A

PROJECT REPORT ON
“AN EVALUATIVE ANALYSIS OF CORPORATE
GOVERNANCE POLICIES AND PRACTICES”

SUBMITTED IN PARTIAL FULFILMENT OF 6TH

SEMEMSTER SAMBALPUR UNIVERSITY 6TH SEMESTER
BACHELOR OF COMMERCE HONOURS FOR ACADEMIC
SESSION 2021-2022

SUBMITTED BY DEBARAJ BEHERA

UNIVERSITY ROLLS NO.:-S02519COM006
UNDER THE GUIDANCE OF Mrs. BANDANA SORENG

ROURKELA COLLEGE
ROURKELA
SAMBALPUR UNIERSITY

1
 CERTIFICATE

Certified that this project report “AN EVALUATIVE ANALYSIS OF CORPORATE

GOVERNANCE POLICIES AND PRACTICES ” is the bonafide work of DEBARAJ
BEHERA , submitted in partial fulfillment of the requirements for the award of the
Degree in Bachelor of Commerce of the Sambalpur University.

He has submitted a satisfactory report as complied in the following pages, under

the guidance of Mrs. Bandana Soreng.

Mrs. Bandana Soreng

HEAD OF THE DEPARTMENT OF COMMERCE

Internal Examiner External Examiner

2
 DECLARATION
I, DEBARAJ BEHERA hereby declare that the project report entitled “AN
EVALUATIVE ANALYSIS OF CORPORATE GOVERNANCE POLICIES AND
PRACTICES ” submitted to the department of Commerce, Rourkela Collegein
fulfillment of the partial requirement for the award of degree of Bachelor of
Commerce, is a record of original research work done by me, and that it has not
formed before for the award of any Degree, Diploma, Associate ship, Fellowship
or any other similar titles.

Name of the Candidate: DEBARAJ BEHERA

University Roll No.: S02519COM006

3
 ACKNOWLEDGEMENT
To list who all have helped me is difficult because they are so numerous and
the depth is so enormous.

I would like to acknowledge the following as being idealistic channels and

fresh dimensions in the completion of this project.

I take this opportunity to thank the Sambalpur University for giving me

chance to do this project.

I would also like to express my sincere gratitude towards my project guide Mrs.
Bandana Soreng whose guidance and care made the project successful.

DEBARAJ BEHERA

4
 CONTENTS

SI. NO. Chapters Page No.

01 Certificate 2

02 Declaration 3

03 Acknowledgement 4
Chapter 1
04 (Introduction) 6-7
Chapter 2 8
05 (Literature review)
Chapter 3 9-16
06 (Research & Methodology)
Chapter 4 17-25
07 (Company Profile)
Chapter 5 26-39
08 ( Data analysis
and Interpretation)
09 (Suggestions & Conclusion) 40-41

10 Bibliography 42

5
CHAPTER 1
INTRODUCTION
Corporate governance is a term that refers broadly to the rules, processes,or
laws by which business are operated, regulated, and controlled. The term can
refer to internal factors defined by the officers, stockholders or constitutional
of a corporation, as well as to external forces such as consumers groups, clients,
and government regulations.

Well- defined and enforce corporate governance provides a structure that, at

least in theory, works for the benefit of everyone concerned by ensuring that the
enterprise adheres to accepted ethical standards and best practices as well as to
formal laws. To that end, organization have been formed at the regional,
national, and global levels.

Corporate governance plays very vital role in protecting the interest of various
stakeholders in capital market. Corporate frauds like of Enron, World Com at
global level and frauds done by promoters of Satyam computers and Global trust
bank at India have open the eyes of investor and now investor are becoming
cautious day by day while investing in stock market.

Corporate governance means a system by which companies or entity or directed

or control in order to achieve than goals.

Defination of corporate governance: -

According to the “James wolfensofm”- “Corporate governance is about

Promoting corporate fearness, transparency and accountability

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INTRODUCTION OF NESTLE INDIA LIMITED COMPANY

Nestle India Ltd. Is a part of the Nestle SA group which is one of

the largest manufacturing companies in the world. Henri Nestle
founded the company (with its headquarters in vevey,
Switzerland) in 1867. Nestle has two major divisions- Le societe
des Produits which looks after the production and marketing
and Nestec Ltd. Which provides the technical assistance to the
group companies. Since its inception in 1867,the company has
diversified it product range from the infant weaning formula
(which was its first product) to beverages, confectionery, ice
creams and pet foods among others. In a span of 130 years the
company has ranked 26th among the world's largest
corporations and boasts of a turnover of $ 48932.5 million and
employee strength of 221,144 people spread over 75 countries
worldwide.

Nestle has long been viewed as one of the most

multinational of the multinationals. This is because today only
2% of its turnover comes from Switzerland. Out of the
remaining 98% ,Europe contributes 43.5%,North and South
America contribute 36.5% and Africa and the Asia Pacific
Regions contribute 18%.

