FINANCIAL MANAGEMENT

ASSIGNMENT
GROUP - 8

Nestle
Submitted To :- Group Members Name
Dr.Shainu Mathew Group 06
Mayank Bhavsar
Mahima Makin
Piyush Shravan
Piya Bakshi
  Capital Structure of the company for last 5 years:-

 Capital structure of Nestle India ltd

Authorized
Period Instrument Capital Issued Capital -PAIDUP-

Shares Capital (Rs.

From To   (Rs. cr) (Rs. cr) (nos) Face Value Cr)

Equity
2020 2020 Share 100.0 96.4 96415716 10.0 96.4

Equity
2019 2019 Share 100.0 96.4 96415716 10.0 96.4

Equity
2018 2018 Share 100.0 96.4 96415716 10.0 96.4

Equity
2017 2017 Share 100.0 96.4 96415716 10.0 96.4

Equity
2016 2016 Share 100.0 96.4 96415716 10.0 96.4

Analysis
 From the above table we can see that the Capital is constant
from the Year 2016-2020.
 In the Year 2016-2020 the Capital was 100 (crores) and it is
constant till 2020.
 By this we can say that Company is at low risk and earning
profit.
 Calculation of Weighted Average cost of Capital
(Wacc) of last 5 years :-

 Calculation of Cost of Equity:-

 Cost of Equity (Ke) = Risk free Rate of Return + Beta * Risk Premium
= 6.3+ 0.08 * 6
= 6.3*0.48
= 6.78
*Assuming constant for five years
*Risk Premium = Expected Return of Market – Risk free Rate of Return

 Calculation of Cost of Debt:-

FY 2020 FY 2019 FY 2018 FY 2017 FY2016

Long term Debt 3,17,200 5,31,400 3,51,400 3,51,400 3,31,500

Short term Debt - - - - -

Total Debt 3,17,200 5,31,400 3,51,400 3,51,400 3,31,500

Interest Expenses 16,41,800 11,98,300 11,19,500 9,19,900 9,09,100

Cost of Debt (Kd) 5.17% 2.25% 3.18% 2.61% 2.74%

  Calculation of Corporate Tax :-
FY 2020 FY 2019 FY 2018 FY 2017 FY 2016

Income Tax 73,03,600 70,54,400 82,20,200 61,41,100 5,61,1900

Expenses
Income 2,81,27,900 2,67,49,900 2,42,89,500 1,83,93,000 1,54,53,800
Before Tax
Effective Tax 26% 26% 34% 33% 36%
Rate
Cost of Debt 3.9% 1.67% 2.09% 1.74% 1.75%
(After Tax)
=Kd(1-Tax)

 Weighted Average Cost of Capital:-

The weighted average cost of capital (WACC) is a calculation of a

firm's cost of capital in which each category of capital is
proportionately weighted. All sources of capital, including common
stock, preferred stock, bonds, and any other long-term debt, are
included in a WACC calculation.
A firm’s WACC increases as the beta and rate of return on equity
increase because an increase in WACC denotes a decrease in
valuation and an increase in risk.

 WACC-Nestle India Limited:-

As of today (2021-06-03), Nestle India's weighted average cost of
capital is 7.68%. Nestle India's ROIC % is 5.97% (calculated using
TTM income statement data). Nestle India earns returns that do not
match up to its cost of capital. It will destroy value as it grows.
  Calculation of weighted Average Cost of Capital:-

Source FY 2020 FY 2019 FY 2018 FY 2017 FY 2016

Share Capital 9,64,200 9,64,200 9,64,200 9,64,200 9,64,200
(A)

Retained 1,11,75,200 1,03,07,600 2,76,88,100 2,50,54,500 3,18,59,100

Earnings (B)
Total Equity 2,01,93,400 1,93,22,600 3,67,37,400 3,42,05,900 32,823,300
(A+B)
Proportion of 0.98 0.97 0.99 0.98 0.99
Equity (C)
Cost of Equity 6.78 6.78 6.78 6.78 6.78
(D)
Weighted 6.64 6.57 6.71 6.64 6.71
Average Equity
(C*D)
Total Debt (E) 3,17,200 5,31,400 3,51,400 3,51,400 3,31,500
Proportion of 0.015 0.026 0.0094 0.0101 0.0099
Debt (F)
Cost of Debt 3.9% 1.67% 2.09% 1.74% 1.75%
After Tax(G)
Weighted 0.06 0.043 0.0196 0.0175 0.0173
Average Debt
(F*G)
WACC (%) 6.7% 6.6% 6.7% 6.66% 6.72%

