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CREDIT RISK ANALYSIS

5 YEARS FINANCIAL ANALYSIS

INDUSTRY

Food & Beverages Industry


Introduction
The Food and its allied products industry is considered Pakistan largest industry, and is believed to account for 27% of it value added production. Trade sector estimate the sector total value of production is Rs. 46 Billion (RS.58.00 equal USD 1.00 at the current exchange rate). Pakistan Food industry produces cooking oil, Hydrogenated vegetable oil, sugar, flour, dairy products such as milk, butter, yogurt, cheese and ice-cream, biscuits, breads and confectionary, fruit juices and fruit juice drink, Carbonated beverages, snacks , potatoes, corn and pulses. Fish, meat, fruit and vegetable sector are underdeveloped partly for lack of adequate infrastructure including storage and transportation facilities. Government policies and plans are expected to greatly increase the development of food industry. According to the Census of Manufacturing Industries there were 822 units engaged in the manufacture of Food and Beverages. According to the UNIDO it is the largest manufacturing industries of the country. Value of production stood at Rs.46.170 billion and manufacturing value added (MVA) stood at Rs.12.187 billion. Food processing is a relatively capital intensive industry. The share of food in the manufacturing industry is declining. It was 22.66 per cent in 1981-82 declined to 15.95 per cent in 1987-88. Figures for 1993-94 are not available. The growth rate in the food industry has been estimated at 7.46 per cent per annum. The most rapidly.

Nestle International
Ever since Nestl was established, it has been committed to nurturing people worldwide. Today, as the worlds leading Food and Beverages Company, and leaders in health and wellness, Nestle try to cater to all familys nutritional needs, no matter where in the world you live. Nestle story begins in 1867, when Henri Nestl developed a baby formula that saved a child's life and marked the beginning of Nestl's decades-old commitment to nutrition. In the 140 years since then, it had expanded around the world and developed a range of products designed to suit every taste, need and cultural preference. It distinctive seal is recognized everywhere as a guarantee of quality and healthfulness. Nutrition, quality and convenience remain the keystones of Nestle products and even as we confront the new century's challenges, we feel it is our duty to adapt to the changing needs of our consumers. Nestle responsibility does not simply lie in perfecting the products it develop R&D centers spanning four continents, but the role of products play in making lives better - both for their consumers and for communities in the countries it serve. Thus, along with old favorites such as NESTL KITKAT chocolates and NESCAF, the world's most popular coffee, it keep on introducing new, exciting options worldwide. Understanding that people in every country have different tastes and needs, we have developed a range of food and lifestyle products. In India consumers enjoy healthy and convenient MAGGI Noodles Atta Noodles, in Pakistan you can find NESTL Raita and in China, flavored water is strengthened with Prebio1 dietary fiber and traditional Chinese ingredients such as Aloe Vera and Chrysanthemum. Our popularity has come not just from acquisition and corporate expansion, but also from a care for the ever-evolving needs of customers at every point in their lives.

NESTLE PAKISTAN
Nestl has been serving Pakistani consumers since 1988, when their parent company, the Switzerland-based Nestl SA, first acquired a share in Milkpak Ltd. Today they are fully integrated in Pakistani life, and are recognized as producers of safe, nutritious and tasty food, and leaders in developing and uplifting the communities in which they operate. Nestl Pakistan ensures that their products are made available to consumers wherever in the country they might be. Convenience is at the heart of the Nestl philosophy, and their aim is to bring products to people's doorsteps.

MARKETING AND SALES Nutritional value and quality remain the most essential ingredients in all our brands. Over the years, food products have evolved from mere commodities to a statement of lifestyle. As consumers get more health and quality conscious, consumer empowerment surges. We continue to play our part in facilitating this revolution by launching valueadded products such as NESTL CERELAC, NESTL Raita, NESTL NESVITA and NESTL NIDO NNS and many other dairy and non-dairy products. Consumers can avail many of our products with branded active benefits that no competitor product offers. Nestl brands are designed to suit your lifestyle and your needs. You can take advantage of the best nutrition in a way that is suitable for your tastes and lifestyle. For instance, you can purchase NESTL Juices in several different sizes depending on your needs: a personal-sized 200 ml for on-the-go consumption, or a liter pack for your fridge. All our key brands are equipped with the Nutritional Compass that ensures all the nutritional information about the product is accessible thanks to our user-friendly nutritional labeling and guidelines.

