Your SlideShare is downloading. ×
Financial ratios analysis project at Nestle and Engro Foods
Financial ratios analysis project at Nestle and Engro Foods
Financial ratios analysis project at Nestle and Engro Foods
Financial ratios analysis project at Nestle and Engro Foods
Financial ratios analysis project at Nestle and Engro Foods
Financial ratios analysis project at Nestle and Engro Foods
Financial ratios analysis project at Nestle and Engro Foods
Financial ratios analysis project at Nestle and Engro Foods
Financial ratios analysis project at Nestle and Engro Foods
Financial ratios analysis project at Nestle and Engro Foods
Financial ratios analysis project at Nestle and Engro Foods
Financial ratios analysis project at Nestle and Engro Foods
Financial ratios analysis project at Nestle and Engro Foods
Financial ratios analysis project at Nestle and Engro Foods
Financial ratios analysis project at Nestle and Engro Foods
Financial ratios analysis project at Nestle and Engro Foods
Financial ratios analysis project at Nestle and Engro Foods
Financial ratios analysis project at Nestle and Engro Foods
Financial ratios analysis project at Nestle and Engro Foods
Financial ratios analysis project at Nestle and Engro Foods
Financial ratios analysis project at Nestle and Engro Foods
Financial ratios analysis project at Nestle and Engro Foods
Financial ratios analysis project at Nestle and Engro Foods
Financial ratios analysis project at Nestle and Engro Foods
Financial ratios analysis project at Nestle and Engro Foods
Financial ratios analysis project at Nestle and Engro Foods
Financial ratios analysis project at Nestle and Engro Foods
Financial ratios analysis project at Nestle and Engro Foods
Financial ratios analysis project at Nestle and Engro Foods
Financial ratios analysis project at Nestle and Engro Foods
Financial ratios analysis project at Nestle and Engro Foods
Financial ratios analysis project at Nestle and Engro Foods
Financial ratios analysis project at Nestle and Engro Foods
Financial ratios analysis project at Nestle and Engro Foods
Financial ratios analysis project at Nestle and Engro Foods
Financial ratios analysis project at Nestle and Engro Foods
Upcoming SlideShare
Loading in...5
×

Thanks for flagging this SlideShare!

Oops! An error has occurred.

×
Saving this for later? Get the SlideShare app to save on your phone or tablet. Read anywhere, anytime – even offline.
Text the download link to your phone
Standard text messaging rates apply

Financial ratios analysis project at Nestle and Engro Foods

22,158

Published on

Published in: Business, Economy & Finance
8 Comments
13 Likes
Statistics
Notes
  • @rosejanelim copy sent. i just saw your comment.
       Reply 
    Are you sure you want to  Yes  No
    Your message goes here
  • @Shiza Kokab download annual report of the compny and go through all the financial statements. in this case i downloaded the anual reports for both the companies and as per the financial ratios went through all the financial statements.
       Reply 
    Are you sure you want to  Yes  No
    Your message goes here
  • my email is : shizakokab@yahoo.com
       Reply 
    Are you sure you want to  Yes  No
    Your message goes here
  • can you plz tell me how to detect inventories in the balance sheet I mean how u did in the case of Engro Foods?
       Reply 
    Are you sure you want to  Yes  No
    Your message goes here
  • hello can i have a copy also? i need reference for my acctg.12 thank you please do send me a copy at rosejanelim2002@gmail.com ")
       Reply 
    Are you sure you want to  Yes  No
    Your message goes here
No Downloads
Views
Total Views
22,158
On Slideshare
0
From Embeds
0
Number of Embeds
2
Actions
Shares
0
Downloads
1,499
Comments
8
Likes
13
Embeds 0
No embeds

Report content
Flagged as inappropriate Flag as inappropriate
Flag as inappropriate

Select your reason for flagging this presentation as inappropriate.