 Interpretation:-
 This company is having a constant value of WACC
from 2016 to 2020.
  Ratio Analysis:-

1. Debt to Equity Ratio:- The debt-to-equity (D/E) ratio compares

a company’s total liabilities to its shareholder equity and can be
used to evaluate how much leverage a company is using.
Debt/Equity = Total Debt
Total Shareholders Equity
Year Total Debt Total Shareholders Ratio
Equity
2016
2017 351400 34205900 0.01
2018 351400 36737400 0.009
2019 531400 19322600 0.027
2020 317200 20193400 0.015

 Intrepretation :-
There’s been a continuous decrease in the ratio from 2016-2020,
which shows that companies at a high risk.

2. Debt to Equity Ratio’s :- It is a measure of the degree to which

a company is financing its operations through debt versus
wholly owned funds. More specifically, it reflects the ability of
shareholder equity to cover all outstanding debts in the event of
a business downturn.
Debt to Equity Ratio = (short term debt + long term debt + fixed Payment
Obligations
Shareholder’s Equity
3. Debt to Capital Ratio :- The debt-to-capital ratio is a
measurement of a company's financial leverage. The debt-to-
 capital ratio is calculated by taking the company's interest-
bearing debt, both short- and long-term liabilities and dividing it
by the total capital.
All else equal, the higher the debt-to-capital
ratio, the riskier the company.

Debt-To-Capital Ratio = Debt

Debt+ Shareholder’s Equity

Year Total Total Equity Total Capital= Debt Debt to

Debt +Equity Capital
Ratio
2016 3,31,500 3,28,23,300 3,31,54,800 1.0%

2017 3,51,400 3,42,05,900 3,45,57,300 1.0%

2018 3,51,400 3,67,37,400 3,70,88,800 9.0%
2019 5,31,400 1,93,22,600 1,98,54,000 2.6%
2020 3,17,200 2,01,93,400 2,05,10,600 1.5%

 Interpretation:-

4. Debt to Assets Ratio:- The debt ratio is a financial ratio that

measures the extent of a company’s leverage. The debt ratio is
 defined as the ratio of total debt to total assets, expressed as a
decimal or percentage.
A debt ratio greater than 1.0 (100%) tells
you that a company has more debt than assets.Meanwhile, a debt
ratio less than 100% indicates that a company has more assets than
debt.
The Formula for the Debt Ratio is
= Total Debt
Total Assets
 Calculation of Debt Ratio :-
Year Total Debts Total Assets Ratios
2016 3,31,500 5,15,33,300 0.0064
2017 3,51,400 7,36,25,900 0.0047
2018 3,51,400 8,08,80,800 0.0043
2019 5,13,400 7,05,82,000 0.0075
2020 3,17,200 7,87,97,300 0.0040

 Interpretation:-

5. Shareholder Equity Ratio:- The shareholder equity ratio

indicates how much of a company's assets have been generated
by issuing equity shares rather than by taking on debt. The lower
 the ratio result, the more debt a company has used to pay for its
assets. The shareholder equity ratio is expressed as a percentage
and calculated by dividing total shareholders' equity by the total
assets of the company.
 The shareholder equity ratio shows how much of a
company's assets are funded by issuing stock rather than
borrowing money.
 The closer a firm's ratio result is to 100%, the more assets
it has financed with stock rather than debt.

The formula for shareholder Equity Ratio is

= Total Shareholder Equity
Total Assets
Year Total shareholders Total Assets Ratios
Equity
2016 3,28,23,300 5,15,33,300 0.636933
2017 3,42,05,900 7,36,25,900 0.464590
2018 3,67,37,400 8,08,80,800 0.454216
2019 1,93,22,600 7,05,82,000 0.273761
2020 2,01,93,400 7,87,97,300 0.256270

 Interpretation :-

 Ratio Analysis shows that their is continuous decrease in

ratio from 2016-2020.
 From 2016-2020 the ratio is decreasing so the more debt a
company has used to pay for its assets.