject to finance lease 177582

119,602 31,471

Total Non current liabilities 6988758

5,758,347 5,172,33

4 2,546,50

5 1,748,141

Current Liabilities

Current portion of:

Long term finances 0

0 300,000 400,000 200,000

Liabilities against assets subject to finance lease 54042

29863 8,392 31

Short term borrowings – secured300000

1,035,000 700,000 125,000 1,064,738

Running finance under markup arrangements-secured 1924287

1,637,799 1,817,711 1,121,041

Customer security deposits –interest free 127884

124,572 102,307

Trade and other payables 2798185

3,062,027 2,197,529 2,188,402 1,025,709

Interest and mark-up accrued 102173

89,261 98,549 45,258 12,404

Dividend payable 453,496

Total current liabilities 5306571

5,978,522 5,224,488 4,333,228 2,302,851

Contingencies and Commitments

Total Equity and Liabilities 16684176

15,848,574 12,927,90

2 8,836,78

0 5,611,22

2

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FIVE YEAR INCOME STATEMENT

(Rupees in '000s') 2008 2007 2006 2005 2004

Net Sales 34183847 28,235,393 22,030,958 17,142,363 12,801,355

Cost of goods sold 25231532 20,291,270 15,778,330 12,357,079 9,242,534

Gross Profit 8952315 7,944,123 6,252,628 4,785,284 3,558,821

Distribution and selling expenses 3890352 3,538,669 2,925,118 2,093,383 1,611,484

Administration expenses 956816 894,309 687,092 577,816 401,623

Operating Profit 4105147 3,511,145 2,640,418 2,114,085 1,545,714

Finance cost 557325 584,434 447,774 180,108 59,024

Other operating expenses 1382138 442,914 263,921 356,528 105,100

Total Operating Profit 1939463 1,027,348 711,695 1,577,449 1,381,590

Other operating income 61800 65,959 76,732 53,151 33,734

Profit before taxation 2227484 2,549,756 2,005,455 1,630,600 1,415,324

Taxation 674590 744,544 642,165 481878 425,392

Profit after taxation 1552894 1,805,212 1,363,290 1,148,722 989,932

Earnings per share – basic and diluted (Rupees) 34.24 39.81 30.060 25.33 22

COMMON SIZE ANALYSIS (BALANCE SHEET)

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(Amount in '%') 2008 2007 2006 2005 2004

Assets

Tangible Fixed Assets

Property, plant and equipment 56.73% 57.26% 53.69% 37.33% 41.90%

Assets subject to finance lease 0.00% 0.00% 0.35% 0.00% 0.00%

Capital Work-in-progress 8.29% 6.13% 8.56% 20.24% 14.70%

Total 65.01% 63.38% 62.60% 57.57% 56.60%

Intangible Assets 0.30% 0.58% 1.04% 2.01% 0.00%

long term investments 0.00% 0.00% 0.00% 0.00% 0.82%

long term loans and advances 0.59% 0.51% 0.51% 0.54% 0.36%

long term security deposits 0.03% 0.04% 0.05% 0.06% 0.09%

Current Assets 0.00% 0.00% 0.00% 0.00% 0.00%

Stores and spares 4.82% 2.75% 2.55% 2.83% 4.67%

Stock in trade 14.92% 15.10% 14.75% 16.90% 30.19%

Trade debts 2.74% 2.17% 1.84% 0.54% 0.55%

Current portion of long term loans and advances 0.16% 0.13% 0.07% 0.04% 0.05%

Advances, deposits, prepayments and other receivables 8.92% 12.76% 16.32% 9.80% 5.01%

Cash and bank balances 2.51% 2.56% 0.27% 9.72% 1.66%

Total Current Assets 34.07% 35.48% 35.80% 39.82% 42.13%

Total Assets 100.00% 100.00% 100.00% 100.00%

100.00%

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Equity And LiabilitiesEquity Share capital and reservesAuthorized capital, 75000000 (2008:75000000) ordinary shares of Rs. 10 eachIssued, subscribed and paid up capital 2.72% 2.86% 3.51% 5.13% 8.07%Share premium 1.50% 1.57% 1.93% 2.82% 4.45%General reserve 1.68% 1.77% 2.17% 3.17% 4.99%Accumulated profit 20.41% 19.74% 11.97% 11.02% 10.30%Total Equity 26.31% 25.94% 19.58% 22.15% 27.81%

