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

confectionary

Milk products and

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

shareholding

(2014/2013)

(18870162)/

(18096326)

(19.57)/

(18.77)

Non financial

pubic

shareholding

(2014/2013)

(17030475)/

(17804311)

(17.67)/

(18.47)

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:

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

Board of directors Positions

Mr. Antonio Helio Waszyk Chairman and Non-Executive

Director

Mr. Etienne Benet Managing Director

Mr. Shobinder Duggal Director - Finance & Control

and CFO

Mr. Aristides Protonotarios Director - Technical

Mr. Michael W.O. Garrett Non-Executive and

Independent Director

Mr. R. V. Kanoria Non-Executive and

Independent Director

Mr. Ashok Kumar Mahindra Non-Executive and

Independent Director

Mr. Ravinder Narain Non-Executive and

Independent Director

Dr. Swati A. Piramal Non-Executive and

Independent Director

Mr. B. Murli Senior vice president- legal

and company secretary

Class of Goods O.S

Quantity

O.S

Amount Purchases

C.S

Quantity

C.S

Amount

Gross

Sales

Quantity

Gross

Sales

Amount

Milk Products

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

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

Prepared

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

Chocolate &

Confectionary 3.207 589.9 48,024 4,075 716.3 46,718 12,836.8

Total 25,966 3,809.1 459,300 23,333 3,421.6 458,650 93,798.7

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.

40712.2

13240.6

26982.1

12836.8

Gross Sales (Million Rupees)

Milk products

Beverages

Prepared Dishes

Chocolate and Confectionary

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

Grain flour

Green coffee and chicory

Edible oils

Sugar

Fruit and vegetable flakes

Cocoa based raw materials

Maltodextrine powder

Tomato paste /powder

Fruits and vegetable

concentrate

Onion flakes /powder

Liquid glucose

Black tea/green leaf

Wheat gluten

Others

8,280.6

4,858.7

4,306.1

3,714.1

3,373.0

1,960.6

562.1

441.4

431.4

401.7

277.5

244.6

232.9

146.2

131.4

2,674.1

9,214.9

4,667.0

3,698.4

3,257.4

3,261.8

2,067.2

457.5

431.3

377.8

324.8

297.3

211.6

236.5

151.7

157.6

2,456.3

Total 32,036.4 31,269.1

Raw Materials consumed in year 2013 and 2012

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.

8280.6

4857.74306.1

3714.1

9214.9

4667

3698.43257.4

0

1000

2000

3000

4000

5000

6000

7000

8000

9000

10000

Fresh milk Milk derivatives Grain flour Green coffee and chicory

2013

2012

Company wise Analysis

For the year ended 2013. All numerical values are in Rs. Cr

Food And Dairy Products -

Multinational

Equity

Gross

Block Sales Net Profit

Britannia Inds.

Cadbury India

Ferrero India

GlaxoSmith C H L

Heinz India

Hershey India

Hind. Coca-Cola

Induri Farm

Jubilant Food.

Maiya Foods

Manna Foods

McCain Foods

Nestle India

PepsiCo India

Perfetti Van Mel

Rajasthan Gum

Swojas Energy

Unibic Biscuits

Yummy Foods

23.99

31.07

0.46

42.06

10.42

75.14

0

0.08

65.48

0

0

0

96.42

0

49.55

0

30.96

0

0

939.33

1,127.40

376.06

854.62

285.43

110.73

4,478.95

0.29

785.67

0

59.2

152.32

4,844.28

6,113.69

575.26

126.5

15.91

0

0

6,307.39

4,065.98

572.94

4,868.57

1,362.89

275.62

6,597.13

0.02

1,723.50

0

23.37

281.85

9,101.05

6,640.82

1,647.00

306.83

6.93

0

0

374.64

303.25

-195.93

674.75

197.88

-55.16

277.93

-0.78

126.04

0

0.05

2

1,107.94

17.58

-52.5

41.08

-6.27

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

Director

Numbe

r of

Board

Meetin

g

Attendance

at previous

AGM on 8

August

2013

No. of

outside

director

s-hip

held

No. of

Membershi

p/

Chairmans

hip

in other

Board

Committees

Executive/

Non-Executive/

Independent

Mr. Antonio

Helio Waszyk 5 Present Nil Nil Non – Executive

Mr. Etienne

André Marie

Benet

1 Not

Applicable Nil Nil Executive

Mr. Shobinder

Duggal 5 Present Nil Nil Executive

Mr. Aristides

Protonotarios 3 Present Nil Nil Executive

Mr. Christian

Schmid 2

Not

Applicable Nil Nil Executive

Mr. Ashok

Kumar

Mahindra

5 Present Nil Nil Non – Executive

& Independent

Mr. Ravinder

Narain 2 Present 3 1

Non – Executive

& Independent

Mr. Michael W.

