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

S.No.
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Contents
Executive summary
Vision and strategies
Mission Statement
Statements Financial
Balance Sheet
Profit and Loss Account
Ratio Analysis
Liquidity Ratio
Assets utilization Ratio
Capital Structure Ratio
Market value Ratios
Recommendation
conclusion

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 Nestl. 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

Financial Statements

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=
2008
1.07:1

Current Assets/ Current Liabilities

2009
0.85:1

2010
0.85:1

2011
0.80:1

2012
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.

Quick ratio:

Quick ratio =

2008
0.60:1

Current Assets Inventory / Current Liabilities

2009
0.37:1

2010
0.38:1

2011
0.38:1

2012
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:

2
0
0
8
3
7
7
,
5

2
0
0
9
1
,
2
3

2
0
1
0
1
,
4
5
3

2
0
1
1
3
,
3
9

2
0
1
2
3
,
0
9

current Asset - current lib.

0
7

7
,
6
0
2

,
6
4
9

3
,
3
4
8

7
,
9
2
9

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
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

Cash and cash equivalents
Current
Liabilities

2008
0.07902033

2009
0.03906531

2010
0.0515487

2011
0.04181594

2012
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 =
2008
13.74 time

2009
10.57 time

2010
11.19 time

Sales/Inventory
2011
9.18 time

2012
9.85 time

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 =

2008
4.81
days

Receivables/Average Sale per day

2009
2.11
days

2010
0.88
days

2011
1.54
days

2012
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=
2008
3.15
time

2009
3.54

Sales/Net Fixed Assets

2010
3.56 time

time

2011
3.00
time

2012
2.36
time

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
6.01 times

2009
6.01 times

2010
6.16 times

2011
4.83 times

2012
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.

Total Asset Turnover

Total Assets Turnover=
2008
2.05
time

Sales/Total Assets

2009
2.21
time

2010
2.24 time

2011
1.84
time

2012
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=

2008
73.69%

(Total Debt/Total Assets)*100

2009
76.18%

2010
75.68%

2011
78.36%

2012
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
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
5.00
time

2009
10.47time

2010
12.10
time

2011
7.19
time

2012
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 thats way the ratio is
reduce as compare to 2011.

EBITDA coverage Ratio:

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

payment+Principle amount
2008
1.18
time

2009
1.81

2010
1.71 time

time

2011
1.41
time

2012
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
2.0488783
5

2009

2010

2011

2.214229 2.243237 1.842656

2012
1.55461
9

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.

Profitability Ratios:
Profit Margin on Sales

2008
4.54%

2009
7.30%

= ( Net income/Sales)*100

2010
7.99%

2011
7.20%

2012
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

2008
9.31%

2009
16.17%

= Net income/Total Assets

2010
17.92%

2011
13.27%

2012
11.53%

Interpretation:
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 thats way its net income is
decrease and the ratio.

Basic Earning Power Ratio :

Basic Earning Power Ratio =
2008
16.69%

2009
24.90%

(EBIT/Total Assets)*100
2010
27.05%

2011
21.47%

2012
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

2008
35.38%

2009
67.88%

= (Net Income/Common equity)*100

2010
73.68%

2011
61.33%

2012
50.73%

Interpretation:
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=

2008
0.29
time

2009
0.15
time

Price per share/Earning per share

2010
0.11 time

2011
0.10
time

2012
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

2008
-301.33time

2009
-1029.29
time

Price per share/Cash flow per share

2010
-199.31time

2011
-130.60
time

2012
-87.61
time

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
2.56%

2010
8.96%

2011
-18.84%

2012
3.06%

2013
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
17.88%

2010
2011
2012
27.52% -20.63% 23.22%

2013
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
34.74

2010
58.32

2011
-38.61

2012
60.96

2013
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.

Market/Book Ratio:
Market/Book Ratio
share

2008
66440.64
time

2009
65868.71
time

Market price per share/Book price per

2010
52240.14time

2011
38305.56
time

2012
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 thats 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.
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