Research Report On

Financial Statement Analysis of Nestle

Submitted in the partial fulfilment of the requirement of the award for the degree of

Bachelor in Business Administration

(2017-2020)

Conducted by

Lalit Narayan Mishra Institute of Economic Development and

Social Change, Bailey Road, Patna

UNDER THE GUIDANCE OF SUBMITTED BY

Dr. Prabhat Kumar Yadav Aman Kumar

BBA
Associate Professor
ROLL NO - 17304
1
L.N.M.I. Patna
SESSION 2017-20
A successful completion of any work is due to the efforts of many. Therefore I like to give my

sincere thanks to those who have helped and supported me in the accomplishment of my project.

I am very thankful to my guide Dr. Prabhat Kumar Yadav for his full support in completing this

project work. With his teachings and experience I learnt a lot.

I would also like to thank my parents & my friends for their full cooperation & continuous

support during the course of this assignment.

Thank you

i
 PREFACE

Decision making is a fundamental part of the research process. Decisions regarding what you do,
how you do, what tools and techniques must be used for the successful completion of the project.
In fact it is the researcher’s efficiency as a decision maker that makes project fruitful for those
who concern to the area of study.

The project presents the financial statement analysis of Nestle India, one of the most famous
name in Fast Moving Consumer Goods (FMCG) sector.

Being a fresher in this highly competitive world of business, I had come across several
difficulties to make the objectives a reality. If anywhere something is found not in tandem to the
theme then you are welcome with your valuable suggestions. My research project “Financial
statement analysis of Nestle India.” is based on study conducted by me under the guidance of Dr.
Prabhat Kumar Yadav.

I believe that my research project report will have been very helpful to the practical knowledge
in the field of financial analysis of any organization.

ii
Serial Number Particulars Page Number

1 INTRODUCTION 1-10

2 OBJECTIVE OF STUDY 11

3 RESEARCH METHODOLOGY 12-14

4 COMPANY PROFILE 15-20

5 DATA ANALYSIS 21-35

6 FINDINGS 36

7 SUGGESTIONS AND RECOMMENDATION 37

8 CONCLUSION 38

9 BIBLIOGRAPHY 39

iii
 INTRODUCTION

Meaning of Financial Statement

Financial statements refer to such statements which contains financial information about an
enterprise. They report profitability and the financial position of the business at the end of
accounting period. The term financial statement includes at least two statements which the
accountant prepares at the end of an accounting period. The two statements are: -
➢ The Balance Sheet

➢ Profit And Loss Account

Balance Sheet mirrors the financial position on a particular date in terms of the structure of
assets, liabilities and owners equity, and so on.
Profit and Loss account shows the results of operations during a certain period of time in terms
of the revenues obtained and the cost incurred during the year.

Meaning of Financial Analysis

The first task of financial analysis is to select the information relevant to the decision under
consideration to the total information contained in the financial statement. The second step is to
arrange the information in a way to highlight significant relationship. The final step is
interpretation and drawing of inference and conclusions. Financial statement is the process of
selection, relation and evaluation.

1
Features of Financial Analysis

➢ To present a complex data contained in the financial statement in simple and

understandable form.

➢ To classify the items contained in the financial statement inconvenient and rational
groups.

➢ To make comparison between various groups to draw various

conclusions.

Purpose of Analysis of financial statements

➢ To know the earning capacity or profitability.

➢ To know the solvency.
➢ To know the financial strengths.
➢ To know the capability of payment of interest & dividends.
➢ To make comparative study with other firms.
➢ To know the trend of business.
➢ To know the efficiency of management.
➢ To provide useful information to management.

2
Procedure of Financial Statement Analysis
The following procedure is adopted for the analysis and interpretation of financial
statements:-
➢ The analyst should acquaint himself with principles and postulated of accounting. He
should know the plans and policies of the managements that he may be able to find out
whether these plans are properly executed or not.
➢ The extent of analysis should be determined so that the sphere of work may be decided.
If the aim is find out, earning capacity of the enterprise then analysis of income statement
will be undertaken. On the other hand, if financial position is to be studied then balance
sheet analysis will be necessary.
➢ The financial data be given in statement should be recognized and rearranged. It will
involve the grouping similar data under same heads. Breaking down of individual
components of statement according to nature. The data is reduced to a standard form. A
relationship is established among financial statements with the help of tools & techniques
of analysis such as ratios, trends, common size, fund flow etc.
➢ The information is interpreted in a simple and understandable way. The significance and
utility of financial data is explained for help indecision making.
➢ The conclusions drawn from interpretation are presented to the management in the form
of reports.

