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BACHELOR OF BUSINESS ADMINISTRATION WITH HONOURS

SEMESTER JANUARY 2015

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FINANCIAL MANAGEMENT 1

MATRICULATION NO : 791016145081001

IDENTITY CARD NO. : 791016-14-5081

TELEPHONE NO. : 019-6641264

E-MAIL : arman_saad@yahoo.com

LEARNING CENTRE : SHAH ALAM

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TABLE OF CONTENTS PAGE
INTRODUCTION OF NESTLE MALAYSIA BERHAD 3–8

FINANCIAL RATIO ANALYSIS AND CALCULATION 9 – 53

ANALYSIS OF THE ASSET MANAGEMENT & PROFITABILITY

RATIO OF NESTLE MALAYSIA BERHAD 54 – 57

EVALUATION OF THE RELATIONSHIP BETWEEN ASSET

MANAGEMENT & FINANCIAL PERFORMANCE OF NESTLE

MALAYSIA BERHAD 58 – 63

CONCLUSION 64

REFERENCE 65

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INTRODUCTION OF NESTLE MALAYSIA BERHAD

Nestle (Malaysia), a part of Nestle Group, is engaged in the manufacturing, marketing and sale
of food, confectionery and dairy products in Malaysia. Nestlé's commitment to providing quality
products to Malaysians dates back almost 100 years ago. Since 1962, with its first factory in
Petaling Jaya, Nestlé Malaysia now manufactures its products in 7 factories and operates from its
head office in Mutiara Damansara. Today, the Company employs more than 5000 people and
manufactures as well as markets more than 300 Halal products in Malaysia (permissible to use
as per Muslim religion) products, reflecting Malaysia’s Muslim religious beliefs, and its
exports are certified Halal by JAKIM (Jabatan Kemajuan Islam Malaysia) or the Department
of Islamic Development of Malaysia. The company’s products are categorized into coffee and
beverages; culinary aids/prepared foods, milks, liquid drinks, junior foods, breakfast cereals,
chilled dairy, ice cream, chocolate and confectionery, healthcare nutrition, performance nutrition,
and Nestle professional. Its major food products brands include MILO, NESCAFE, MAGGI, NESPRAY,
LACTOGEN and KIT KAT

HISTORY

Nestle (Malaysia) was established by Nestle Group (Nestle) in 1912 as the Anglo-Swiss
Condensed Milk Company, based in Penang. By 1939, growth and expansion made a move to Kuala Lumpur
necessary. The Company was publicly listed on the KLSE now known as Bursa Malaysia Berhad
on 13 December, 1989. Nestle (Malaysia) disposed of its equity stake in Food Ingredients
Specialties (Malaysia), Beverage Partners Worldwide (Malaysia), Purina Pet Care (Malaysia),
and Cereal Partners (Malaysia), for a total of MYR37 million (approximately $11.1 million) in
2002. The Nestle group consolidated all of its manufacturing activities into Nestle (Malaysia),
with the exception of the confectionery operations, which remain under Nestle Asean (Malaysia),
in 2005.The company’s brand MILO FUZE introduced two new variants: MILO FUZE 3in1
Light and MILOFUZE 3in1 Mocha in 2006. MILO FUZE 3in1 Light was the first light
chocolate malt drink launched in Malaysia. In 2007, Nestle (Malaysia) announced its intention to
acquire Henniez, is a mineral water bottling and distributor company. In late 2007, the company
entered into a partnership with Maybank and American Express to adopt innovative B2B
expense management solution. Also, Nestle entered into a strategic partnership with Brussels-
based luxury chocolate maker Pierre Marcolini.In 2008, Nestle sold 24.85% of Alcon's issued
and outstanding capital to Novartis, after which the company retained close to 52% of Alcon’s

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issued capital and continue to fully consolidate Alcon. In the same year, the company opened its
new RM75 million (approximately $22.5 million) regional plant for non-dairy creamer at
its Shah Alam Complex in Selangor, Malaysia. In April 2009, Mr. Syed Anwar Jamalullail was
appointed as the Chairman at Nestle (Malaysia) Berhad. The company appointed Mr. Detlef
Krost as its Executive Director of Technical and Production in August 2009.In October 2009,
the company moved its headquarters to Surian Tower in Mutiara Damansara.

CORPORATE PHILOSOPHY

 Be the leading multinational company in food, nutrition, health and wellness.