7
CHAPTER 2
LITERATURE REVIEW
Since Nestle began over 143 years ago, Nestle’s success with product
innovations and business acquisitions has turned it in to the largest Food
company in the World. As the years have passed, the Nestle family has grown
to include chocolates, soups, coffee, cereals, frozen products, yoghurts , mineral
water and other food products. Beginning in the 70s, Nestle has continued to
expand its product portfolio to include pet foods, pharmaceutical products and
cosmetics too. (Bountypat,2008)

Today ,Nestle markets a great number of products, all with one thing in
common: the high quality for which Nestle has become renowned through out
the world. The Company’s strategy is guided by several fundamental principles.
Nestle’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 , throughout their lives. Taste of Nestle India each
Countries where Nestle sell products. Nestle is based on the principle of
decentralization , which means each Country is responsible for the efficient
running of its business- including the recruitment of its staff. That’s not to say
that every operating company can do as it wishes. Headquarters in Vevey sets
the overall strategy and ensures that it is carried out. It’s an approach that is
best summed up as: ‘centralize what you must you must ,decentralize what you
can’. Nestle is a company which is present in all over the world but It has
difference and unique motto to deal in all over the world. Nestle believes that
they should think about their organizations globally but they deal with people
by interacting with them locally.

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CHAPTER 3
RESEARCH AND METHODOLOGY

❖ OBJECTIVE OF THE STUDY :

➢ To understand the strong hold of nestle India.

➢ To find out the competitive advantages of Nestle India.
➢ To know the earning capacity or profitability.

❖ SCOPE OF THE STUDY :

The present study is descriptive in nature.

❖ SOURCES OF DATA COLLECTION :

Secondary Data has been gathered through the internet and published data. The
web sites visited

➢ www. nestle.com

➢ www. google.com

➢ Internal audit report of the company

➢ Annual report of the company

➢ Journals and magazines

9
 ❖ LIMITATIONS OF THE STUDY

➢ The time period provide for the project was not sufficient enough to
gather data for a big organization.

➢ Complexity to gaining information.

➢ Non-availability of the most recent statistical data.

➢ Because of the limitation of information, some assumptions were made. So

there may be some personal mistake in the report.

➢ Besides this ,it was very difficult to carry out the whole analysis on the basis
of limited scope of study.

10
NEED FOR CORPORATE GOVERNANCE

The significant of corporate governance is to create a corporate culture of

transparency, accountability and disclosure. It refers to compliance with all the
moral and ethical values, legal framework and voluntarily adopted practices.
Corporate governance is important for the following reasons:

➢ It lays down the framework for creating long term trust between
companies and the external providers of capital.

➢ It improves strategies thinking at the top by indicting independent

directors who bring a wealth of experience, and a host of new ideas.

➢ It rationalizes the management and monitoring of risk that a firm faces

globally.

➢ It limits the liability of top management and directors, by carefully

articulating the decision making process.

➢ It has long term reputational effects among key stakeholders, both

internally (employees) and externally (clients, communities,
political/regulatory agents).

➢ Changing ownership structure.

➢ Improve investor trust.

➢ Importants of social responsibility.

➢ Avoid growing number of scams.

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❖ FEATURES OF CORPORATE GOVERNANCE :

➢ It is a concept rather than an individual instruments.

➢ It aims at maximum welfare of the maximum number.
➢ It also concerned with the ethics, values and morals of a company and its
directors.

➢ It includes the interface between the company and other shareholders.

➢ It hinges on complete transparency, integrity and accountability of
management that includes executive and non executive directors.
➢ An effective corporate governance system should provide mechanism for
regulating directors duties.
➢ It is a process or a set of systems and processes to ensure that a company is
managed to suit the best interests of all.
➢ Corporate governance relates to laws, procedures, practices and implicit
rules that determine company ability.
➢ Corporate governance is basically a system of making directors accountable
to shareholders for effective management of the company.

12
❖ IMPORTANCE OF CORPORATE GOVERNANCE :

➢ It provides a means to assist in decision making and to improve

accountability.

➢ It also provides a structure through which the objectives of the company are
set.

➢ It improves economic efficiency of a firm.

➢ It increases market confidence as a whole.

➢ It protects welfare and interest of a wide rang of constituencies and

communities nearby.

➢ It enhances the long term value of the company for its shareholders and all
other patrons.

➢ It ensures purity and quality of product after the product leaves the factory.

➢ Boards are accountable to the company and shareholders ,so the society as a
whole is benefited.

➢ It integrates all the participants involved in a process which is economic, at

the same time social.

➢ It prepares a small enterprise for growth and helps to secure new business
opportunities when they arise.

13
❖ OBJECTIVES OF CORPORATE GOVERNANCE

Corporate governance is aimed at creating an organization which

maximizes the wealth of shareholders. It envisages an organization in
which emphasis is laid on fulfilling the social responsibilities towards the
stakeholders in addition to the earning of profits. The objectives of
corporate governance is to ensure the following:

➢ Properly constituted board capable of taking independent and

objective decisions.