Analyzing financial statements involves evaluating three characteristics of a company: its

liquidity, its profitability, and its insolvency. A short-term creditor, such as a bank, is primarily
interested in the ability of the borrower to pay obligations when they come due. The liquidity of
the borrower is extremely important in evaluating the safety of a loan. A long-term creditor, such
as a bondholder, however, looks to profitability and solvency measures that indicate the
company’s ability to survive over a long period of time. Long-term creditors consider such
measures as the amount of debt in the company’s capital structure and its ability to meet interest
payments. Similarly, stockholders are interested in the profitability and solvency of the company.
They want to assess the likelihood of dividends and the growth potential of the stock.

3
 Ratio
Analysis
Tools of
Financial
Statement
Analysis
Cash
Flow
Analysis

4
Ratio Analysis

Ratio analysis is an attempt to derive quantitative measure or guides concerning the financial
health and profitability of business enterprises. Ratio analysis can be used both in trend and static
analysis. We will focus on a technique, which is easy to use. It can provide you with a valuable
investment analysis tool.
This technique is called cross-sectional analysis. Cross-sectional analysis compares financial
ratios of several companies from the same industry. Ratio analysis can provide valuable
information about a company's financial health. A financial ratio measures a company's
performance in a specific area. For example, we can use a ratio of a company's debt to its equity
to measure a company's leverage. By comparing the leverage ratios of two companies, we can
determine which company uses greater debt in the conduct of its business. A company whose
leverage ratio is higher than a competitor's has more debt per equity.

CLASSIFICATION OF RATIO

BASED ON FINANCIAL
BASED ON USER
STATEMENT
BASED ON FUNCTION

RATIOS FOR SHORT

BALANCE SHEET RATIO LIQUIDITY RATIO
TERM CREDITORS
REVENUE STATEMENT RATIOS FOR
LEVERAGE RATIO
RATIO SHAREHOLDERS
RATIOS FOR
COMPOSITE RATIO ACTIVITY RATIO
MANAGEMENT
RATIOS FOR LONG
PROFITABILITY RATIO
TERM CREDITORS
COVERAGE RATIO

5
Based on Financial Statement

1] Balance sheet ratio

If the ratios are based on the figures of balance sheet, they are called Balance Sheet Ratios. E.g.
Ratio of current assets to current liabilities or Debt to equity ratio. While calculating these ratios,
there is no need to refer to the Revenue statement. These ratios study the relationship between
the assets & the liabilities, of the concern. These ratios help to judge the liquidity, solvency &
capital structure of the concern. Balance sheet ratios are Current ratio, Liquid ratio, and
Proprietary ratio, Capital gearing ratio, Debt equity ratio, and Stock working capital ratio.

2] Revenue ratio:

Ratio based on the figures from the revenue statement is called revenue statement ratios. These
ratios study the relationship between the profitability & the sales of the concern. Revenue ratios
are Gross profit ratio, Operating ratio, Expense ratio, Net profit ratio, Net operating profit ratio,
Stock turnover ratio.

3] Composite ratio:

These ratios indicate the relationship between two items, of which one is found in the balance
sheet & other in revenue statement.
There are two types of composite ratios-
a) Some composite ratios study the relationship between the profits & the investments of the
concern. E.g. return on capital employed, return on proprietors fund, return on equity
capital etc.
b) Other composite ratios e.g. debtors turnover ratios, creditors turnover ratios, dividend
payout ratios, & debt service ratios.

6
Based on Function:

1] Liquidity ratios:

It shows the relationship between the current assets & current liabilities of the concern e.g. liquid
ratios & current ratios.

2] Leverage ratios:

It shows the relationship between proprietors funds & debts used in financing the assets of the
concern e.g. capital gearing ratios, debt equity ratios, & Proprietary ratios.

3] Activity ratios:
It shows relationship between the sales & the assets. It is also known as Turnover ratios &
productivity ratios e.g. stock turnover ratios, debtors’ turnover ratios.

4] Profitability ratios:

a) It shows the relationship between profits & sales e.g. operating ratios, gross profit ratios,
operating net profit ratios, expenses ratios
b) It shows the relationship between profit & investment e.g. return on investment, return on
equity capital.