 Manufacture and produce world-class products of the highest consistent quality,
reliability and convenience based on business excellence principles throughout our
operations.
 Maximize the use of good quality local raw materials.
 Be an exemplary employer with a progressive human resource and social policy; with a
management style that is based on "Management Commitment and People Involvement"
 Be a responsible corporate citizen, fulfilling all obligations to Government, shareholders,
customers, communities and consumers.
 Protect the environment by being committed to environmentally sound business practices
and taking into account the need to preserve natural resources and save energy.
 Guarantee that all products manufactured, imported and distributed by Nestlé Malaysia
are certified HALAL by authorized Islamic certification bodies.

 Deliver shareholder value through the achievement of sustainable and profitable long-
term growth.

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MAJOR PRODUCTS & SERVICES

The company's key products and brands include the following:

Products:

1. Coffee and beverages

2. Prepared Foods

3. Milks Liquid Drinks

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4. Junior Foods

5. Breakfast Cereals

6. Chilled Dairy

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7. Ice Cream

8. Chocolate and Confectionery

9. Healthcare Nutrition

10. Performance Nutrion

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Brands:

 MILO
- Nutritious Chocolate Malt Drink combines the nutritious goodness of MILO powder
and milk. In addition to ACTIGEN-E and PROTOMALT, it also contains CALCI-N
that contains the extra dose of calcium from milk which aids the development of
strong bones and teeth.
 NESCAFE
- New NESCAFÉ CLASSIC Instant Coffee is improved using advanced coffee
technology that captures the aroma of freshly roasted coffee beans. Enjoy the new
fresh aroma and taste for a great start to the day every morning.
 MAGGI
- The new MAGGI BIG KARI. It's the taste all Malaysians love, now bigger and more
satisfying. Try it today! Bigger Pack! Bigger Satisfaction!
 NESPRAY
- NESPRAY CERGAS Powdered Milk is a valuable source of protein, calcium, iron
and 4 essential vitamins. This great-tasting milk is easy on the pocket too – so helping
to meet your child’s daily nutritional needs has never been easier.
 KITKAT
- KIT KAT RUBIES are cut out for those who want a break to savour the finest life
has to offer. KIT KAT RUBIES are crafted with the finest ingredients. Each precious
gem is layered with rich chocolate truffle, a crispy wafer center and pieces of
hazelnut encased in smooth milk chocolate.

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FINANCIAL RATIO ANALYSIS

Financial ratios are mathematical comparisons of financial statement accounts or categories.


These relationships between the financial statement accounts help investors, creditors, and
internal company management understand how well a business is performing and areas of
needing improvement. Financial ratios are the most common and widespread tools used to
analyze a business' financial standing. Ratios are easy to understand and simple to compute.
They can also be used to compare different companies in different industries. Since a ratio is
simply a mathematically comparison based on proportions, big and small companies can be use
ratios to compare their financial information. In a sense, financial ratios don't take into
consideration the size of a company or the industry. Ratios are just a raw computation of
financial position and performance. Ratios allow us to compare companies across industries, big
and small, to identify their strengths and weaknesses. Financial ratios are often divided up into
five main categories: liquidity, asset management, profitability, market value, and leverage.

1. Liquidity Ratio

- Net Working Capital = Current Asset – Current Liabilities

For Year 2009 (Group)

 Net Working Capital = RM 757,671 – RM 698,779

= RM 58,892

For Year 2008 (Group)

 Net Working Capital = RM 881,882 – RM 1,030,457

= RM – 148,575

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For Year 2007 (Group)

 Net Working Capital = RM 939,353 – RM 869,761

= RM 69,592

For Year 2006 (Group)

 Net Working Capital = RM 836,582 – RM 682,565

= RM 154,017

For Year 2005 (Group)

 Net Working Capital = RM 742,258 – RM 635,301

= RM 106,957

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- Current Ratio = Current Asset
- Current Liabilities

For Year 2009 (Group)

 Current Ratio = RM 757,671


RM 698,779

For Year 2008 (Group)

 Current Ratio = RM 881,882


RM 1,030,457

= 0.86

For Year 2007 (Group)

 Current Ratio = RM 939,353


RM 869,761

= 1.08

For Year 2006 (Group)

 Current Ratio = RM 836,582


RM 682,565

= 1.23

For Year 2005 (Group)

 Current Ratio = RM 742,258


RM 635,301

= 1.17
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Quick Ratio = Current Asset – (Inventory + Prepayments)
- Current Liabilities

For Year 2009 (Group)

 Quick Ratio = RM 757,671 – RM 354,381


RM 698,779

= 0.58 times

For Year 2008 (Group)

