NESTLE

FINANCIAL
ACCOUNTING END
TERM PROJECT
ANALYSIS OF ANNUAL REPORT

Submitted by:
Sanjay (231130)
Ravi Mani Shukla (231160)
Sri Krishna (231157)
Uday (231167)
Syed Sazzadur (231165)

Rajwant (231180)
 Table of contents

Contents
INTRODUCTION ................................................................................................................................................................. 3
VISION ........................................................................................................................................................................... 3
PRODUCTS AND SEGMENTS.......................................................................................................................................... 4
SHAREHOLDERS............................................................................................................................................................. 4
Board of directors ......................................................................................................................................................... 5
OPERATING PERFORMANCE ............................................................................................................................................. 5
Sales Mix Analysis ......................................................................................................................................................... 5
Raw Material Mix .......................................................................................................................................................... 7
Company wise Analysis ................................................................................................................................................. 9
Corporate Governance...................................................................................................................................................... 9
FINANCIAL PERFORMANCE ............................................................................................................................................. 11
LIQUIDITY .................................................................................................................................................................... 11
PROFITABILITY ............................................................................................................................................................. 14
SOLVENCY ................................................................................................................................................................... 18
Trend analysis ................................................................................................................................................................. 22
Balance sheet .............................................................................................................................................................. 22
Profit and loss ............................................................................................................................................................. 23
CASH FLOW ................................................................................................................................................................. 24
SWOT analysis ................................................................................................................................................................. 25
References ...................................................................................................................................................................... 26
 INTRODUCTION
When students are at home and their mother is not with them, then 8 out of 10 students go for Maggi instead
of any cooked food from restaurants or anywhere. It has changed the snacks of people ranging from 10 to
80 years of age. The parent company who produces Maggi is Nestle India, the nutrition health and wellness
Company that is subsidiary of Nestle S.A. of Switzerland. The parent company was formed in 1867 on the
shores of Lake Geneva in Vevey, Switzerland and its first product was “Farine Lactee Nestle”, an infant
cereal especially for infant nutrition. Currently Nestle has more than 330,000 employees working on almost
over 2000 brands globally. The company has its business spread over 86 countries.

The company started trading in India as The Nestle Anglo-Swiss Condensed Milk Company (Export) Ltd. in
1912. The company was operating well in India and after the independence the company established its first
factory in Moga, Punjab for local production and changed its name to Nestle India. It expanded itself in
dairy business and set up collection centers for milk and educated, advised, helped the farmers for better
crop management and milk production from animals.

Currently in India it has 7 processing units. All the factories are maintained according to the norms given by
Nestle quality management system and have been certified by reputed independent external bodies as being
compliant as well as aligned with the external Standard for quality systems ISO 9001.

Currently Nestle India manufactures a variety of food products such as infant food, milk products,
beverages, prepared dishes & cooking aids, and chocolates & confectionary.

VISION
Nestle’s vision is to provide a good and healthy food for its consumers, everywhere so that they can have a
healthy life. This implies gaining a deeper understanding in many areas of nutrition and food research and
transforming the scientific advances into applications for the company. Having a broad vision, the company
is doing its best for their consumers to show the great sense of responsibility.

“Nestle’s aim is to meet the various needs of the consumer every day by marketing and selling food of a
consistently high quality.”
 PRODUCTS AND SEGMENTS
Beverages Prepared dishes Chocolates and Milk products and
confectionary nutrition
Nestea Maggi Oats Alpino Nestle everyday
Nescafe Maggi chicken Noodles Kitkat Nestle slim
Nescafe sunrise Maggi Noodles Barone Nestle acti-plus
Nescafe gold Maggi veg aata noodles Munch Nestle Raita
Nescafe cappuccino Maggi cuppa mania Nestle classic Nestle milk maid
Maggi bhuna masala Polo Nestle yoghurt
Eclairs
Source: http://www.nestle.in/brands

SHAREHOLDERS
From the annual report we have received the information that the company’s major shares (62.76%) are with
the 2 promoters only but unfortunately due to Swiss law in their report they haven’t mentioned the names.
The Indian corporate bodies don’t have shares in the company only 2 main foreign bodies control the
62.76% shares of the company. This implies that the company is not letting other people to enter into the
main decision and policy makings. They are continuously holding their shares and from the last year there is
no change in the controlling body shares.