➢ Board is independent in terms of non-executive and independent

directors.

➢ Board adopts transparent procedures and practices.

➢ Board to monitor the functioning of the management team.

➢ To generate accurate and reliable information.

➢ Board remains in effective control of the affairs of the company.

❖ FACTORS INFLUENCING QUALITY OF CORPORATE GOVERNANCE

➢ Integrity of the management ;

➢ Ability of the board;

➢ Adequacy of the process;

➢ Commitment level of individual board members.

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PRINCIPLES OF GOOD CORPORATE GOVERNANCE

1. To provide a timely and balanced picture of all material matters.

2. Equitable treatment can be described as fairness and justice.
3. Accountability means responsibility for decisions or actions that have been
already taken.
4. Transparency means any operation must be processed with proper evidence.
5. The corporate governance framework should protect and facilitate the
exercise of shareholders rights.

ELEMENTS OF GOOD CORPORATE GOVERNANCE

1. Legislation: clear and unambiguous legislation and regulations are

fundamentally to effective corporate governance.
2. Management environment: Management environment includes setting up
of clear objectives and appropriate ethical framework, establishing due
process, providing for transparency and clear enunciation of responsibility
and accountability, implementing sound business planning.
3. Board independence: Independent Board is essential for sound corporate
governance. This goal may be achieved by associating sufficient number of
independent directors with the board.
4. Strategy setting: The objectives of the company must be clearly documented
in a long term corporate strategy and an annual business plan together with
achievable and measurable performance targets and milestones.
5. Audit committee: -The quality of Audit committee significantly contributes
to the governance of the company.
6. Risk management: -Risk is an important element of corporate functioning
and governance. There should be a clearly established process of identifying,
analyzing and treating risks, which could prevent the company from
effectively achieving its objectives.

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THEORY OF CORPORATE GOVERNANCE

1. AAGENCY THEORY:

The managers act as agents of the corporation .Managers are responsible for
carrying out the objectives of the corporation. Corporate governance is control of
management through designing the structures and processes.

There are two mechanism reduce: -

i. Fair and accurate financial disclosures.
ii. Efficient and independent board of directors.

2. STEWARDSHIP THEORY :

Stewardship theory means a person who manages another’s property.

This theory motivates the managers to act as stewards by taking the social
approach to human nature. It signifies-

• Managers are trustworthy

• Managers are stewards
• Control can be counterproductive

3.STAKEHOLDER THEORY:

The company are not for shareholders but it is for stakeholders also. This theory
assumes that stakeholders are capable and willing to negotiate and bargain with
one another. The manager has a great role to integrate the self-interests of the
stakeholders.

• Interest of all groups

• Ethics of cares
• Theory of property rights
• Ethics of fiduciary relationship.

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 CHAPTER 4
COMPANY PROFILE

Although Nestle has been associated with India since the beginning of the
century through the importing and trading of infant food and condensed
milk, manufacturing in India only began with the setting up of the factory
in Moga in 1962. The first product to be manufactured was Milkmaid. In the
last 35 years the company has shown rapid progress and has increased its
product range to 80 products as of October 1997. Nestle India Ltd. now
ranks 22nd amongst India’s most valuable companies. It’s gross revenue has
increased from Rs 1001.1 crore to Rs. 1213.8 crores in 1996. This remarkable
growth has been achieved through-

• Rapidly creating greater manufacturing capacity, both at factories as well

as with co-packers.

• Taking measures to ensure availability and improved quality of key raw

materials- fresh milk in particular.

• Strengthening of the sales and distribution network (particularly in

smaller towns)

• Ambitious and cohesive manpower training and development programs

for the personnel of the company across all disciplines.

The company’s exports also resulted in a very successful year in this

area as exports grew by 27% to Rs. 250.8 crores in 2003. The main
contributors to this increase were the export of tea and coffee to USA
,Japan, Russia, Hungary and Taiwan.

Nestle India Ltd. Wants to further increase its operations in India and
has started construction of its sixth Factory at Bicholim, Goa for the
17
 manufacture of culinary products ( a key thrust area ) for this purpose.

The Spirit of Nestle

“Organisational excellence is never achieved through a one time effort; It is

always a process of continuous improvement across a number of areas of
operation.”

A key factor for Nestlé’s success has been its quest for continuous
improvement through ushering in greater productivity and more efficiency in
everyday operations. Despite the infrastructure impediments in India, Nestle
has set itself high standards of business performance. This is reflected through
the essence of the company- it’s mission statement.

Nestle’s Mission

“To be in every way the leading company in the Indian food industry and a
good corporate citizen by providing our consumers with superior quality
products, our shareholders with rapid growth &fair returns and our employees
with a challenging and satisfying work environment.”

To translate this spirit in to a planned and measurable process,

Nestle has set up key objectives across all divisions.