5] Coverage ratios:

It shows the relationship between the profit on the one hand & the claims of the outsiders to be
paid out of such profit e.g. dividend payout ratios & debt service ratios.

7
Based on User:

1] Ratios for short-term creditors:

Current ratios, liquid ratios, stock working capital ratios

2] Ratios for the shareholders:

Return on proprietors fund, return on equity capital

3] Ratios for management:

Return on capital employed, turnover ratios, operating ratios, expenses ratios

4] Ratios for long-term creditors:

Debt equity ratios, return on capital employed, proprietor ratios.

8
Cash Flow Analysis

Cash is the life blood of business. It is an important tool of cash planning and control. A firm
receives cash from various sources like sales, debtors, sale of assets investments etc. Likewise,
the firm needs cash to make payment to salaries, rent dividend, interest etc.
Cash flow statement reveals that inflow and outflow of cash during a particular period. It is
prepared on the basis of historical data showing the inflow and outflow of cash.

Steps in Preparing CFS

1. Opening of accounts for non-current items (to find out the hidden information).

2. Preparation of adjusted P&L account (to find out cash from operation or profit, and cash

lot in operation or loss).

3. Comparison of current items (to find out inflow or outflow of cash).

4. Preparation of Cash Flow Statement.

Usefulness of the Statement of Cash Flows

The information in a statement of cash flows should help investors, creditors, and others assets

the following aspects of the firm’s financial position.

1. The entity’s ability to generate future cash flows.

2. The entity’s ability to pay dividends and meet obligations.

3. The cash investing and financing transactions during the period.

The information in the statement of cash flows is useful in answering the following questions.

1. How did cash increase when there was a net loss for the period?

2. How were the proceeds of the bond issue used?

3. How were the expansions in the plant and equipment financed?

9
 4. Why were dividends not increased?

5. How was the retirement of debt accomplished?

6. How much money was borrowed during the year?

7. Is cash flow greater or less than net income?

Cash Flow Statement

Inflow of Cash Amount Outflow of cash Amount

Opening cash balance XX Redemption of preference shares XX

Cash from operation XX Redemption of debentures XX

Sale of assets XX Repayment of loans XX

Issue of debentures XX Payment of dividends XX

Raising of loans XX Pay of tax XX

Collection from debentures XX Cash lost in debentures XX

Refund of tax XX Closing cash balance XX

Cash from operation can be calculated in two ways:

Cash Sales Method
Cash Sales – (Cash Purchase + Cash Operation Expenses)
Net Profit Method
It can be prepared in statement form or by Adjusted Profit and Loss Account.

10
 OBJECTIVE OF STUDY

To understand the information contained in financial statements with a view to know the strength

or weaknesses of the firm and to make forecast about the future prospects of the firm and thereby

enabling the financial analyst to take different decisions regarding the operations of the firm.

11
 RESEARCH METHODOLOGY

Research is defined as a systematic, gathering recording and analysis of data about problem
relating to any particular field. It determines strength reliability and accuracy of the project.

Research Design: Research Design pertains to the great research approach or strategy adopted
for a particular project. A research project has to be the conducted scientifically making sure that
the data is collected adequately and economically.

The study used a descriptive research design for the purpose of getting an insight over the
issue. It is to provide an accurate picture of some aspects of market environment. Descriptive
research is used when the objective is to provide a systematic description that is as factual and
accurate as possible.

Method of Data Collection:

Secondary Data: Through the internet and published data

12
Limitation of the study
Significant business decisions are frequently made using one or more of the analytical tools
illustrated in this term paper. But, one should be aware of the limitations of these tools and of the
financial statements on which they are based.

Estimates

Financial statements contain numerous estimates. Estimates are used in determining the
allowance for uncollectible receivables, periodic depreciation, the costs of warranties, and
contingent losses. To the extent that these estimates are inaccurate, the financial ratios and
percentages are inaccurate.

Cost

Traditional financial statements are based on cost. They are not adjusted for price-level changes.
Comparisons of unadjusted financial data from different periods may be rendered invalid by
significant inflation or deflation. me period.

Alternative Accounting Methods

Companies vary in the generally accepted accounting principles they use. Such variations may
hamper comparability. For example, one company may use the FIFO method of inventory
costing: another company in the same industry may use LIFO. If inventory is a significant asset
to both companies, it is unlikely that their current ratios are comparable. In addition to
differences in inventory costing methods, differences also exist in reporting such items as
depreciation, depletion, and amortization. These differences in accounting methods might be
detectable from reading the notes to the financial statements. But, adjusting the financial data to
compensate for the different methods is difficult, if not impossible in some cases.