 Quick Ratio = RM 881,882 – RM 459,489


RM 1,030,457

= 0.41 times

For Year 2007 (Group)

 Quick Ratio = RM 939,353 – RM 446,602


RM 869,761

= 0.57 times

For Year 2006 (Group)

 Quick Ratio = RM 836,582 – RM 330,674


RM 682,565

= 0.74 times

For Year 2005 (Group)

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 Quick Ratio = RM 742,258 – RM 262,456
RM 635,301

= 0.76 times

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2. Asset Management Ratio

- Account Receivable Turnover = Credit Sales


- Account Receivable

For Year 2009 (Group)

 Account Receivable Turnover = RM 3,744,233


RM 322,232 (196,264 + 118677 + 7291)

= 11.62 times

For Year 2008 (Group)

 Account Receivable Turnover = RM 3,877,068


RM 345,052 (187,450 + 143,009 + 14,593)

= 11.24 times

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For Year 2007 (Group)

 Account Receivable Turnover = RM 3,416,028


RM 442,704 (298,891 + 140,515 + 3,298)

= 7.72 times

For Year 2006 (Group)

 Account Receivable Turnover = RM 3,275,541


RM 411,877 (311,562 + 94,998 + 5,317)

= 7.95 times

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For Year 2005 (Group)

 Account Receivable Turnover = RM 3,127,441


RM 370,464 (282,926 + 70,403 + 16,380 + 755)

= 8.44 times

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- Average Collection Period = _________360___________
- Account Receivable Turnover

For Year 2009 (Group)

 Average Collection Period = 360__


11.62

= 30.98 days

For Year 2008 (Group)

 Average Collection Period = 360


11.24

= 32.03 days

For Year 2007 (Group)

 Average Collection Period = 360


7.72

= 46.63 days

For Year 2006 (Group)

 Average Collection Period = 360


7.95

= 45.28 days

For Year 2005 (Group)

 Average Collection Period = 360


8.44

= 42.65 days

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- Inventory Turnover = Cost of Goods Sold
- Inventory

For Year 2009 (Group)

 Inventory Turnover = RM 2,462,739


RM 354,381

= 6.95 times

For Year 2008 (Group)

 Inventory Turnover = RM 2,673,318


RM 459,489

= 5.82 times

For Year 2007 (Group)

 Inventory Turnover = RM 2,290,719


RM 446,602

= 5.13 times

For Year 2006 (Group)

 Inventory Turnover = RM 2,171,096


RM 330,674

= 6.57 times

For Year 2005 (Group)

 Inventory Turnover = RM 2,132,138


RM 262,456

= 8.12 times

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- Average Inventory Sales Period = _____360________
- Inventory Turnover

For Year 2009 (Group)

 Average Inventory Sales Period = 360


6.95

= 51.80 days

For Year 2008 (Group)

 Average Inventory Sales Period = 360


5.82

= 61.86 days

For Year 2007 (Group)

 Average Inventory Sales Period = 360


5.13

= 70.18 days

For Year 2006 (Group)

 Average Inventory Sales Period = 360


6.57

= 54.79 days

For Year 2005 (Group)

 Average Inventory Sales Period = 360


8.12

= 44.33 days

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- Fixed Asset Turnover = _____Sales________
- Net Fixed Assets

For Year 2009 (Group)

 Fixed Asset Turnover = RM 3,744,233


RM 860,253

= 4.35 times

For Year 2008 (Group)

 Fixed Asset Turnover = RM 3,877,068


RM 686,459

= 5.65 times

For Year 2007 (Group)

 Fixed Asset Turnover = RM 3,416,028


RM 520,124

= 6.57 times

For Year 2006 (Group)

 Fixed Asset Turnover = RM 3,275,541


RM 491,696

= 6.66 times

For Year 2005 (Group)

 Fixed Asset Turnover = RM 3,127,441


RM 532,215

= 5.88 times

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- Total Asset Turnover = _____Sales________
- Total Assets

For Year 2009 (Group)

 Total Asset Turnover = RM 3,744,233


RM 1,712,717

= 2.19 times

For Year 2008 (Group)

 Total Asset Turnover = RM 3,877,068


RM 1,660,401

= 2.34 times

For Year 2007 (Group)

 Total Asset Turnover = RM 3,416,028


RM 1,603,150

= 2.13 times

For Year 2006 (Group)

 Total Asset Turnover = RM 3,275,541


RM 1,458,714

= 2.25 times

For Year 2005 (Group)

