Nestle India

NESTLÉ's relationship with India dates back to 1912, when it began trading as The NESTLÉ
Anglo-Swiss Condensed Milk Company (Export) Limited, importing and selling finished
products in the Indian market.
NESTLÉ India manufactures products of truly international quality under internationally
famous brand names such as NESCAFÉ, MAGGI, MILKYBAR, KIT KAT, BAR-ONE,
MILKMAID and NESTEA and in recent years the Company has also introduced products of
daily consumption and use such as NESTLÉ Milk, NESTLÉ SLIM Milk, NESTLÉ Dahi and
NESTLÉ Jeera Raita.

Margin ratios
1. Gross profit margin = Gross Margin
Net sales revenue

Gross margin = 29,243

Net sales revenue = 1,23,689

= 29,243
1,23,689
= 23.64

2. Net profit margin = Net profit

Net sales revenue

= 19,684.
123,689
= 15.91%

3. Operating margin = Operating income

Net sales revenue

Operating income= Earning before interest and tax

= 28,026.1

= 28,026.1
123,689
= 22.65%

4. Earning per share = Net income

Outstanding shares

Net income = 19,684.4

Outstanding share = 96.42
 = 19,684.4
96.42
= 204.19

Return ratios
5. Return on Equity = Net income
Share holder’s equity

Net income = 19,684.4

Shareholder’s equity = 19,188.7

= 19,684.4
19,188.7
= 102.58%

6. Return on capital employed = EBIT

Capital employed

EBIT = 28,026.1
Capital employed = Total assets – current liabilities
= 71,729.4 – 21,905.5
= 49,823.9

= 28,026.1
49823.9
= 56.25%

7. Return on Asset = Net income

Total Asset

Net income = 19,684.4

Total assets = 71,729.4

= 19,684.4
71,729.4
= 27.44%

Liquidity Ratios

8. Current ratio = Current Assets

Current liabilities
 Current assets = 38,171.7
Current Liabilities = 21,905.5

= 38,171.7
21,905.5
= 1.74

9. Quick ratio = Quick Assets

Current liabilities

Quick assets = current assets – inventories

= 38,171.7 – 12,830.7
= 25,341

Current Liabilities = 21,905.5

= 25,341
21,905.5
= 1.15

10. Absolute Liquid Ratio = Absolute liquid assets

Current Liabilities

Absolute liquid assets = cash + bank

= 12,931.6 + 148.9
= 13,080.5
Current Liabilities = 21,905.5

= 13,080.5
21,905.5
= 59.71%

Leverage Ratio

11. Debt to equity ratio = Total debt

Total equity

Total debt = Total non-current liabilities

= 30,635.2
Total equity = 19,188.7

= 30,635.2
19,188.7
 = 1.59

12. Interest coverage ratio = EBIT

Interest

EBIT = 28,026.1
Interest expense = 1,291.2

= 28026.1
1291.2
= 21.72%

13. Financial leverage ratio = Assets

Shareholder’s Equity

Assets = 71,729.4
Shareholder’s equity = 19,188.7

= 71729.4
19,188.7
= 3.73

Turnover Ratio
14. Asset turnover Ratio = Net sales
Average total asset

Net sales = 1,23,689

Total asset = 71,729.4

= 1,23,689
71,729.4
= 172.43%

15. Inventory turnover ratio = Cost of goods sold

Average Inventory
Cost of goods sold = 51,503
Average inventory = opening inventory + closing inventory
2
= 5,370.4 + 6,812.3
2
= 6,091.3
 = 51,503
6,091.3
= 8.45

16. Equity turnover ratio = Sales revenue

Equity share capital

Sales revenue = 1,23,689

Equity share capital = 19,188.7

= 1,23,689
19,188.7
= 6.445

17. Capital Intensity = Sales revenue

Property, plant, and equipment

Sales revenue = 1,23,689

Property, plant, and equipment = 21,088.1

= 1,23,689
21,088.1
= 5.86

Short Term Investment Utilization Ratios

18. Inventory holding days = Inventory * 365
Cost of sales

Inventory = 12,830.7
Cost of sales = 51,503

= 12,830.7 * 365
51,503
= 90.93 days

19. Receivable collection period = Average receivable * 365

Sales

Average receivable = 1,243.3

Sales= 1,23,689
 = 1243.3*365
1,23,689
= 4 days

20. Payable credit days = Average payable * 365

Purchases

Average payable = 15377.3

Purchases = 2178.1

= 15,377.3 * 365
2178.1

Stock Market Ratios

21. Dividend payout Ratio = Dividend per share
Earning per share

Dividend per share = 342

Earnings per share = 204.2

= 342
204.2
= 167.5%

Analysis and Interpretation of Ratios

Margin Ratios

Profitability ratios or margin ratios assess a company's ability to earn profits from its sales or
operations.
1.
Year 2019 2018 2017 2016
Gross profit 23.64 25.47 22.71 20.17
margin
The gross margin shows the amount of profit made before deducting selling, general, and
administrative (SG&A) costs. 
In the year 2018, Nestle had the higher gross margin ratio compared to other years, which
indicates that a company can make a reasonable profit on sales if it keeps overhead costs in
control. The lower gross margin in 2016 indicates that a company is under-pricing.

