Financial Ratios Analysis

Nestle VS Engro Foods

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Table of Content

1. Introduction ...................................................................................................... 4

2. NESTLE… ............................................................................................................ 5

2.1 NESTLE Pakistan… ..................................................................................... 5

2.2 Vision… ...................................................................................................... 5

2.3 Mission… ................................................................................................... 6

2.4 Goals and Objectives… ............................................................................... 6

2.5 SWOT… ....................................................................................................... 7

3. ENGRO FOODS .................................................................................................. 8

3.1 Vision… ....................................................................................................... 8

3.2 Mission… .................................................................................................... 8

3.3 Core values… .............................................................................................. 8

3.4 SWOT… ........................................................................................................ 9

4. Financial Statements of NESTLE............................................................................. 11

4.1 Balance Sheet… ........................................................................................ 11

4.2 Income Statement… ................................................................................ 13

5. Financial Statements of ENGRO… .......................................................................... 14

5.1 Balance sheet… ........................................................................................14

5.2 Income Statement… ................................................................................ 15

6. Data Table… ........................................................................................................... 16

6.1 The calculations… ...................................................................................... 17

7. Balance sheet Analysis .............................................................................................18

8. Income Statement Analysis .................................................................................... 19

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9. Ratios of NESTLE… ................................................................................................... 20

10. Ratios of ENGRO… ................................................................................................... 21

11. Financial Ratio Analysis ........................................................................................ 23

11.1 Liquidity Analysis ..................................................................................... 23

11.2 Profitability Analysis ................................................................................. 23

11.3 Activity Analysis .......................................................................................24

12. Cash Budget of NESTLE… ...................................................................................... 25

13. Cash Budget of ENGRO…........................................................................................ 26

14. Conclusion… ........................................................................................................... 27

15. References ............................................................................................................ 27

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1. Introduction
This is the project about financial statement analysis of two companies of the same
industry. In this regard the companies which were chosen to be analyzed are
NESTLÉ PAKISTAN and ENGRO FOODS LIMITED. Both the companies are of food
industry and are dealing in food business for many years. The companies are well
reputed in the market and deal in a very wide range of food products.

As NESTLÉ, a very, well-known brand started its’ business life with only one product
and that was condensed milk for infants. And now it has captured everyone’s mind
for its tempting products; as chocolates, coffee, bottled water, powdered milk,
flavored milk, tea whitener and many more. The company has strong marketing
strategies to come up with in a competitive market. It has targeted all of its
customers no matter they are of what age. The company is standing in the market
with share price of 4,844. How it standing in the market with such price? How it
satisfies its shareholder’s? Why don’t investors invest in other companies?

The answer to all above question is clear after going through its financial reports.
The profit that the company earns and the balance it has kept between its assets
and liabilities is also easily understandable after going through its financial
statements. The company is running its business so well. And that is why it never
loses its value.

ENGRO FOODS is also a very, well-reputed company which produces a wide

range of healthy food products. Is product line containing products such as milk,
tea whitener, cream, ice cream, juices, flavored milk and many others. ENGRO
FOODS is the 1st company which is using Bactofuge technology.

The company has not been in this business for as long as NESTLÉ is, but the way it
has grown up is appreciable. It has come up with innovative features in its
products. Through its financial statements it is analyzed that how efficiently it has
increased its share price from Rs. 17 to Rs. 25. It provides many incentives to it
stockholder’s is also growing its market share. The company has capability to pay it
liabilities on time and to keep its assets managed.

ENGRO FOODS not only provide incentives to its stockholder’s but also to its
employees. It offers its employees much outdoor training so that they can work
in a healthy environment and don’t get tired of their hectic routine. That is why
it has many loyal employees to work with.

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 2. NESTLÉ
Good Food, Good Life

Nestlé, the Company which is renowned for its vast collection of food products.
The Company was formed in 1905 by the merger of the Anglo-Swiss Milk Company,
established in 1866 by brothers George Page and Charles Page, and Farine Lactée.
Nestlé was found in 1866 by Henri Nestlé. The company grew significantly during the
First World War and again following the Second World War, expanding its offerings
beyond its early condensed milk and infant formula products. The company has made a
number of corporate acquisitions, including Crosse & Blackwell in 1950, Findus in 1963,
Libby's in 1971, Rowntree Mackintosh in 1988 and Gerber in 2007.