VISION:

“Respected,Trustworthy food, Nutrition, Health and Wellness Company”

To rapidly build Nestle India as the respected and trustworthy leading food,
nutrition, health and wellness company ensuring long-term sustainable and
profitable growth.
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NESTLE Group Background

Nestle SA, Switzerland is amongst the world's largest food and beverages
companies. The company is progressively evolving from a respected,
trustworthy food and beverage company to a respected, trustworthy food,
beverage, nutrition, health and wellness company. This objective is
encapsulated in “ Good Food, Good Life”. The principal activities of the group
encompass: beverages, milk products ,nutrition and ice cream; prepared dishes
and cooking aids; chocolate, confectionery and biscuits; water; and pet care . It
has 511 factories in 86 countries around the world.

Background – Nestle India

Nestle India is one of the leading companies in the FMCG space in India. The
company is acknowledged amongst India’s ‘Most Respected companies’.
Nestle products are sold throughout India and are also exported to Russia,
Hungary, Japan, USA and several other countries. These include certain
international products like Nescafe and Lactogen, For three years in
succession (from 1999-2000 to 2001-2002), Nestle India was recognised with
the top Exporter Award for export of Instant Coffee, and for export of all
coffees to Russia and CIS Countries.

Nestle set up its operations in India, as a trading company in 1959 and began
manufacturing at the Moga factory in 1962 .The production started with the
manufacturer of Milkmaid and other products were gradually brought in to the
fold. Nestle India Limited was formally incorporated in 1978 prior to which
the manufacturing license was issued in the name of the Food Specialties
Limited. The corporate office is located at Gurgaon and the registered office at
M-5A, cannaught circus, New Delhi.

19
At present Nestle has 7 manufacturing units countrywide which are
successfully engaged in meeting the domestic as well as the exports demand. In
addition there are several co packing units. Manufacturing units are located at,

➢ Choladi (Tamilnadu) – Instant Tea Export 1969

➢ Nanjangud ( karnataka)- Coffee & Milo 1989

➢ Samalkha (Haryana)- Cereals , Milkmaid Deserts 1992

➢ Ponda (Goa )- Chocolates & Confectionery 1995

➢ Bicholim (Goa)- Noodles and Cold Sauces 1997

➢ Panth nagar(Uttranchal)- Noodles 2006

➢ Moga (Panjab)- Milkmaid and other products 1962.

20
 ❖ HISTORY AND GROWTH

In 1959, on 28th March , the Company was incorporated at New Delhi. The company was promoted by Nestle
Alimentana S.A. through a wholly Owned subsidiary Nestle Holding Ltd. In 1989 The name of the company was
changed from ‘Food Specialties Ltd.’ To ‘ Nestle India Ltd.’ On 24th March.

• The company first unit at Moga stated in 1961 for manufacturing milk products.

• Second factory at Choladi (Tamilnadu) in 1967 to produce beverage.

• Third plant at Nanjangud (Karnataka) in 1989.

• 1990
-During the year company entered into Chocolate business by introducing Nestle premium chocolates.

• In 1991, they started the production of Soya based products through a joint venture with the BM Khaitan
group.

• 1993

-Samalkha factory was commissioned during the year and underwent expansion for cereal based products.

-196,07,054 shares 47,51,625 No. Of Equity shares of Rs 10 each allotted to M/s. Nestle SA Switzerland to raise the
stake to 51%. 128,55,429 bonus shares issued in prop. 1:4.

• 1994

-During the year company launched a number of new products viz., Cerelac Soya , Milkmaid, Dessert Mixes,
Maggo Tonit’s Special Cooking Based, Maggi 1-2-3 noodles.

• 1995- The World famous KitKat chocolates launched.

21
 • In the year 1995 and 1997 Nestle established two facilities in Goa at Ponda and Bicholim respectively.

• In April 2000 they entered the liquid milk and iced tea markets.

• 2006 marked the year when the company set up its 7th factory at Pantnagar in Uttarakhand.

• The company opened another plant in Karnataka in 2011 bringing up its total plants in India to eight.

• In October 2020 , Nestle India announced investment of Rs. 2,600 crores for a new plant at Sanand in
Gujarat. Initial phase of production commenced from 1 October 2021.

❖ Factories

Nestle has 6 factories in India. These are

1.Moga (punjab)
The Nestle factory in Moga has the pride of being the first and most comprehensive factory of Nestle India.
Set up in 1962, it represents the core competence of Nestle India in the manufacture of Milk products (Everyday ,
Milkmaid), beverages, culinary products (Maggi sauces, noodles, soups etc.), weaning cereals (Cerelac) and Infant
milk formulae.

2.Choladi (Tamilnadu )

The factory in Choladi started production in 1967 .Situated about 60 miles from Calicut , the factory today has 81
employees and produces 1.5% of the total turnover of Nestle India. It is a 100 percent export oriented unit which
processes freshly picked tea leaves in to soluble instant tea.

3.Nanjagud (Karnataka):

Production in this factory began in 1989 with the manufacturer of Nestle instant coffee and Sunrise. Today in
addition to instant coffee the factory also manufacturing health beverages. The plant to manufacture MILo was also
commissioned at this factory. This factory employs 145 people and is cited as a model in terms of environmental
protection for its installations to purify waste water as well as for its provisions for recycling coffee wastes.

