Name of Module: Basic Accounting [FNBE0145]

Report Title: Financial Ratio Analysis

Group Members: Cassandra Wong (0313365)

: Tan Wen Hao(0313690)

Table of Content

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CONTENT PAGE

Front Page 1

Table of Content 2

Brief Bio of Business 3

Ratio Analysis of Business 4-5

Appendix 1 & 2 6

Appendix 7-11

Reference 12

Brief History of Nestle

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Nestle was founded in 1866 by Henri Nestle and is today the world's

biggest food and beverage company. Sales at the end of 2005 were CHF 91

bn, with a net profit of CHF 8 bn. Nestle employ around 250,000 people from

more than 70 countries and have factories or operations in almost every

country in the world. The history of Nestle began in Switzerland in 1867

when Henri Nestle, the pharmacist, launched his product Farine Lactee

Nestle, a nutritious gruel for children. Henri used his surname, which means

’little nest’, in both the company name and the logotype. The nest, which

symbolizes security, family and nourishment, still plays a central role in

Nestle’s profile. Since it began over 130 years ago, Nestle’s success with

product innovations and business acquisitions has turned it into the largest

Food Company in the world. As the years have passed, the Nestle family has

grown to include chocolates, soups, coffee, cereals, frozen products,

yoghurts, mineral water and other food products. Beginning in the 70s,

Nestle has continued to expand its product portfolio to include pet

foods, pharmaceutical products and cosmetics too. Today, Nestle markets a

great number of products, all with one thing in common: the high quality for

which Nestle has become renowned throughout the world The Company's

strategy is guided by several fundamental principles. Nestle's

existing products grow through innovation and renovation while maintaining

a balance in geographic activities and product lines. Long-term potential is

never sacrificed for short-term performance. The Company's priority is to

bring the best and most relevant products to people, wherever they

are, whatever their needs, throughout their lives. Taste of Nestle in each of

the countries where Nestle sell products. Nestle is based on the principle of

decentralization, which means each country is responsible for the efficient

running of its business - including the recruitment of its staff. In recent years,

it has focused on becoming a nutrition, health and wellness company.

Wellness is about supporting people to live more healthy lives e.g. through

the development of probiotic yoghurts that help maintain the balance of the

digestive system. The company is a world leader in research and

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development and Nestle scientist work in all areas to create healthier and

more nutritious foods.

Profitability Ratios 2011 2012 InterpretationReturn of Equity(ROE) =

net profit

average owne r ' sequity ×

100

=9804

[ (58274+62598 )÷2]×

100=16.22%

=net profit

average owne r ' sequity

× 100

=11060

[ (58274+62604 )÷2 ] ×

100= 18.30%

During the period 2011 to 2012, the ROE has increase from 16.22% to 18.30%. This means that the owner is getting a higher return of his capital this year.

Net Profit Margin(NPM) =

net profitnet sales

×100

=980483642

×100

=11.72%

=net profitnet sales

×100

=1106092186

×100

= 11.99

During the period 2011 to 2012, the NPM has increase from 11.72% to 11.99%. This means that the business is getting better at controlling expenses.

Gross Profit Margin(GPM) =

gross profitnet sales

×100

=2500983642

×100

=29.90%

=gross profitnet sales

×100

=2794492186

×100

= 30.31%

During the period 2011 to 2012, the GPM has increase from 29.90% to 30.31%. This means that the business is getting better at controlling its COGS.

Selling Exp. Ratio(SER)

= total selling expense

net sales×100

=1321083642

×100

15.79%

= total selling expense

net sales×100

=1423592186

×100

15.44%

During the period 2011 to 2012, the SER has decrease from 15.79% to 15.44%. This means that the business is getting better at controlling its selling expenses.

General Exp. Ratio(GER)

=total general expense

net sales×100

=1321082642

×100

=15.79%

=total general expense

net sales×100

=1423592186

×100

=15.44%

During the period 2011 to 2012, the GER has decrease from 15.79% to 15.44%. This means that the business is getting better at controlling its general expenses.

