Financial Analysis of Nestle PDF

Title Financial Analysis of Nestle
Author Ahsan Nawaz
Course Financial Reporting
Institution Air University
Pages 21
File Size 915 KB
File Type PDF
Total Downloads 67
Total Views 159

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Download Financial Analysis of Nestle PDF


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Submitted To: Sir Adeel Nasir Submitted By: Asma Ikhlaq (F14-41) Department: Commerce (B.com-3 Eve)

Submission Date: 28-3- 2016

Final project: Advanced-Accounting

NESTLE PAKISATN LIMITED

Financial Ratios Analysis NESTLE 2013 TO 2015

TABLE OF CONTENTS: 1. Introduction 2. Vision 3. Liquidity Ratios 4. Inventory turnover Ratio 5. Working capital turnover Ratio 6. Gross profit Ratio 7. Operating profit Ratio 8. Net profit Ratio 9. Operating Ratio 10. Expense Ratio 11. Debt to total funds or solvency Ratio 12. Receivables turnover Ratio 13. Debt-equity ratio 14. Interest coverage ratio 15. Earning per share 16. Return on investment

1. Introduction This the project about financial ratio analysis of the Nestle Pakistan Limited Company.The company is a food industry and is dealing in food business for many years.The company is well reputed in the market and deal in a very wide range of food products. As NESTLE, a very well-known brand started its business life with only one product and that was condensed milk and later it climbed so fast at the ladder of success that it is now a leading brand in food products with so many subbrands.Currently NESTLE is dealing with bottled water,breakfast cereals,coffee,confectionery,dairy products,ice-cream,pet foods other beverages,shelf stable,chilled,ice-cream,infant nutrition performance,health care nutrition,frozen foods,refrigerator products,food services,and professional products and snack.29 of NESTLE brand.NESTLE has around 450 countries and operates in 86 countries,and employee around 328,000 people.Then company was formed in 1905 by the merger of the Anglo-Swiss Milk company,established in 1866 by brothers George Page and Charles Page and Farine Lactee.Nestle was found in 1866 by Henri NESTLE.NESTLE has been serving Pakistani consumers since 1988 the Switzer land based NESTLE SA,first acquired a share in Milk Pak Ltd

2. VISION NESTLE global vision is to be recognized leading nutrition, Health and Wellness company.NESTLE Pakistan subscribes fully to the vision of being the number one Nutrition,Health and Wellness company in Pakistan.In particular,we envision to:

1. Lead a dynamic, passionate and professional workforce –proud of our heritage and positive about the future. 2. Meet the nutrition needs of consumers of all ages-from infancy to old age,from nutrition to pleasure,through and innovative portfolio of branded food and beverage products of the highest quality.

3. Deliver shareholder value through profitable long-term growth,while continuing to play a significant and responsible role in the Social, Economic and Enviornmental sectors of Pakistan.

4. NESTLE is dedicated to providing the best foods to people throughout their day,throughout yheir lives,throughout the world. 5. NESTLE contributes to your well-being and enhances your quality of life.

3.Liquidity Ratio Current ratio = Current ratio 18029598 25143112

Current ratio 18405780 27777240

Current ratio 30066 32917

current asset current liability

2015 0.177 2014 0.661 2013 0.913

INTERPRETATION: Current ratio indicates the liquidity of current assets or the liability of the business to meet its maturing current liabilities.As a convention 2:1 is regarded as satisfactory level i.e. current assets should be almost double than the current liabilities.Current ratio also known as working capital ratio or 2:1 ratio.It is a ratio of total current asset to total current liabities.

Quick ratio =

assets current liability

Quick ratio 8554917 25143112

Quick ratio 8641793 27777240

Quick ratio 10011351 18000989

2015 0.340 2014 0.311 2013 0.556

INTERPRETATION: Quick ratio also known as liquid ratio or acid test ratio.It established relationship between liquid asset and current liability.Interpretation of this ratio is also subject to the same factors and conditions as the current ratio.Rule of thumb for acid test ratio is 1:1.

