FIN 358 group assignment for nestle hjdhD PDF

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INVESTMENT MANAGEMENT (FIN358)

TITLE: THE RESULTS OF FUNDAMENTAL AND TECHNICAL ANALYSES FOR LISTED COMPANY OF NESTLE (M) BHD (STOCK CODE: 4707) (GROUP ASSIGNMENT)

PREPARED BY: MUHAMMAD AFZAN BIN MOHD YAZID (2018257136) MUAMMAR HAZIQ BIN ZAINAL (2018291542) NUR HADIRAH BINTI ZULKARNAIN (2018803034) RABIATUL ADAWIYAH BINTI YUSSOFF (2018679502) NUR HAZWANI BINTI ISMAIL (2018210346)

CLASS: KBA1115B (DIPLOMA BUSINESS IN STUDIES)

PREPARED FOR: MISS NOOR SYAHIRAH ZAKARIA

DATE OF SUBMISSION: 9TH JANUARY 2021

TABLE CONTENT CONTENT 1.0

2.0

INTRODUCTION

1

1.1 CONCEPT OF FUNDAMENTAL

2

1.2 CONCEPT OF TECHNICAL ANALYSIS

3

RESULT OF FUNDAMENTAL 2.1 LIQUIDITY RATIO

3.0

PAGE

4

2.2 MARKET VALUE RATIO

4-5

2.3 PROFITABILITY RATIO

6

2.4 LEVERAGE RATIO

7

RESULT OF TECHNICAL ANALYSIS 3.1 DAILY TREND 3.2 SECONDARY TREND

8-9 10-13

4.0

CONCLUSION

14

5.0

REFERENCE

15

6.0

APPENDIX

16-17

1.0 INTRODUCTION Nestlé was established in 1905 by the merger of the Anglo-Swiss Milk Company, formed in 1866 by the George Page and Charles Page brothers, while Farine Lactée Henri Nestlé was founded in 1866 by Henri Nestlé. Moreover, nestle is the world's largest food and beverage corporation with a manufacturing plant or office in almost every country in the world and is often referred to as the "the most multinational of the multinationals." Nestlé offers nearly 7,500 products. In the last 100 years ago, Nestlé has been committed to delivering premium goods to the global consumer. They serve a wide range of products, from milk, infant foods, herbal ingredients, bottled water, snack, cereals for breakfast, baby foods, good nutrition and wellness care, seasonings, soups, and sauces, frozen and refrigerated foods, and pet foods. Nestlé has 447 facilities, works in 194 countries and has around 339,000 Nestle employees. Furthermore, the business strategy of Nestle has few fundamental principles. Nestle's product provides, by innovation and transformation, a healthy local supply line and operations at the same time. As the leading organization for cooking, nutrition, fitness and wellbeing, Nestlé is the perfect food source for whatever time of day and whatever time of our life. Since1912, through their luxury brands and products, Nestlé has been nurturing Malaysians while maintaining their consistency and reputation in Halal. This is in line with their goal of unlocking the potential of food for all, today and for centuries to come, to increase the quality of life. As well as the main aim of the Nestle company is to get the right products for consumers, no matter where they are, what they need for their lives, and their motto is "Good Food, Good Life."