We're proud to be among the only companies in Pakistan to venture outside the commercial mode of communication, offering programmed catering to better child nutrition and good parenting. We have developed an intensive distribution strategy that brings our products to your door, through effective communication, door-to-door sampling, and exciting consumer promotions. We focus especially on Pakistan's smaller towns, where activities such as town storming, distribution drives and intensive distributor training ensure that products are easily accessible and visible, giving us a strong competitive edge. Our widespread global network presents opportunities to learn from innovative techniques used in faraway countries. Pakistan has contributed in a big way towards this by introducing Nestl PURE LIFE to the world. Pakistans favorite water is now available all around the world!

Nestle Pakistan Limited


NESTLE PRODUCTS

VISION
The Nestle global vision is to be the leading nutrition, health, and Wellness Company in the world. In particular, we envision to; Lead a dynamic, motivated and professional workforce- proud of its heritage and bullish about the future. Meet the nutrition needs of consumers of all age groups- from infancy to old age, from nutrition to pleasure, through an innovative portfolio of branded food and beverage products of the highest quality. Deliver shareholder value through profitable long-term growth, while continuing to play a significant and responsible role in the social, economic, and environment sectors of the country.

Good Food, Good Life

Nestle Philosophy

FIVE YEAR BALANCE SHEET

(Rupees in '000s') Assets Tangible Fixed Assets Property, plant and equipment Assets subject to finance lease Capital Work-in-progress Total Intangible Assets long term investments long term loans and advances long term security deposits Current Assets Stores and spares Stock in trade Trade debts Current portion of long term loans and advances Advances, deposits, prepayments and other receivables Cash and bank balances

2008

2007

2006

2005

2004

9,464,373 0 1,382,401 10,846,774 49,744 98,544 5,036 804,647 2,488,573 456,813 26,615 1,488,103 419,327

9,074,42 8 0 971,183 1 0,045,61 1 92,382 80,670 6,088 436,573 2,393,30 6 344,053 21,279 2,022,38 7 406,225 5,623,82 3 1 5,848,57 4

6,941,33 2 44,717 1,107,05 2 8,093,10 1 135,020 66,008 6,088 329,346 1,907,30 0 238,291 8,771 2,109,31 4 34,663 4,627,68 5 1 2,927,90 2

3,298,88 0 20 1,788,47 5 5,087,37 5 177,658 47,691 5,338 249,921 1,492,98 3 47,298 3,624 865,897 858,995 3,518,71 8 8,836,78 0

2,351,281 0 824,595 3,175,876 45,911 20,287 5,036 261,852 1,693,783 30,806 3,036 281,297 93,338 2,36 4,112 5,611,222

Total Current Assets Total Assets

5684078 16684176

Good Food, Good Life

Equity And Liabilities Equity Share capital and reserves Authorized capital, 75000000 (2008:75000000) ordinary shares of Rs. 10 each Issued, subscribed and paid up capital Share premium General reserve Accumulated profit Total Equity Non current Liabilities Long term finances Deferred taxation Retirement and other benefits customer security deposits-interest free Liabilities against assets subject to finance lease Total Non current liabilities Current Liabilities Current portion of: Long term finances Liabilities against assets subject to finance lease Short term borrowings secured Running finance under markup arrangementssecured Customer security deposits interest free Trade and other payables Interest and mark-up accrued Dividend payable Total current liabilities Contingencies and Commitments 16 68 41 76 5306571 5,978,52 2 5,224,488 0 54042 300000 1924287 127884 2798185 102173 0 2986 3 1,035,00 0 1,637,79 9 124,572 3,062,02 7 89,261 300,000 8,392 700,000 1,817,711 102,307 2,197,529 98,549 2,188,402 45,258 453,496 4,333,228 2,302,85 1 1,025,70 9 12,404 400,000 31 125,000 1,121,041 200,000 1,064,73 8 5139875 1319333 351968 453496 249527 280000 3405824 4388847 453496 249527 280000 3128682 4111705 4,028,70 0 1,371,67 5 238,370 453,496 249,527 280,000 1,548,057 2,531, 080 453,496 249,527 280,000 974,024 1,957, 047 452,730 249,527 280,000 577,973 1,560, 230 1,450,00 0 175,271 67,572 55,298 1,748, 141 2008 750,000 2007 75 0,000 2006 750, 000 2005 750 ,000 2004 750, 000