 Total Asset Turnover = RM 3,127,441


RM 1,355,624

= 2.31 times

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3. Leverage Ratio

- Debt Ratio = _Total Liabilities X 100


Total Asset

For Year 2009 (Group)

 Debt Ratio = RM 1,145,538 X 100


RM 1,712,717

= 66.88%

For Year 2008 (Group)

 Debt Ratio = RM 1,144,646 X 100


RM 1,660,401

= 68.94%

For Year 2007 (Group)

 Debt Ratio = RM 965,891 X 100


RM 1,603,150

= 60.25%

For Year 2006 (Group)

 Debt Ratio = RM 899,608 X 100


RM 1,458,714

= 61.67%

For Year 2005 (Group)

 Debt Ratio = RM 819,182 X 100


RM 1,355,624

= 60.43%

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- Debt Equity Ratio = _Long Term Liabilities X 100
Shareholders Equity

For Year 2009 (Group)

 Debt Equity Ratio = RM 446,759 X 100


RM 567,179

= 78.77%

For Year 2008 (Group)

 Debt Equity Ratio = RM 114,189 X 100


RM 515,755

= 22.14%

For Year 2007 (Group)

 Debt Equity Ratio = RM 96,130 X 100


RM 637,259

= 15.08%

For Year 2006 (Group)

 Debt Equity Ratio = RM 217,043 X 100


RM 559,106

= 38.82%

For Year 2005 (Group)

 Debt Equity Ratio = RM 183,881 X 100


RM 536,442

= 34.28%

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- Equity Multiplier = _Total Asset
Total Equity

For Year 2009 (Group)

 Equity Multiplier = RM 1,712,717


RM 567,179

= 3.02 times

For Year 2008 (Group)

 Equity Multiplier = RM 1,660,401


RM 515,755

= 3.22 times

For Year 2007 (Group)

 Equity Multiplier = RM 1,603,150


RM 637,259

= 2.52 times

For Year 2006 (Group)

 Equity Multiplier = RM 1,458,714


RM 559,106

= 2.61 times

For Year 2005 (Group)

 Equity Multiplier = RM 1,355,624


RM 536,442

= 2.53 times

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- Interest Coverage Ratio = Profit before Interest and Tax (Operating Profit)
Interest Expenses

- Interest Coverage Ratio = Net Profit + Interest Expenses + Tax Expenses


Interest Expenses

For Year 2009 (Group)

 Interest Coverage Ratio = RM 439,901


RM 10,415

= 42.24 times

For Year 2008 (Group)

 Interest Coverage Ratio = RM 441,578


RM 6,956

= 63.48 times

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For Year 2007 (Group)

 Interest Coverage Ratio = RM 394,984


RM 1,599

= 247.02 times

For Year 2006 (Group)

 Interest Coverage Ratio = RM 362,950


RM 699

= 519.24 times

For Year 2005 (Group)

 Interest Coverage Ratio = RM 344,301


RM 0

*** No value for year 2005 in Group

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4. Profitability Ratio

- Gross Profit Margin = _Gross Profit X 100


Sales

For Year 2009 (Group)

 Gross Profit Margin = RM 1,281,494 X 100


RM 3,744,233

= 34.23%

For Year 2008 (Group)

 Gross Profit Margin = RM 1,203,750 X 100


RM 3,877,068

= 31.05%

For Year 2007 (Group)

 Gross Profit Margin = RM 1,125,309 X 100


RM 3,416,028

= 32.94%

For Year 2006 (Group)

 Gross Profit Margin = RM 1,104,445 X 100


RM 3,275,541

= 33.72%

For Year 2005 (Group)

 Gross Profit Margin = RM 995,303 X 100


RM 3,127,441

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= 31.82%

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- Net Profit Margin = _Profit after Tax X 100
Sales

For Year 2009 (Group)

 Net Profit Margin = RM 351,793 X 100


RM 3,744,233

= 9.40%

For Year 2008 (Group)

 Net Profit Margin = RM 340,887 X 100


RM 3,877,068

= 8.79%

For Year 2007 (Group)

 Net Profit Margin = RM 292,042 X 100


RM 3,416,028

= 8.55%

For Year 2006 (Group)

 Net Profit Margin = RM 264,219 X 100


RM 3,275,541

= 8.07%

For Year 2005 (Group)

 Net Profit Margin = RM 266,819 X 100


RM 3,127,441

= 8.53%

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- Operating Profit Margin = _Operating Profit X 100
Sales

For Year 2009 (Group)