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Ratio Analysis of Business

Stability Ratios 2011 2012 InterpretationWorking Capital(WCR) =

totalcurrent assettotal liabilities

=3332435232

=0.94:1

=totalcurrent assettotal liabilities

=3520538753

=0.91:1

During the year 2011 to 2012, the working capital has decrease from 0.94:1 to 0.91:1. This means that the business ability to pay off its current liabilities with using current asset is getting better.

Total Debt=total liabilitiestotal asset

×100

=55817114091

×100

=48.92%

=total liabilitiestotal asset

×100

=63625126229

×100

=50.40%

During the year 2011 to 2012, the total debt has increase from 48.92% to 50.40%. This means that the total debt has getting worse.

Stock Turnover(ICR)= 365÷( COGS

average inventory )=365÷ ¿=71.05 days

= 365

÷( COGSaverage inventory )

=365÷ ¿= 69.30 days

During the year 2011 to 2012, the stock turnover has decrease from 71.05 days to 69.30 days. This means that the business has been selling its stock faster.

Debtor Turnover(DTR) =365÷( credit sales

average deptors )=365÷ ¿=55.47 days

=365÷( credit salesaverage deptors )

=365÷ ¿= 52.94 days

During the year 2011 to 2012, the debtor turnover has decrease from 55.47 days to 52.94 days. This means that the business is getting faster in getting its debt.

Interest Coverage(ICR)

=interest expense+net profit

interest expense

=527+9804527

=19.60 times

=intere st expense+net profit

interest expense

=825+11060

825=14.40 times

During the year 2011 to 2012, the interest coverage has decrease from 19.60 times to 14.40 times. This means that the business its ability to pay back the interest expenses is worse.

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Appendix 1

P/E Ratio

= current share priceEarnings per share

=68.653.26

=21.06

The high P/E Ratio for this company will not have any investors because they have to wait for such a long time to claim back their original principal.

Appendix 2: investment Recommendation

Profitability:

Based on our calculations, we found out that the business we chose, Nestle is doing well at controlling its profitability ratios. In 2011, Nestle was listed number 1 in the fortune global 500 as the world’s most profitable co-operation. With a market capitalization of $ two hundred and thirty three billion, Nestle ranked number 9 in the fortune global 500 of 2013.

Stability:

Based on our calculations, we found out that the business we chose, Nestle is doing slightly bad on controlling its total dept and interest coverage. Not only that, it is doing good on its working capital, stock turnover and deptor turnover.

Price:

Based on the company’s P/E Ratio, it is 21.06, it means that an investor needs to wait for a long time claim back his original principal. We would say that, we would not invest on it.

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APPENDIX

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P & L Statement for the year 2011

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Balance Sheet for the year 2011

P & L for the year 2012

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Balance Sheet for the year 2012

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Reference

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Bursamalaysia.com. 2014. NESTLE (MALAYSIA) BERHAD [S] (4707) | Bursa Malaysia

Market. [online] Available at: http://www.bursamalaysia.com/market/listed-

companies/list-of-companies/plc-profile.html?stock_code=4707 [Accessed: 22 Jan

2014].

Businesscasestudies.co.uk. 2014. Introduction - Nutrition, Health & Wellness - New

Product Development at Nestlé - Nestlé | Nestlé case studies, videos, social media

and information | The Times 100. [online] Available at:

http://businesscasestudies.co.uk/nestle/nutrition-health-wellness-new-product-

development-at-nestle/introduction.html#axzz2r7ENaBtn [Accessed: 22 Jan 2014].

Nestle

http://www.nestle.com. 1866. History. [online] Available at:

http://www.nestle.com/aboutus/history [Accessed: 22 Jan 2014].

Nestle. 2012. Consolidated Financial Statement of the Nestle Group 2012. [online]

Available at:

http://www.nestle.com/asset-library/Documents/Library/Documents/Financial_State

ments/2012-Financial-Statements-EN.pdf [Accessed: 22 Jan 2014].

Nestle. 2011. Consolidated Financial Statement of the Nestle Group 2011. [online]

Available at:

http://www.nestle.com/asset-library/documents/library/documents/financial_stateme

nts/2011-financial-statements-en.pdf [Accessed: 22 Jan 2014].

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