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1.1 CONCEPT OF FUNDAMENTAL ANALYSIS Generally, fundamental analysis is a method of measuring security by analysing relevant economic, financial, and other qualitative and quantitative variables to measure its intrinsic value. Thus, fundamental analysts analyse anything that can influence the value of stability, from macroeconomic factors such as the state of the economy and business dynamics to microeconomic factors such as the performance of the company's management. Hence, the goal of the research is to analyse anything that can influence the value of security, including macroeconomic factors such as the overall economy and the state of the market, as well as company-specific factors such as financial position and management. In the basic research perspective, to be more specific, we need to analyse the organization's financial reporting, such as auditor reports, profit and loss statement, balance sheet statement and dividend data policies. It is believed that the value of a stock would be influenced by the company's success in issuing the stock. On top of that, there are three forms of fundamental analysis, which include economic analysis, analysis of the market and analysis of the business. The intrinsic value of shares is determined depending on these three analyses. This is understood to be the actual value of the share. If the intrinsic value is greater than the share price, it is advised that investors purchase the stock. Hold a share if it is equal to the market price and sell the stock if it is less than the market price. Nevertheless, the design and comparison of financial ratios includes conventional fundamental stock analysis. To seek for abnormalities, researchers use key financial ratios, which serve as a reminder for further analysis. Ratios are meant to have accurate relationships in the financial statements of items listed. Five types of financial ratios typically exist. Liquidity ratios, performance/activity ratios, profitability ratios, debt ratios, and price ratios are applicable. This ratio analysis is generally used as a tool to do a quantitative analysis of details in the financial statements of a business. Ratios are measured by actual year numbers and are then determined to evaluate the company's results relative to past years, other firms, the market or even the economy.

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1.2 CONCEPT OF TECHNICAL ANALYSIS Technical analysis is an alternative to stock selection. Thus, it is a way of evaluating security by examining market behaviour produced by statistics, such as past prices and volumes. Technical analysts typically do not try to calculate the intrinsic value of a security, but often use charts and other methods to detect trends that may signify potential behaviour. Therefore, analysing past data on prices and volumes can also entail assessing potential prices based on patterns. It does not require the analysis to arrive at an approximate value of the economic and business factors. Instead, the series of past prices includes all the knowledge required to forecast future prices. In addition, the technical analysis consists of the study of the demand or market activity by analysis of the prices and quantities of the transacted securities. It is the science of capturing the real trade history. These reported price and volume shifts are converted to other data types, such as averages, and further generalized to graphic formats. Therefore, technical analyses are a financial analysis that uses market data patterns to determine trends and predict. This is also a business methodology used to determine investment and locate market opportunities by evaluating statistical patterns generated from commercial activity, including price change and volume. In fact, technical analysis is simple and straightforward, with tools from the experienced hedge fund manager to the inexperienced retail trader open to all. Moreover, it is easier to analyse technical tools than simple metrics, which interpretation typically takes a time of careful analysis. Finally, provided that technical research relies entirely on market activity, the technical trader has only one needle in its compass, which is the price on which it is appropriate to base some estimate of gains or losses. There are the advantages of technical analysis which is timing where an investor can understand when to enter and when to get out of the market with a technical approach. Other than that, flexibility and adaptability is referring to any global stock exchange, that technological analysis may be applied while applicable to the different time dimension is where technical analysis can be implemented within a trading day and able to develop minute or hourly charts. Therefore, we have using the line chart in the technical analysis. A line chart provides us as traders to have straightforward visualization of where a security price has gone over a given period. Also, the line chart is simple to understand. Thus, it easy for us to compare the indexes or price of multiple securities on the same graph.

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2.0 RESULTS OF FUNDAMENTAL ANALYSIS 2.1 LIQUIDITY RATIO  Current Ratio Year

Current Ratio Current assets Current liabilities

=

2019

2018

(RM’000)

(RM’000)

RM1,073,013 RM1,654,750 = 0.649

=

RM1,215,416 RM1,782,079 = 0.682

Current ratio is usually used in measuring relationship within current assets and current liabilities which is whether the company is able or not to pay their short-term obligation. This current ratio is calculated by the current assets divide by the current liabilities. When the current ratio amount above 1 that means the company has stronger position in their financial and enough current assets to cover its current liabilities which also known as short-term obligations. Therefore, in year 2019, current ratio in Nestle Company is below than 1 with the amount is 0.649 times. Meanwhile in year 2018, Nestle Company has recorded its current ratio with the amount 0.682 times. As we can see both year has recorded the amount which is below than 1. When the amount recorded below than 1 that means the Nestle Company has run out of their liquidity assets which is assets that can be turned into cash to pay their short-term obligation or current liabilities within a year. Nestle Company can overcome this problem by attract more investors to get higher capital in order to increase their cash flow.