13
Atypical Data

Fiscal year-end data may not be typical of the financial condition during the year. Firms
frequently establish a fiscal year-end that coincides with the low point in operating activity or in
inventory levels. Therefore, certain account balances (cash, receivables, payables, and
inventories) may not be representative of the balances in the accounts during the year.

Diversification of Firms

Diversification in U.S. industry also limits the usefulness of financial analysis. Many firms today
are so diversified that they cannot be classified by a single industry – they are true
conglomerates. Others appear to be comparable but are not.

14
 COMPANY PROFILE

Nestlé is a Swiss multinational food and drink processing conglomerate corporation

headquartered in Vevey, Vaud, Switzerland.
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.
After India's independence in 1947, the economic policies of the Indian Government emphasised
the need for local production. NESTLÉ responded to India's aspirations by forming a company in
India and set up its first factory in 1961 at Moga, Punjab, where the Government wanted
NESTLÉ to develop the milk economy. Progress in Moga required the introduction of
NESTLÉ's Agricultural Services to educate, advise and help the farmer in a variety of aspects.
From increasing the milk yield of their cows through improved dairy farming methods, to
irrigation, scientific crop management practices and helping with the procurement of bank loans.
NESTLÉ set up milk collection centres that would not only ensure prompt collection and pay fair
prices, but also instil amongst the community, a confidence in the dairy business. Progress
involved the creation of prosperity on an on-going and sustainable basis that has resulted in not
just the transformation of Moga into a prosperous and vibrant milk district today, but a thriving
hub of industrial activity, as well.
NESTLÉ has been a partner in India's growth for over a century now and has built a very special
relationship of trust and commitment with the people of India. The Company's activities in India
have facilitated direct and indirect employment and provides livelihood to about one million
people including farmers, suppliers of packaging materials, services and other goods.
The Company continuously focuses its efforts to better understand the changing lifestyles of
India and anticipate consumer needs in order to provide Taste, Nutrition, Health and Wellness
through its product offerings. The culture of innovation and renovation within the Company and
access to the NESTLÉ Group's proprietary technology/Brands expertise and the extensive
centralized Research and Development facilities gives it a distinct advantage in these efforts. It

15
helps the Company to create value that can be sustained over the long term by offering
consumers a wide variety of high quality, safe food products at affordable prices.
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.
NESTLÉ India is a responsible organisation and facilitates initiatives that help to improve the
quality of life in the communities where it operates.

CATEGORY WISE CONTRIBUTION

16
17
Corporate affairs and governance
Nestlé is the biggest food company in the world, with a market capitalisation of roughly
231 billion Swiss francs.

Sales per category in CHF

➢ 20.3 billion powdered and liquid beverages

➢ 16.7 billion milk products and ice cream
➢ 13.5 billion prepared dishes and cooking aids
➢ 13.1 billion nutrition and health science
➢ 11.3 billion pet-care
➢ 9.6 billion confectionery
➢ 6.9 billion water