Public shareholding has been divided into two parts in the reports to maintain the transparency. Through
mutual funds/UTI and other institutions, the company has given its 19.57% which has increased compared
to last year’s 18.77%. The company has fewer shares given to the non-institutional bodies like individuals,
foreign investors and bodies corporate. From the last year figure of 18.47% it has decreased to 17.67%. The
company is keeping its shares to financial institutions and major key holders.

2013 Number of shares % of shares

Financial public (18870162)/ (19.57)/
shareholding (18096326) (18.77)
(2014/2013)
Non financial (17030475)/ (17.67)/
pubic (17804311) (18.47)
shareholding
(2014/2013)
Source: http://www.moneycontrol.com/company-facts/nestleindia/shareholding-pattern/NI

Total fraction wise pie chart is as following:

Shareholding pattern

Promoters
Individuals
Institutions
FII
others
 Board of directors
The list of board of directors for the Nestle India currently is as following:

Board of directors Positions

Mr. Antonio Helio Waszyk
Mr. Etienne Benet
Mr. Shobinder Duggal
Mr. Aristides Protonotarios
Mr. Michael W.O. Garrett
Mr. R. V. Kanoria
Mr. Ashok Kumar Mahindra
Mr. Ravinder Narain
Dr. Swati A. Piramal
Mr. B. Murli
Chairman and Non-Executive
Director
Managing Director
Director - Finance & Control
and CFO
Director - Technical
Non-Executive and
Independent Director
Non-Executive and
Independent Director
Non-Executive and
Independent Director
Non-Executive and
Independent Director
Non-Executive and
Independent Director
Senior vice president- legal
and company secretary

The names in the italic are the new appointments from the last year. The three board members out of nine
are new on the crew. These three are best in their respective fields and to get them on board company has
invested a big deal of money.

OPERATING PERFORMANCE
A company’s overall performance is determined on the basis of it operational, financial and investment
activities along with social activities. Company’s operating activities play a vital role in the development as
a whole. Nestle India deals in a number of products and therefore requires number of Raw Materials to meet
the output. In this section, we will be analyzing the Sales Mix, Raw Material Mix and then compare Nestle
with its competitors.

Sales Mix Analysis

Nestle India has a number of Products that it sells. These products are compiled in a group called class of
goods. The prominent classes of Nestle India are Milk Products & Nutrition, Beverages, Prepared Dishes
and Chocolate & Confectionary. Below is the Table, pie chart and comparison of various Classes of Goods.

* Quantities in Million Tones

*O.S = Opening Stock, C.S = Closing Stock

* Amount in Million Rupees

 Gross Gross
O.S O.S C.S C.S
Class of Goods Purchases Sales Sales
Quantity Amount Quantity Amount
Quantity Amount

Milk Products
11,371 2,039.4 138,197 9,132 1,716.8 138,772 40,712.2
&Nutrition

Beverages 1,725 505.3 27,629 1,257 343.3 27,717 13,240.6

Prepared
9,663 674.5 245,450 8,869 645.2 245,443 26,982.1
dishes

Chocolate &
3.207 589.9 48,024 4,075 716.3 46,718 12,836.8
Confectionary
Total 25,966 3,809.1 459,300 23,333 3,421.6 458,650 93,798.7

Gross Sales (Million Rupees)

Milk products
12836.8

Beverages
40712.2
26982.1 Prepared Dishes

Chocolate and
13240.6 Confectionary

Pie Chart Representing Sales Mix

From the Pie Chart it can be inferred that Nestle earns most of its profit from Milk Products followed by
Prepared Dishes.

1. Milk Products and Nutrition

Out of Rs. 93,798 Million Gross sales, sales from this segment was around Rs.40,712 Million. It constitutes
to about 45% of total gross sales from all segments. It implies that it is the most profitable segment of the
all.