4.Samalakha (Haryana):

This factory was set up in 1993. Located 70 kilometres from Delhi, it manufactures weaning cereals, culinary
products, health beverages and milk products. Recently the expansion of manufacturing capacity for Milkmaid
Dessert Mixes was undertaken at this factory as this new and unique product category is viewed to have great
potential in the future.

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5.Ponda (Goa):

This Kit-Kat factory was set up in Goa in 1995 at a cost of Rs. 50 crores. It represented a major step by Nestle
towards becoming the Number 1 chocolates and confectionery company in India.

6.Bicholim(Goa):

The construction work at this new factory is progressing with speed. This factory will soon commence the
manufacturer of culinary products, which is a key thrust area for the company and will include latest technological
improvements relating to this category of products.

KEY OBJECTIVES

Production

• To optimize production costs while enhancing product quality so as to make Nestle products even more
competitive in the market place.

Sales and marketing

• To reach a sales turnover of 3000 crores by the year 2000.

• To double the turnover every years.

People

• To help employees to retain a long-term perspective and integrate them fully with the company’s business
goals.

• To retain a broad perspective while addressing individual needs.

• To view growth as a continuous process.

• To concentrate on attitudinal changes by developing leadership skills, an appreciation of interdependence

between units and the enhancement of a sense of belonging to Nestle.

Finance

• To maintain profit levels above the average for the Food industry in India.

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 NEW PRODUCT LAUNCHES

To put the product launches in to perspective, Nestle now has 80 products

including various flavors and variants this awesome list of 80 products for most
companies is an overfull palate. Nestle India Ltd. Still has a variety of new products
in the pipelines. It believes in slowly colonizing as much territory as fast as it can,
adapting to native conditions and then work at ‘Holding off the advancing herds’.
Nestle products can be broadly classified in to 5 main ranges:

• Milk product
• Chocolate and Confectionery
• Beverages
• Culinary
• Food Service.

Milk products

This category which comprises of condensed milk, baby milk foods, milk powders,
acidified infant food, and other milk products, showed a slump in 1996 as sales of
Milk products fell from Rs. 31.4 crores in 1995 to Rs.31.2 crores in the said year .
Consumer off take remained depressed throughout this year as a consequence of
high price increases necessitated by substantial increases (+50%) in the cost of
basis raw materials ( fresh milk), over the past two year.

However Nestle retained its leadership in the infant food market with Cerelac
Lactogen and Nestum and even introduced a new flavor of cerelac-Cerelac Rice in
1996.

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Chocolates and Confectionery

The company also has a strong presence in the chocolates & Confectionery
business. With a more than 18 per cent market share, it is the second largest
confectionery company in India. The company sells its world famous kit Kat brand
in India along with some other brands such as Nestle Munch (wafer chocolate),
Nestle milk bar, POLO (mint confectionery) etc. The chocolate & Confectionery
division contributes 14 per cent to the company’s revenues.

Beverages

This year has been very successful in the beverages market for Nestle. The sales of
beverages has increased from Rs 323.3 crores in 2002 to Rs 398.8 crores in 2003.
Nestle Flagship Nescafe which was pegged at Rupees 1040 per kilogram before
the launch of Tata café, met with stiff competition from Tata café priced at
Rupees 550 per kg once it was introduced.
Tata café claimed to have garnered a market share of 17% by December 1996.
This forced Nestle to cut prices of Nescafe to Rupees 840 per kg. However
Nescafe still retains 83% market share in the Rs 177 crores market for pure
instant coffee.

Culinary Products
The market in culinary products had witnessed a high growth consequent to
aggressive pricing decisions on existing products and the introduction of a
variety of new products to match the needs of the Indian Housewife. Encouraged
by this success Nestle launched Maggi Macoroni Snack in three flavors- chicken,
Masala and Tomato.

25
 CHAPTER-5

Data Analysis and Interpretation

43
FINANCIAL RESULTS AND OPERATIONS (Rs in Millions)

2011 2010
Gross Revenue 51,672 43,581
Profit Before interest and taxation 9,610 8,052
Interest 14 16
Impairment loss and fixed assets(Net) 103 3
Provision for contingences(Net) 323 305
Provision For tax 2620 2387

Net Profit 6550 5341

Profit Brought Forward 1001 125
Amount Transferred from share Premium - 432
account
Amount Transferred from general Reserves - 431
Balance available for appropriation 7551 6329
Interim Dividends 3471 2281
Special dividend - 732
Final Dividend Proposed 1205 1157
Corporate Dividend Tax 795 696
Transfer to general reserves 655 534

Surplus carried in profit and loss account 1425 1001

Key Ratio
Earnings per Share (Rs.) 67.94 55.39
Dividend per Share (Rs.) 48.50 42.50

Pursuant to scheme arrangement

Include special dividend of Rs. 7.50 per share, paid under the Scheme of
arrangement.