Percentage of sales by geographic area breakdown

➢ 43% from Americas
➢ 28% from Europe
➢ 29% from Asia, Oceania and Africa

Products

18
 Corporate social responsibility program involvements

➢ World Cocoa Foundation: Its goal is to form a sustainable cocoa economy by

prioritizing farmers, promoting agricultural & environmental stewardship, and
strengthening development in cocoa-growing communities.
➢ Sustainable Agriculture Initiative: A non-profit organization for sharing knowledge
and initiatives for the development and implementation of sustainable agriculture
practices involving the different stakeholders of the food chain.
➢ Creating Shared Value: Creating Shared Value (CSV) is a business concept intended to
encourage businesses to create economic and social value simultaneously by focusing on
the social issues that they are capable of addressing.
➢ Nestlé Cocoa Plan: The company is working to get 100 percent of its chocolate portfolio
using certified sustainable cocoa. Another part of the plan has been to address child labor.
➢ Ecolaboration: On 22 June 2009, Nestlé Nespresso and Rainforest Alliance signed a
pact called "Ecolaboration". One of the shared goals is to reduce the environmental
impacts and increase the social benefits of coffee cultivation in enough tropical regions
so that 80 percent of Nespresso's coffee comes from Rainforest Alliance Certified farms
by the year 2013.
➢ The Nescafé Plan: Initiative to increase sustainable coffee production and make
sustainable coffee farming more accessible to farmers.
➢ Health care and nutrition product development: In September 2010, Nestlé said that it
would invest more than $500 million between 2011 and 2020 to develop health and
wellness products to help prevent and treat major ailments
like diabetes, obesity, cardiovascular disease, and Alzheimer’s, which are placing an
increasing burden on governments at a time when budgets are being squeezed. Nestlé
created a wholly owned subsidiary, Nestlé Health Science, as well as a research body, the
Nestlé Institute of Health Sciences.
➢ Membership in Fair Labour Association: In 2011, Nestlé started to work with the Fair
Labor Association (FLA), a non-profit, multi-stakeholder association that works with
major companies to improve working conditions in developing countries, to assess labor
conditions and compliance risks throughout Nestlé's supply chain of hazelnuts and cocoa.
➢ Rural Development Framework program: It is an investment program aimed at
improving infrastructure, increasing access to safe water, address financing and market
efficiency gaps, and improving labor conditions.

19
 Recognition and awards
➢ Malcolm Baldrige National Quality Award
➢ First infant formula company to meet the FTSE4Good Index criteria in full.
➢ Nestlé occupied 19th position in the Universum's global ranking of Best Employers
Worldwide.
➢ Global Food Industry Award.
➢ 27th World Environment Center (WEC) Gold Medal award - commitment to
environmental sustainability.
➢ Retained its number one position in charity Oxfam's sustainability scorecard and
improved its ratings on the issues of land, workers, and climate.
➢ In March 2015, Nestlé ranked second in Oxfam's Behind the Brands scorecard, where the
NGO ranks the world's 'Big 10' consumer food and beverage companies on their policies
and commitments to improve food security and sustainability. Nestlé assumed the
number one ranking for land rights while the company also outperformed its peers on
transparency and water.

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 KEY FINANCIAL FIGURES

Rupees in Millions

Particulars 2016* 2017 2018 2019

Domestic Sales 87,530.8 94724.5 105,075.4 116567.9

Export Sales 6,565.2 6626.6 7,086.9 6384.8

Sale of products 94,096.0 101,351.1 112,162.3 122,952.7

Other operating revenues 649.7 570.7 760.4 736.3

Revenue from operations 94,745.7 101,921.8 112,922.7 123,689.0

Other Income 1,509.0 1,769.2 2,589.2 2,468.8

Total Income 96,254.7 103,691.0 115,511.9 126,157.8

Total Expenses 80,693.1 85,298.0 91,222.4 99,407.9

Profit before exceptional items and tax 15,561.6 18,393.0 24,289.5 26,749.9

Exceptional items 107.8 - - -

Profit before tax 15,453.8 18,393.0 24,289.5 26,749.9

Tax expense 5,440.2 6,141.1 8,220.2 7,054.4

Profit after tax 10,013.6 12,251.9 16,069.3 19,695.5

Total Other Comprehensive Income (760.4) (889.8) (404.1) (1,547.7)

Total Comprehensive Income 9,253.2 11,362.1 15,665.2 18,147.8

Earnings per Share (₹) 103.86 127.07 166.67 204.28

Dividend per share (₹)

Interim 40.00 63.00 90.00 101.00
Special Interim - - - 180.00
Final 23.00 23.00 25.00 61.00#

21
 Balance Sheet of Nestle

in Rs. Cr.

