Nestlé Pakistan

Introduction
Nestlé Pakistan Ltd is a subsidiary of Nestlé S.A, - a company of Swiss origin headquartered in
Vevey, Switzerland. It is a food processing company, registered on the Karachi and Lahore stock
exchanges and operating in Pakistan since 1988 under a joint venture with Milk Pak ltd and took
over management in 1992. For ten years in a row, the company has won a place among the top
25 companies of the Karachi Stock Exchange. Headquartered in Lahore, the Company operates
four production facilities. Two of its factories in Sheikhupura and Kabirwala are multi product
factories. One factory in Islamabad and one in Karachi produce bottled water. The factory in
Kabirwala is the largest milk intake plant in the Nestlé world. Through its effective marketing
and a vast sales and distribution network throughout the country, it ensures that its products are
made available to consumers whenever, wherever and however. Nestlé Pakistan operates in
many ways but people, products and brands are the main flag bearers of the Company’s image.
Nestlé Pakistan now operates the biggest milk collection system in Pakistan, Currently; Nestlé
Pakistan collects milk from an estimated 190,000 farmers spread over 146,000 sq Km’s in the
province of Punjab and Sindh. Nestlé believes in creating shared value and is committed to the
communities it works and lives with. In Pakistan, the company is working closely with the
communities in areas related to Nutrition, Water and Rural Development and continues to
enhance the quality of life of people throughout its value chain. Till date (in 22 years) Nestlé
Pakistan has invested over 50 Billion PKR and had an annual turnover of Rs 51 Billion PKR in
2010. Nestlé is committed to Pakistan and will continue to invest and work in the future as well.
The company’s strategy is guided by Nestlé’s Corporate Business Principles which are in line
with internationally accepted best practices and ethical performance culture. Nestlé’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 are, and for all age groups.
Nestlé Pakistan today is the leading Food & Beverages Company in Pakistan with key focus on
Nutrition, Health and Wellness and reaching the remotest of locations throughout Pakistan to
serve the consumers. Nestlé Pakistan also prides itself in being the leaders in Nutrition, Health &
Wellness. Ever since 1867, when Henri Nestlé invented the first infant food, nutrition has been in
our DNA. Today more and more consumers mirror our emphasis on nutrition, as they realize that
food choices affect their health and quality of life.
Nestlé Pakistan operates in many ways but people, products and brands are the main flag bearers
of the Company’s image, and we continue to enhance the quality of life of Pakistanis.

Goals and Objectives

The goals and objectives of Nestlé Pakistan are simple and well designed with the core
strategies to meet the demand of the consumers and to fulfill the needs of the customers.
Following are the main goals and;
1. To be, the best and quality providing brand among other brands in Pakistan
2. To fulfill customers’ needs and requirements.
3. To capture it’s desired market share.
4. To dwell into the life of people and consumers.
5. To boost up its sales.
6. To create value for customer.
7. To keep the loyalty of customer with Nestlé.
8. To be the top nutrition company of Pakistan.
9. To be the leading FMCG company around the world as well as in Pakistan.
10. It aims to be the socially responsible and helping company in bad times.
11. Nestlé aims to be proactive innovation and renovation culture, which is the key to
Nestlé’s success in the market place.
 Financial Statements of NESTLÉ Pakistan
NESTLÉ PAKISTAN LIMITED
Balance sheet
As at December 31st2015
Assets:
Non-current assets
Property, plant and equipment 28,734,507
Capital work-in-progress 4,059,585
Intangible assets 23,532
Long term loans and advances 367,359
Long term deposits and prepayments 36,147
33,221,130
Current assets
Stores and spares 1,769,987
Stores and spares 1,769,987
Stock in trade 15,358,288
Trade debts Current portion of long term loans and advances 135,248
Sales tax refundable 477,768
Advances, deposits, prepayments and other receivables 1,268,098
Cash and bank balances 333,984
25,124,489