As Nestlé started with a condensed milk and later it climbed so fast at the ladder
of success that it is now a leading brand in food products with so many sub-brands.
Currently Nestlé is dealing with bottled water, breakfast cereals, coffee, confectionery,
dairy products, ice cream, pet foods, other beverages, shelf stable, chilled, Ice cream,
Infant nutrition, performance nutrition, healthcare nutrition, frozen foods, refrigerated
products, food services and professional products and snacks.29 of Nestlé's brands
have annual sales of over 1 billion Swiss francs (about $ 1.1 billion). Nestlé has around
450 factories, operates in 86 countries, and employs around 328,000 people. It is one of
the main shareholders of L'Oréal, the world's largest cosmetics company.

2.1. NESTLÉ in Pakistan

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

2.2. Vision

“Nestlé’s global vision is to be the recognized leading Nutrition, Health and

Wellness Company. Nestlé Pakistan subscribes fully to this vision of being the number
one Nutrition, Health, and Wellness Company in Pakistan. In particular, we envision to;

Lead a dynamic, passionate and professional workforce – proud of our

heritage and positive about the future.

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 Meet the nutrition needs of consumers of all ages – 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 Environmental sectors of Pakistan.”

2.3. Mission

“Nestlé is dedicated to providing the best foods to people throughout their

day, throughout their lives, throughout the world. With our unique experience of
anticipating consumers’ needs and creating solutions, Nestlé contributes to your well-
being and enhances your quality of life.”

2.4. Goals and Objectives

The goals and objectives of Nestlé Pakistan are simple and well designed with
the core strategies to meet the demand of the consumers and to fulfill the needs of
the customers.
Following are the main goals and;
2.4.1. To be, the best and quality providing brand among other brands in Pakistan.
2.4.2. To fulfill customers’ needs and requirements.
2.4.3. To capture its desired market share.
2.4.4. To dwell into the life of people and consumers.
2.4.5. To boost up its sales.
2.4.6. To create value for customer.
2.4.7. To keep the loyalty of customer with Nestlé.
2.4.8. To be the top nutrition company of Pakistan.
2.4.9. To be the leading FMCG company around the world as well as in Pakistan.
2.4.10. It aims to be the socially responsible and helping company in bad times.
2.4.11. Nestlé aims to be proactive innovation and renovation culture, which
is the key to Nestlé’s success in the marketplace.
2.4.12. Nestlé aims to have fully integrated systems with suppliers & retailers
so that every single market can be tapped & focused.

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 2.5. SWOT Analysis

2.5.1 Strengths

Strength of Nestlé is the presence of its factories or operations in almost every

country in the world employing around 283000 people. The sales values have touched
CHF 109.9 billion, with a net profit of CHF 18.0 billion. Nestle has recorded a financial
growth even in times of recession by promoting the sales of smaller and cheaper
versions of products in developing economies.

2.5.2 Weaknesses

Nestlé do not have direct market outlets and this can be one of the
weaknesses as it can cause difference in profit made. There another weakness is not
having enough raw material production units; they depend on either local raw
material producers or through other trade channels.

2.5.3 Opportunities

Nestlé’s weakness of not having a direct outlet can be converted as an

opportunity by introduction of new direct outlets. The acquisition of Cadburys for an
example is an opportunity since they are one of the main competitors for Nestlé.
Setting up their personal farms and raw material production units is an opportunity as
it would reduce the cost for Nestlé. By acquisitions Nestlé can enter the new market,
which is easy through already existing companies. Nestlé has great opportunities in a
society which is becoming more and more health conscious.

2.5.4 Threats

Their weakness of not having enough raw material production units (which
cause them to depend on other producers) and their dependency on other producers
can threaten to reduce the quality of products they offer. The contamination of food
products is a major threat to Nestlé in the market. Intense competition in its market
segments also possesses a major challenge to Nestlé as its competitors are also trying
to increasing their product ranges which might make inroads into Nestlé's profit.