2. Beverages

Nestle has one of the most sought after beverage products in India. E.g. Nescafe is one of the leading brands
in Coffee Market. The gross sales from this segment were about Rs. 13,240 Million, which constitutes to
about 15% of total sales. Brand Equity’s Most Trusted Brands Report for the year 2013 ranked NESCAFÉ
in the top 5 Beverage brands.
3. Prepared Dishes

Nestlé’s Maggie is one of the biggest brands in segment of prepared dishes. Prepared dishes contribute
second largest to Nestlé’s Profit. Also, the sales quantity for Nestle is highest from this Class.

4. Chocolates & Confectionaries

Indian Chocolate market is dominated mainly by Cadbury. It constitutes to nearly 70% of the market share.
Nestle comes second with around 16% share. Of all the classes, Chocolate & Confectionary market offers
least Profits.

Raw Material Mix

For the purpose of Production, Nestle India requires a number of Raw Materials. Given below is the Raw
Material mix of Nestle for year 2013 and 2012.

Raw Material Consumed Year 2013 in Millions Year 2012 in Millions

Fresh milk
Milk derivatives 8,280.6 9,214.9
Grain flour 4,858.7 4,667.0
Green coffee and chicory 4,306.1 3,698.4
Edible oils 3,714.1 3,257.4
Sugar 3,373.0 3,261.8
Fruit and vegetable flakes 1,960.6 2,067.2
562.1 457.5
Cocoa based raw materials
441.4 431.3
Maltodextrine powder
431.4 377.8
Tomato paste /powder 401.7 324.8
Fruits and vegetable 277.5 297.3
concentrate 244.6 211.6
Onion flakes /powder 232.9 236.5
Liquid glucose 146.2 151.7
Black tea/green leaf 131.4 157.6
Wheat gluten 2,674.1 2,456.3
Others
Total 32,036.4 31,269.1

Raw Materials consumed in year 2013 and 2012

 10000 9214.9
9000 8280.6
8000
7000
6000
4857.7 4667
5000 4306.1 2013
4000 3698.4 3714.1
3257.4 2012
3000
2000
1000
0
Fresh milk Milk derivatives Grain flour Green coffee and
chicory

Raw Material requirement for two years

We have developed a chart for the top 5 raw materials purchased.

It can be inferred that most of the Nestlé’s raw material constitutes of Milk and Milk derivatives as
expected, which is around 38% of the total mix. Other important raw materials are Grain flour, green coffee
and chicory, edible oils and sugar.

Type 2013 (in Million Rs.) Percentage 2012(in Millions Rs.) Percentage

Indigenous 28,432.5 88.8 27,791 88.9

Imported 3,603.9 11.2 3478.1 11.1

From the above table, it can also be inferred that the Nestle has only 11% of Raw Material imported. Rest all
are indigenous which is a good sign considering the fluctuations in the global monetary values. Since,
around 38% of its Raw Materials constitutes of Milk and Milk products, it makes it important for them to be
indigenous.
 Company wise Analysis
For the year ended 2013. All numerical values are in Rs. Cr

Food And Dairy Products -

Equity Gross
Multinational Sales Net Profit
Block

Britannia Inds. 23.99 939.33 6,307.39 374.64

Cadbury India 31.07 1,127.40 4,065.98 303.25
Ferrero India 0.46 376.06 572.94 -195.93
GlaxoSmith C H L 42.06 854.62 4,868.57 674.75
Heinz India 10.42 285.43 1,362.89 197.88
Hershey India 75.14 110.73 275.62 -55.16
Hind. Coca-Cola 0 4,478.95 6,597.13 277.93
Induri Farm 0.08 0.29 0.02 -0.78
Jubilant Food. 65.48 785.67 1,723.50 126.04
Maiya Foods 0 0 0 0
Manna Foods 0 59.2 23.37 0.05
McCain Foods 0 152.32 281.85 2
Nestle India 96.42 4,844.28 9,101.05 1,107.94
PepsiCo India 0 6,113.69 6,640.82 17.58
Perfetti Van Mel 49.55 575.26 1,647.00 -52.5
Rajasthan Gum 0 126.5 306.83 41.08
Swojas Energy 30.96 15.91 6.93 -6.27
Unibic Biscuits 0 0 0 0
Yummy Foods 0 0 0 0

We have given an analysis of 19 companies in Food and Dairy MNC sector in India. From the table shown
above it can be found that the overall equity for the 19 companies given above:

1. Equity – Out of the total equity of Rs. 425.63 Cr. , Nestle India has an equity of Rs.96.42 crores.

2. Gross Block – Nestle holds second largest number of Fixed Assets as compared to its competitors, largest
being held by PepsiCo India.