Dec '19 Dec '18 Dec '17 Dec '16

12 months 12 months 12 months 12 months

EQUITIES AND LIABILITIES

Shareholder’s Funds

Equity Share Capital 96.42 96.42 96.42 96.42

TOTAL SHARE CAPITAL 96.42 96.42 96.42 96.42

Reserves and Surplus 1,835.84 3,577.32 3,324.17 2,917.28

TOTAL RESERVES AND SURPLUS 1,835.84 3,577.32 3,324.17 2,917.28

TOTAL SHAREHOLDERS FUNDS 1,932.26 3,673.74 3,420.59 3,013.70

NON-CURRENT LIABILITIES

Long Term Borrowings 53.14 35.14 35.14 33.15

Deferred Tax Liabilities (Net) 17.95 58.82 121.96 154.21

Other Long Term Liabilities 0.43 0.51 0.60 0.00

Long Term Provisions 2,906.91 2,464.92 2,291.59 1,972.21

TOTAL NON-CURRENT

LIABILITIES 2,978.43 2,559.39 2,449.29 2,159.57

CURRENT LIABILITIES

Short-Term Borrowings 0.00 0.00 0.00 0.00

22
 Trade Payables 1,494.69 1,204.37 984.64 799.16

Other Current Liabilities 567.36 457.32 420.61 512.84

Short Term Provisions 85.46 157.26 87.46 320.70

TOTAL CURRENT LIABILITIES 2,147.51 1,854.95 1,492.71 1,632.70

TOTAL CAPITAL AND

7,058.20 8,088.08 7,362.59 6,805.46
LIABILITIES

ASSETS

NON – CURRENT ASSETS

Tangible Assets 2,370.01 2,400.62 2,616.18 2,729.46

Intangible Assets 0.00 0.00 0.00 0.00

Capital Work -In-Progress 0.00 105.20 94.16 188.17

Other Assets 0.00 0.00 0.00 0.00

FIXED ASSETS 2,370.01 2,505.82 2,710.34 2,917.63

Non-Current Investments 743.60 733.36 585.28 474.31

DEFERRED TAX ASSETS (NET) 0.00 0.00 0.00 0.00

Long Term Loans and Advances 46.98 40.14 46.35 135.04

Other Non-Current Assets 80.44 71.81 83.23 0.00

TOTAL NON – CURRENT ASSETS 3,241.03 3,351.13 3,425.20 3,526.98

CURRENT ASSETS

Current Investments 1007.45 1,925.12 1,393.59 1,275.04

Inventories 1,283.07 965.55 902.47 943.18

Trade Receivables 124.33 124.59 88.97 97.93

Cash and Cash Equivalents 1,308.05 1,610.06 1,457.42 880.00

23
 Short Term Loans and Advances 12.46 17.89 28.80 57.02

Other Current Assets 81.81 93.73 66.14 25.82

TOTAL CURRENT ASSETS 3,817.17 4,736.95 3,937.39 3,278.99

TOTAL ASSETS 7,058.20 8088.08 7,362.59 6,805.97

TOTAL ASSETS
3,000.00

2,500.00

2,000.00

1,500.00

1,000.00

500.00

0.00
Dec ' 18 Dec ' 17 Dec ' 16 Dec ' 15

Table No. 1 : Total Assets of Nestle

24
 Nestle India Profit and loss account

in Rs. Cr.

Dec '19 Dec '18 Dec '17 Dec '16

12 months 12 months 12 months 12 months

Income

Sales Turnover 12,368.90 11,292.27 10,192.18 9,556.24

Net Sales 12,368.90 11,292.27 10,009.60 9,223.80

Other Income 246.88 228.72 86.20 87.25

TOTAL INCOME 12,759.97 11,527.00 10,175.36 9,321.83

Expenditure

Raw Materials 5,368.11 4,650.12 4,456.80 3,498.21

Power & Fuel Cost 0.00 344.18 288.44 232.79

Employee Cost 1,262.95 1,124.15 1,017.45 1,073.36

Other Manufacturing 0.00 0.00 0.00

0.00
Exp.

Miscellaneous Expenses 2,995.85 1,832.74 1,723.94 2,281.28

TOTAL EXPENSES 9,651.79 8,680.63 7,992.63 7,523.16

Operating Profit 2,861.30 2,617.65 2,096.53 1,711.42

25
PBDIT 3,108.18 2,846.37 2090.83 1,795.16

PBDT 2,988.35 2,734.42 2,090.83 1,795.16

Depreciation 316.36 335.67 342.25 353.62

Profit Before Tax 2,671.99 2,398.75 1,748.58 1,441.54

Tax 705.44 822.02 614.11 515.00

REPORTED NET
1,966.55 1,606.93 1,225.19 926.54
PROFIT

Total Value Addition 4,283.68 4,030.51 3,535.83 3,587.43

Equity Dividend 0.00 1,089.50 829.50 607.42

Corporate Dividend Tax 0.00 223.87 168.77 123.66

PER SHARE DATA (ANNUALIZED)

Shares in issue (lakh) 964.20 964.16 964.16 964.16

Earning Per Share (Rs) 203.96 166.67 127.07 96.10

Equity Dividend (%) 3,420.00 1,150.00 860.00 630.00

Book Value (Rs) 200.40 381.03 354.78 312.57

26
 Data analysis and Interpretation

Interpretation of Ratios
2019 2018
PROFITABILITY RATIOS

Operating Profit Margin (%) 23.13 23.18

Gross Profit Margin (%) 20.57 20.20
Net Profit Margin (%) 15.89 14.23
Return on Capital Employed (%) 140.61 68.50