Another threat to Nestle can be the maturity of the markets which they are
entering n. For example, in France, DANONE has already established itself as a market
leader in case of yogurt before Nestle launched its LC-1 division in France and could
not compete against the well-established DANONE. The consumers frequently tend to
change their preference of brands, so change in consumer trends is a threat to Nestlé.

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 3. ENGRO FOODS
The Local Flavor with a global Vision

Engro Foods (Pvt.) Limited (EFL) has been established in 2005 as part of a
diversification process at the Engro Group. The plant located at Sukkhur on 23-acre land, has
the raw milk reception capability of 300,000 liters per day and UHT milk capacity of 200,000
liters per day. The plant has been established at a cost of Rs. 1 billion which provides direct
employment to 750 people.

Engro Foods has entered the Food business through milk processing and sale with
the company’s vision to pursue growth opportunities based on country fundamentals and
own strength. It also positions the company to leverage its corporate social responsibility
initiatives and work closely with rural communities to promote integrated farming and
livestock development. This effort is expected to play a pivotal role in poverty alleviation
and improving livelihoods of the poor in the milk collection areas.

3.1 Vision

“To be the Premier Pakistani Enterprise with a global reach, passionately

pursuing value creation for all stake holders”.

3.2 Mission

“To help farmers maximize their farm produce by providing quality plant nutrients
and technical services upon which they can depend. To create wealth by building new
businesses based on company and country strengths in Petrochemicals, Information
Technology, Infrastructure and other Agricultural sectors. In pursuing the mission, we shall
at all-time be guided in our conduct and decision making by our Core Values.”

3.3 Core Values

1. To possess leadership among other companies.

2. To introduce innovative products.
3. To capture diversified marked and international focus.
4. To maintain quality and work for continuous improvement.
5. Candid and open communications.
6. External & Community Involvement
7. To focus on individual growth and development.
8. Enthusiastic pursuit of profit.

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 9. To keep satisfied ethics and integrity.
10. To promote safety, health and pure environment.
11. To create opportunities of enjoyment and fun.
12. To promote teamwork and partnership.

3.4 SWOT Analysis

3.4.1 Strengths

Engro Foods is a well-established brand name; customers automatically have a

brand association.
They can easily afford research and development costs in order to introduce
new products.
They have strong supply chain (good PR with farmers provides world class supply
chain management).
The increasing sale figures form years to years showing customer satisfaction
upon Engro Foods Limited products.
Engro Foods involve in consumer and product research before and after launching
a product.
Engro Foods is having strong relationship with global research partners like AC
Nielsen, JWT Asiatic.
Company is not relying on third parties for sale and distribution and has its own
sale and distributing network.
Engro Foods Limited only has the third-generation UHT milk plant in the country.
Engro Foods Limited plant is the only plant in Pakistan that uses Bactofuge
technology to virtually eliminate bacteria and ensure premium quality and
hygiene.

3.4.2 Weaknesses

One major weakness of Engro Foods in dairy products, which is that 85% of its milk
collection centers are in Punjab, while processing unit is in Sindh.
Higher transportation cost.
Dependency on TETRA PAK for the entire packing of its dairy products.

Paying higher cost of packing of products results in higher overall products

cost. The product range of Engro Foods narrows as compared to its
competitors.

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3.4.3 Opportunities

Pakistan is the fourth largest milk producing country. So, it’s an opportunity
for company to grow in this sector.
Engro Foods can increase awareness though different media, by showing ads those
are according to cultural requirements of Pakistan.
By increasing the milk related products company can go globally.
Engro can launch products like dry milk, cereal and Yogurts etc.
Growing dissatisfaction with milkmen’s milk and increasing awareness about
health and hygiene issues have led to increased processed milk
consumption.

3.4.4 Threats

Engro Foods competitors Nestle and Haleeb are biggest threat.

There are opportunities and doors for new players are open who can be the
future competitors.
Consumer is aware now, there is need to maintain the quality of products. If
Engro Foods will not do so it loses its business in foods. There is threat from
the customer side.
Consumer’s perceptions and price differentials can cause a threat for the
company. Consumer’s preferences change with time and prices might create
certain barriers in terms of the profit margins for ENGRO FOODS.