3. Sales – In terms of Sales, Nestle India easily holds the largest share in the market followed by PepsiCo.

4. Net Profit – In terms of Net Profit, Nestle leads its competitors by a huge margin. But, is second best in
terms of Net Profit Ratio. Best in the sector is GlaxoSmith CHL.

Corporate Governance
As at 31st December, 2013, in compliance with the Corporate Governance norms, the Company’s Board of
Directors headed by its Non-Executive Chairman, Mr. Antonio Helio Waszyk comprised seven other
directors, out of which four are independent directors. None of the Directors of the Company was a member
of more than ten Board-level committees, or a chairman of more than five such committees, across all
companies in which he/she was a Director.
During the year, five Board Meetings were held on 20th February, 2013, 22nd March, 2013, 13th May,
2013, 26th July, 2013 and 30th October, 2013. The maximum gap between any two meetings was less than
four months.
The Company has established procedures to enable the Board to periodically review compliance reports of
all laws applicable to the Company, as prepared by the Company as well as steps taken by the Company to
rectify instances of non-compliances. The Board reviewed the reports prepared by the Company on half-
yearly periodicity.

Composition, attendance of the Directors at the Board Meetings and the last Annual General Meeting,
Outside Directorship and other Membership or Chairmanship of Board Committees

Name of Numbe Attendance No. of No. of Executive/

Director r of at previous outside Membershi Non-Executive/
Board AGM on 8 director p/ Independent
Meetin August s-hip Chairmans
g 2013 held hip
in other
Board
Committees
Mr. Antonio
5 Present Nil Nil Non – Executive
Helio Waszyk
Mr. Etienne
Not
André Marie 1 Nil Nil Executive
Applicable
Benet
Mr. Shobinder
5 Present Nil Nil Executive
Duggal
Mr. Aristides
3 Present Nil Nil Executive
Protonotarios
Mr. Christian Not
2 Nil Nil Executive
Schmid Applicable
Mr. Ashok
Non – Executive
Kumar 5 Present Nil Nil
& Independent
Mahindra
Mr. Ravinder Non – Executive
2 Present 3 1
Narain & Independent
Mr. Michael W. Non – Executive
5 Present Nil Nil
O. Garrett & Independent
Dr. Swati A. Non – Executive
4 Not Present 4 Nil
Piramal & Independent
Mr. Richard Not
- Nil Nil Non – Executive
Sykes Applicable
 FINANCIAL PERFORMANCE
Ratio analysis:

(i) Liquidity
(ii) Profitability
(iii) Solvency
(iv) Activity and Market

LIQUIDITY
Current Ratio:

Functions:

 Current ratio is the ratio of current assets to current liabilities. It is a widely indicator of a company’s
ability to pay its short term obligations. The ideal current ratio value is 2:1.

Current ratio = Current assets / Current liabilities

Ratios 2013 2012 2011 2010

Current Ratio 1.71 1.31 0.88 0.72

CURRENT RATIO
5
4
3
2 CURRENT RATIO
1
0
2013 2012 2011 2010

Analysis:

 The amount of current assets the company has per rupee of current liabilities is increasing from 2010
to 2013. It shows Nestlé’s ability to pay its obligations in the short term is increasing.
 This implies that Nestle can pay its current liabilities using its current assets. It is favourable for the
Nestlé’s short term creditors.
 One of the possible reasons for increase in current ratios is due to increase in current investments
from 3648.6 at 2012 to 6269.6 at 2013.
 It is favouring current assets to increase which in turn increasing current ratio.
 Due to increase in treasury bills from 1871.7 million on 2012 to 3288.9 million on 2013 there is a
increase in current investment.
 One of the other reason found is Nestle started investing in HDFC liquid fund direct plan-dividend-
daily disinvestment for 498.1 million and in SBI premium liquid fund- direct plan- daily dividend
for 497.4 million. Due to this there is a rise in current investment.
QUICK RATIO:

Functions:

 It can be defined as the ratio of Quick assets, which are easily convertible to cash, to current
liabilities.
 It measures the company’s ability to meet its short term obligations with its most liquid assets.