Absolute liquid ratio = Absolute liquid assets 7726279 25143112

Absolute liquid assets 7883356 27777240

Absolute liquid assets 92425 18000989

Absolute liquid assets Current liabilities

2015 0.307 2014 0.283 2013 5.134

INTERPRETATION It shows the relationable between absolute liquid or super quick current assets and liabilities .Absolute liquid assets include cash,bank balances and marketable securities.The reason of computing absolute liquid ratio is to eliminate accounts receivables from the list of liquid assets because there may be some doubt about their quick collection.An absolute liquid ratio of 0.51:1 is considered ideal for most of the companies.

4.INVENTORY TURNOVER RATIO Inventory turnover ratio =

Net sales Inventory

Inventory turnover ratio

2015 9.591

102985916 10737470

Inventory turnover ratio 96457743 10972534

Inventory turnover ratio 86226869 8382

2014 8.790 2013 10287.1

INTERPRETATION High turnover suggests efficient inventory control, sound sales policies,trading in quality goods, reputation in the market,better competitive capacity and so on. Low turnover suggests the possibility of stock comprising of obsolete item,slow moving products,poor selling policy over investment in stock etc.

5.WORKING CAPITAL TURNOVER RATIO Working capital ratio = Working capital turnover ratio 68859344 7113514

Working capital turnover ratio 69133753 9371460

Working capital turnover ratio 62066072 64506

Net sales Net workingcapital

2015 9.680 2014 7.377 2013 962.17

INTERPRETATION Interpretation of this ratio should be done when inter-firm or inter-period comparison is being done.Increasing ratio indicates that working capital is more active;it is supporting,comparatively,higher level of production and sales ;it is being used more intensively.It establishes relationship between cost of sales and net working capital.

6.GROSS PROFIT RATIO

Gross profit ratio =

Gross profit Net sales

Gross profit ratio 34126572 ×100 102985916

2015 33.137

Gross profit ratio 27323990 ×100 96457743

28.327

Gross profit ratio 24160797 ×100 86226869

28.020

INTERPRETATION Gross profit is very important for any business.It should be sufficient to cover all expenses and provide for profit.The ratio can be used to test the business condition by comparing it with past years ratio and with the ratio of other companies in the industry .

7.OPERATING PROFIT RATIO Operating profit ratio =

Operating profit ×100 Net sales

Operating profit ratio 31916032 ×100 102985916

Operating profit ratio 25851440 ×100 96457743

Operating profit ratio 22721020 ×100 86226869

2015 30.990 2014 26.800 2013 26.350

INTERPRETATION Operating profit ratio is used to measure a company pricing strategy and operating efficiency. Operating margin is a measurement of what proportion of a company revenue is left over after paying for variable costs of production such as wages raw materials etc.

8.NET PROFIT RATIO

Net profit ratio =

Net profit after tax ×100 Net sales

Net profit ratio

2015 8.506

8760930 ×100 102985916

Net profit ratio

2014 8.220

7929271 ×100 96457743

Net profit ratio

2013 6.803

5866763 ×100 86226869

INTERPRETATION Net profit ratio expresses the relationship between net profit after taxes and sales.This ratio is a measure of the overall profitability .Net profit is arrived at after taking into account both of the net sales is left for the owners after all expenses have been met.

9.Operating Ratio Operating ratio =

Cost of goods sold+Operating expenses × 100 Net sales

Operating ratio

2015 69.009

68859344 +2210540 × 100 102985916

Operating ratio

2014 73.199

69133753 + 1472550 ×100 96457743

Operating ratio

2013 73.649

62066072 + 1439777 ×100 86226869

INTERPRETATION The operating ratio is a financial term defined as a company operating expenses as a percentage of revenue.This financial ratio is most commonly used for industries which require a large percentage of revenues to maintain operations such as railroads.