EQUITY AND LIABILITIES

Share capital and reserves
Authorized capital
75,000,000 (75,000,000) ordinary shares of Rs. 10 each 750,000
Issued, subscribed and paid up capital 453,496
Share premium 249,527
General reserve 280,000
Hedging reserve 5 8,357
Accumulated profit 3,642,960
4,634,340
Non-current liabilities
Long term finances – secured 69,291,755
Deferred taxation 2,493,067
Retirement benefits 1,660,762
13,445,584
Current liabilities

Current portion of long term finances -secured 116,343

Short term borrowings - secured 845,986
Short term running finance under mark-up arrangements - secured 513,908
Customer security deposits - interest free 260,369
Income tax - net 1,150,297
Trade and other payables 26,231,936
Interest and mark-up accrued 146,856
40,265,695
Contingencies and commitments
58,345,619
 NESTLÉ PAKISTAN LIMITED
Income statement
For the year ended December 31st 2015

Sales - net 122,214,698

Cost of goods sold (77,458,749)
Gross profit 44,755,949
Distribution and selling expenses (18,406,725)
Administration expenses (2,741,743)
Operating profit 23,607,481
Finance cost (1,095,630)
Other expenses (1,837,203)
(2,932,833)
Other income 313,857
Profit before taxation 20,988, 505
Taxation (6,346,723)
Profit after taxation 14,641,782
Earnings per share - basic and diluted (Rupees) 322.86
 Cash Flow Statement
For the year ended 31 December 2015

Cash flow from operating activities

Cash generated from operations 21,925,820
(Increase) / decrease in long term deposits and prepayments (4,101)
Increase in long term loans and advances (65,593)
Increase in customer security deposits - interest free 19,526
Sales tax refundable – net 896,977
Retirement benefits paid (423,487)
Workers’ profit participation fund paid (11,916)
Workers’ welfare fund paid (323,560)
Income taxes paid (6,012,968)
Net cash generated from operating activities 16,000,698
Cash flow from investing activities
Fixed capital expenditure (5,457,179)
Sale proceeds of property, plant and equipment 250,451
Net cash used in investing activities (5,206,728)
Cash flow from financing activities
Finance cost paid (997,662)
Long term finances – net 3,770,625
Short term borrowings - net 7,500,829
Dividend paid (18,587,733)
Net cash used in financing activities (8,313,941)
Net increase in cash and cash equivalents 2,480,029
Cash and cash equivalents at beginning of the year (1,659,953)
Cash and cash equivalents at end of the year 35 820,076

The other data of NESTLE financial ratios analysis is as

Follows :
NESTLÉ
Total Assets 35,179,859
Current Assets 13,395,017
Current Liabilities 16,788,455
Inventories 7,046,126.522
Net Income 4,524,771
Average Total Assets* 10,873,970
Beginning Assets 8,352,923
Ending Assets 13,395,017
Average Stockholder’s
Equity**
6,597,144.5
Beginning Equity 5,581,873
Ending Equity 7,612,416
Number of Common 7,236,942
Sales 64,824,364
Number of Common Stock 45,350.272
Cost of Goods Sold 48,099,046
Total Stockholder’s Equity 7,612,416
EBIT*** 6,586,973
EBT 6,502,864
Interest Expenses 84,109
Market Price Per Shares 4,844
EPS 102.94
Inventory Turnover 9.2
EAT 4,668,357
Gross Profit 16,725,318
Total Liabilities 2756443

Ratios of NESTLÉ for Financial Statement Analysis

a. Liquidity Ratios
Current Ratio
Current Ratio = Current Assets / Current Liabilities
= 13,395,017 / 16,788,455
= 0.80

Current ratio tells us the short term solvency of the firm and tells the ability of the firm to repay its short
term obligations. In nestle the firm has 0.80 ability to repay against the $ 1 loan.

Quick Ratio
Quick Ratio = (Current Assets – Inventories) / Current Liabilities
= (13,395,017 – 7,046,126.522) / 16,788,455
= 0.38
Quick ratio measures the firm’s ability to pay off short term obligations without relying on the sale of
inventory. Nestle has the quick ratio of 0.38 chances of paying off its short term obligations without
relying on the level or sales of inventory.