Quick ratio = Quick assets / Current liabilities

Where Quick assets = Current assets – Stock – Prepaid expenses

Year 2013 2012 2011 2010

Quick Ratio 1.23 0.65 0.38 0.37

Quick ratio
1.4
1.2
1
0.8
0.6 Quick ratio
0.4
0.2
0
2013 2012 2011 2010

Analysis:

 The ideal ratio for quick ratio is 1:1. In 2013 the quick ratio is better than previous years.
 The inventories in 2012 are 7455.8 and inventory there is improvement in quick ratio because in
2012 inventory is 50.03% of current assets where as in 2013 inventory is 31.97% of current assets.
This improves the quick ratio.

INVENTORY TURNOVER RATIO:

Functions:

 A ratio showing how many times a company's inventory is sold and replaced over a period.
 The days in the period can then be divided by the inventory turnover formula to calculate the days it
takes to sell the inventory on hand or "inventory turnover days."

Inventory Turnover ratio = Sales (COGS) / Average Inventory

Ratios 2013 2012 2011 2010

Inventory
12.72 11.64 11.75 11.87
Turnover Ratio
 Inventory turnover ratio of nestle
13
12.8
12.6
12.4
12.2
12 Inventory turnover ratio
11.8 of nestle
11.6
11.4
11.2
11
2013 2012 2011 2010

Analysis:

 The inventory turnover is improving from 2012 to 2013 which is indicating better inventory
management.

Average Inventory holding period:

Year
2013 2012 2011 2010
Company
Nestle 28.23 30.92 30.63 30.32
HUL 53.05 56.52 58.14 63.58
ITC 33.74 41.94 44.13 47.16
Dabur 42.68 47.55 41.83 35.5

 As we compare Nestlé’s average inventory holding period with other peer companies, we can see
that its average inventory holding period is good. This shows that Nestle is most efficient in
converting its inventory into sales in fewer periods compared to others.
 As the inventory holding period is low in 2013, it indicates that Nestle is clearing its inventory
quickly to generate liquid cash.

70
60
50
Nestle
40
HUL
30
ITC
20
Dabur
10
0
2013 2012 2011 2010
  Raw materials are contributing major part in cost of materials for Nestle.

Nestlé’s dependence on raw material

Year
Type of raw 2013 2012 2011
material

Imported 11.20% 11.10% 10.90%

Indigenous 88.80% 88.90% 89.10%

 As Nestlé’s dependence of the raw material on indigenous is a major percentage, the company is not
much affected by the import policies. It is dependent on home grown materials.
 In raw material, Nestlé’s fresh milk consumption has a major contribution. In 2013 fresh milk
contribution is 25.8% of total raw material consumption.
 Nestle is investing its money in expansion of milk plant. E.g., it has invested Rs. 250 crore in
expansion of Punjab milk plant which, in turn, improves inventory turnover.

Distribution of raw materials of different companies in 2013

Company
Type of raw
material
Nestle HUL Dabur
Imported 11.20% 8% 0.86%
Indigenous 88.80% 92% 99.14%

120
100
80
60 Imported
40 Indigenous
20
0
Nestle HUL Dabur

 Although Nestlé’s dependence on indigenous is less than compared to Dabur. Nestle is having good
inventory holding period compared to Dabur.

PROFITABILITY
PROFIT MARGIN:

Functions:

 A ratio of profitability calculated as net income divided by revenues or net profit divided by sales
 . It measures how much out of every rupee of a sales company actually contributes to earnings.

