FINANCIAL ANALYSIS

COMPILED BY:
Karan Shah
Barkha Dawra
Kunal Janyani
Manpreet Lamba
 EXECUTIVE SUMMARY
As a part of MBA curriculum at Thadomal Shahani Centre for Management, we are delighted
to present this financial analysis report on Nestle.
Nestle India Ltd is a market leader in the FMCG category manufacturing food products. Its
share price has risen multifold since its listing. This project report critically analyses Nestle
financials based on various financial ratios. Analytics of ratios has been done and the necessary
comments have been compiled based on the ratios.
We are thankful to all faculty members at Thadomal Shahani Centre for Management for their
help and guidance in completion of this project.
 INTRODUCTION
The Corporation was founded in New Delhi on 28 March,1959. Nestle India Ltd, one of the
key players in the FMCG market, has presence in the fields of milk & nutrition, snacks, cooked
dishes & cooking aids & chocolate & confectionery. The company is involved in the food
industry. The food industry comprises commodity categories such as milk and meat, beverages,
frozen food and cooking chocolates. Nestle India produces packaged goods include Nescafe,
Maggi, Milky bar, Milo, Kit Kat, Bar-One, Milkmaid and Nestea.
With 8 production plants and four branch offices spread across the country, the organization
has presence in India. The country's four regional offices continue to promote the distribution
and promotion of its goods. They are in Bangalore, Chennai, Mumbai and Kolkata. Head Office
of the company is based in Gurgaon, Haryana.
The company set up its seventh factory at Pantagar in Uttarakhand in the year 2006. The Indian
Innovator of the year award was given to the organization by CNBC Asia in 2007. The four
factories of the organization have been granted the globally recognised ISO 14001 external
qualification for commitment to sustainable standards and Health and Safety OSHAS 18001.
On August 2015, following the June ban on Maggi noodles, Government of India made it
official that it was claiming damages of about $100 million from Nestle India for' unfair trading
practices.' The 6.400-million-rupee claim was lodged with the National Consumer Disputes
Redressal Commission (NCDRC), deemed the highest consumer court in the country but was
dismissed on August 13, 2015. The court ruled that the government's prohibition on the Nestle
drug was both' arbitrary' and infringed the' principles of natural justice.' While Nestle was not
required to pay the penalty demanded in the suit of the government, the court ruled that the
Maggi noodle producers had to' return five samples from each Maggi batch to three laboratories
for inspection, and only if the lead was found to be lower than permitted will they start
manufacturing and sale again.
 FINANCIAL RATIOS

The following ratios are as per Financial year December’19 as Nestle follows
Calendar year as Financial year:

 Price-to-Earnings Ratio – P/E Ratio

The price-to-earnings ratio (P/E ratio) is the ratio for valuing a company that measures its
current share price relative to its per-share earnings (EPS). The price-to-earnings ratio is also
sometimes known as the price multiple or the earnings multiple.

P/E ratios are used by investors and analysts to determine the relative value of a company's
shares in an apples-to-apples comparison. It can also be used to compare a company against its
own historical record or to compare aggregate markets against one another or over time.

PE Ratio = Current stock price

Earnings per share

PE ratio of Nestle India Limited= 73.39

 Current Ratio

Current ratio is a comparison of current assets to current liabilities, calculated by dividing

your current assets by your current liabilities. Potential creditors use the current ratio to
measure a company's liquidity or ability to pay off short-term debts.

Current assets
Current Ratio = Current Liabilities

Current Ratio of Nestle India Limited= 0.58

 Debt Equity Ratio

The debt-to-equity ratio is a financial ratio indicating the relative proportion of shareholders'
equity and debt used to finance a company's assets. Closely related to leveraging, the ratio is
also known as risk, gearing or leverage.

Total Liabilities
Debt Equity Ratio = Total Shareholder’s Equity

Debt
Fixedequity ratio of Ratio
Assets Turnover Nestle India Limited =0.03

Fixed asset turnover ratio:

Fixed-asset turnover is the ratio of sales (on the profit and loss account) to the value of fixed
assets (on the balance sheet). It indicates how well the business is using its fixed assets to
generate sales

Net sales
Fixed Assets Turnover Ratio= Average Fixed Assets

Fixed assets turnover ratio of Nestle India Limited = 5.22 %

 Return on investment
ROI (Return on Investment) measures the gain or loss generated on an investment relative to
the amount of money invested. 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= Net Profit / Total Investment * 100.

Return on investment = 43.75%

 CRITICAL ANALYSIS OF RATIOS
PE Ratio:
The industry PE is 54.58 while Nestle PE is 73.39 which means an investor is paying
73.39 rupees for one rupee of earnings.

PE ratio guides the investors if the company has growth potential. Nestle PE is little higher to
its industry PE. A higher P/E ratio indicates that investors are willing to pay a higher share
price today because of future growth expectations in the profit. Most people feel that a lesser
P/E is cheap and worth investing and higher P/E is expensive and not worth investing which is
a highly incorrect notion.
A high PE can be justified by the following reasons:
 High return on equity
 Profits
 Growth
 Quality of management
 Innovation

Thus, Nestle being an FMCG company with solid earnings YoY inspite of higher PE is a good
investment and is financially stable.
Conclusion: High PE is not always expensive and bad.

Current Ratio:
The Current ratio of Nestle is 0.58. Current ratios vary from industry to industry. For healthy
businesses the ratio should be 1.5 - 3% which indicates good short-term financial strength.
Nestle having 0.58 current ratio which means it is below 1. Thus, Nestle can have problems to
fulfill all its short term obligations. However, with strong earnings that Nestle records YoY it
has the capacity to repay all its current liabilities.

Debt-equity Ratio:
The Debt equity ratio of Nestle is 0.03.
Debt to equity ratio lower than 1 means its assets are more funded by equity and debt-equity
ratio greater than one means its assets are more funded by debt. Thus, a low debt-equity
ratio indicates a lower amount of financing by debt through lenders, versus funding
through equity via shareholders. A higher ratio indicates that the company is getting more of
its financing by borrowing money, which subjects the company to potential risk if debt levels
are too high.
Nestle having Debt-equity ratio below 1 means its funding is through equity calling it a safe
company.
Fixed assets turnover ratio:
The fixed assets turnover ratio of Nestle is 5.22%. This means that 5.22 Rupees of sales is
generated for every Rupee investment in fixed asset. A high ratio indicates that the company
has effective utilization of fixed assets to generate revenue. Whereas, a declining ratio indicates
that a company has over-invested in fixed assets and there is no effective utilisation of it.
Nestle has very huge Fixed assets turnover ratio meaning it uses its fixed assets well to produce
its products and generate higher sales revenue for every rupee investment in fixed asset which
is reflected in its growth in profits YoY.

Return on investment:
The 1-year ROI of Nestle is 43.75% as on 15th March, 2020 which is huge compared to other
asset classes like Bank FD, gold, bonds etc. Thus it is a company with great ROI and future
investment prospective.
 CONCLUSION
All ratios are in favour of Nestle India Limited. Thus, Nestle India is a company with strong
financials. Any investor willing to invest can do so. Nestle India share price is Rs. 14,991.80
as on 15th March, 2020. Nestle being a consumer durables company has given huge returns
since its listing on National Stock Exchange.
 BIBLIOGRAPHY

 https://www.capitalmarket.com/Company-Information/Information/About-
Company/Nestle-India-Ltd/175

 www.moneycontrol.com