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 4. Financial Statements of NESTLÉ Pakistan

4.1 Balance Sheet

NESTLÉ PAKISTAN LIMITED

Balance sheet
As at December 31st2011

Assets: 2011(Rs)
Tangible fixed assets
Property, plant and equipment 16,230,528
Capital work in progress 5,370,561
Total tangible assets 21,601,089

Intangible assets 11,954

Long term loan and advances 161,982
Long term security deposits 9,817
Total intangible assets 183,753

Current assets
Stores and spares 1,278,416
Stock in trade 7,064,170
Trade debts 276,858
Current portion of long term loans and advances 30,914
Advances, deposits, prepayments and other receivables 4,042,634
Cash and bank balances 702,025
Total current assets 13,395,017
Total assets 35,179,859

Equity and Liabilities: 2011(RS)

Owner’s Equity
Share capital and reserves
Authorized capital 75,000,000(2010:75,000,000)ordinary Shares of Rs 10 each 750,000

Issued, subscribed and paid up capital 453,496

Share premium 249,527
General reserve 280,000

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Accumulated profit 6,629,393
Total Owner’s Equity 7,612,416

Non-current liabilities
Long term finances 7,848,050
Deferred taxation 2,476,871
Retirement benefits 440,377
Liabilities against assets Subject to finance lease 13,690
Total non-current liabilities 10,778,988

Current liabilities
Current portion of non-current liabilities 41,587
Short term borrowings from associated company - unsecured ---
Short term borrowings –secured 4,950,000
Short term running finance under markup arrangements-secured 4,175,236
Customer security deposit Interest free 149,791
Trade and other payables 7,343,507
Interest and markup accrued 128,334
Total current liabilities 16,788,455
Total Equity and Liabilities 35,179,859

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4.2 Income Statement

NESTLÉ PAKISTAN LIMITED

Income statement
For the year ended December 31st 2011

2011(Rs)
Net sales 64,824,364
Cost of goods sold (48,099,046)
Gross profit 16,725,318

Distribution and selling expenses (6,862,113)

Administration expenses (1,405,298)
Operating profit 8,457,907
Finance cost (1,050,355)
Other operating expenses (1,064,233)
(2,114,588)
Other operating income 159,545
Profit before taxation 6,502,864
Taxation (1,834,507)
Profit after taxation 4,668,357
Earnings per share (Basic and dilute) 102.94

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5 Financial Statements of ENGRO FOODS Limited
5.1 Balance Sheet

ENGRO FOODS LIMITED

Balance Sheet
As at December 31st2011

Assets 2011(Rs)
Non-Current Assets
Property, plant and equipment 9,615,426
Biological Assets 496,809
Intangible Assets 133,598
Long term advances, deposits and payments 24,212
Total non-current assets 10,270,045

Current Assets
Stores, spares and loose tools 571,812
Stock in trade 2,637,816
Trade debts 87,121
Advances, deposits and prepayments 266,093
Other receivables 1,160,126
Taxes recoverable 1,443
Derivative financial instrument ---
Short term investments 1,294,000
Cash and bank balance 350,728
Total current assets 6,369,139
Total Assets 16,639,184

Equity and Liabilities 2011(Rs)

Owner’s equity
Share capital 7517,889
Share premium 722,182
Hedging reserve (18,178)
Accumulated loss (984,951)
Total Owner’s Equity 7,236,942

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Non- Current Liabilities
Long term finances 5,610,000
Obligation under finance lease 1,295
Deferred taxation 308,090
Deferred liabilities 1,870
Total non-current liabilities 5,921,255

Current Liabilities
Current portion of
-long term finance 465,000
-obligations under finance lease 3,884
Trade and other payables 2,343,506
Derivative financials instruments 27,966
Accrued interest/ markup on
-long term finance 368,152
-short term finance 20,229
Short term finance 252,250
Total current liabilities 3,480,987
Total Equity and Liabilities 16,639,184

5.2 Income Statement

ENGRO FOODS
Income Statement
As at December 31st 2011

2011(Rs)
Net sales 29,859,226
Cost of goods sold (23,230,445)
Gross profit 6,628,781