Profit margin = profit / sales

Ratios 2013 2012 2011 2010
Profit margin 11.86 12.40 12.49 12.84

Profit Margin
13
12.8
12.6
12.4
12.2
12 Profit Margin
11.8
11.6
11.4
11.2
2013 2012 2011 2010

Analysis:

 Both profit and sales are increasing. But increase in profit is less than increase in sales. So the profit
earned per revenue is decreasing.
 There is a considerable increase in other expenses which is contributing a negative effect to the
increase in net profit. The finished goods handling transport and distribution increase costs increased
by 532 million in the year 2013. This has resulted in decrease in profit and hence a decrease in profit
margin.

ASSET TURNOVER RATIO:

Functions:

 The amount of sales or revenues generated per rupee of assets.

 The asset turnover ratio is an indicator of the efficiency with which a company is deploying its
assets.

Asset turnover ratio = Sales or revenue / Total assets

Years 2013 2012 2011 2010

Ratios 1.64 1.80 2.21 2.78
 3 Asset turnover ratio

2
Asset
turnover
1 ratio

0
2013 2012 2011 2010

Analysis:

 The presence of the assets may be more than the business needs for its operations.
 The decrease in the asset turnover may be due to rapid increase in the asset from 2010 to 2011 may
not be fully utilized to convert into sales. The new assets brought may not be under operational.

RETURN ON ASSETS:

Functions:

 An indicator of how profitable a company is relative to its total assets.

 ROA gives an idea as to how efficient management is at using its assets to generate earnings.
 Calculated by dividing a company's annual earnings by its total assets, ROA is displayed as a
percentage. Sometimes this is referred to as return on investment.

Return on assets = Net income / total assets

Year 2013 2012 2011 2010

Return on
19.47 22.33 27.63 35.64
assets

return on assets
40
30
20 return on
10 assets
0
2013 2012 2011 2010

Year

Company 2013 2012 2011 2010

Dabur 19.7 17.65 22.71 26.31
HUL 34.43 26.01 24.25 24.62
ITC 23.55 22.65 20.59 19.1
Nestle 19.47 22.33 27.63 35.64
 40
35
30
25 Nestle
20 Dabur
15
HUL
10
5 ITC
0
2013 2012 2011 2010

Analysis:

Year 2013 2012 2011 2010

Assets 63142.7 51639.2 44217.8 25582.93

 The increase in the assets from 51639.2 in 2012 to 63142.7 in 2013 is contributing to increase in
profits in 2013.This means that assets are utilised efficiently to improve ROA.
 As we can see that there is rapid increase in the assets from 2010 to 2011, these assets may not have
been utilised in 2012, 2013 to convert into profits. This may be the possible reason for decrease in
return of assets.
 For HUL and ITC return of assets is increasing and for Nestle ROA is decreasing.

EARNINGS PER SHARE:

Functions:

 The portion of a company's profit allocated to each outstanding share of common stock.
 Earnings per share serve as an indicator of a company's profitability.

Earnings per share = Net profit available to equity shareholders (EAT-DP) / Number of equity
shares outstanding.
 EPS
30

25

20

15
EPS
10

0
2013 2012 2011 2010

Years 2013 2012 2011 2010

Ratios 4.61 11.06 17.45 24.99

SOLVENCY
DEBT-EQUITY RATIO:

Functions:

 A measure of company’s financial leverage calculated by dividing its total liabilities by stockholders
equity.
 It indicates what proportion of equity and debt the company is using to finance its assets.

Ratios 2013 2012 2011 2010

Current Ratio 0.50 0.58 0.76 0.00

Debt-Equity Ratio
0.8
0.7
0.6
0.5
0.4
Debt-Equity Ratio
0.3
0.2
0.1
0
2013 2012 2011 2010
Analysis:
 Nestle is not depending on debt financing. So, its risk is low. It is depending on equity.
 Nestle is having a huge reserves and surplus that is 22723.3 in 2013 which constitutes 95.92% of its
equity.
 This low ratio suggests that the company has a small degree of leverage and is too conservative.
 As Nestle belong to FMCG, it is subject to wide fluctuations in demand. So, it is preferred to keep
low D/E ratio.