44
 TOTAL INCOME

EBIT %
18.5

18

17.5

EBIT %
17

16.5

16
2007 2008 2009 2010 2011

Net Income
60000

50000

40000

30000
Net Income
20000

10000

0
2007 2008 2009 2010 2011

45
Dividends

Final dividend of Rs 12.50 per equity share of the face value of Rs.10/- year 2011,
amounting to Rs. 1,205 Million.

This is in addition to the two Interim Dividends for 2011, aggregating to Rs. 36.00 per
equity share, paid in May 2011 and 2011 (amounting to Rs. 3,471 Million).

The total payout for 2011 would be Rs. 5,470 Million (including the corporate
dividend tax). Further dividends will continue to be based on the need of the
company to deploy internal accruals for business expansion and an appropriate debt
equity ratio.

Dividend Rates

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

46
 Earning per share
80

70

60

50

40
Earning per share
30

20

10

0
2008 2009 2010 2011

47
 Profit and loss Account of Nestle India limited as on December 2011

Income 2011 (in thousands) 2010 (in

thousands)
Sale
Domestic 48,938,164 41,326,718
Exports 3,286,050 3,383,907

Gross 52,224,214 44,710,625

Less : Excise duty 930,447 1,468,175

Net sales 51,293,767 43,242,450

Other income 377,976 338,852

51,671,743 43,581,302

Expenditure
Material consumed and purchase 24,570,317 21,386,673
of goods
Manufacturing and other 16,465,167 13,563,778
Expenses
Interest 13,985 16,430
Depreciation 1,112,692 923,601

Adjustment due to dec. inclusive -86,545 -345,448

of stock of finished goods
42,075,616 35,545,034

Profit Before impairment, 9,596,127 8,036,268

contingencies and Tax
Impairment loss/gain on fixed 103,168 3,084
assets
Provisions for contingencies 323,201 304,916

Profit Before Taxation 9,169,758 7,728,268

Income Tax Expenses

Current Tax 2,653,355 2,223,114

48
Deferred Tax -48,838 81,836
Fringe benefit Tax 15,213 82,496
2,619,730 2,387,446

Profit after Taxation 6,550,028 5,340,822

Balance Brought Forward 1,001,053 125,159
Add: Transferred from share - 432,363
premium account
Add: Transferred from general - 430,857
reserve
Balance Available For 7,551,081 6,329,201
Appropriation

Dividends
Interim 3,470,966 2,217,561
Final proposed 1,205,196 1,156,989
Special - 723,118
Corporate Dividend Tax 794,713 696,398
General Reserve 655,003 534,082
Surplus carried to the balance 1,425,203 1,001,053
sheet
Basic and diluted Earnings per 67 .94 55 .39
share(in Rupee)

49
 Balance Sheet Of Nestle India Limited as on December 2011

2011 2010
Shareholders’ funds
Share capital 964,157 964,157
Reserves and surplus 4,848,493 3,769,340
Net worth 5,812,650 4,733,497

Deferred Tax liabilities 319,972 368,810

6,132,622 5,102,307
Applications of funds
Fixed assets
Gross Block 16,407,942 14,048,460
Less: Depreciation 7,445,894 6,518,538
Net Block 8,962,048 7,529,922

Capital work in progress 796,273 1,091,689

9,758,321 8,621,611

Investments
Current assets Loan and advances
Inventories 4,987,379 4,349,117
Sundry debtors 641,863 455,933
Cash and Bank balance 1,555,863 1,936,893
Loans and advances 1,380,487 1,237,589

Total Current Assets 8,565,592 7,979,532

Less: current liabilities and

provisions
Liabilities 5,875,906 5,074,671
Provisions 8,347,940 6,773,157

14,223,846 11,847,828

Net Current Assets(liabilities) 5,658,254 3,868,296

Book value 6,132,622 5,102,307

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CURRENT RATIO

Current ratio may be defined as the relationship between current assets and current
liabilities. This ratio also known as working capital ratio is a measure of general liquidity
and is most widely used to make the analysis of a short-term financial position or
liquidity of a firm. It is calculated by dividing the total of current assets by total of the
current liabilities.

Current Assets
Current Ratio =
Current liabilities

CURRENT ASSETS CURRENT LIABILITIES

1 Cash in hand 1 Outstanding Expenses/Accrued expenses

2 Cash at bank 2 Bills Payable

3 Marketable securities 3 Sundry Creditors

4 Short-term investments 4 Short-term advances

5 Bills Receivables 5 Income-tax payable

6 Sundry Debtors 6 Dividends Payable

7 Inventories (stock) 7 Bank Overdraft

8 Work- in-progress

9 Prepaid Expenses

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INTERPRETATION OF CURRENT RATIO

A relatively high current ratio is an indication that the firm is liquid and has the ability to
pay its current obligations in time as and when they become due. On the other hand, a
relatively low current ratio represents that the liquidity position of the firm is not good
and the firm shall not be able to pay its current liabilities in time without facing
difficulties. An increase in the current ratio represents the improvement in the liquidity
position of a firm while a decrease in the current ratio indicates that there has been
deterioration in the liquidity position of the firm.