 Operating Profit Margin = RM 439,901 X 100


RM 3,744,233

= 11.75%

For Year 2008 (Group)

 Operating Profit Margin = RM 441,578 X 100


RM 3,877,068

= 11.39%

For Year 2007 (Group)

 Operating Profit Margin = RM 394,984 X 100


RM 3,416,028

= 11.56%

For Year 2006 (Group)

 Operating Profit Margin = RM 362,950 X 100


RM 3,275,541

= 11.08%

For Year 2005 (Group)

 Net Profit Margin = RM 344,301 X 100


RM 3,127,441

= 11.01%

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- Return On Assets = Profit After Tax X 100
Total Assets

For Year 2009 (Group)

 Return On Assets = RM 351,793 X 100


RM 1,712,717

= 20.54%

For Year 2008 (Group)

 Return On Assets = RM 340,887 X 100


RM 1,660,401

= 20.53%

For Year 2007 (Group)

 Return On Assets = RM 292,042 X 100


RM 1,603,150

= 18.22%

For Year 2006 (Group)

 Return On Assets = RM 264,219 X 100


RM 1,458,714

= 18.11%

For Year 2005 (Group)

 Return On Assets = RM 266,819 X 100


RM 1,355,624

= 19.68%

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- Return On Equity = Profit After Tax X 100
Shareholders’ Equity

For Year 2009 (Group)

 Return On Equity = RM 351,793 X 100


RM 567,179

= 62.03%

For Year 2008 (Group)

 Return On Equity = RM 340,887 X 100


RM 515,755

= 66.09%

For Year 2007 (Group)

 Return On Equity = RM 292,042 X 100


RM 637,259

= 45.83%

For Year 2006 (Group)

 Return On Equity = RM 264,219 X 100


RM 559,106

= 47.26%

For Year 2005 (Group)

 Return On Equity s = RM 266,819 X 100


RM 536,442

= 49.74%

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- Earnings Per Share = Profit Available to Ordinary Shareholders
Number of Ordinary Shares Issued

For Year 2009 (Group)

 Earnings Per Share = RM 351,800


234,500

= RM 1.50

For Year 2008 (Group)

 Earnings Per Share = RM 340,900


234,500

= RM 1.45

For Year 2007 (Group)

 Earnings Per Share = RM292,000


234,500

= RM 1.24

For Year 2006 (Group)

 Earnings Per Share = RM 264,200


234,500

= RM 1.12

For Year 2005 (Group)

 Earnings Per Share = RM 266,800


234,500

= RM 1.14

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5. Market Value Ratio

- Price Earnings Ratio = Market Price Per Share


Earnings Per Share

For Year 2009 (Group)

 Price Earnings Ratio = RM 33.10


RM 1.50

= 22.06

For Year 2008 (Group)

 Price Earnings Ratio = RM 27.00


RM 1.45

= 18.62

For Year 2007 (Group)

 Price Earnings Ratio = RM 26.25


RM 1.24

= 21.17

For Year 2006 (Group)

 Price Earnings Ratio = RM 24.80


RM 1.12

= 22.14

For Year 2005 (Group)

 Price Earnings Ratio = RM 24.30


RM 1.14

= 21.32

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- Dividend Yield Ratio = _ Dividend per Share
Market Price Per Share

For Year 2009 (Group)

 Dividend Yield Ratio = RM 1.50 X 100


RM 33.10

= 4.5%

For Year 2008 (Group)

 Dividend Yield Ratio = RM 1.91 X 100


RM 27.00

= 7.1%

For Year 2007 (Group)

 Dividend Yield Ratio = RM 1.13


RM 26.25 X 100

= 4.3%

For Year 2006 (Group)

 Dividend Yield Ratio = RM 1.00 X 100


RM 24.80

= 4.0%

For Year 2005 (Group)

 Dividend Yield Ratio = RM 0.852 X 100


RM 24.30

= 3.5%

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ANALYSIS OF THE ASSET MANAGEMENT & PROFITABILITY RATIO OF NESTLE
MALAYSIA BERHAD

Based on the calculation as above for Asset Management Ratio, it can summary that:

1. Account Receivable Turnover


- Accounts receivable turnover measures the ability of a company to efficiently issue
credit to its customers and collect funds from them in a timely manner. Starting on
2006 to 2007, represent a low turnover ratio from 7.95 times to 7.72 times. It may be
caused by a loose or nonexistent credit policy, an inadequate collections function,
and/or a large proportion of customers having financial difficulties. It is also quite
likely that indicates an excessive amount of bad debt. For year 2008 to 2009, it shows
high turnover ratio from 11.24 times to 11.62 times. It indicates a combination of a
conservative credit policy and an aggressive collections department, as well as a
number of high-quality customers.
2. Average Collection Period
- This proportion can be expressed as the average number of days over which
receivables are outstanding before they are paid. From year 2008 to 2009, it shows
low figures and is considered best, since it means that a Nestle is locking up less of its
funds in accounts receivable, and so can use the funds for other purposes.
3. Inventory Turnover
- The inventory turnover is the rate at which inventory is used over a measurement
period. Inventory turnover is typically measured on a trend line or in comparison to
the industry average to judge how well a Nestle is performing in this area. In year
2007, it shows low rate of inventory turnover, this implies that a Nestle may have a
flawed purchasing system that bought too many goods, or that stocks were increased
in anticipation of sales that did not occur. In both cases, there is a high risk of
inventory aging, in which case it becomes obsolete and has little residual value. In
year 2009, it shows high rate of inventory turnover. This implies that the purchasing
function is tightly managed. However, it may mean that a Nestle does not have the
cash reserves to maintain normal inventory levels, and so is turning away prospective
sales.

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4. Average Inventory Sales Period
- It is a way to measure the average amount of time that it takes for Nestle to convert
its inventory into sales. In year 2005, it show the small number of days sales in
inventory indicates that a Nestle is more efficient at selling off its inventory, while in
year 2007, show a large number indicates that a Nestle may have invested too much
in inventory, and may even have obsolete inventory on hand. However, a large
number may also mean that Nestle has decided to maintain high inventory levels in
order to achieve high order fulfillment rates.
5. Fixed Asset Turnover
- The fixed asset turnover ratio is the ratio of net sales to net fixed assets. The concept
of the fixed asset turnover ratio is most useful to an outside observer, who wants to
know how well a business is employing its assets to generate sales. In year 2006 and
2007 shows the high ratio and it indicates that Nestle doing an effective job of
generating sales with a relatively small amount of fixed assets, outsourcing work to
avoid investing in fixed assets and selling off excess fixed asset capacity. While in
year 2009, it shows that low ratio. It can summary that Nestle is overinvested in fixed
asset, needs to issue new product to revive its sales, has made a large investment in
fixed assets, with a time delay before the new assets start generating revenues and
has invested in areas that do not increase the capacity of the bottleneck operation,
resulting in no additional throughput.
6. Total Asset Turnover
- The total asset turnover ratio measures the ability of an organization to efficiently
produce sales. The ratio does so by comparing the sales of a company to its asset
base. It found that in year 2008, the ratio show 2.34 times compare from other years.
Nestle can operate with fewer assets than a less efficient competitor, and so requires
less debt and equity to operate. The result should be a comparatively greater return
to its shareholders. The measurement is typically used by third parties to evaluate the
operations of Nestle.

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Based on the calculation as above for Profitability Ratio, it can summary that:

1. Gross Profit Margin


- The gross profit ratio shows the proportion of profits generated by the sale of
products or services, before selling and administrative expenses. In essence, the ratio
reveals the ability of a Neste to create sellable products in a cost-effective manner.
Based on years 2005 until 2009 (311.82% - 34.23%), Nestle maintained around 3%
of gross profit margin. Nestle can continue to provide products to the marketplace for
which customers are willing to pay a reasonable price.
2. Net Profit Margin
- The net profit margin is intended to be a measure of the overall success of a business.
In year 2009, 9.40 % was higher compared from other years. It can indicate in year
2009, pricing its products correctly and is exercising good cost control. It is useful
for comparing the results of businesses within the same industry, since they are all
subject to the same business environment and customer base, and may have
approximately the same cost structures.
3. Operating Profit Margin
- Operating profit margin ratio is the ratio of operating income of a business to its
revenue. It is profitability ratio showing operating income as a percentage of
revenue. It shows Nestle maintained from year 2005 to 2009 (11.01% to 11.75%)
around 11%. It indicates that more proportion of revenue is converted to operating
income. An increase in operating margin ratio overtime means that the profitability is
improving. It is also important to compare the gross margin ratio to the average
gross profit margin of the industry. In general, Nestle is more efficient is controlling
its overall costs will have higher operating margin ratio.
4. Return On Asset
- It indicates how profitable a company is relative to its total assets and how well
management is employing the company's total assets to make a profit. It shows in
year 2008 & 2009, the higher the return, the more efficient management is in utilizing
its asset base. This ratio should be only used to by Nestle compare companies in the
same industry such as Dutch Lady. The reason for this is that companies in some
industries are most asset-insensitive i.e. they need expensive plant and equipment to
generate income compared to others. Their ROA will naturally be lower than the