3,963,700 942,858 234,305

1,946,850 444,414 74,769 80,472

177582 6988758

119,602 5,758,34 7

31,471 5,172, 334

2,546, 505

FIVE YEAR INCOME STATEMENT

(Rupees in '000s') Net Sales Cost of goods sold Gross Profit Distribution and selling expenses Administration expenses Operating Profit Finance cost Other operating expenses Total Operating Profit Other operating income Profit before taxation Taxation Profit after taxation Earnings per share basic and diluted (Rupees)

2008 341838 47 252315 32 895231 5 389035 2 956816 410514 7 557325 138213 8 193946 3 61800 222748 4 674590 155289 4

2007 28,235,3 93 20,291,2 70 7,944,12 3 3,538,66 9 894,309 3,511,14 5 584,434 442,914 1,027,34 8 65,959 2,549,75 6 744,544 1,805,21 2

2006 22,030,9 58 15,778,3 30 6,252,62 8 2,925,11 8 687,092 2,640,41 8 447,774 263,921 711,695 76,732 2,005,45 5 642,165 1,363,29 0

2005 17,142,3 63 12,357,0 79 4,785,28 4 2,093,38 3 577,816 2,114,08 5 180,108 356,528 1,577,44 9 53,151 1,630,60 0 481878 1,148,72 2

2004 12,801,3 55 9,242,53 4 3,558,82 1 1,611,48 4 401,623 1,545,71 4 59,024 105,100 1,381,59 0 33,734 1,415,32 4 425,392 989,932

34.24

39.81

30.060

25.33

22

COMMON SIZE ANALYSIS (BALANCE SHEET)


(Amount in '%') Assets Tangible Fixed Assets Property, plant and equipment Assets subject to finance lease Capital Work-in-progress Total Intangible Assets long term investments long term loans and advances long term security deposits Current Assets Stores and spares Stock in trade Trade debts Current portion of long term loans and advances Advances, deposits, prepayments and other receivables Cash and bank balances Total Current Assets Total Assets 56.73% 0.00% 8.29% 65.01% 0.30% 0.00% 0.59% 0.03% 0.00% 4.82% 14.92% 2.74% 0.16% 8.92% 2.51% 34.07% 100.00% 57.26% 0.00% 6.13% 63.38% 0.58% 0.00% 0.51% 0.04% 0.00% 2.75% 15.10% 2.17% 0.13% 12.76% 2.56% 35.48% 100.00% 53.69% 0.35% 8.56% 62.60% 1.04% 0.00% 0.51% 0.05% 0.00% 2.55% 14.75% 1.84% 0.07% 16.32% 0.27% 35.80% 100.00% 37.33% 0.00% 20.24% 57.57% 2.01% 0.00% 0.54% 0.06% 0.00% 2.83% 16.90% 0.54% 0.04% 9.80% 9.72% 39.82% 100.00 % 41.90% 0.00% 14.70% 56.60% 0.00% 0.82% 0.36% 0.09% 0.00% 4.67% 30.19% 0.55% 0.05% 5.01% 1.66% 42.13% 100.00 % 2008 2007 2006 2005 2004

Equity And Liabilities


Equity
Share capital and reserves
Authorized capital, 75000000 (2008:75000000) ordinary shares of Rs. 10 each Issued, subscribed and paid up capital Share premium General reserve Accumulated profit Total Equity

Non current Liabilities


Long term finances Deferred taxation Retirement and other benefits customer security deposits-interest free Liabilities against assets subject to finance lease

2.72% 1.50% 1.68% 20.41 % 26.31 % 0.00% 30.81 % 7.91% 2.11% 0.00% 1.06% 41.89 % 0.00% 0.00% 0.00% 0.32% 1.80% 11.53 % 0.77% 16.77 % 0.61% 0.00% 31.81 % 0.00% 100.00 %

2.86% 1.57% 1.77% 19.74 % 25.94 % 0.00% 25.42 % 8.65% 1.50% 0.00% 0.75% 36.33 % 0.00% 0.00% 0.00% 0.19% 6.53% 10.33 % 0.79% 19.32 % 0.56% 0.00% 37.72 % 0.00% 100.00 %

3.51% 1.93% 2.17% 11.97 % 19.58 % 0.00% 30.66 % 7.29% 1.81% 0.00% 0.24% 40.01 % 0.00% 0.00% 2.32% 0.06% 5.41%