O. Garrett 5 Present Nil Nil

Non – Executive

& Independent

Dr. Swati A.

Piramal 4 Not Present 4 Nil

Non – Executive

& Independent

Mr. Richard

Sykes -

Not

Applicable Nil Nil Non – Executive

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

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.

0

1

2

3

4

5

2013 2012 2011 2010

CURRENT RATIO

CURRENT RATIO

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

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

Turnover Ratio 12.72 11.64 11.75 11.87

0

0.2

0.4

0.6

0.8

1

1.2

1.4

2013 2012 2011 2010

Quick ratio

Quick ratio

Analysis:

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

management.

Average Inventory holding period:

Year Company

2013 2012 2011 2010

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.

11

11.2

11.4

11.6

11.8

12

12.2

12.4

12.6

12.8

13

2013 2012 2011 2010

Inventory turnover ratio of nestle

Inventory turnover ratio of nestle

0

10

20

30

40

50

60

70

2013 2012 2011 2010

Nestle

HUL

ITC

Dabur

Raw materials are contributing major part in cost of materials for Nestle.

Nestlé’s dependence on raw material

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%

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

0

20

40

60

80

100

120

Nestle HUL Dabur

Imported

Indigenous

Year Type of raw

material 2013 2012 2011

Imported 11.20% 11.10% 10.90%

Indigenous 88.80% 88.90% 89.10%

Ratios 2013 2012 2011 2010

Profit margin 11.86 12.40 12.49 12.84

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

11.211.411.611.8

1212.212.412.612.8

13

2013 2012 2011 2010

Profit Margin

Profit Margin

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

assets 19.47 22.33 27.63 35.64

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

0

1

2

3

2013 2012 2011 2010

Asset turnover ratio

Asset turnover ratio

0

10

20

30

40

2013 2012 2011 2010

return on assets

return on assets

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.

0

5

10

15

20

25

30

35

40

2013 2012 2011 2010

Nestle

Dabur

HUL

ITC

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

0

5

10

15

20

25

30

2013 2012 2011 2010

EPS

EPS

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

2013 2012 2011 2010

Debt-Equity Ratio

Debt-Equity Ratio

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

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

0

5

10

15

20

25

30

35

40

45

50

2013 2012 2011 2010

P/E Ratios

P/E Ratios

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

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

Analysis:

As the interest expense is increasing from 2010 to 2013 we can observe that interest coverage ratio is

decreasing from 2010 to 2013.

0

5

10

15

20

25

30

35

40

45

50

2013 2012 2011 2010

ITC

Dabur

HUL

Nestle

0

200

400

600

800

1000

1200

2013 2012 32011 2010

interest coverage ratio

interest coverage ratio

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

yield

0.92 0.97 1.16 1.28

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

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.

0

0.5

1

1.5

2013 2012 2011 2010

divident yield

dividen yield

0

1

2

3

4

5

2013 23012 2011 2010

Nestle

Dabur

ITC

HUL

Trend analysis

Balance sheet

Particulars 2013 2012 2011 2010

Shareholder’s Funds

Share Capital 100 100 100 100

Reserves & surplus

299.38 224.2 155.14 100

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 progress

84.86 98.6 406.5 100

Investments

Inventories 127.77 129.45 127.44 100

Sundry debtors 133.14 138.36 182.36 100

Cash and bank balance

3582.75 1218.3 138.36 100

Loans and advances

164.35 114.25 121.7 100

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

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.

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 cost

175.81 169.2 134.94 100

Other manufacturing expenses

- 103.75 108.63 100

Depreciation 30707.3 25793.3 475.4 100

Total expenses 138.49 129.7 117.76 100

Net profit before tax

146.5 135.58 121.2 100

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

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,

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

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

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

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