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ROA of companies which are low asset-insensitive. An increasing trend of ROA
indicates that the profitability of the company is improving. Conversely, a decreasing
trend means that profitability is deteriorating.
5. Return On Equity
- The return on equity ratio or ROE is a profitability ratio that measures the ability of
Nestle to generate profits from its shareholders investments in the company. In other
words, the return on equity ratio shows how much profit each RM of common
stockholders' equity generates. ROE is a profitability ratio from the investor's point
of view not the company. In other words, this ratio calculates how much money is
made based on the investors' investment in the company, not the company's
investment in assets or something else. That being said, investors want to see a high
return on equity ratio because this indicates that the Nestle is using its investors'
funds effectively. Means in year 2008 & 2009 shows the high ratio compare from
others year.
6. Earnings Per Share
- The earnings per share ratio (EPS ratio) measures the amount of a Nestle's net income
that is theoretically available for payment to the holders of its common stock. A
company with a high earnings per share ratio is capable of generating a significant
dividend for investors, or it may plow the funds back into its business for more
growth; in either case, a high ratio indicates a potentially worthwhile investment,
depending on the market price of the stock. The EPS ratio for Nestle more consistent
starting from year 2005 to 2009 increase around 10% every year.

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EVALUATION OF THE RELATIONSHIP BETWEEN ASSET MANAGEMENT AND
FINANCIAL PERFORMANCE OF NESTLE MALAYSIA BERHAD

There are several methods in analyzing and interpreting the so called financial statement, one of
the well-known methods applied by many users of financial statement is ratio analysis. Ratio is
relation between two figures in the form of mathematical fraction and percentage. The ratio
analysis is the analysis of the financial statement by using the so called ratio.

FINANCIAL RATIO ANALYSIS

1. Liquidity Ratio
- Liquidity ratio measure the power of the N to fill Nestle up the short term obligation.
If the Nestle is failed to do so, it will drive to failure and bankruptcy. The Nestle will
end into liquidation to return all outstanding debt. The liquidation converts all the
Nestle’s asset into liquid or cash to return to the creditors and shareholders in case of
bankruptcy. There are three ratios in measuring the liquidity, Net Working Capital,
Current Ratio and Quick Ratio.
 Net Working Capital
- From the Net Working Capital, Nestle had a negative figure RM -148,57. It means
that Nestle had a very low liquidity. Nestle is risky in bankruptcy and liquidation,
because with the current assets of the company cannot cover up the short term debt.
This will happen if Nestlé’s present project is unsuccessful. Nestle must lower their
short term debt in order to put the company in a safety position. At least, Nestle must
lower their current liability for the number of RM 148,575 and maintain the working
capital on positive figure to make sure that Nestle always on the safe position.
 Current Ratio
- By looking the current ratio Nestle for 0.86, Nestle has borderline liquidity. It means
that each RM of the current debt, Nestle only has RM0.86 for returning the debt.
Since the ratio is below 1, Nestle is highly risk in bankruptcy because they will not
able to meet their short term obligation.
 Quick Ratio
- Nestle has a portion of 50-50 on their current asset with the stock which made the
position of Nestle is worsen. Nestle will not be able to pay even half of the current

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debt. Nestle is in a very dangerous situation. If Nestlé did not do anything to the
current liability, Nestlé will be easily come into bankruptcy.

2. Leverage Ratio
- The measurement of gearing ratio is about the level of debt financing that the
company used in the capital. Companies must utilize well the debt financing as it
gives so many advantages, like tax deductible for the company and supplement the
shareholders as well in financing the company. Tax deductible by the debt means as
the interest of the debt are paid before the tax payment, the income decrease and the
tax charge will be lower in the end. However, if the company is too much in using the
debt, the company is risky in bankruptcy since it has less equity and assets than the
level of liability. Leverage ratio consist of four ratios, they are Debt ratio, Long-term
debt ratio, Interest Coverage, and Debt to Equity ratio.
 Debt Ratio
- Nestle had a quite high debt ratio of 68.94% for the year 2008.The high level of debt
indicates high risk that the investor will take. Therefore, the investors will ask for
higher return/dividend for each share invested in Nestle. Nestle have debt ratio lower
than 100%, so Nestle is still using the equity in financing the company. Investors
might find lower risk in the investment in the company since the company still in low-
leverage firm.
 Debt Equity Ratio
- From the debt to equity ratio, Nestlé has very high ratio for 78.77%. It means that
Nestlé has higher debt financing rather than equity financing. The return of dividend
for Nestlé’s shareholder will be lower, since the operating profit is deducted to pay
off the interest. Nestlé is highly risk of bankruptcy, if it is unable in paying off the
large number of debt interest.
 Equity Multiplier
- Equity multiplier shows the asset ownership for each RM of equity. Debt ratio and
equity multiplier provides the same information but in different approach. In year
2009 and 2008, it indicates high ratio compares with other year and shows that the
funding of the Nestlé’s assets via equity is higher compared to the others companies
in the same industry.