Non current Liabilities 0.00% 0.00% 0.00% 0.00% 0.00%

Long term finances 30.81% 25.42% 30.66% 22.03% 25.84%Deferred taxation 7.91% 8.65% 7.29% 5.03% 3.12%Retirement and other benefits 2.11% 1.50% 1.81% 0.85% 1.20%customer security deposits-interest free 0.00% 0.00% 0.00% 0.91% 0.99%Liabilities against assets subject to finance lease 1.06% 0.75% 0.24% 0.00% 0.00%Total Non-current liabilities 41.89% 36.33% 40.01% 28.82% 31.15%

Current Liabilities 0.00% 0.00% 0.00% 0.00% 0.00%

Current portion of: 0.00% 0.00% 0.00% 0.00% 0.00%Long term finances 0.00% 0.00% 2.32% 4.53% 3.56%Liabilities against assets subject to finance lease 0.32% 0.19% 0.06% 0.00% 0.00%Short term borrowings – secured 1.80% 6.53% 5.41% 1.41% 18.98%Running finance under markup arrangements-secured 11.53% 10.33% 14.06% 12.69% 0.00%Customer security deposits –interest free 0.77% 0.79% 0.79% 0.00% 0.00%Trade and other payables 16.77% 19.32% 17.00% 24.76% 18.28%Interest and mark-up accrued 0.61% 0.56% 0.76% 0.51% 0.22%Dividend payable 0.00% 0.00% 0.00% 5.13% 0.00%Total current liabilities 31.81% 37.72% 40.41% 49.04% 41.04%Contingencies and Commitments 0.00% 0.00% 0.00% 0.00% 0.00%

Total Equity and Liabilities 100.00% 100.00% 100.00% 100.00% 100.00%

COMMON SIZE ANALYSIS (BALANCE SHEET)

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(Rupees in '%') 2008 2007 2006 2005 2004

Net Sales 100.00% 100.00% 100.00% 100.00% 100.00%

Cost of goods sold 73.81% 71.86% 71.62% 72.09% 72.20%

Gross Profit 26.19% 28.14% 28.38% 27.91% 27.80%

Distribution and selling expenses 11.38% 12.53% 13.28% 12.21% 12.59%

Administration expenses 2.80% 3.17% 3.12% 3.37% 3.14%

Operating Profit 12.01% 12.44% 11.99% 12.33% 12.07%

Finance cost 1.63% 2.07% 2.03% 1.05% 0.46%

Other operating expenses 4.04% 1.57% 1.20% 2.08% 0.82%

Total Operating Profit 5.67% 3.64% 3.23% 9.20% 10.79%

Other operating income 0.18% 0.23% 0.35% 0.31% 0.26%

Profit before taxation 6.52% 9.03% 9.10% 9.51% 11.06%

Taxation 1.97% 2.64% 2.91% 2.81% 3.32%

Profit after taxation 4.54% 6.39% 6.19% 6.70% 7.73%

Earnings per share – basic and diluted (Rupees)

0.000100% 0.000141% 0.000136% 0.000148% 0.000172%

COMMON SIZE ANALYSIS (INCOME STATEMENT)

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5 YEAR RATIOS

(Rupees in '000s')

Liquidity Ratios 2008 2007 2006 2005 2004

Working Capital 377507 -354699 -596803 -814510 61261Current Ratio 1.0711 0.9407 0.8858 0.8120 1.0266Acid Test (Quick Ratio) 0.6022 0.5404 0.5207 0.4675 0.2911Cash RatioCash Conversion Cycle

Profitability Ratios

Gross Profit Margin 26.1887% 28.1353% 28.3811% 27.9150% 27.8003%Operating Income Margin 12.0090% 12.4353% 11.9850% 12.3325% 12.0746%Net Profit Margin (Return on Sales) 4.5428% 6.3934% 6.1881% 6.7011% 7.7330%Return on Assets(ROA) 9.3076% 11.3904% 10.5453% 12.9993% 17.6420%Return on Investment(ROI) 16.2970% 22.1759% 20.9905% 29.4250% 32.8856%Return on Equity(ROE) 35.3827% 43.9042% 53.8620% 58.6967% 63.4478%