CURRENT RATIO FOR NESTLE INDIA LIMITED FOR LAST TWO YEARS

Year 2011 2010

Current Assets 8,565,592 7,979,532

Current Liabilities 14,223,846 11,847,828

Current Ratio 0.60 0.67

The current ratio for the company in the year 2010 was 0.67 and for the year 2011 was
0.60. So the current ratio for the firm has decreased by 0.07 which indicates that the
company’s liquidity position is decreasing. The main reason for this is the rise in the
current liabilities of the company from 11,847,828 in 2010 to 14,223,846 in 2011.There
may not be sufficient funds to pay liabilities.
QUICK RATIO

Quick Ratio, also known as Acid Test or liquidity ratio, is the most precise test of liquidity
than the current ratio. The term ‘liquidity’ refers to the ability of the firm to pay its short
term obligations as and when they become due. The two determinant of current ratio,
as a measure of liquidity, are current assets and current liabilities.

Quick assets
Quick ratio =
Current liabilities

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 Quick/ liquid Assets Current liabilities
Cash in hand Outstanding or Accrued expenses

Cash at Bank Bills Payable

Bills Receivable Sundry Creditors

Sundry Debtors Short term advances

Marketable Securities Income tax payable

Temporary investment Dividends Payable

INTERPRETATION OF QUICK RATIO

Usually, a high acid test ratio is an indication that a company is liquid and has the ability
to meet its current or liquid liabilities in time and on the other hand a low quick ratio
represents that the company’s liquidity position is not good.

QUICK RATIO OF NESTLE INDIA LIMITED FOR LAST TWO YEARS

YEAR 2011 2010

QUICK ASSETS 3,578,213 3,630,415

CURRENT LIABILITIES 14,223,846 11,847,828

QUICK RATIO .251 .306

Hence the quick ratio of the company in 2011 was .251 and 2010 was .306 shows that
the quick ratio of the company has decreased by .55 because the company has
purchased assets by the bank balance as the company has not taken any loan during the
year so the quick ratio of the company decreased.

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 Manufacturing And Other Expenses
2011(rs in thousands) 2010(rs is thousands)
Employee cost
Salaries, wages, bonus, 3,982,657 2,853,949
pension, gratuity etc.
Contribution to provident 126,811 102,088
and other fund
Staff welfare expenses 214,360 189,771
4,323,828 3,145,808

Advertising and sales 2,675,119 1,943,555

promotion
Freight, transport, and 2,403,721 2,035,530
distribution
General license fees(net 1,759,874 1,459,570
of taxes)
Power and fuel 1,588,703 1,597,565
Contract manufacturing 461,752 456,500
charges
Travelling 460,582 418,069
I.T and management 436,538 400,391
information system

Maintenance and repairs

Plant and machinery 327,536 278,069
Buildings 36,333 33,716
Others 71,109 59,948
434,978 371,733
Taxes and general license 272,998 226,233
fees
Consumption of stores 219,104 151,846
and spare parts
Rent 209,875 176,972
Rates and Taxes 205,946 201,483
Training Expenses 165,154 175,239
Laboratory(quality testing 151,169 137,557
) expenses
Milk collection and district

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 development 143,122 114,490
expanses
Market Research 86,636 96,591
Deficit on fixed assets
sold/ written off 30,548 27,260
Insurance 13,281 16,563
Miscellaneous expenses 422,239 410,823
16,465,167 13,563,778

INCREASE/ DECREASES IN STOCK OF FINISHED GOODS AND WORK – IN - PROGRESS

2011 (Rs in thousands) 2010 (Rs in thousands)

Opening Stock
Work- in - progress 385,378 424,279
Finished Goods 2,327,186 1,977,141
2,712,564 2,401,420

Less: Excise Duty 94,996 129,300

Net Opening stock(A) 2,617,568 2,272,120

Less: closing stock

Work- in - progress 462,666 385,378
Finished Goods 2,312,885 2,327,186
2,775,551 2,712,564
Less: Excise duty 71,438 94,996

Net closing Stock(B) 2,704,113 2,617,568

Movement in the opening -86,545 -345,448
and closing stock(A-B)

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INVENTORY TURNOVER OR STOCK TURNOVER RATIO

Every firm has to maintain certain level of inventory of finished goods so as to be able to
meet the requirements of the business. But the level of inventory should neither be too
high nor too low.
Inventory turnover ratio will indicate whether the inventory has been efficiently used or
not. The purpose is to see whether only the required minimum funds have been locked
up in the inventory. Inventory turnover ratio indicates the number of times the stock
has been turned over during the period and evaluates the efficiency with which a firm is
able to manage its inventory.