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 Interest Coverage Ratio
- From the interest coverage, Nestle has good interest coverage. It means that Nestlé
has power to pay off 20 times of interest over their operating profit. So, Nestle can
manage well the payment of long-term debt like debenture, bond, etc.

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3. Market Value Ratio
- Market value ratio is the ability of the company to generate market values in excess
of its investment costs. It is very important as these market value ratios are directly
related to the objective of the company that is to maximize shareholders’ wealth and
value of the company. The market value ratio influences the market’s reaction and
investors’ confidence towards the ability of the company’s management in generating
profit efficiently and effectively.
 Price Earnings Ratio
- The P/E Ratio indicates how much investors are willing to pay per RM of current
earnings. As such, high P/E Ratios are associated with growth stocks.
 Dividend Yield Ratio
- The dividend yield ratio shows the amount of dividends that a company pays to its
investors in comparison to the market price of its stock. Thus, the dividend yield ratio
is the return on investment to an investor if the investor were to have bought the stock
at the market price on the measurement date.

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TREND ANALYSIS OF NESTLE IN 5 YEARS

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Revenue

Revenue trends index show that Nestlé has a gradual increase in 5 years but decrease in
year 2009 around 3%. Revenue of Nestlé increases for average of 8% every year starting from
year 2008 to year 2005. Nestlé has invested for the development of Nestlé’s manufacturing and
technology facility in 2007. One of the developments is the air-dried noodle for the so called
Maggi noodle. Since the turnover of Maggi noodle 1.3 million per day, it was believed that the
technology will boost the revenue in the future (Nestlé, 2007).

Cash flow from Operating Activity

Operating activities trend indicates that, Nestle is having fluctuation in the cash
inflow from the operating activity. Nestle has fluctuate cash flow from 2005 to 2008 and increase
significantly in 2008 for 148%. The fluctuation happened to Nestle can be treated as market
effects to the company. In 2009, there will highly probable that Nestle will enter the grave
performance and enter good performance in 2010.

Dividend Payout

Dividend payout measures the amount that company give to the shareholder compared
with the earnings that they get per share. Outstanding amount of earnings that taken by the
company is called retained earnings. Usually, retained earnings use for investing a project or
other development for a better performance in the future. Trend analysis of dividend payout
indicates that Nestlé give almost same dividends payout to shareholders in 2004 to 2007. But in
2008, Nestlé retained 23% more than the base year to develop a new factory in Shah Alam. The
factory produces non-dairy creamer ‘Coffeemate’, Coffee and cereals. Coffeemate is the best
product in the market, occupy 88% of share market. Nestlé has invested for the total of
RM100million in renovating and developing their factories since year 2007 (Nestlé, 2008). The
trend forecasted that Nestlé’s dividend payout will increase as the development of the company.

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CONCLUSION

As ratio analysis indicates that Nestle is having better profitability and efficiency, but
with low level of liquidity and highly-leveraged. Nestle is on stabile position in revenues. From
the operating cash flow of Nestle, it can manage to perform well, even in bad economy situation
in 2005 and 2007. This indicates that Nestle is stable and strong. Even though Nestle is strong
enough, it must use the long-term debt for investment, so that shareholders did not get burden
from those activity. Nestle was very strong and stabilized, even with low liquidity and high
leverage. From all analysis above, Nestle has better and stronger position in the market. Nestle
has been a stabilized multi-national company since long time ago. Therefore, Investors might
consider investing in Nestle with the consideration of new investment and strong position in the
market.

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REFERENCE

1. Financial Report Nestle Year 2009


2. Financial Report Nestle Year 2008
3. Financial Report Nestle Year 2007
4. Financial Report Nestle Year 2006
5. Financial Report Nestle Year 2005

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