ADVANCED ACCOUNTING 2 ASSIGNMENT

NAME : SUBHAM DUTTA

CLASS : TY BCOM ‘C’
ROLL : 6858
Overview of NESTLE India

Nestlé India, a subsidiary of the Swiss multinational Nestlé S.A., is one of the
largest food and beverage companies in India. The company manufactures a
wide range of products, some of which include baby food, chocolate,
confectionery, coffee, dairy products, breakfast cereals, kitchenware, and bottled
water.
Nestlé India was founded in 1959, and Gurugram, Haryana, serves as its
corporate headquarters. The company employs more than 7,000 people and has
eight manufacturing plants in India. Maggi, Nescafe, KitKat, Munch, MilkyBar,
Bar-One, Nestea, and Milkmaid are a few of the well-known products produced
by Nestlé India.
With a significant presence and a wide variety of goods, Nestlé India is
generally regarded as one of the leading players in the Indian food and beverage
sector.

Analysis
1. EPS (earning per share) 2019 = NPAT/No. of equity share
= 19684000000/96415716
= 204.15

EPS (earning per share) 2020 = NPAT/No. of equity share

= 20824000000/96415716
= 215.98

EPS (earning per share) 2021 = NPAT/No. of equity share

= 21449000000/96415716
= 222.46

Positive EPs are a good sign for a business. The corporation is more profitable the higher the
EPS figure. Investors will be eager to purchase these shares because Nestle India has quite
high earnings per share (EPS) of over 200 and it is increasing every year. 222.46,
demonstrating that this corporation generates a profit of 222.46 for its shareholders on each
share.

2. ROI (return on investment) 2019 = NPAT/Shareholders fund*100

 = 19684/19189
= 102.57%

ROI (return on investment) 2020 = NPAT/Shareholders fund*100

= 20824/20193
=103.12%

ROI (return on investment) 2021 = NPAT/Shareholders fund *100

= 21449/20845 *100
= 102.89%

An investment has produced a profit that is more than the initial investment, as
indicated by a ROI of higher than 100%. It is regarded as a reliable sign of a profitable
investment. Nestle India's consistent return on investment demonstrates that the
company consistently makes a sizable profit.

Cash flow analysis

● Operating activities:

i) Operational cash flow shows if a business can produce enough positive cash flow
to sustain and expand operations; if not, it could need outside finance for capital
expansion. Nestle India has generated between $22,000 and $25,000 million in
positive cash flow over the last three years, demonstrating that the company has
enough money to cover its operating expenses.

ii) A firm's depreciation and amortisation during the last three years has increased
only marginally, but the company is still buying property, plant, and equipment,
indicating that it is not making the most of its new assets or that they are not
being fully employed at the moment. It might also imply that the assets are
depreciating slower than predicted or over a longer length of time than
anticipated.

iii) Company facing Impairment loss on property, plant and equipment only in the
year 2021 i.e. of 12.2 million which shows that in that year company suffer a loss
on the sale PPE .

iv) The trade receivable of company is increased massively in the year 2020 in
comparison of the year 2019 i.e. of 400 million which shows company has made
 sales but has not yet collected payment for them. In other words, the company is
extending credit to its customers and is awaiting payment. This can affect the
working capital of the company. But in the year 2021 increase in trade receivable
is reduced in comparison of 2020 which shows company is collecting payments
from its customers more quickly than it did in the previous year. This could be a
positive sign for the company's cash flow, as it means that cash is being collected
more efficiently and it also suggest that company is tightening its credit policies
or offering fewer credit sales to its customers .

v) The inventory of a company decrease drastically from 2020 in comparison to

2019 i.e. of 1841 million which shows that company has good sale in that
particular year but in the year 2021 company inventory went up again which
shows company has purchased the stock which is yet to be sold .

vi) The trade payable of a company decrease in 2020 comparison to 2019 which
shows company has meet its obligation and pay to their creditors. But in 2021
creditor gets increased which may be shows that company having great demand
for the products that’s why they purchased a lot from its supplier which result in
increase of its creditors .

vii) CFO ratio 2019 = CFO/NPAT

= 22953/19684
= 1.16
CFO ratio 2020 = CFO/NAAT
= 24545/20824
= 1.17
CFO ratio 2021 = CFO/NPAT
= 22714/21449
= 1.05
The CFO/NPAT ratio is more than 1 for a company over the year which shows
company is generating more cash from its core business operations than the net
income reported on its income statement. This is a positive sign for investors as it
shows that the company is able to generate cash from its operations and can use
this cash to fund its growth, pay dividends, or repay debt

● Investing activities
1. The amount of PPE that the company has purchased has increased significantly
year over year, ranging from 1500 to 7000 million dollars. This indicates that the
company is investing more money in new equipment, which indicates that there is a
high demand for its products.
2. The company also sells its PPE each year, indicating that it is no longer needed by
the business or that it is no longer functional, thus it is better to have them written off.
 3. In addition, the company received interest on bank deposits, investments, tax-free
bonds, and employee loans, indicating that cash inflows related to the acquisition and
disposal of long-term assets as well as any other investments the company had made
are present.