Cost of goods sold

Inventory turnover ratio =
Average inventory at stock

Opening stock + Closing Stock

Average inventory at cost=
2

INTERPRETATION OF INVENTORY TURNOVER RATIO

Inventory turnover ratio measures the velocity of conversion of stock into sales.
Usually, a high inventory turnover indicates efficient management of inventory because
more frequently stocks are sold; the lesser amount of money is required to finance the
inventory. A low inventory turnover ratio indicates an inefficient management of
inventory. A low inventory turnover implies over-investment in inventories, dull
business, poor quality of goods, stock accumulation, accumulation of obsolete and slow
moving goods and low profit are compared to total investments.

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INVENTORY TURNOVER RATIO OF NESTLE INDIA LIMITED FOR LAST TWO YEARS

YEAR 2011 2010

Cost of goods sold 16465167 13563778

Average Inventory at cost 2660840.5 2444844

Inventory turnover ratio 6.18 times 5.54 times

365
Inventory conversion Period =

Inventory turnover ratio

Inventory conversion 59 days 66 days

period

The Inventory conversion period has shifted from 66 days in 2010 and 59 days in 2011
which shows that the company is efficiently managing their stock and its inventory
turnover has also increased which shows that there is rise in sale.

NET PROFIT RATIO

Net profit ratio establishes a relationship between net profit (after tax) and sales, and
indicates the efficiency of the management in the manufacturing, selling, administrative
and other activities of the firm. This ratio is the overall measure of firm’s profitability
and is calculated as:

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 Net profit
Net Profit Ratio = X 100
Sales

The two basic elements of the ratio are net profit and sales. The net profits are obtained
after deducting income-tax and, generally, non-operating income and expenses are
excluded from the net profit for calculating this ratio. Thus, incomes such as interest on
investment outside the business, profit on sale of fixed assets, etc. are excluded

NET PROFIT RATIO OF NESTLE INDIA LIMITED FOR LAST TWO YEARS

Years 2011 2010

Net profit 6550 5341

Sales 51293767 43242450

Net profit ratio .0127 .0123

There is no much difference in the net profit ratio of year 2010 and year 2011 as the net
profit and the sale has increased in the same proportion so there is not much difference
in the net profit ratio of the company.

DEBT EQUITY RATIO

Debt equity ratio also known as External-Internal Equity Ratio is calculated to measure
the relative claims of outsiders and the owners (i.e. shareholders) against the firm’s
assets. This ratio indicates the relationship between the external equities or outsiders
funds and the internal equities or the shareholders’ funds, thus

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 Outsiders funds
Debt-Equity Ratio =
Shareholders’ funds

The two basic components of the ratio are outsiders’ funds i.e., external equities and
shareholders’ funds, i.e. internal equities.

INTERPRETATION OF DEBT EQUITY RATIO

The debt equity ratio is calculated to measure the extent to which debt financing has
been used in the business. The ratio indicates the proportionate claims of owners and
the outsiders against the firm’s assets.

Generally speaking, a low ratio is considered as favorable from the long- term creditors’
point of view because a high proportion of owners fund provides a larger margin of
safety for them. A high debt equity ratio which indicates that the claims of outsider are
greater than those of owners, may not be considered by the creditors because it gives a
lesser margin of safety for them at the time of liquidation of the firm.

DEBT EQUITY RATIO FOR NESTLE INDIA LIMITED FOR LAST TWO YEARS

Years 2011 2010

Outsiders funds 5,875,90 5,074,671

Shareholders’ Funds 5,812,650 4,733,497

Debt equity ratio 1.01 1.07

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 SUGGESTIONS AND RECOMMENDATIONS

❖ Employee should be trained according to the changing standards of the organization.

❖ Company should conduct survey from time to time ,according to which changes can
be introduced in the organization to stay updated in the market.

❖ They should introduce creativity in to the work ,so that the employees can do their
work active mindedly.

❖ Employee should be given compensation in order to keep them loyal.

❖ Employee should be more involved in decision making to become more

differentiated.

❖ Company should provide incentives to shop keepers.

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 CONCLUSION

NESTLE good food , good life captures the very essence of Nestle and the promises they
commit to themselves every day, everywhere as the leading nutrition, health and wellness
company.

The company’s overall is at a very good position. The company achieves sufficient profit in
past two years. The company maintains low liquidity to achieve the high profitability.
The company distributes dividend every year to its shareholders.

The company grew significantly during these years. There were many new products and
services that were launched during this time . The company enjoys monopoly in various
products, i.e. significant is the name of Maggi noodles in this section . Increased demand
of products helps the company remain strong. The changing lifestyle and concepts of
Indians have contributing much to the growth of the company.

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 BIBLIOGRAPHY

❖ www.nestle.in

❖ www.google.com

❖ www. Wikipedia. Com , history of Nestle and background.

❖ Annual Report Of Nestle India Limited.

❖ Internal Audit report of Nestle India Limited.

❖ Gupta, Kamal and Ashok Arora. Fundamentals of Auditing. Tata Mc-Graw Hill
Publishing Co. Ltd., New Delhi.

❖ www. Nestleglobal.com

❖ www. Scribd.com

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