LIQUIDITY AND SOLVENCY

RATIOS

Current Ratio 0.58 0.67

Quick Ratio 0.33 0.45
Debt Equity Ratio 0.03 0.01

MANAGEMENT EFFICIENY
RATIOS

Inventory Turnover Ratio 9.64 11.70

Investment Turnover Ratio 6.23 3.04
Asset Turnover Ratio 4.34 3.15

27
 PROFITABILITY RATIOS
160
140
120
100
80
60
40
20
0
Operating Profit Gross Profit Margin Net Profit Margin (%) Return on Capital
Margin (%) (%) Employed (%)

2019 2018

Table No. 2 : Profitability Ratios of Nestle

LIQUIDITY AND SOLVENCY RATIOS

0.8
0.7
0.6
0.5
0.4
0.3
0.2
0.1
0
2019 2018

Current Ratio Quick Ratio

28
 Table No. 3 : Liquidity and Solvency Ratios of Nestle

MANAGEMENT EFFICIENY RATIOS

12
10
8
6
4
2
0
Inventory Turnover Investment Turnover Asset Turnover Ratio
Ratio Ratio

2019 2018

Table No. 4 : Management Efficiency Ratios of Nestle

29
 INTERPRETATION

➢ The operating ratio shows the relationship between costs of activities & net sales.

Operating ratio indicate the change in the operational efficiency of the company. The

operating ratio of the company has been the same in 2018 and 2019.

➢ The gross profit is the profit made on sale of goods. It is the profit on turnover. In the

year 2018 the gross profit ratio is 20.57%. It is relatively same with 20.20% in the year

2019 due to stable sales in the FMCG sector.

➢ The net profit ratio of the company is high in both the years. Profitability ratio of

company shows considerable stability and has been successful in controlling the expenses

i.e. manufacturing & other expenses. It is a clear index of cost control, managerial

efficiency & sales promotion.

➢ The return on capital employed shows the relationship between profit & investment. Its

purpose is to measure the overall profitability from the total funds made available by the

owner & lenders.

➢ The return on capital employed of Rs. 68.50 indicate that net return of Rs. 68.50 is earned

on a capital employed of Rs.100. This amount of Rs. 68.50 is available to take care of

interest, tax and appropriation.

➢ The return on capital employed has soared from 68.50% in 2018 to 140.61% in 2019.

This indicates a very high profitability on each rupee of investment & has a great scope to

attract large amount of fresh fund.

30
➢ The current ratio is 0.58:1 in 2019. It means that for one rupee of current liabilities, the

current assets are 0.58 rupee is available. In other words the current assets are 0.58 times

the current liabilities.

➢ The decrease in the value of current assets will decrease the ability of the company to

meets its obligations & therefore from the point of view of creditors the company is little

risky. Thus, the current ratio throws light on the company’s ability to pay its current

liabilities out of its current assets.

➢ The liquid or quick ratio indicates the liquid financial position of an enterprise. The

liquid ratio shows the company’s ability to meet its immediate obligations promptly.

➢ In both the years the liquid ratio is relatively same, which is better for the company to

meet the urgency. The liquid ratio of Nestle has decreased from 0.45 to 0.33 in 2018-

2019.

➢ This indicates that the dependence on the long-term liabilities & creditors are less & the

company is following a controlled working capital policy.

➢ The debt equity ratio is important tool of financial analysis to appraise the financial

structure of the company. It expresses the relation between the external equities &

internal equities. This ratio is very important from the point of view of creditors &

owners.

➢ The rate of debt equity ratio is increased from 0.01 to 0.03 during the year 2018 to 2019.

This shows that with the increase in debt, the shareholders fund also increased. This

shows long-term capital structure of the company is sound. The lower ratio viewed as

favorable from long term creditor’s point of view.

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➢ Inventory turnover ratio shows the relationship between the sales & stock it means how

stock is being turned over into sales. The inventory turnover ratio in 2019 is 9.64 times

which indicate that the stock is being turned into sales 9.64 times during the year. The

inventory cycle makes 9.64 rounds during the year. It helps to work out the stock holding

period, it means the stock turnover ratio is 9.64 times then the stock holding period is 1.2

months [12/9.64= 1.2 months]. This indicates that it takes 1.2 months for stock to be sold

out after it is produced. Thus, the stock of the company is moving fast in the market.