Less operating expenses

Distribution and marketing expenses (3,716,489)
Administrative expenses (504,722)
Other operating expenses (208,902)
Other operating income 213,133
Operating profit 2,411,801
Finance costs (1,049,141)
Profit before taxation 1,362,660
Taxation (471,687)
Profit for the year 890,973
Earnings per share (Basic and dilute) 1.22

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 6. Data Table

The other data of NESTLÉ and ENGRO FOODS used in financial ratios analysis is as
follow:
NESTLÉ ENGRO FOODS
Total Assets 35,179,859 16,639,184
Current Assets 13,395,017 6,369,139
Current Liabilities 16,788,455 3,480,987
Inventories 7,046,126.522 3,046,859.795
Net Income 4,524,771 890,973
Average Total Assets* 10,873,970 14,549,624
Beginning Assets 8,352,923 12,460,064
Ending Assets 13,395,017 16,639,184
Average Stockholder’s 6,597,144.5 2,923,870.5
Equity**
Beginning Equity 5,581,873 5,124,047
Ending Equity 7,612,416 7,236,942
Sales 64,824,364 29,859,226
Number of Common Stock 45,350.272 370,305.7377
Cost of Goods Sold 48,099,046 23,230,445
Total Stockholder’s Equity 7,612,416 7,236,942
EBIT*** 6,586,973 1,388,430
EBT 6,502,864 1,362,660
Interest Expenses 84,109 25,770
Market Price Per Shares 4,844 25
EPS 102.94 1.22
Inventory Turnover 9.2 8.9
EAT 4,668,357 890,973
Gross Profit 16,725,318 6,628,781
Total Liabilities 2756443 9,402,242

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6.1 The calculations of:
* Average Total Assets = (Beginning Assets + Ending Assets)/2
**Average Stockholder’s Equity = (Beginning Equity + Ending Equity)/2
***EBIT = EBT + Interest Expenses

NESTLÉ ENGRO FOODS

*Average Total Assets = (8,352,923+13,395,017) / 2 = (12,460,064+16,639,184) /
2
= 21747940 / 2 = 29,099,248 / 2
= 10,873,970 = 14,549,624
**Average Stockholder’s = (5,581,873+7,612,416) / 2 = (5,124,047+7,236,942) / 2
Equity
= 13,194,289 / 2 = 5,847,741 / 2
= 6,597,144.5 = 2,923,870.5
***EBIT = 6,502,864+84,109 = 1,362,660+25,770
= 6,586,973 = 1,388,430

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 7. Balance Sheet Analysis of NESTLE and ENGRO FOODS

The asset side of balance sheet shows the size of the firm so by comparing balance
sheet of both companies we analyzed that the fixed asset of the nestle company is greater
than ENGRO foods which means that nestle has invested more in the fixed assets than
ENGRO foods whether by starting new project or by any other source. Due to high
investment in fixed assets long term loan and advances of nestle are also greater than engro
foods and total assets of nestle are also greater than engro foods which shows that the size
of nestle is greater than engro. Nestle has more cash and bank balance than engro foods
and has more reserves which shows that nestle hold more than dividing whereas engro
divides more than holding with it means nestle pays less dividend as compared to engro
foods.

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 8. ANALYSIS OF INCOME STATEMENT OF NESTLE AND ENGRO

We have made analysis between engro and nestle companies. here we analyze that
sales of nestle (64824, 364) is more as compare to Engro (29859,226). Because their
investment in fixed asset is more as compare to Engro. Production is also increase due to
more investment. And as production increase ultimately their sales is also increase.

Nestle have more cost of goods sold that is (48099, 046) whereas engro have
(23230, 445). Because engro have only dairy products whereas nestle have broad category
of products. As nestle sales is more so their gross profit is also more as compare to engro.

Nestle have more distribution and selling expense as compare to engro because
engro have their own distribution channels whereas nestle relay on others for distribution.
As well as engro products are also less and due to this their distribution expenses are less.

Nestle company employee (328000) are more as compare to engro. As well as

they use more advertising campaigns so that’s why their administrative expenses are
more.

Nestle Finance cost is also more because their interest expense is more.

