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 sub-
brands.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 𝐚𝐬𝐬𝐞𝐭
Current ratio =
𝐜𝐮𝐫𝐫𝐞𝐧𝐭 𝐥𝐢𝐚𝐛𝐢𝐥𝐢𝐭𝐲

Current ratio 2015

18029598 0.177
25143112
Current ratio 2014
18405780 0.661
27777240
Current ratio 2013
30066 0.913
32917

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.
 𝐚𝐬𝐬𝐞𝐭𝐬
Quick ratio =
𝐜𝐮𝐫𝐫𝐞𝐧𝐭 𝐥𝐢𝐚𝐛𝐢𝐥𝐢𝐭𝐲

Quick ratio 2015

8554917 0.340
25143112
Quick ratio 2014
8641793 0.311
27777240
Quick ratio 2013
10011351 0.556
18000989

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 assets
Absolute liquid ratio =
Current liabilities
Absolute liquid assets 2015
7726279 0.307
25143112
Absolute liquid assets 2014
7883356 0.283
27777240
Absolute liquid assets 2013
92425 5.134
18000989

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
𝐍𝐞𝐭 𝐬𝐚𝐥𝐞𝐬
Inventory turnover ratio =
𝐈𝐧𝐯𝐞𝐧𝐭𝐨𝐫𝐲
Inventory turnover ratio 2015
102985916 9.591
10737470
Inventory turnover ratio 2014
96457743 8.790
10972534
Inventory turnover ratio 2013
86226869 10287.1
8382

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
𝐍𝐞𝐭 𝐬𝐚𝐥𝐞𝐬
Working capital ratio =
𝐍𝐞𝐭 𝐰𝐨𝐫𝐤𝐢𝐧𝐠 𝐜𝐚𝐩𝐢𝐭𝐚𝐥
Working capital turnover ratio 2015
68859344 9.680
7113514
Working capital turnover ratio 2014
69133753 7.377
9371460
Working capital turnover ratio 2013
62066072 962.17
64506

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
Gross profit ratio =
𝐍𝐞𝐭 𝐬𝐚𝐥𝐞𝐬
Gross profit ratio 2015
34126572 33.137
× 100
102985916
Gross profit ratio
27323990 28.327
× 100
96457743
Gross profit ratio
24160797 28.020
× 100
86226869

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
Operating profit ratio = × 100
Net sales
Operating profit ratio 2015
31916032 30.990
× 100
102985916
Operating profit ratio 2014
25851440 26.800
× 100
96457743
Operating profit ratio 2013
22721020 26.350
× 100
86226869

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 after tax
Net profit ratio = × 100
Net sales
Net profit ratio 2015
8760930 8.506
× 100
102985916
Net profit ratio 2014
7929271 8.220
× 100
96457743
Net profit ratio 2013
5866763 6.803
× 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
Cost of goods sold+Operating expenses
Operating ratio = × 100
Net sales

Operating ratio 2015

68859344 + 2210540 69.009
× 100
102985916
Operating ratio 2014
69133753 + 1472550 73.199
× 100
96457743
Operating ratio 2013
62066072 + 1439777 73.649
× 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 and administration expenses
×100
Net sales
Expense Ratio 2015
15411236 14.964
× 100
102985916
Expense Ratio 2014
11085448 11.492
× 100
96457743
Expense Ratio 2013
10731584 12.442
× 100
86226869

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 2015
49267464 1
49267464
Debt to total funds or solvency ratio 2014
51730695 1
51730695
Debt to total funds or solvency ratio 2013
52289521 1
52289521

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 accounts receivables

Receivables turnover ratio 2015

102985916 248.566
414319
Receivables turnover ratio 2014
96457743 254.359
379218.5
Receivables turnover ratio 2013
86226869 22.590
3816929

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 𝐥𝐨𝐧𝐠 𝐭𝐞𝐫𝐦 𝐝𝐞𝐛𝐭

Debt-equity ratio 2015

276199 0.021
12913961
Debt-equity ratio 2014
317600 0.025
12627625
Debt-equity ratio 2013
292304 0.024
12151461

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 𝐚𝐧𝐝 𝐭𝐚𝐱
𝐈𝐧𝐭𝐞𝐫𝐞𝐬𝐭
Interest coverage ratio 2015
12603643 150.903
83521
Interest coverage ratio 2014
11156820 75.566
147652
Interest coverage ratio 2013
8376738 31.757
263776

INTERPRETATION
The ratio measures debts servicing capacity of a business so far as interest on long-
term 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 2015

8760930 193.184
45350
Earning per share 2014
7929271 193.184
45350
Earning per share 2013
5866763 129.37
45350

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)

Net profit after tax

ROI =
Total assets
Return on investment 2015
49267464 5.623
8760930
Return on investment 2014
51730695 6.524
7929271
Return on investment 2013
52289521 8.912
5866763

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.