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 CASH FLOW STATEMENT OF NESTLE

Cash flow Statement (in Rs. Cr).

Dec ' 18 Dec ' 17 Dec ' 16 Dec ' 15

Profit before tax 2,428.95 1,839.30 1,441.54 813.63

Net cash flow-operating 2052.45 1,817.79 1,465.91 1,098.10

activities

Net cash used in investing -52.41 -130.56 -127.41 -70.48

activites

Net cash used in financing -1,317.42 -996.62 -666.55 -498.32

Activites

Net inc/dec in cash and 690.61 671.95 529.30 -422.96

equivalent

Cash and equivalent begin of 2,150.67 1,472.41 943.11 1,366.07

year

Cash and equivalent end of year 2,841.28 2,144 1,472.41 943.11

33
 Cash and equivalent end of year
3,000.00

2,500.00

2,000.00

1,500.00

1,000.00

500.00

0.00
Dec ' 18 Dec ' 17 Dec ' 16 Dec ' 15

Table No. 5 : Cash and Cash Equivalent of Nestle

34
 INTERPRETATION

➢ The cash flow statement shows that the net profit before tax increased continuously over

the years.

➢ The net cash from the operating activities continuously increased from the 2015 to 2018,

which shows the sound position of the firm.

➢ The statement shows that net cash from investing activities is negative in all four years

that means the firm is not contributing enough in investing activities.

➢ The net cash used in financing activities is negative in all four years which means the

company is servicing debt, but can also mean the company is retiring debt or making

divident payments and stock repurchases which investors might be glad to see.

➢ The cash and cash equivalents of the firm increased over the years, which shows the high

liquidity position of the firm.

➢ The opening cash and cash equivalents are minimum in the year 2016 and maximum in

the year 2018. The Closing cash and cash equivalents maximum in the year 2018 and

minimum in the year 2015 shows the firm maintain the maximum liquidity position in

the year 2018.

35
 FINDINGS

➢ The gross profit ratio is in fluctuation manner. It slightly decreased from 23.18 to 23.13

in 2018 and 2019 respectively.

➢ The net profit ratio has slightly increased from 14.23 in 2018 to 15.89 in 2019.

➢ The operating profit ratio has increased from 23.13% to 23.18%.

➢ The current ratio has shown non-fluctuating trend as 0.67 and 0.58 in 2018 and 2019.

➢ The quick ratio is also in non-fluctuating trend resulting as 0.45 and 0.33 in 2018 and

2019.

➢ The debt-equity ratio increased from 0.01 in 2018 to 0.03 in 2019.

➢ The return on capital employed has increased in the year 2019 with 140.61%.

➢ The earning per share has been increasing every year.

➢ Dividend payout ratio is maximum in the year 2019.

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 SUGGESTION & RECOMMENDATION

➢ Liquidity refers to the ability of the concern to meet its current obligations as and
when these become due. The company should improve its liquidity position.

➢ The company should make the balance between liquidity and solvency position of
the company.

➢ The cost of goods sold is high in every year so the company should do efforts to
control it.

➢ The long term financial position of the company is very good but it should pay a
little attention to short term solvency of the company.

37
 CONCLUSION

➢ The company’s overall position is at a very good position.

➢ This sector will continue to see growth as it depends on an ever-increasing internal

market for consumption and demand for these goods remain more or less constant
irrespective of recession or inflation.

➢ Availability of key raw materials, cheap labour costs and presence across the entire value
chain gives Indian FMCG industry a competitive advantage.

➢ Penetration level as well as per capita consumption in most product categories in India is
low indicating untapped market potential.

➢ Increasing Indian population, particulary the middle class and rural segments presents an
opportunity to makers of branded products to convert consumers to branded products.

38
Books
o DK Goel

Websites
o https://en.wikipedia.org/wiki/Nestl%C3%A9

o https://www.nestle.in/aboutus/allaboutnestl%C3%A9

o https://www.nestle.in/investors/keyfigures

o https://www.moneycontrol.com/financials/nestleindia/balance-sheet/NI

o https://www.moneycontrol.com/financials/nestleindia/profit-lossVI/NI#NI

o Annual Reports of Nestle

2016-17

2017-18

2018-19

2019-20

39