Financial Ratios Analysis of Nestle PDF

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NESTLE FINANCIAL ANALYSIS

Methodology and data In table 1, all data of Nestle company was gathered through yahoo finance. The data was used to determine the ratios by computing the formulas. The ratios were measured only for the past four years in which the financial activity of the company is analyzed. This compares how well the company is doing and which weak spots they should focus on. Table 1: Financial Data Item/Year Current Assets Current Liabilities Inventories Cash Receivables Total Assets Total liabilities Total Equity Sales Cost of Goods Sold EBIT Interest Net Income

2019 35,663,000 41,619,000 9,343,000 10,263,000 9,187,000 127,940,000 75,078,000 52,035,000 92,865,000 46,647,000 16,027,000 1,214,000 12,609,000

All numbers are in millions, Source: Yahoo finance

Discussion and Analysis Liquidity Ratios

2018 41,003,000 43,030,000 9,125,000 10,301,00 8,871,000 137,015,000 78,612,000 57,363,000 91,750,000 46,070,000 15,424,000 1,006,000 10,135,000

2017 32,190,000 36,054,000 9,061,000 8,593,000 10,199,000 130,380,000 67,603,000 61,504,000 90,121,000 44,923,000 14,779,000 766,000 7,183,000

2016 32,042,000 37,517,000 8,401,000 8,401,000 10,023,000 131,901,000 65,920,000 64,590,000 89,786,000 44,199,000 14,216,000 753,000 8,531,000

NESTLE FINANCIAL ANALYSIS Liquidity ratios analysis gives a company its position on how it can efficiently meet its shortterm obligations. This ratio often determines if a firm can pay its liabilities should they arise at any given point of time. Under this subsection, we shall analyze three components- Current ratio, Cash ratio, and Quick ratio and evaluate the position of Nestle Company on its position. Table 2: Liquidity ratios of Nestle company Year/Ratio Current Ratio Cash Ratio Quick Ratio

2019 0.856 0.2466 0.6324

2018 0.952 0.2393 0.7408

2017 0.892 0.2383 0.6415

Current Ratio YEAR 2019 2018 2017

Current Ratio 0.856 0.952 0.892

Current Ratio Nestle Company 0.95

0.89

0.86

0.85

2016 0.854 0.2477 0.6301

NESTLE FINANCIAL ANALYSIS

The current ratio is a parameter that evaluates the company’s ability to meet its short-term obligations and the unforeseen cash demands. This is obtained by dividing current assets and current liabilities. From the 4-year report, the company has managed a strong current ratio, which implies its strong position to meet unpredicted demands of cash. The highest figure was achieved in 2018, which represented that Nestle Company was able to meet 95% of its short-term obligations. Cash Ratio (Nestle Company) YEAR 2019 2018 2017 2016

Cash Ratio 0.2466 0.2393 0.2383 0.2477

Cash Ratio 0.25 0.25 0.25 0.24 0.24 0.24 0.24 0.24 0.23 0.23 2019

2018

2017

2016

NESTLE FINANCIAL ANALYSIS

Cash ratio is another important aspect of evaluating a firm position concerning meeting its shortterm obligations. In this aspect, the cash ratio evaluates the capability of a firm to offset the short-term obligations with its cash and cash equivalents. This is a stricter parameter because it emphasizes the firm's meeting short term demands with its most liquid assets- cash and cash equivalents. Nestle Company has reported fluctuations in its cash ratio structure over the 4 years. In 2016, it had a better position as compared to the other three years. A higher value implies the company is better off. 2017 and 2018 recorded the least cash ratio of 23%. However, in 2019, the company adopted a more focused approach and increased its efficiency by 1%. Quick Ratio YEAR 2019 2018 2017 2016

Quick Ratio 0.6324 0.7408 0.6415 0.6301

Quick Ratio 0.74

0.64

0.63

2019

0.63

2018

2017

2016

NESTLE FINANCIAL ANALYSIS Quick ratio assesses the extent to which cash and other currents assets can be readily converted into cash and meet a company’s short-term obligations. The first year in 2016 reported the lowest ratio, which implies that it could only meet 0.63 or 63% of its short-term obligations using cash and current assets. in 2018, the company was at the highest position to convert its cash and current assets into cash and pay off its cash demands. This shows a positive trend of Nestle Company, meaning that it can manage its liquidity at any given point in the four years, as well as using the other cash in meeting other company’s obligations efficiently. Table 3: Activity Ratios (Nestle Company) Ratio/Year 2019 Inventory turnover 4.992 10.1083 Receivables

2018 5.048 10.3426

2017 4.957 8.836

2016 5.261 8.9579

Turnover Total

0.6696

0.6912

0.6807

Asset 0.7258

turnover

Inventory Turnover Ratio/Year

Inventory

2019 2018 2017 2016

Turnover 4.992 5.048 4.957 5.2661

Inventory Turnover 5.3 5.25 5.2 5.15 5.1 5.05 5 4.95 4.9 4.85 48

NESTLE FINANCIAL ANALYSIS

This is an expect used to determine how a company sells its inventory. Inventory turnover is a strong efficiency indicator of cash flow and the general health o fa business. Higher inventory turnover in comparison to the industry’s performance can be a good indicator of the overall health of the business on its sales and efficient purchasing. 2016 reported the highest figure, which implies that the company is good at managing inventory investments and avoids overstocking. The lower reports from 2017 and 2019 imply that Nestle Company had too many inventory purchases, but generally, the figures are average.