DUPONT ANALYSISDu Pont Return on Equity 35.3827% 43.9042% 53.8620% 58.6967% 63.4478%Du Pont Return on Assets 9.3076% 11.3904% 10.5453% 12.9993% 17.6420%

Financial Leverage Ratio

Debt to Equity 1.1711 0.9798 1.5660 0.9948 0.9294Capitalization Ratio 0.5394 0.4949 0.6103 0.4987 0.4817Total Debts to Assets 0.7369 0.7406 0.8042 0.7785 0.7219LTD to Net Working Capital 13.6153 -11.3581 -6.6416 -2.3902 23.6692

Coverage Ratio

Interest Coverage Ratio (Times Interest Earned) 7.3658 6.0078 5.8968 11.7379 26.1879Debt service coverage Ratio 5.2409 3.9762 4.0518 10.2416 24.6503

Activity/Efficiency Ratios

Cash Turnover 81.5207 69.5068 635.5756 19.9563 137.1505Sales to Working Capital (Net Working Capital Turnover) 2997.5313 -59.3491 -31.2205 -45.5158 -26.6017

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Total Asset Turnover 2.0489 1.7816 1.7041 1.9399 2.2814Fixed Asset Turnover 3.1515 2.8107 2.7222 3.3696 4.0308Current Asset Turnover 6.0140 5.0207 4.7607 4.8718 5.4149Accounts Receivable Turnover 19.4753 13.6677 14.8097 29.8857 59.8491Accounts Receivable Turnover in Days 18.5 26 24 12 6Inventory Turnover 10.3368 9.4365 9.2806 7.7552 10.9135Inventory Turnover in Days 34.8270 38.1499 38.7906 46.4202 32.9867Operating Cycle 53.3120 64.4894 63.0990 58.4661 39.0019Payables Turnover 8.6111 7.7160 7.1950 7.6893 10.0157Payables Turnover in Days 42 47 50 47 36

Market Ratios

Earnings Per Share (EPS) 34.2427 39.8066 30.0618 25.3304 22Dividend Per Share (DPS) 26.5 5 24.9786 5 14Price Earnings (PE) Ratio 38.9572 45.2187 34.7617 30.3983 23.7814Dividend Payout Ratio 0.7739 0.1256 0.8309 0.1970 0.6399Dividend Yield 0.0199 0.0028 0.0239 0.0065 0.0269Dividend Cover Ratio 1.2922 7.9613 1.2035 5.0751 1.5628Book Value Per Share 96.7781 90.6668 55.8126 43.1547 34.4627Market to Book Ratio 13.7841 19.8529 18.7234 17.8428 15.0888

Altman Z-ScoreWorking Capital to Total Assets X1 0.0226 -0.0224 -0.0462 -0.0922 0.0109Retained Earnings to total Assets X2 0.2041 0.1974 0.1197 0.1102 0.1030EBIT to Total assets (Basic Earning Power) X3 0.2461 0.2215 0.2042 0.2392 0.2755M.V of Equity to Total Liabilities X4 4.9203 6.9550 4.5582 5.0757 5.8213Net Sales to Total Assets X5 2.0489 1.7816 1.7041 1.9399 2.2814

Z-Score 6.1260 6.9352 5.2253 5.8185 6.8405

EVA

EBIT 4,105,1

47 3,511,14

5 2,640,41

8 2,114,08

5 1,545,71

4

Tax 674,5

90 744,54

4 642,16

5 481,8

78 425,39

2

Finance Cost or Interest 557,3 584,43 447,77 180,1 59,02

16

25 4 4 08 4

Net Income 1,552,8

94 1,805,21

2 1,363,29

0 1,148,72

2 989,93

2

NOPAT 3,430,5

57 2,766,60

1 1,998,25

3 1,632,20

7 1,120,32

2

Equity Capital 733,4

96 733,49

6 733,49

6 733,4

96 732,73

0

Debt 8,795,2

26 7,406,90

9 5,761,28

4 3,170,40

1 2,277,50

0

Total Capital Employeed 9,528,7

22 8,140,40

5 6,494,78

0 3,903,89

7 3,010,23

0

Cost of Equity 0.0860

36 0.08603

6 0.08603

6 0.08603

6 0.08603

6

Cost of Debt 0.0936

84 0.09368

4 0.09368

4 0.09368

4 0.09368

4

EBT 2227484 2549756 2005455 1630600 1415324

Tax Rate 0.30

28 0.29

20 0.320

2 0.295

5 0.300

6 Total Cost of Capital WACC

0.066907

0.068104

0.066210

0.069763

0.070519

EVA BY USING NOPAT 2793016.586 2212210.6 1568235.5 1359858.78 908044.9437EVA BY USING NET INCOME 1489786.938 1742104.9 1300182.9 1085614.94 926890.8417