2.2 MARKET VALUE RATIO  Dividend Per Share Year

2019

2018

Dividend Per Share

RM2.80

RM2.75

Dividend per share is about the sum of dividend that has been declared for every share that has been issued. Dividend per share is used to measure the amount of dividend that might be receive when someone plan to buy the firm’s stock so that the firm can estimate how much they can pay to their shareholders from the net profit that they have generated. This amount 4|Page

of dividend per share is calculated by the amount of dividend paid to common stockholders divided by number of common stock which is outstanding. For the year 2019 the dividend per share that have generated by Nestle Company are RM2.80. Meanwhile in year 2018, the dividend per share is RM2.75. This dividend per share is increased by RM0.05 compared to the year 2018. This means that Nestle Company are consistent in generate their profit and their financial are also not threatened by economic downturns and temporary market.

 Price Earnings Ratio Year

2019

2018

Price Earnings Ratio

51.23

52.46

Price earnings ratio is used to measure common stock’s price which is related to earning. This ratio indicates the market’s expectations and how much investors need to pay for current earning per unit. This price earnings ratio is important in order to evaluate whether the company paid an equal price or not to the investors. The calculation of price earnings ratio is market price of stocks divided by earning per share. For the year 2019, the price earnings ratio that generated in Nestle Company is 51.23. Meanwhile, in year 2018, the price earnings ratio is higher than year 2019 which is 52.46. As we can see, price earning in year 2018 is higher than year 2019 which is the ratio is reduced by 1.23. This price earnings ratio has decrease compared to the year before. This means Nestle Company faced lower trade stock price. However, the lower price earnings ratio also makes the stock’s price more reasonable than the higher one because the higher price earnings ratio also can be considered as overvalue in stock.

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2.3 PROFITABILITY RATIO  Return on Equity Ratio Year

Return on equity =

=

Net profit Total equity

2019

2018

(RM’000)

(RM’000)

RM672,913 RM664,924

=

= 101.2%

RM658,882 RM654,333 = 100%

Return on equity is expresses in percentage. Return on equity is to measure the profitability of a business relative to shareholder in the company. It is measure of financial performance calculated by dividing net profit by company and total equity which is the shareholder’s funds. Return on equity is to determine how well company can generate income using investment from the investors. If return on equity 15 – 20%, it is considered as good. But if over by 20%, its show very strong generate income by investment. For Nestle Company using comparison in year 2019 and 2018, in year 2019 Nestle Company generate more income using share over 100% compare in year 2018 that’s show them generate income not less and not over by 100%. But for both year, Nestle Company considered as goo in return on equity.

 Return on Assets Year

Return On Assets =

Net profit Total assets

=

2019

2018

(RM’000)

(RM’000)

RM672,913 RM2,726,533 = 0.25%

=

RM658,882 RM2,847,282 = 0.23%

Return on asset is an indicator of how profitable a company relative to its total assets. This calculation is opposite with return on equity. Return on assets is process dividing net profit with total asset. Return on asset to measure how effective their company in generate income from their economic resources or asset what they have on their balance sheet. It also show in percentage. For Nestle Company in return on asset, the higher percentage is in year 2019 with 25% compare to year 2018 just 23%. This show Nestle Company more effective generate income using their asset in year 2019. 6|Page

2.4 LEVERAGE RATIO  Debt to Equity Ratio Year

Debt To Equity Ratio =

Long − term debt Total common equity

=

2019

2018

(RM’000)

(RM’000)

RM406,864 RM664,924 = 0.61%

=

RM410,870 RM654,333 = 0.63%

Debt to equity ratio is a financial that compare a company’s total debt with total equity. Debt to equity ratio shows company financing that come from creditor and investors. To calculate it, it used total liability then divide with total equity. A higher ratio that we get indicates that company use more loan than getting profit by shareholder. It quite be not too good if we get higher in creditor against investor. Example financing for Nestle Company, in year 2019, they got 0.61 times of debt to equity ratio while in 2018 they got 0.63 times. It shows that in year 2018 Nestle Company more debt to pay compare against investor. Then they adjust their debt to be better in year 2019.