2.
Year 2019 2018 2017 2016
Net Profit 15.91 14.23 12.24 10.04
Margin

Net profit margin is a key component in understanding how profitable a business is and
where the company can cut unnecessary expenses.
In the year 2019, Nestle earned the highest net profit margin which indicates  that the
company can effectively control its costs and/or provide goods or services at a price
significantly higher than its costs.

3.
Year 2019 2018 2017 2016
Operating Profit 22.65 22.50 19.29 16.34
Margin

The operating profit margin ratio indicates how much profit a company makes after paying
for variable costs of production such as wages, raw materials, etc.
Nestle earned the highest operating profit ratio in the year 2019 and 2018 which indicates that
the company is earning enough money from business operations to pay for all the associated
costs involved in maintaining the business.
4.
Year 2019 2018 2017 2016
Earnings Per 204.19 166.67 127.07 96.10
Share

EPS indicates how much money a company makes for each share of its stock.
In 2019, Nestle had the highest EPS which indicates that the company is more profitable, and
the company has more profits to distribute to its shareholders. Lower EPS in 2016 gives poor
indication about the health of the company and gives lower return to the shareholders
 Return Ratios

Return ratios are a subset of financial ratios that measure how effectively an investment is
being managed.
1.

Year 2019 2018 2017 2016

Return on Equity 102.58 43.74 35.81 30.74

ROE is a measure of company’s ability to generate income from the equity available to it.
In 2019, Nestle’s ROE is rising which suggests that a company is increasing its profit
generation without needing as much capital and the lower ROE in 2016 shows the less
efficient usage of equity capital.

2.
Year 2019 2018 2017 2016
Return on Asset 27.44 19.86 16.64 13.61

Return on total assets, is a measure of how much profit a business is generating from its
capital.
In the year 2019, Nestle had the highest ROA compared to other years which indicates that
the company has a solid performance as far as finance and operation of the company is
concerned and low ROA indicates that the company is not able to make maximum use of its
assets for getting more profits.
3.
Year 2019 2018 2017 2016
Return on Capital 56.25 40.76 32.90 29.13
Employed

The return on capital employed shows how much operating income is generated for each
dollar of capital invested.
ROCE is increasing from 2016 to 2019 for Nestle which indicates that the company is
generating more profits per rupees of capital employed. In 2019 company had the highest
ROCE and company earns the lowest ROCE in 2016.
 Liquidity Ratios

Liquidity ratio analysis gives a company its position on how it can efficiently meet its short-
term obligations. This ratio often determines if a firm can pay its liabilities should they arise
at any given point of time.
1.

Liquidity ratios analysis gives

a company its position on how
it can efficiently meet its
short-
term obligations. This ratio
often determines if a firm can
pay its liabilities should they
arise at
Year 2019 2018 2017 2016
Current Ratios 1.74 2.55 2.64 2.01
The current ratio is a parameter that evaluates the company’s ability to meet its short-term
obligations and the unforeseen cash demands.
From ratios of 4 years, we can say that the company has managed a strong current ratio,
which implies its strong position to meet unpredicted demands of cash. The highest figure
was achieved in 2017.
2.
Year 2019 2018 2017 2016
Quick Ratios 1.15 2.03 2.03 1.43

Quick ratio assesses the extent to which cash and other current asset can be readily converted
into cash and company’s short-term obligations. The ideal quick ratio is 1:1.
In 2018 and 2017 company has the highest quick ratios of 2.03, which means at that time
company was at the highest position to convert its cash and current assets into cash and pay
off its cash demands.

3.
Year 2019 2018 2017 2016
Absolute Liquid 59.71 36.76 37.30 23.40
Ratios

Absolute liquid ratio evaluates the capability of a firm to offset the short-term obligations
with its cash and cash equivalents. This is a stricter parameter because it emphasizes the
firm’s meeting short term demands with its most liquid asset i.e., cash and cash equivalents.
Nestle company has reported fluctuations in its absolute liquid ratio structure over 4 years. In
2019, company had better position compared to other three years. A higher value implies the
company is better off. 2018 and 2016 has recorded the least absolute liquid ratio.

Leverage Ratios

1.

Year 2019 2018 2017 2016

Debt to Equity 0.03 0.01 0.01 0.01
Ratio

Debt to equity ratio tells us that how much debt the company have per 1 Rs of equity.
In case of Nestle, debt to equity ratio increases in the year 2019, which shows that the
company is increasing its finance growth with debt. But generally, debt to equity ratio
anything lower than 1.0 is considered as good. A ratio above 1.0 indicates more debt than
equity. 

2.

Year 2019 2018 2017 2016

Interest coverage 21.72 22.70 21.01 429.40
Ratio

The interest coverage ratio measures a company's ability to handle its outstanding debt. In
2016 the higher ratio indicates that the company is more capable to meeting its interest
obligations from operating earnings.