ROE-Ks 0.39

0.32

0.45

0.55

0.65

* equity 283353.4062 234927.95 331538.52 405253.762 479312.5114

ROE 0.47

0.41

0.54

0.64

0.74

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Altman Z-Score 2008 2007 2006 2005 2004

Working Capital to Total Assets X1 0.0226 -0.0224 -0.0462 -0.0922 0.0109

Retained Earnings to total Assets X2 0.2041 0.1974 0.1197 0.1102 0.1030

EBIT to Total assets (Basic Earning Power) X3 0.2461 0.2215 0.2042 0.2392 0.2755

M.V of Equity to Total Liabilities X4 4.9203 6.9550 4.5582 5.0757 5.8213

Net Sales to Total Assets X5 2.0489 1.7816 1.7041 1.9399 2.2814

Z-Score 6.1260 6.9352 5.2253 5.8185 6.8405

Z-SCORE ANALYSIS

2008 2007 2006 2005 20040.0000

1.0000

2.0000

3.0000

4.0000

5.0000

6.0000

7.0000

8.0000

Z-Score

Z-Score

All the Altman Z-values are greater than 3.073 so there is no chance of bankruptcy till 2010 according to the standard values for public limited companies.

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Gross Profit margin decreased in 2008 as Nestle consumer pricing could not keep up with

the significant inflation on virtually all input commodities- particularly fresh milk and

energy. However, through focus on fixed cost control, the company managed to mitigate

most of the impact at the operating profit level where results declined by only 40% versus

2007.Net profit margin declined further due to significant increase in the cost of financing.

From 2004 to 2008 the operating profit keeps on increasing due to increase in sales and net profit, which shows company’s larger profit.

2004 2005 2006 2007 20080

0.05

0.1

0.15

0.2

0.25

0.3

Profitability

Gross profit margin

Net profit margin

Return on assets

2004 2005 2006 2007 2008

14743482114085

2640418

35111454105147

0.11510.12332517984

83090.11985034876

8310.12435261659

01070.12009025783

4351

Operating profit and percentage of sales

Operating profit Operating income margin

5 YEAR RATIOS ANALYSIS

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2004 2005 2006 2007 2008

1280135517142363

22030958

28235393

34183847

sales

sales

From 2004 to 2008 there is an increase in sales because of the increase in production of

milk and introduces various new juices in the market. Despite the adversity Nestle

enhanced their portfolio with several important new products launches including

Everyday Mixed Tea, Nestle Milk Pak Iron fortified and Maggi Lemon Chaska noodles.

1 2 3 4 50

0.1

0.2

0.3

0.4

0.5

0.6

0.7

Earning Ratios

Return on assetsReturn on equity

This ratio is a measure of overall profitability of a company. There is a certain decrease in ratios from the years 2004 to 2008. In 2004, this ratio was 17.6420% which implied that our net income was generated from our assets, which decreased in 2005 to 12.99% and further declined to 10.545% in 2006 while a sudden increase in 2007 to 11.39%, and decline in 2008 to 9.307% which was definitely a bad turn for Nestle, as it was using fewer assets to generate our net income. Whereas the Return on Equity also declined from 2004 to 2008.

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2004 2005 2006 2007 20080

0.2

0.4

0.6

0.8

1

1.2

1.4

1.6

1.8

Debt management

Debt-to-equity ratioTotal debt to asset ratio

Debt-to-equity ratio increased from 2004 to 2006 as the long term finances and short term borrowings increased. While it faced a decline in 2007 and in 2008 it rises again. Total debt to asset ratio increased in 2005 by slight decrease in current assets, and further it decreased in 2006 and increased in 2007 and approximately remained same in 2008.