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3.0 RESULTS OF TECHNICAL ANALYSIS 3.1 DAILY TREND

Daily trend or short term trading is a trading strategies in the stock market where the time the duration between exit and entry is within the range of few days up to few weeks only. Short-term trading is very risky and unpredictable because it based on daily analysis that very volatile.an investor that focus on daily trading have a chance of losing a certain amount of money in a short period of time. The reason that the daily trend is volatile is because within the time frame of exit and entry, there are many factors that can affect the stock price. Instead of holding the stock for a long term period, the investor tend to analysis the short term chart to attempt to gain profit from short term movements of stock. The diagram above shows the share price trends in November 2019. The diagram shows a downward slopping. As you can see on 1 November - 4 November, the chart is going upward or in other name is bullish trend. The price of share are tend to be RM147 and it’s was the highest price of shares at that month. This is the best time to sell our stock as the price are high so the investor will earn profit. On 15 November we can repurchase the stock because the trend starting to bearish as the price has gone down to rm146.366 and then hold it until 7 November. At 7 November we can resell it at the price of rm146.906 because the trend start to rise up again. However, the price of shares tend to drop at RM144.929 on 11 November but it also a good time to purchase more stocks as the price is low. On the beginning of 13 November the price of share has gone up to rm145.620. It is a good sign to sell the stocks but it is best to hold it for now. The reason is because on 14 November the price starting to decrease to rm145.257 and continue to drop at 15 November at the price of rm143.684. As a good investor, it is best to hold the stocks until the prices is 8|Page

arise because if we sell it now we will not earn profits. Starting on 18 November the share price begin to raise and continue to rise on 20/11 at rm145.965. This was a huge increase since its last downfall. As you can see, the trend starting to go slopping again until on 22 November as the price was rm144.833. However it has a slight increase on 25 November at the price of rm144.999 but continue to decrease on 26 November at the price of rm144.723. The price of shares begin to flat between 26 November and 27 November. The flat in the chart means all publicly traded securities in the market are making no significant movements. Starting on 27 November the share price starting to drop heavily to hit the lowest share price in this month that is on 29 November with the price of rm143.340. As an investor we should hold the stock until the price is rising back. That is the end of the trend of the share price in November 2019. According to the previous share price trends of November 2018. The chart trend in November 2019 is different from November 2018. The trend in November 2018 shows a bullish trends while in November 2019 it shows a bearish trends. The terms bullish is when the hare price is going up while the term bearish is when the price is going down. There are several things as an investor that we can do when the trend is bullish and bearish. When the trend is bearish, we can revisit our investment plan. The stock's price will likely rise and fall to some degree during every market cycle, sometimes within a few moments. So despite from just buying another stocks we can restructure our investment plan to meet our expectation. Next is we can just buy more share when the price is low. The stock price maybe fall because of certain factors such as the negative news and downturn in the company but it usually don’t last very long. So before the price when up again its best to buy at that time. Last but not least, the things that we can do when the trend is bearish is rebalance our portfolio. We can use the investment strategies known as asset allocation that means dividing our investment among many securities such as stocks, bonds and preferred share. As a wise investor once said, “don’t put all the eggs in one baskets” However, it different when it comes to bullish trends. Here are some ways as an investor that can do when the price of share is rising. When the price is rising as an investor we can just hold the price for a certain amount of time. The reason is because maybe the share price will continue to grow but it depends on our analysis of the market. We want to sell the stock with the highest price to obtain more profit. Last but not least, we can just sell our share of the stock if we think the share price not going to continue to grow in a long time. It is the best time as the share has already at its peak moment.

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3.2 SECONDARY TREND The secondary trend is to act as correction in the primary movements. It is also known as intermediate trends. It usually happens last from three weeks to months. But it is typically less than a year such as May to December or January to November. Thus, the line charts show the technical analysis of Nestle Company. It led the price movement of a year where is from January to December in 2019. The trend showing the ...