NESTLE FINANCIAL ANALYSIS

Receivables Turnover (Nestle Company) Ratio/Year

Receivables

2019 2018 2017 2016

Turnover 10.1083 10.3426 8.836 8.9579

Receivables Turnover 10.5 10 9.5 9 8.5 8 2019

2018

2017

2016

Receivable Turnover This is the number of times per year, that a company collects its accounts receivables on average. The ratio is used to ascertain the ability of a firm to issue a credit to its clients and collect funds from them efficiently. The first two years reported a lower ratio of receivables turnover, but over the years, the company adopted aggressive collection techniques. Besides, the higher turnover attained in 2018 implies that the company derived a combination of aggressive collection team

NESTLE FINANCIAL ANALYSIS and conservative credit policy, even though the figure decreased slightly in 2019, Nestle Company has a high number of quality customers.

Total Asset Turnover Ratio/Year

Total Asset turnove

2019

r 0.7258

2018

0.6696

2017

0.6912

2016

0.6807

Total Asset turnover 0.74 0.73 0.72 0.71 0.7 0.69 0.68 0.67 0.66 0.65 0.64

2019

2018

2017

2016

This is another activity ratio that evaluates a firm’s ability to use its assets in generating sales effectively. It is obtained by dividing net sales by average total assets. this ratio ascertains how a

NESTLE FINANCIAL ANALYSIS firm efficiently engages its total assets, unlike fixed asset turnover. This aspect evaluates how much inventory or services are sold per every dollar of the assets used in the period analyzed. Nestle Company achieved the total asset inventory turnover in 2019, which implies that less money is required for an investment to generate sales. Low ratios in 21016 and 2018 imply the firm had a decline in sales and had much investment in fixed assets. Table 4: Debt Ratios of Nestle 2019 Debt Ratio 0.5868 Times Interest 13.2018

2018 0.5737 15.33

2017 0.5185 19.29

Earned Ratio

Debt Ratio Figure

Debt Ratio 0.6 0.58 0.56 0.54 0.52 0.5 0.48 0.46 0.44 2019

2018

2017

2016

2016 0.4997 18.87

NESTLE FINANCIAL ANALYSIS

Times interest earned ratio figure

Times Interest Earned Ratio 25 20 15 10 5 0 2019

2018

2017

2016

Debt ratio determines how a firm has liabilities more or less than assets. In this ratio, the company can recognize if they are putting themselves in a risky situation in case the interest rates were to increase out of a sudden for the loans. Also, it shows how the firm can cover its debts. For Nestle, their debt ratio has been increasing. As for the time's interest earned ratio, it measures how a company can pay off its debt responsibilities based on their current profit. Nestle’s time's interest earned ratio has been decreasing since 2016. However, they reached the highest point in 2017 for the past four years. Table 5: Profitability ratios

ROE ROA Profit Margin

2019 0.2423 0.0985 0.1357

2018 0.1766 0.0739 0.1104

2017 0.1167 0.0550 0.0797

2016 0.1320 0.06467 0.0950

NESTLE FINANCIAL ANALYSIS Return on equity figure

ROE 0.3 0.25 0.2 0.15 0.1 0.05 0 2019

2018

Return on asset figure

2017

2016

NESTLE FINANCIAL ANALYSIS

ROA 0.12 0.1 0.08 0.06 0.04 0.02 0 2019

2018

2017

2016

2017

2016

Profit margin figure

Profit Margin 0.16 0.14 0.12 0.1 0.08 0.06 0.04 0.02 0 2019

Profitability ratios

2018

NESTLE FINANCIAL ANALYSIS Firms usually use profitability ratios as a way to measure the company’s capability of making a profit compared to their costs or any other expense during a period. Return on equity, return on asset, and profit margin is all considered to be types of profitability ratios. Return on equity is measured by dividing net income over equity to analyze how efficiently a company is making money from the equity investments. Besides, the return on asset ratio measures the company’s net income to its total assets. As for Nestle, their return on asset ratio increased the most in 2019. This is considered to be positive because it shows that the company is earning more money on less investment. Profit margin, it determines net income to sales in which it evaluates how good the firm is performing at handling their finances. In 2019, nestle had increased their profit margin ratio. Conclusion Financial ratios analysis gives a true representation of a company’s financial health and soundness. During the past four years, despite fluctuations in its financial statement and the economy in general, Nestle Company has achieved efficiency in all its operations. Results from profitability show how the company has advanced. The company did not make many profits in 2017 as they were spending more on their expenses profile, had huge investments in inventory, increasing the cost of sales due to low demand for its products. However, 2017 and 2018 they performed better and have improved in their finance’s management, reducing their debtor’s collection period and managed their investment in total assets concerning their sales.

NESTLE FINANCIAL ANALYSIS

References Britannica. (2020). Nestle SA. Retrieved May 18, 2020, from Encyclopedia Britannica: https://www.britannica.com/topic/Nestle-SA Horrigan, J. (1968). A short History of financial ratio. The Accounting Review, 43(2), 284-294. Moore, G., Atkinson, T., & Ku-berg, E. (1961). Risks and returns in small-business financing. Towards a Firmer Basis of Economic Policy, 66-67. Nestle. (2020). The Nestle Company History. Retrieved May 18, 2020, from Nestle Company: https://www.nestle.com/aboutus/history/nestle-company-history Nestlé Sa (Nsrgy) balance sheet. (n.d.). Yahoo Finance - Stock Market Live, Quotes, Business & Finance News. https://finance.yahoo.com/quote/NSRGY/balance-sheet?p=NSRGY Nestlé Sa (Nsrgy) income statement. (n.d.). Yahoo Finance - Stock Market Live, Quotes, Business & Finance News. https://finance.yahoo.com/quote/NSRGY/financials?p=NSRGY Rehman, A., Jingdong, L., Du, Y., Khatoon, R., Nisar, S. K., Zhang, L., & Shahzad, T. (2015). Financial Performance, Ratio Analysis, and Evaluation of Agricultural Bank of China. International Journal of Economic Behavior and Organization, 3(5), 69-73.

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