2004 2005 2006 2007 20080

5

10

15

20

25

30

0

0.005

0.01

0.015

0.02

0.025

0.03

Disposition of Earnings

Dividend per shareDividend cover ratioDividend yield

From 2004 to 2005 there was sharp decrease in DPS as the earnings decreased, from 2005 to 2006 there was a sharp increase in DPS due to increase in net income, Again from 2006 to 2007 there was a sharp decrease and from 2007-2008 there is a increase in DPS which shows that the company’s net profit has increased. From 2007-2008 as there is a increase in the market value per share so the Dividend Yield increased.

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2004 2005 2006 2007 20080

51015

202530

35404550

Market Ratios

Price earning ratiomarket to book value ra-tio

From 2004-2007 P/E ratio increased as the company earned more profit by less financed by investments comparatively. While from 2007-2008 it decreased from 45.2817% to 38.9572%. Market to book ratio increased slightly from 2004-2007 and from 2007-2008 it decreased from19.8529% to 13.7841%.

2004 2005 2006 2007 2008

633418

226346

1132770

226748

1201764

dividend

From 2004-2005 dividends decreased as the net profit decreased. From 2005-2006 there is a

sharp increase in the dividends. From 2006-2007 the dividends given to the shareholders

decreased and from 2007-2008 the dividends increased from 226748 to 1201764.

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2008 2007 2006 2005 20040.0000

0.2000

0.4000

0.6000

0.8000

1.0000

1.2000

Liquidity Ratios

Current RatioAcid Test (Quick Ratio)

This ratio is generally used to evaluate a company’s liquidity position and its ability to pay

short term liabilities. There is a increase in the current ratio in 2004 as the current

liabilities are less as compared to the current assets, from 2005 to 2008 there is a increase

in the current ratio as the current assets keep on increasing, so the company shows the

better position to pay its current liabilities out of the current assets.

Acid-test ratio increases from 2004-2008, which shows that company’s liquidity power was

quite strong to pay back its immediate liabilities.

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0.0000

5.0000

10.0000

15.0000

20.0000

25.0000

30.0000

Solvency

Interest Coverage Ratio (Times Interest Earned)Debt service coverage Ratio

From 2004-2007 the interest coverage ratio declined which is a bad sign for a company to

pay its interest expense. But from 2007-2008 this ratio increased which is good sign.

Debt Service Coverage Ratio portrays a company’s ability to repay its liabilities from cash

generated by operating activities. From 2004-2007 it decreased which was indeed a bad

turn for the company, as few cash was generated to repay the liabilities .But from 2007-

2008 this ratio increased which meant that company is able to repay all of its liabilities

from the net cash generated.

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INDUSTRY RATIO ANALYSIS

Liquidity ratios:

Industry Company

Current Ratio 1.64 1.07113953

Acid test/ Quick ratio 1.22 0.60217

Current Ratio:

Current ratio of company is less than the industry's current ratio. Company has current assets worth of 1.07114 to pay liabilities of 1.

Acid Test/ Quick Ratio:

Acid test ratio shows that company has a ability to pay its current liabilities with its most liquid assets and Nestlé’s acid test ratio is less than the industry's ratio so it shows company has less cash and cash equivalents.

INDUSTRY COMPANY0

0.2

0.4

0.6

0.8

1

1.2

1.4

1.6

1.8

Current ratioAcid test/ Quick ratio

Liquidity Ratio

26

Interest Coverage Ratio:

Interest coverage of company shows negative value so it shows that company is in bad position and is unable to meet its interest charges whereas industry ratio is also not very good but it has 0.91 to pay 1.

Industry Company0

1

2

3

4

5

6

7

8

Coverage Ratio

Interest coverage

Coverage Ratio:Industry Company

Interest coverage 0.91 7.36580

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Financial Leverage Ratio:Industry Company

Long term Debt-to Equity Ratio 28.86 1.171

Long Term Debt-to-Equity Ratio:

This ratio should be less but company shows more long term debt than the equity whereas

industry's position is too bad because it has 28.86 long term debt and equity showing a

greatest difference.

Industry Company0

5

10

15

20

25

30

35

Financial Leverage Ratio

L.T Debt-to-equity ratio

28

Activity Ratios:

Industry CompanyTotal assets turnover 0.22 2.1015Account receivables turnover 2.21 19.475Account receivables turn over in days

165.1584 19

Inventory turnover 1.5 10.336Inventory turnover in days 243.33 35

Total Asset Turnover

Company’s asset turnover is good because sales are double of company's assets but industry shows that it’s less efficient than the company's in utilizing its assets.