5.13% 2.82% 3.17% 11.02 % 22.15 % 0.00% 22.03 % 5.03% 0.85% 0.91% 0.00% 28.82 % 0.00% 0.00% 4.53% 0.00% 1.41%

8.07% 4.45% 4.99% 10.30 % 27.81 % 0.00% 25.84 % 3.12% 1.20% 0.99% 0.00% 31.15 % 0.00% 0.00% 3.56% 0.00% 18.98 %

Total Non-current liabilities

Current Liabilities
Current portion of: Long term finances Liabilities against assets subject to finance lease Short term borrowings secured Running finance under markup arrangements-secured Customer security deposits interest free Trade and other payables Interest and mark-up accrued Dividend payable Total current liabilities Contingencies and Commitments

Total Equity and Liabilities

14.06 12.69 0.00% % % 0.79% 0.00% 0.00% 17.00 24.76 18.28 % % % 0.76% 0.51% 0.22% 0.00% 5.13% 0.00% 40.41 49.04 41.04 % % % 0.00% 0.00% 0.00% 100.00 100.00 100.00 % % %

COMMON SIZE ANALYSIS (BALANCE SHEET)

(Rupees in '%') Net Sales Cost of goods sold Gross Profit Distribution and selling expenses Administration expenses Operating Profit Finance cost Other operating expenses Total Operating Profit Other operating income Profit before taxation Taxation Profit after taxation Earnings per share basic and diluted (Rupees)

2008 100.00% 73.81% 26.19% 11.38% 2.80% 12.01% 1.63% 4.04% 5.67% 0.18% 6.52% 1.97% 4.54% 0.000100 %

2007 100.00% 71.86% 28.14% 12.53% 3.17% 12.44% 2.07% 1.57% 3.64% 0.23% 9.03% 2.64% 6.39% 0.000141 %

2006 100.00% 71.62% 28.38% 13.28% 3.12% 11.99% 2.03% 1.20% 3.23% 0.35% 9.10% 2.91% 6.19% 0.000136 %

2005 100.00% 72.09% 27.91% 12.21% 3.37% 12.33% 1.05% 2.08% 9.20% 0.31% 9.51% 2.81% 6.70% 0.000148 %

2004 100.00% 72.20% 27.80% 12.59% 3.14% 12.07% 0.46% 0.82% 10.79% 0.26% 11.06% 3.32% 7.73% 0.000172 %

COMMON SIZE ANALYSIS (INCOME STATEMENT)

5 YEAR RATIOS
(Rupees in '000s')

Liquidity Ratios
Working Capital Current Ratio Acid Test (Quick Ratio) Cash Ratio Cash Conversion Cycle

2008
377507 1.0711 0.6022

2007
-354699 0.9407 0.5404

2006
-596803 0.8858 0.5207

2005
-814510 0.8120 0.4675

2004
61261 1.0266 0.2911

Profitability Ratios
Gross Profit Margin Operating Income Margin Net Profit Margin (Return on Sales) Return on Assets(ROA) Return on Investment(ROI) Return on Equity(ROE) DUPONT ANALYSIS Du Pont Return on Equity Du Pont Return on Assets

26.1887% 12.0090% 4.5428% 9.3076% 16.2970% 35.3827%

28.1353 % 12.4353 % 6.3934 % 11.3904 % 22.1759 % 43.9042 % 43.9042 % 11.3904 %

28.3811 % 11.9850 % 6.1881 % 10.5453 % 20.9905 % 53.8620 % 53.8620 % 10.5453 %

27.9150 % 12.3325 % 6.7011% 12.9993 % 29.4250 % 58.6967 % 58.6967 % 12.9993 %

27.8003% 12.0746% 7.7330% 17.6420% 32.8856% 63.4478%

35.3827% 9.3076%

63.4478% 17.6420%

Financial Leverage Ratio


Debt to Equity Capitalization Ratio Total Debts to Assets LTD to Net Working Capital

1.1711 0.5394 0.7369 13.6153

0.9798 0.4949 0.7406 11.3581

1.5660 0.6103 0.8042 -6.6416

0.9948 0.4987 0.7785 -2.3902

0.9294 0.4817 0.7219 23.6692

Coverage Ratio
Interest Coverage Ratio (Times Interest Earned)

7.3658

6.0078

5.8968

11.7379

26.1879

Debt service coverage Ratio

5.2409

3.9762

4.0518

10.2416

24.6503

Activity/Efficiency Ratios
Cash Turnover Sales to Working Capital (Net Working Capital Turnover) Total Asset Turnover Fixed Asset Turnover Current Asset Turnover Accounts Receivable Turnover Accounts Receivable Turnover in Days Inventory Turnover Inventory Turnover in Days Operating Cycle Payables Turnover Payables Turnover in Days