3.
Year 2019 2018 2017 2016
Financial 3.73 2.20 2.15 2.26
Leverage Ratio

Turnover Ratios

Turnover ratio is a type of financial metric that indicates how efficiently a company is
leveraging the assets on its balance sheet, to generate revenues and cash.

1.
Year 2019 2018 2017 2016
Asset Turnover 172.43 139.61 135.95 135.52
Ratio
Asset turnover ratio evaluates the firm’s ability to use its assets in generating sales
effectively.
Nestle achieved highest asset turnover ratio in 2019, which implies that less money is
required for an investment to generate sales. Low ratios implies that the firm had a decline in
sales and had much investment in fixed assets.

2.

Year 2019 2018 2017 2016

Inventory 8.45 11.70 11.09 9.78
turnover Ratio

Inventory turnover ratio is a strong efficiency indicator of cash flow and a general health of a
business.
2018 reports the highest figure which implies that the company was good in managing the
inventory and avoids overstocking. The lower ratios in 2019 indicates that the Nestle
company had too many purchases.

3.
Year 2019 2018 2017 2016
Equity Turnover 6.45 3.07 2.93 3.06
Ratios

Equity turnover ratio determines the efficiency with which management is using equity to
generate revenue.
4.

Year 2019 2018 2017 2016

Capital Intensity 5.86

Short Term Investment Utilization Ratios

1.
 Year 2019 2018 2017 2016
Inventory Holding 100 34 56 47
Period

The inventory holding period shows the number of days on average that a business holds
inventory.
In the year 2019, Nestle shows the highest inventory holding period which indicates that the
company is selling goods quickly, and there is considerable demand for their products and the
low inventory holding period in the year 2018 indicates the weaker sales and declining
demand for a company's products.

2.
Year 2019 2018 2017 2016
Receivable 4 4 4 3
Collection Period

The receivables collection period measures the number of days it takes, on average, to collect
accounts receivable based on the average balance in accounts receivable.
Nestle shows the short period of days which identified the good performance of collection or
credit assessment.

2.

Year 2019 2018 2017 2016

Payable Credit
Days

Stock Market Ratios

1.

Year 2019 2018 2017 2016

Dividend Payout 167.5 67.80 67.67 65.55
Ratio
The dividend payout ratio shows how much of a company's earnings after tax (EAT) are paid
to shareholders.
In the year 2019, Nestle had the highest dividend payout ratio compared to other 3 years
which shows the company is paying more to its shareholders but generally higher the
dividend payout higher the company’s sustainability is in question.

Competitor Analysis
One of the main competitors of Nestle India is Hershey’s. The Hershey Company, commonly
known as Hershey's, is an American multinational company and one of the
largest chocolate manufacturers in the world. It also manufactures baked products, such as
cookies and cakes, and sells beverages like milkshakes, and many more that are produced
globally. Its headquarters are in Hershey, Pennsylvania, which is also home to Hershey
park and Hershey's Chocolate World. It was founded by Milton S. Hershey in 1894 as the
Hershey Chocolate Company, a subsidiary of his Lancaster Caramel Company. The Hershey
Trust Company owns a minority stake but retains most of the voting power within the
company.

Comparison between Nestle and Hershey’s

Parameters

Gross Profit Margin 23.64% 45.35%

Net Profit Margin 15.91% 14.39%

Current Ratio 1.74 1.05

Operating Margin 22.65% 19.98%

Return on Equity 102.58 65.71

Return on capital Employed 56.25 24.20

 Return on asset 27.44 14.08

Debt to Equity 3.00 2.44

Analysis:

 Gross Profit Margin- Hershey’s earned more gross profit than Nestle in the
year 2019 which indicates former company earned more reasonable profit on
sales than the latter.

 Net Profit Margin – Net profit of both the companies are almost similar, but
we can observe that Hershey's net profit decline more than 200% from its
gross profit which indicates that the company incurred more expenditures than
Nestle.

 Current Ratio- Current ratio helps to determine the company’s ability to meet
its short-term obligation. As Nestle’s current ratio is more than the Hershey’s
we can say that Nestle is more capable of paying its short term liabilities than
Hershey’s. But usually ideal current ratio is 2:1 and both the companies have
ratios less than that.

 Operating Margin- Operating profit arrives after deducting all the variable
expenses. Hershey’s operating margin ratio is less than the Nestle which
indicates company spends more on its variable expenses.

 Return on Equity- Nestle had more return on equity than Hershey’s in the
year 2019 which indicates that the former company have more capability to
generate income from its equity.

 Return on Capital Employed- Nestle’s return on capital employed is more

than the Hershey’s. By which we can say that company earned more profit on
per rupees of invested capital.

 Return on Asset- Hershey’s return on asset is less than the Nestle which
indicates that the Hershey’s is not able to make maximum use of its assets for
getting more profits.

 Debt to Equity- If we look on the debt-to-equity ratio of both the companies,

we can say that Nestle is increasing more its growth with debt than the
Hershey’s.