Operating expense of nestle (1064233) engro (208902) means they use more
directions to run their business. Nestle operating income is also more nestle is a well-
known brand and they generate high income.

Nestle have more tax because they have more products that is (1834,507)
whereas engro products are limited and their tax is (471,687).

Nestle have more no of shares and more earning.so Earning per share of nestle is
also more that is 102.94 as compare to engro that is 1.22

So after analysis of income statement we see that nestle have more sales and more
profit than engro which shows that nestle company is good than engro.

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9. Ratios of NESTLÉ for Financial Statement Analysis
a. Liquidity Ratios

Current Ratio
Current Ratio = Current Assets / Current Liabilities
= 13,395,017 / 16,788,455
= 0.80

Quick Ratio
Quick Ratio = (Current Assets – Inventories) / Current Liabilities
= (13,395,017 – 7,046,126.522) / 16,788,455
= 0.38

Net Working Capital Ratio

Net Working Capital = (Current Assets –Current Liabilities) / Total Assets
= (13,395,017 –16,788,455) / 35,179,859
= – 0.10

b. Profitability Analysis Ratios

Return on Assets (ROA)

Return on Assets (ROA) = Net Income / Average Total Assets*
= 4,524,771 / 10,873,970*
= 0.42

Return on Equity (ROE)

Return on Equity (ROE) = Net Income / Average Stockholders' Equity**
= 4,524,771 / 6,597,144.5
= 0.69

Return on Investment (ROI)

Return on Investment (ROI) = Net Profit After Taxes / Total Assets
= 4,668,357 / 35,179,859
= 0.13

Net Profit Margin

Net Profit Margin = Net Profit After Taxes / Net Sales
= 4,668,357 / 64,824,364
= 0.01

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 Gross Profit Margin
Gross Profit Margin = Gross Profit / Sales
= 16,725,318 / 64,824,364
= 0.26

Earnings Per Share (EPS)

Earnings Per Share (EPS) = Earnings After Taxes / Number of Shares
= 4,668,357 / 45,350.272
= 102.94

c. Activity Analysis Ratios

Asset Turnover Ratio

Asset Turnover Ratio = Net Sales / Total Assets
= 64,824,364 / 35,179,859
= 1.84

Inventory Turnover Ratio

Inventory Turnover Ratio = Cost of Goods Sold / inventory
= 48,099,046 / 7,046,126.522
=6.83

10.Ratios of ENGRO FOODS for Financial Statement Analysis

a. Liquidity Ratios

Current Ratio
Current Ratio = Current Assets/ Current Liabilities
= 6,369,139 / 3,480,987
= 1.83

Quick Ratio
Quick Ratio = (Current Assets – Inventories)/Current Liabilities
= (6,369,139– 3,046,859.795) / 3,480,987
= 0.95

Net Working Capital Ratio

Net Working Capital = (Current Assets – Current Liabilities)/Total Assets
= (6,369,139 – 3,480,987) /
16,639,184
= 0.17

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 b. Profitability Analysis Ratios
Return on Assets (ROA)
Return on Assets (ROA) = Net Income/Average Total Assets*
= 890,973 / 14,549,624
= 0.06

Return on Equity (ROE)

Return on Equity (ROE) = Net Income/Average Stockholders' Equity**
= 890,973 / 2,923,870.5
= 0.03

Return on Investment (ROI)

Return on Investment (ROI) = Net Profit After Taxes/ Total Assets
= 890,973 / 16,639,184
= 0.05

Net Profit Margin

Net Profit Margin = Net Profit After Taxes / Net Sales
= 890,973 / 29,859,226
= 0.03

Gross Profit Margin

Gross Profit Margin = Gross Profit/ Sales
= 6,628,781 / 29,859, 226
= 0.22

Earnings Per Share (EPS)

Earnings Per Share (EPS) =Earnings After Taxes / Number of Shares
= 890,973 / 730,305.7377
= 1.22

c. Activity Analysis Ratios

Asset Turnover Ratio
Asset Turnover Ratio =Net Sales/Total Assets
= 29,859,226 / 16,639,184
= 1.79

Inventory Turnover Ratio

Inventory Turnover Ratio = Cost of Goods Sold / Inventory
= 23,230,445 / 3,046,859.795
= 7.62

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11.Financial Ratios Analysis

11.1 Liquidity Analysis

Current Ratio
Current ratio tells us the short term solvency of the firm and tells the ability
of the firm to repay its short term obligations. In nestle the firm has 0.80 ability to
repay against the $ 1 loan and Engro has 1.83 so this implies that Engro food has
more ability to repay its short term obligations.