81.5207 2997.531 3 2.0489 3.1515 6.0140 19.4753 18.5 10.3368 34.8270 53.3120 8.6111 42

69.5068 59.3491 1.7816 2.8107 5.0207 13.6677 26 9.4365 38.1499 64.4894 7.7160 47

635.575 6 31.2205 1.7041 2.7222 4.7607 14.8097 24 9.2806 38.7906 63.0990 7.1950 50

19.9563 -45.5158 1.9399 3.3696 4.8718 29.8857 12 7.7552 46.4202 58.4661 7.6893 47

137.1505 -26.6017 2.2814 4.0308 5.4149 59.8491 6 10.9135 32.9867 39.0019 10.0157 36

Market Ratios
Earnings Per Share (EPS) Dividend Per Share (DPS) Price Earnings (PE) Ratio Dividend Payout Ratio Dividend Yield Dividend Cover Ratio Book Value Per Share Market to Book Ratio

34.2427 26.5 38.9572 0.7739 0.0199 1.2922 96.7781 13.7841

39.8066 5 45.2187 0.1256 0.0028 7.9613 90.6668 19.8529

30.0618 24.9786 34.7617 0.8309 0.0239 1.2035 55.8126 18.7234

25.3304 5 30.3983 0.1970 0.0065 5.0751 43.1547 17.8428

22 14 23.7814 0.6399 0.0269 1.5628 34.4627 15.0888

Altman Z-Score
Working Capital to Total Assets X1 Retained Earnings to total Assets X2 EBIT to Total assets (Basic Earning Power) X3 M.V of Equity to Total Liabilities X4 Net Sales to Total Assets X5

0.0226 0.2041 0.2461 4.9203 2.0489

-0.0224 0.1974 0.2215 6.9550 1.7816

-0.0462 0.1197 0.2042 4.5582 1.7041

-0.0922 0.1102 0.2392 5.0757 1.9399

0.0109 0.1030 0.2755 5.8213 2.2814

Z-Score

6.1260

6.9352 5.2253

5.8185

6.8405

EVA
EBIT Tax Finance Cost or Interest Net Income NOPAT Equity Capital Debt Total Capital Employeed Cost of Equity Cost of Debt EBT Tax Rate Total Cost of Capital WACC

3,511, 2,640, 2,114, 1,545, 145 418 085 714 744, 642, 481 425 544 165 ,878 ,392 584, 447, 180 59 434 774 ,108 ,024 1,805, 1,363, 1,148, 989 212 290 722 ,932 2,766, 1,998, 1,632, 1,120, 601 253 207 322 733, 733, 733 732 496 496 ,496 ,730 7,406, 5,761, 3,170, 2,277, 909 284 401 500 8,140, 6,494, 3,903, 3,010, 405 780 897 230 0.086 0.086 0.086 0.08 036 036 036 6036 0.093 0.093 0.093 0.09 684 684 684 3684 254975 200545 2227484 6 5 1630600 1415324 0 0. 0. 0. 0. .3028 2920 3202 2955 3006 0.0 0.068 0.066 0.069 0.07 66907 104 210 763 0519

4,10 5,147 67 4,590 55 7,325 1,55 2,894 3,43 0,557 73 3,496 8,79 5,226 9,52 8,722 0.0 86036 0.0 93684

EVA BY USING NOPAT EVA BY USING NET INCOME ROE-Ks * equity ROE

2793016. 586 1489786. 938

221221 0.6 174210 4.9

156823 5.5 130018 2.9

1359858. 78 1085614. 94

908044.9 437 926890.8 417

0.39 0.32 0.45 0.55 0.65 283353.4 234927. 331538. 405253.7 479312.5 062 95 52 62 114 0.47 0.41 0.54 0.64 0.74

Altman Z-Score Working Capital to Total Assets X1 Retained Earnings to total Assets X2 EBIT to Total assets (Basic Earning Power) X3 M.V of Equity to Total Liabilities X4 Net Sales to Total Assets X5 Z-Score

2008
0.0226 0.2041 0.2461 4.9203 2.0489 6.1260

2007
-0.0224 0.1974 0.2215 6.9550 1.7816 6.9352

2006
-0.0462 0.1197 0.2042 4.5582 1.7041 5.2253

2005
-0.0922 0.1102 0.2392 5.0757 1.9399 5.8185

2004
0.0109 0.1030 0.2755 5.8213 2.2814 6.8405

Z-SCORE ANALYSIS

All the Altman Z-values are greater than 3.073 so there is no chance of bankruptcy till 2010 according to the standard values for public limited companies.