PRICE EARNINGS RATIO:

Function:

 The PE ratio is the ratio of market price of a share to the annual EPS.
 It is a popular measure extensively used in investment analysis.

Price Earnings Ratio = Market Price per share / Earnings per share

Years 2013 2012 2011 2010

Ratios 45.72 45.06 41.84 44.70

P/E Ratios
50
45
40
35
30
25
20 P/E Ratios
15
10
5
0
2013 2012 2011 2010

Analysis:

 The PE ratio of 2012 is viewed as more attractive when compared t 2010. This indicates that
investors are willing to pay a addition amount expecting the optimistic future growth prospects.
 In 2013 the PE ratio has slightly increases when compare to 2012. This is showing that investors are
having optimistic view on this company.
 The peer comparison is done on this aspect it shows that the PE ratio is highest for nestle which is
indicating that investors are ready to pay more price per share for 1 rupee earnings. Expecting the
earning power based on this future growth is good.

2013 2012 2011 2010

ITC 32.92 28.78 28.15 12.37
 Dabur 40.42 40.01 35.47 15.88
HUL 26.55 32.92 26.65 24.77
Nestle 45.72 45.06 41.84 44.7

50
45
40
35
30 ITC
25 Dabur
20 HUL
15 Nestle
10
5
0
2013 2012 2011 2010

INTEREST COVERAGE RATIO:

Functions:

 This ratio is used to determine how usually a company can pay interest on outstanding debt.
 It is calculated by dividing a company’s earnings before interests and taxes (EBIT) of one period by
the company’s interest expenses of the same period.

Interest coverage ratio = EBIT / Interest expense

Year 2013 2012 2011 2010

Ratio 46.96 59.37 272.61 1066.71

1200
interest coverage ratio
1000
800
600
interest
400 coverage ratio
200
0
2013 2012 32011 2010

Analysis:

 As the interest expense is increasing from 2010 to 2013 we can observe that interest coverage ratio is
decreasing from 2010 to 2013.
  Nestle has a good coverage ratio which indicates that it gives good protection to the creditors for
payment of interest charges by the company.
 The interest expense is not very important for Nestle because, it being a FMCG company it does not
depend more on the external funds.
 So, the short term and long term loans are very low due to which interest expense is low which leads
to high interest coverage ratio.

DIVIDEND YIELD:

Functions:

 It is the ratio of dividend per share to market price per share.

 It represents the current cash return to shareholders.
Dividend yield = Dividend per share / Market price per share

Years 2013 2012 2011 2010

Dividend 0.92 0.97 1.16 1.28
yield

divident yield
1.5

0.5 dividen yield

0
2013 2012 2011 2010

2013 2012 2011 2010

Nestle 0.9 0.97 1.16 1.28
Dabur 1.09 1.22 1.2 1.26
ITC 1.7 1.98 2.45 3.8
HUL 3.97 1.83 2.28 2.72

4
Nestle
3
Dabur
2
ITC
1
HUL
0
2013 23012 2011 2010

Analysis:

 Nestle is having the lowest dividend yield when compared to other companies. It indicates that the
stock is overpriced because investors are confident of future growth.
 Lower dividend indicates high demand from investors.
 Trend analysis

Particulars 2013 2012 2011 2010

Shareholder’s
Funds
Share Capital 100 100 100 100
Reserves & 299.38 224.2 155.14 100
surplus
Total 276.9 210.2 148.92 100

Loan Funds
Secured loans 1.19 28.57 100 -
Unsecured loans 122.5 108.23 100 -

Fixed Assets
Gross Block 261.18 235.5 137 100
Depreciation 175.18 138.29 115.9 100
Net Block 332.69 316.39 155.59 100
Capital work in 84.86 98.6 406.5 100
progress

Investments
Inventories 127.77 129.45 127.44 100
Sundry debtors 133.14 138.36 182.36 100
Cash and bank 3582.75 1218.3 138.36 100
balance
Loans and 164.35 114.25 121.7 100
advances
Total 564.82 242.14 89.17 100