Net Working Capital Ratio

Net Working Capital = (Current Assets –Current Liabilities) / Total Assets
= (13,395,017 –16,788,455) / 35,179,859
= – 0.10

b. Profitability Analysis Ratios

Return on Assets (ROA)
Return on Assets (ROA) = Net Income / Average Total Assets*
= 4,524,771 / 10,873,970*
= 0.42
Return on Equity (ROE)
Return on Equity (ROE) = Net Income / Average Stockholders' Equity**
= 4,524,771 / 6,597,144.5
= 0.69

Return on Investment (ROI)

Return on Investment (ROI) = Net Profit After Taxes / Total Assets
= 4,668,357 / 35,179,859
= 0.13
How much a firm is returning to its stockholder only in the case if the firm is earning profit? Nestle have
return on investment ratio 0.13 or 13% .
Net Profit Margin
Net Profit Margin = Net Profit After Taxes / Net Sales
= 4,668,357 / 64,824,364
= 0. 01 Net profit margin is calculated by dividing the net profit after taxes by the sales means after
paying the taxes you are earning some of the profit it means firm is doing its business well. Nestle is
earning 0.01 or 1% against $ 1 .

Gross Profit Margin

Gross Profit Margin = Gross Profit / Sales
= 16,725,318 / 64,824,364
= 0.26
It tells that how much a firm will receive against $ 1 sales. Nestle has 0.26 gross profit margin ratio.
Earnings Per Share (EPS)
Earnings Per Share (EPS) = Earnings After Taxes / Number of Shares
= 4,668,357 / 45,350.272
= 102.94
c. Activity Analysis Ratios

Asset Turnover Ratio

Asset Turnover Ratio = Net Sales / Total Assets
= 64,824,364 / 35,179,859
= 1.84
This ratio measures the turnover of the entire firm’s asset. It is calculated by dividing the sales by total
assets of the firm. If firm shouldn’t increase its sales so there is a possibility that a firm will sale its some
assets. There is 1.84 chances of asset turnover in nestle against every $ 1.

Inventory Turnover Ratio

Inventory Turnover Ratio = Cost of Goods Sold / inventory
= 48,099,046 / 7,046,126.522
=6.83

Inventory turnover is calculated by dividing the CGS by inventory. The inventory turnover of nestle is
6.83 times.

d. Capital Structure Analysis Ratios

Debt to Equity Ratio
Debt to Equity Ratio = Total Liabilities / Total Stockholders' Equity
= 2,756,443 / 7,612,416
= 3.62
Debt to equity ratio shows the comparison to equity this ratio tells that how much firm has ability to pay
its debt and if equity is more than the total debt of the firm so firm will face low risk. In nestle the firm
has 3.62 against $ 1 to pay debt.
Debt to Asset Ratio
Debt to Asset Ratio =Total Debt/ Total Assets
= 2,756,443 / 35,179,859
= 0.08

Debt to asset ratio shows if the firms have more assets regardless of total debt than that firm will easily
pay off its debts. The debt to asset ratio in nestle is 0.08.

Interest Coverage Ratio

Interest Coverage Ratio = Income Before Interest and Income Tax Expenses*** /
Interest Expense
= 6,586,973*** / 84,109
=7 8.31

Interest coverage ratio measures the extent to which the operating income of the firm can decline
before the firm is unable to meet its annual interest cost. Nestle has 78.31 times interest coverage ratio

e. Capital Market Analysis Ratios

Price Earnings (PE) Ratio

Price Earnings (PE) Ratio = Market Price per Share / Earnings per Share
= 4,844 / 102.94
= 47.06

Conclusion

After all the findings, it is concluded that financial ratios are the basic and most important part of any
business. It describes the firm’s financial position. As the data indicates that NESTLE is an international
brand and has expanded its business on the large geographical area and also offers the large range of
products.

From the financial statements it is clear that the financial position of the NESTLE is much better as it is
more preferred by the customers and also an internationally distributed. It also has less risk. It gives
more return because it gains more profit .