5 YEAR RATIOS ANALYSIS

Gross Profit margin decreased in 2008 as Nestle consumer pricing could not keep up with the significant inflation on virtually all input commoditiesparticularly fresh milk and energy. However, through focus on fixed cost control, the company managed to mitigate most of the impact at the operating profit level where results declined by only 40% versus 2007.Net profit margin declined further due to significant increase in the cost of financing.

From 2004 to 2008 the operating profit keeps on increasing due to increase in sales and net profit, which shows companys larger profit.

From 2004 to 2008 there is an increase in sales because of the increase in production of milk and introduces various new juices in the market. Despite the adversity Nestle enhanced their portfolio with several important new products launches including Everyday Mixed Tea, Nestle Milk Pak Iron fortified and Maggi Lemon Chaska noodles.

This ratio is a measure of overall profitability of a company. There is a certain decrease in ratios from the years 2004 to 2008. In 2004, this ratio was 17.6420% which implied that our net income was generated from our assets, which decreased in 2005 to 12.99% and further declined to 10.545% in 2006 while a sudden increase in 2007 to 11.39%, and decline in 2008 to 9.307% which was definitely a bad turn for Nestle, as it was using fewer assets to generate our net income. Whereas the Return on Equity also declined from 2004 to 2008.

Debt-to-equity ratio increased from 2004 to 2006 as the long term finances and short term borrowings increased. While it faced a decline in 2007 and in 2008 it rises again. Total debt to asset ratio increased in 2005 by slight decrease in current assets, and further it decreased in 2006 and increased in 2007 and approximately remained same in 2008.

From 2004 to 2005 there was sharp decrease in DPS as the earnings decreased, from 2005 to 2006 there was a sharp increase in DPS due to increase in net income, Again from 2006 to 2007 there was a sharp decrease and from 2007-2008 there is a increase in DPS which shows that the companys net profit has increased. From 2007-2008 as there is a increase in the market value per share so the Dividend Yield increased.

From 2004-2007 P/E ratio increased as the company earned more profit by less financed by investments comparatively. While from 2007-2008 it decreased from 45.2817% to 38.9572%. Market to book ratio increased slightly from 2004-2007 and from 2007-2008 it decreased from19.8529% to 13.7841%.

From 2004-2005 dividends decreased as the net profit decreased. From 2005-2006 there is a sharp increase in the dividends. From 2006-2007 the dividends given to the shareholders decreased and from 2007-2008 the dividends increased from 226748 to 1201764.

This ratio is generally used to evaluate a companys liquidity position and its ability to pay short term liabilities. There is a increase in the current ratio in 2004 as the current liabilities are less as compared to the current assets, from 2005 to 2008 there is a increase in the current ratio as the current assets keep From 2004-2007 the interest shows the better position to pay its current on increasing, so the companycoverage ratio declined which is a bad sign for a company to the current assets. liabilities out ofpay its interest expense. But from 2007-2008 this ratio increased which is good sign. Acid-test ratio increases from 2004-2008, which shows that companys liquidity Debt Service Coverage pay portrays a companys ability power was quite strong toRatioback its immediate liabilities. to repay its liabilities from cash generated by operating activities. From 2004-2007 it decreased which was indeed a bad turn for the company, as few cash was generated to repay the liabilities .But from 2007-2008 this ratio increased which meant that company is able to repay all of its liabilities from the net cash generated.

INDUSTRY RATIO ANALYSIS

Liquidity ratios:
Industry Current Ratio Acid test/ Quick ratio 1.64 1.22 Company 1.07113953 0.60217

Current Ratio:
Current ratio of company is less than the industry's current ratio. Company has current assets worth of 1.07114 to pay liabilities of 1.

Acid Test/ Quick Ratio:


Acid test ratio shows that company has a ability to pay its current liabilities with its most liquid assets and Nestls acid test ratio is less than the industry's ratio so it shows company has less cash and cash equivalents.