Account receivables turnover

Account receivable shows that company is more efficient than the industry in collecting its money from its debtors. Industry collects its receivables twice a year while Nestle gets its receivables approximately 19 times a year.

Account receivables turnover in days

Nestle collects its receivables after every 19 days and industry collects after 165 days. So nestle is more efficiently collecting its receivables.

Inventory Turnover

Company’s inventory turnover value is higher than of industry which shows that its stock is sold within 35 days and industry is less efficient in selling out its stock.

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Total as-sets

turnover

Account receivables turnover

Account receivables turnover in days

Inventory turnover

Inventory turnover in days

0

50

100

150

200

250

300

Activity ratios IndustryActivity ratios Company

Activity Ratios:

30

Profitability Ratios:

Industry Company

Gross profit margin 3.9 26.19

Operating income margin

1.6 12.01

Net profit margin 0.99 4.54Return on assets 1.08 9.31Return on investment 1.17 0.16Return on equity 3.05 35.40

Gross Profit Margin

Gross profit margin shows that how much a firm is earning after covering its cost of goods sold and it indicates the efficiency of operations and firm's pricing policies so nestle is show far better ratio of 26.19 than the industry ratio which is too low.

Operating Income Margin

Operating income margin shows how much amount is left with the company after covering all the administration and selling expenses. Again, company's margin is much better than the industry's operating margin.

Net Profit Margin

Net profit is an amount which has to be distributed among share holders and ploughed back into business after taking account of interest expenses and income taxes. So company is left with 4.45 which is better than the industry's performance because it is left with only 0.99.

Return on Assets

Return on assets shows that how efficiently assets are being used to generate revenue or how much revenue is being generated by utilizing the assets. Nestlé’s return on assets is 9.31 while industry has 1.08. Hence, Nestlé’s assets are generating more revenue in comparison to industry

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Return on Investment

Industry is generating more revenue through its investments. While Nestle has low ratio which shows that Nestle is generating less revenue through its investments than industry.

Return on Equity

It shows profitability to the shareholders of the firm after all expenses so ROE of company is 35.40 which is good but industry is having just 3.05 which is too low.

Gross profit margin

Operating income margin

Net profit margin

Return on assets

Return on investment

Return on equity

0

5

10

15

20

25

30

35

40

Profitability ratios IndustryProfitability ratios Company

Profatibility Ratios:

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Market Ratios:Industry Company

Price Earnings ratio 12.8 38.957

Dividend Payout ratio 19.94 0.77Dividend Yield 0.24 0.020

Price Earnings Ratio

It shows how much investors are willing to pay per rupee of earnings; Nestlé’s P/E ratio

shows that its investors are willing to pay 38.957 rupees for 1 rupee current earning. While

industry shows lower ratio it means that Nestle is doing better job.

Dividend Payout Ratio

The payout ratio provides an idea of how well earnings support the dividend payments.

Nestle has comparatively very low ratio than industry’s ratio. Industry's earning is very

efficiently supporting the dividend payouts while Nestle is not. Nestlé’s net income not

returned to shareholders in the form of dividends very well.

Dividend Yield

A financial ratio that shows how much a company pays out in dividends each year relative

to its share price. Industry has more ratio than Nestle which shows that industry pays out

more of its earnings in dividends than Nestle.

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Price earning ra-tio

Dividend payout ratio

Dividend yield0

5

10

15

20

25

30

35

40

45

Market ratios IndustryMarket ratios Company

Market Ratios:

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REQUIRED RATE OF RETURN

Product =1.311494

nth root 1.00453

Product-1(GM)= 0.00453

Avg Mkt return(monthly) 0.4530%

Avg mkt return per year(km) 5.4356%

Beta =Covariance Index Company/Variance Index

Beta = 0.1945

KRF 9.3684%

k=KRF+(Km-KRF)*Beta

K = 8.6036%

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CONCLUSION

Company is in a good condition to pay its short term liabilities as the current ratio keep on

increasing. Quick Ratio also increases over the past 5 years which shows company has the

ability to meet its immediate liabilities.

The profitability increase over the past 5 years which shows company’s good condition.

The Nestle sales also increases as it has increase its portfolio.

All the Altman Z-values are greater than 3.073 so there is no chance of bankruptcy till 2010

according to the standard values for public limited companies.