● Financing activities

1. A company's bank overdraft interest rate has been declining over the past year,
indicating that it does not need outside borrowing to cover its daily cash needs and
that it can make enough money from its operations to operate.

2. A firm's lease liability interest payments have also decreased over time, indicating
that the company is in better financial shape and doesn't need as much help from other
sources to meet its obligations.

3. The dividend paid by the company in 2020 is lower than it was in 2019, at $10606
million, indicating that the company either did not generate enough profit to pay the
dividend or that it is holding onto the profit for internal investment or business
expansion.

Income statement analysis

1. This company's operating revenue grows yearly, indicating that there are more
orders for their product, which helps them boost sales. Over the last three years,
operational revenue has increased by 18.92%.
2. However, a company's other income is dropping throughout the course of the year;
from 19 to 20, it fell by 39.3%, and from 20 to 21, it fell by 17.7%, indicating that the
other revenue's source is dwindling.
3. A company's net profit grows each year, indicating that business is thriving. In the
last three years, there has been an 8.96% growth. Additionally, it shows that when
profits rise, so does tax liability.

Balance sheet analysis

1. The size of the balance sheet, which includes the company's total assets and
liabilities, has increased year over year. The entire size of the balance sheet increased
from 72000 million to 82000 million, demonstrating a growth rate of 14% over the
course of the year, which is a positive sign for a corporation.
 2. The company's non-current borrowings have been declining over the past year. It has
fallen by 48.2%, demonstrating that the business requires less outside funding because
it is meeting its demands through revenue or is making on-time payments on its debts.
We can also draw the conclusion that the corporation has been spending its profits for
this, which is why its dividend has declined over the past year.

3. Cash and cash equivalents are one of the balance's biggest fluctuations, as can be
shown. It is higher in 2020 compared to 2019, showing that money is coming in and
the company is being paid fairly. Yet by 2021, there were just about 10,000 million in
cash and cash equivalents. The reason for this could be that they utilised money to pay
for PPE because the cost of PPE increased significantly that year and they also used
money to pay their debts.

Accounting standard

Accounting standard 21:

Consolidated Financial Statements are the subject of Accounting Standard 21 (AS21), which
was developed by the Institute of Chartered Accountants of India (ICAI).
Consolidated financial statements present a group of companies' financial health,
performance, and cash flows as if they were one economic entity (e.g., a parent company and
its subsidiaries). This standard, which is applicable to all companies with subsidiaries,
specifies the rules and procedures for preparing and presenting consolidated financial
statements.
By offering precise and current information on the financial condition, performance, and cash
flows of a group of firms, AS 21 aims to ensure that consolidated financial statements give
users of the information the information they need to make informed financial decisions.
AS 21 addresses a number of important topics, including:
⮚ Identifying joint ventures, partners, and subsidiaries
⮚ Keeping track of investments in associates, subsidiaries, and joint ventures
⮚ elimination of balances and transactions between companies
⮚ Handling of combined reserves and goodwill
⮚ Consolidated financial accounts preparation and presentation
To demonstrate how Accounting Standard 21 (AS 21) is used, let's use the example of a
parent firm, Rose Ltd, and its two subsidiaries, Lotus Ltd and Tulip Ltd. Because Lotus Ltd and
Tulip Ltd are 80% owned by Rose Ltd, they are regarded as subsidiaries of Rose Ltd. In this
situation, Rose Ltd will create consolidated financial statements that will show the group's
overall financial status, performance, and cash flows of all three companies.

Accounting standard 20:

The Institute of Chartered Accountants of India created Accounting Standard 20, also known
as AS 20. (ICAI). Concerning earnings per share (EPS). The financial accounts of a
corporation must compute, display, and publish information concerning profits per share in
accordance with AS 20.
AS 20 works to ensure that companies provide accurate and comparable information
regarding their earnings per share because it is an important measure of a company's
profitability and financial health. Under AS 20, which also specifies the rules and formulae
for calculating EPS, companies are obligated to present EPS information in their financial
statements.
The amount of profit or loss attributable to each equity share of a company is what is meant
by EPS, according to the standard. It compels businesses to publish both measurements in
their financial statements and offers instructions on how to compute basic and diluted EPS.
Basic EPS is calculated by dividing the net profit or loss for the period by the weighted
average number of equity shares outstanding during the period. Diluted EPS takes into
account the potential dilution of earnings per share that could occur if all convertible
securities, such as stock options or convertible bonds, were converted into equity shares.
Moreover, AS 20 mandates that businesses disclose information on EPS, including the
number of shares used in the calculation, any changes to that number during the period,
and the possible dilution effect of any convertible instruments. These disclosures are meant
to provide consumers of financial statements with a clearer understanding of the company's
financial performance and any possible capital structure-related concerns.
● Basic EPS = Net profit for the year / Weighted average number of equity shares
outstanding

● Diluted EPS = Net profit for the year / Weighted average number of equity shares
outstanding (diluted)

For example, we have calculated the EPS of Nestle India which are as follows:

EPS (earning per share) 2021 = NPAT/No. of equity share

= 21449000000/96415716
= 222.46