Quick Ratio
Quick ratio measures the firm’s ability to pay off short term obligations
without relying on the sale of inventory. Nestle has the quick ratio of 0.38 whereas
Engro foods has 0.95 chances of paying off its short term obligations without
relying on the level or sales of inventory.

11.2 Profitability Analysis

Return on Investment
How much a firm is returning to its stockholder only in the case if the firm is
earning profit? Nestle have return on investment ratio 0.13 or 13% whereas Engro
foods has 0.05 or 5% means nestle is returning more than Engro foods so it is better
to invest in nestle.

Net Profit Margin Ratio

Net profit margin is calculated by dividing the net profit after taxes by the
sales means after paying the taxes you are earning some of the profit it means firm
is doing its business well. Nestle is earning 0.01 or 1% against $ 1 and Engro food is
earning 0.03 or 3% it shows in the profitability ratios Nestle is earning more than
Engro foods.

Gross Profit Margin Ratio

It tells that how much a firm will receive against $ 1 sale. Nestle has 0.26
gross profit margin ratio and Engro has 0.22. So in this case nestle is earning
more profit than Engro foods.

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11.3 Activity Analysis

Asset Turnover Ratio

This ratio measures the turnover of the entire firm’s asset. It is calculated
by dividing the sales by total assets of the firm. If firm shouldn’t increase its sales
so there is a possibility that a firm will sale its some assets. There are 1.84 chances
of asset turnover in nestle and 1.79 in Engro foods against every $ 1.

Inventory Turnover Ratio

Inventory turnover is calculated by dividing the CGS by inventory. The
inventory turnover of nestle is 6.83 times and of Engro foods is 7.62 times. Here
the best ratio is of Engro foods that is much more than nestle.

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 12. Cash Budget of NESTLE

2011(Rs)
Collection:
ash Sales 63,493,494
Credit Sales 1,330,870
Total Sales 64,824,364

Disbursement:
Purchases 10,949,999

Other
Payment: Taxes 1,834,507
Rent 241,502
Wages and Salaries 4,277,554
Interest 364,375
Depreciation 1,618,271
Other Expenses 405,262
Total of Other payment and Purchases 19,691,470

Net Cash Flow:

Beginning Balance 67,365
Collections 64,824,364
Disbursement (19,691,470)
Ending Balance 45,200,259

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 13. Cash budget of ENGRO FOODS

2011(Rs)
Collections:
Cash Sales 29,419,835
Credit Sales 439,391
Total Sales 29,859,226

Disbursement:
Purchases 3,334,977

Other
payments: 603,853
Taxes
Rent 217,821
Wages and Salaries 1,271,114
Interest 51,537
Depreciation 1,023,597
Other expenses 208,902
Total of Other Payments and Purchases 6,711,801
Net Cash flow:
Beginning balance 5,124,407
Collections 29,859,226
Disbursement (6,711,801)
Ending Balance 28,271,832

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14.Conclusion

After all the findings, it is concluded that financial ratios are the basic and
most important part of any business. It describes the firm’s financial position. As the
data indicates that NESTLE is an international brand and has expanded its business
on the large geographical area and also offers the large range of products, but on the
other side ENGRO food offers the limited range of the products and most of them
are dairy products.

From the financial statements it is clear that the financial position of the
NESTLE is far better than ENGRO as it is more preferred by the customers and also an
internationally distributed. It also has less risk. It gives more return because it gains
more profit than ENGRO. On the other hand, ENGRO deals with the limited products
in a limited geographical area but on the basis of financial ratios ENGRO has a better
financial position and also has an opportunity to expand its business. Both the
companies have some opportunities and threads and they need to work on it.

15.References

1. NESTLE annual report 2011

2. ENGRO FOODS annual report 2011
3. www.nestle.pk
4. www.engrofoods.com

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