Provisions and
Liabilities
Provisions 154.9 116.28 121.5 100
Liabilities 159.8 149.2 131.9 100
Total 157.3 132.18 126.5 100

Balance sheet
 Particulars 2013 2012 2011 2010
Income
Gross sales 142.5 134.95 146.8 100
Excise duty 259.4 234.64 156.15 100
Net sales 145.37 111.15 119.56 100
Other income 355.5 113.87 45.32 100
Total income 142.71 132.74 118.66 100

Expenditure
Raw material 128.12 123.38 115.89 100
Power and fuel 175.81 169.2 134.94 100
cost
Other - 103.75 108.63 100
manufacturing
expenses
Depreciation 30707.3 25793.3 475.4 100
Total expenses 138.49 129.7 117.76 100
Net profit before 146.5 135.58 121.2 100
tax

Profit and loss

ANALYSIS OF BALANCE SHEET AND PROFIT & LOSS ACCOUNT

 Reserves and surplus is showing a positive growth throughout the years which is the indicating that
internal strength of the company is increasing. The company could sustain the future loss.
 Nestle is not much dependent on the loans.
 The fixed assets of the nestle is positively increasing and net profit is also increasing. This shows that
the increase in asset is impacting the profits the company. So these assets are properly utilized in
increasing the profit.
 As the depreciation of the company is rapidly increasing. Therefore this depreciation is impacting
the net profit before tax which in effect reducing the tax.
 The cash and bank balance are increasing at the high rate. This indicates that the company is
maintaining the high liquid cash.
 The rate of increase in the sales is more than the rate of increase in the raw material consumption this
indicates that the company is effectively using its raw materials for increasing its sales.
 The inventory of the company is stable. It shows that company is managing its inventory efficiently.
 CASH FLOW
CASH FLOW FROM OPERATIONAL ACTIVITIES:

 The cash inflow through the operational activities increases from the 2010 to 2013.
 This is the indication of the financial flexibility. The company is depending on its core activities for
producing cash.

CASH FLOW FROM INVESTMENT ACTIVITIES:

 The company is investing more on its fixed assets which is the indication that the company is
expanding.
 The investment activities in fixed assets are varying from 2010 to 2013. In 2011 and 2012 the
company has spent a lot of money in fixed assets.

CASH FLOW FROM FINANCIAL ACTIVITIES:

 Nestle is paying mostly to dividends than loans. This indicating that it is risk free.
 The combination of outflow from both investing and financial activities is almost half of the inflow
through the operating activities and hence company is at a financial advantage and even if company
is to provide higher dividend, they would be able to do so.

Other cash flow analysis:-

The net profit and Operating Cash flow are almost in sync indicating the higher probability of
numbers not being fudged.
In case of crisis, company can survive by raising cash by selling its investments or tap bank line of
credit given its strong financial position.
 SWOT analysis
Weakness
1. Profit margin decreasing
continuously
2. Asset turnover ratio is
decreasing that implies that
company is having much assets
but not able to convert them in
profits
3. Lowest dividend yield
Opportunity
1. Expand rural reach
2. Utilize 3G services and IT
infrastructure into operations
3. Market expansion
4. It has a good amount of assets
that it is not able to use. So
making new policies to use
them effectively
Strength
1. It has huge reserves and surplus,
i.e 2273.3 million in 2013 which
constitutes 95.92% of its equity.
2. It is not much dependent on
outside loans.
3. Its average inventory holding
period is less compared to its
peer companies,
Threats
1. Overdependence of indigenous
raw material may trouble when
India hit with recession.
2. Economic instability and
inflation in most countries
3. EURO zone crisis, as major
investors are from Europe
4. Increase in cost of raw materials
5. Stiff competition in all product
segment
 References

1. http://www.nestle.com/

2. http://www.nestle.in/

3. http://economictimes.indiatimes.com/nestle-india-ltd/stocks/companyid-13330.cms

4. http://www.bseindia.com/stock-share-price/nestle-india-ltd/nestleind/500790/

5. http://www.moneycontrol.com/india/stockpricequote/foodprocessing/nestleindia/NI

6. http://www.capitaline.com/new/index.asp