Coverage Ratio: Industry Interest coverage 0.91 Company 7.36580

Interest Coverage Ratio:


Interest coverage of company shows negative value so it shows that company is in bad position and is unable to meet its interest charges whereas industry ratio is also not very good but it has 0.91 to pay 1.

Financial Leverage Ratio: Industry Long term Debt-to Equity 28.86 Ratio Company 1.171

Long Term Debt-to-Equity Ratio:


This ratio should be less but company shows more long term debt than the equity whereas industry's position is too bad because it has 28.86 long term debt and equity showing a greatest difference.

Activity Ratios: Industry Total assets turnover Account receivables turnover Account receivables turn over in days Inventory turnover Inventory turnover in days 0.22 2.21 165.1584 1.5 243.33 Company 2.1015 19.475 19 10.336 35

Total Asset Turnover


Companys asset turnover is good because sales are double of company's assets but industry shows that its less efficient than the company's in utilizing its assets.

Account receivables turnover


Account receivable shows that company is more efficient than the industry in collecting its money from its debtors. Industry collects its receivables twice a year while Nestle gets its receivables approximately 19 times a year.

Account receivables turnover in days


Nestle collects its receivables after every 19 days and industry collects after 165 days. So nestle is more efficiently collecting its receivables.

Inventory Turnover
Companys inventory turnover value is higher than of industry which shows that its stock is sold within 35 days and industry is less efficient in selling out its stock.

Profitability Ratios: Industry Gross profit margin Operating income margin Net profit margin Return on assets Return on investment Return on equity 3.9 1.6 0.99 1.08 1.17 3.05 Compan y 26.19 12.01 4.54 9.31 0.16 35.40

Gross Profit Margin


Gross profit margin shows that how much a firm is earning after covering its cost of goods sold and it indicates the efficiency of operations and firm's pricing policies so nestle is show far better ratio of 26.19 than the industry ratio which is too low.

Operating Income Margin


Operating income margin shows how much amount is left with the company after covering all the administration and selling expenses. Again, company's margin is much better than the industry's operating margin.

Net Profit Margin


Net profit is an amount which has to be distributed among share holders and ploughed back into business after taking account of interest expenses and income taxes. So company is left with 4.45 which is better than the industry's performance because it is left with only 0.99.

Return on Assets
Return on assets shows that how efficiently assets are being used to generate revenue or how much revenue is being generated by utilizing the assets. Nestls return on assets is 9.31 while industry has 1.08. Hence, Nestls assets are generating more revenue in comparison to industry

Return on Investment
Industry is generating more revenue through its investments. While Nestle has low ratio which shows that Nestle is generating less revenue through its investments than industry.

Return on Equity
It shows profitability to the shareholders of the firm after all expenses so ROE of company is 35.40 which is good but industry is having just 3.05 which is too low.

Market Ratios:
Industr Compan y y Price Earnings ratio Dividend Payout ratio Dividend Yield 12.8 19.94 0.24 38.957 0.77 0.020

Price Earnings Ratio


It shows how much investors are willing to pay per rupee of earnings; Nestls P/E ratio shows that its investors are willing to pay 38.957 rupees for 1 rupee current earning. While industry shows lower ratio it means that Nestle is doing better job.

Dividend Payout Ratio


The payout ratio provides an idea of how well earnings support the dividend payments. Nestle has comparatively very low ratio than industrys ratio. Industry's earning is very efficiently supporting the dividend payouts while Nestle is not. Nestls net income not returned to shareholders in the form of dividends very well.

Dividend Yield
A financial ratio that shows how much a company pays out in dividends each year relative to its share price. Industry has more ratio than Nestle which shows that industry pays out more of its earnings in dividends than Nestle.

REQUIRED RATE OF RETURN


Product = nth root Product-1(GM)= Avg Mkt return(monthly) Avg mkt return per year(km) 1.3114 94 1.0045 3 0.0045 3 0.4530 % 5.4356 % Covariance Index Company/Variance Index

Beta

Beta =

0.194

KRF

9.368 4%

k=KRF+(KmKRF)*Beta

K =

8.6036%

CONCLUSION

Company is in a good condition to pay its short term liabilities as the current ratio keep on increasing. Quick Ratio also increases over the past 5 years which shows company has the ability to meet its immediate liabilities. The profitability increase over the past 5 years which shows companys good condition. The Nestle sales also increases as it has increase its portfolio.

All the Altman Z-values are greater than 3.073 so there is no chance of bankruptcy till 2010 according to the standard values for public limited companies.