10.Expenses Ratio Office∧administration expenses Net sales

×100

Expense Ratio 15411236 ×100 102985916

Expense Ratio 11085448 ×100 96457743

Expense Ratio 10731584 ×100 86226869

2015 14.964 2014 11.492 2013 12.442

INTERPRETATION Expense ratio are calculated to ascertain the relationship that exists between operating expenses and volume of sales. Expense ratio are calculated by dividing each item of expense or group of expense with the net sales so analyse the cause of variation of the operating ratio.

11.Debts to total funds or solvency Ratio Total liabilities × 100 Total assets

Debt to total funds or solvency ratio 49267464 49267464

2015 1

Debt to total funds or solvency ratio 51730695 51730695

Debt to total funds or solvency ratio 52289521 52289521

2014 1 2013 1

INTERPRETATION The debt to total assets ratio is an indicator of financial leverage.It tells you the percentage of total assets that were financed by creditors ,liabilities, debt. The debt to total assets ratio is calculated by dividing a corporation total liabilities by its total assets.

12.Receivables turnover ratio Net sales Average accountsreceivables

Receivables turnover ratio

2015

102985916 414319

248.566

Receivables turnover ratio 96457743 379218.5

Receivables turnover ratio 86226869 3816929

2014 254.359 2013 22.590

INTERPRETATION Analyst can compare the ratio with industry standard.Generally , a high ratio indicates that the receivables are more liquid and are more liquid and are being collected promptly. A low ratio is a sign of less liquid receivables and may reduce the true liquidity of the business in the eyes of the analysts even if the current and quick ratios are satisfactory.

13. Debt-equity ratio Long term loans Total longterm debt

Debt-equity ratio 276199 12913961

Debt-equity ratio

2015 0.021 2014

317600 12627625

0.025

Debt-equity ratio 292304 12151461

2013 0.024

INTERPRETATION Debt equity ratio vary from industry to industry .A ratio that is ideal for one industry may be worrisome for another industry .A ratio of 1:1 is normally considered satisfactory for most of the companies.

14.Interest coverage ratio Earning before interest ∧tax Interest

Interest coverage ratio 12603643 83521

Interest coverage ratio

2015 150.903 2014

11156820 147652

75.566

Interest coverage ratio 8376738 263776

2013 31.757

INTERPRETATION The ratio measures debts servicing capacity of a business so far as interest on longterm loans is concerned.The interest coverage ratio may be calculated by dividing a company earnings before interest and taxes during a given period by the amount a company must pay in interest on its debts during the same period. Interest coverage ratio is also often called “times interest earned.”

I

15. Earning per share Net available for equity share holders Number . of equity shares

Earning per share 8760930 45350

Earning per share

2015 193.184 2014

7929271 45350

193.184

Earning per share 5866763 45350

2013 129.37

INTERPRETATION Earnings per share or basic earnings per share is calculated by subtracting preferred dividends from net income and dividing by the weighted average common shares outstanding. A higher EPS is the sign of higher earnings, strong financial position and, therefore, a reliable company to invest money. For a meaningful analysis, the analyst should calculate the EPS figure for a number of years and also compare it with the EPS figure of other companies in the same industry. A consistent improvement in the EPS figure year after year is the indication of continuous improvement in the earning power of the company.

16.RETURN ON INVESTMENT(ROI) ROI =

Net profit after tax Total assets

Return on investment 49267464 8760930

Return on investment

2015 5.623 2014

51730695 7929271

Return on investment 52289521 5866763

6.524 2013 8.912

INTERPRETATION ROI is usually expressed as a percentage and is typically used for personal financial decisions, to compare a company's profitability or to compare the efficiency of different investments. Return on investment or ROI is a profitability ratio that calculates the profits of an investment as a percentage of the original cost. In other words, it measures how much money was made on the investment as a percentage of the purchase price....


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