Cancel
No notes for slide

Transcript

  • 1. BALOCHISTAN UNIVERSITY OF INFORMATION TECHONOLOGY ENGINEERING AND MANAGEMENT SCIENCES Financial Ratios Analysis Nestle VS Engro Foods Rabia Iftikhar, 12285 MBA 4th B Dec 31, 2012 Ma'am Ayesha Javaid
  • 2. ACKNOWLEDGEMENTS Praise and thanks to “ALLAH” Almighty, the one testing us all at all times and making decisions about what we don’t know and can’t know. The report being submitted today is a result of collective effort. There are innumerous helping hands behind who have guided us on our way. Writing this report appeared to be a great experience to us. It added a lot to our knowledge. This report is one of our memorable experiences in student life. Though words are inadequate in offering thanks to our teacher but we owe our profound gratitude to Ma’am Ayesha Javaid for stimulating our creative abilities by assigning this project to us and for her able guidance and useful suggestions, which helped us in completing the project in time. Whatever we have learnt from her and this project report has put indelible impression on our minds and it is our conviction that this learning experience will always be a source of help in our practical life and professional career. Finally, yet importantly, we would like to express our heartfelt thanks to our beloved parents, for cooperation, help, kindness and blessings, our family and friends for their help and wishes for the successful completion of the work.
  • 3. Table of Content 1.Executive summary…………………………………………………………... 1 2.Introduction ……………………………………………………….…………..2 3.NESTLE………………………………………………………….…………....3 3.1NESTLE Pakistan………………………………………………………..3 3.2Vision…………………………………………………………………….4 3.3Mission…………………………………………………………….……..4 3.4Goals and Objectives…………………………………………….…….…5 3.5SWOT……………………………………………………………..……...9 4.ENGRO FOODS……………………………………………………………..10 4.1Vision……………………………………………………………………10 4.2Mission…………………………………………………………….…….10 4.3Core values………………………………………………………………10 4.4SWOT……………………………………………………………………12 5.Financial Statements of NESTLE …...……………………………………....….. 14 5.1Balance Sheet……………………………………………………………14 5.2Income Statement……………………………………………………….16 6.Financial Statements of ENGRO…………………………….…………….……..17 6.1Balance sheet……………………………………………………………17 6.2Income Statement……………………………………………………….19 7.Data Table…………………………………………………………………….…..20 7.1 The calculations…………………………………………………….……21 8.Balance sheet Analysis …………………………………………………………....23 9. Income Statement Analysis ……………………………………………………….24
  • 4. 10. Ratios of NESTLE………………………………………………………….….….24 11. Ratios of ENGRO………………………………………………………….….…..27 12.Financial Ratio Analysis……………………………......……………………….28 12.1Liquidity Analysis………………………………………………………28 12.2Profitability Analysis……………………………………………………28 12.3Activity Analysis………………………………………………………..29 12.4Capital Structure………………………………………………………...29 12.5 Capital Market Analysis Ratio …………………………………………29 13.Cash Budget of NESTLE…………………………………...……………………30 14.Cash Budget of ENGRO………………………………………………………….31 15.Conclusion………………………………………………………………………..32 16. Recommendations……………………………………………….…….…………33 17. References………………………………………………………….…….………34
  • 5. 1. Executive Summary The report which is based on the financial analysis of NESTLE and ENGRO FOODS. By going through all the financial statements it is known that overall NESTLE is working so well if compared to ENGRO FOODS. But by going through the financial ratio analysis the facts were that ENGRO is much more competitive than NESTLE. As ENGRO FOODS is not in the market as long as NESTLE is. This is analyzed through financial analysis that ENGRO is working so efficiently and effectively and is coming up with new features and advanced technology that others are not using. In the report history of both companies, SWOT analysis, financial statements, financial ratios, financial ratio analysis, cash budget and finally the report is concluded and recommendations are given at the end.
  • 6. 2. 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 investor’s 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 contains 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.
  • 7. 3. NESTLÉ Good Food, Good Life Nestlé, theCompany which is renowned for its vast collection of foodproducts. The Companywas 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. 3.1 NESTLÉ in Pakistan Nestlé has been serving Pakistani consumers since 1988, when parentcompany, the Switzerland-based Nestlé SA, first acquired a share in Milk PakLtd. Today Nestlé is fully integrated in Pakistani life, and is recognized asthe producer of safe, nutritious and tasty food, and leaders in developing anduplifting the communities in which they operate.Nestlé Pakistan ensures that their products are made available toconsumers wherever in the country they might be. Convenience is at theheart of the Nestlé philosophy, and there aim is to bring products to people'sdoorsteps. The following project is about Nestlé Pakistan and the necessary details about Nestlé Pakistan are as follow: Ticker: NESTLÉ Country: PAKISTAN Exchanges: KAR Major Industry: Food & Beverages Sub Industry: Diversified Food
  • 8. 2011 Sales: 64,824,364,000 (Year Ending Jan 2012) Employees: 2,422 Currency: Pakistan Rupees Market Capture: 210,875,565,600 Fiscal Year Ends: December Shares Outstanding: 45,349,584 Share Type: Ordinary Closely Held Shares: 35,545,078 3.2 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. 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.” 3.3 Mission “Nestlé is dedicated to providing the best foods to people throughout their day, throughout their lives, throughout the world. With our uniqueexperience of anticipating consumers’ needs and creating solutions, Nestlécontributes to your well-being and enhances your quality of life.” 3.4 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; 1. To be, the best and quality providing brand among other brands in Pakistan.
  • 9. 2. Tofulfillcustomers’needs and requirements. 3. To capture it’s desired market share. 4. To dwellinto the life of people and consumers. 5. To boost upits sales. 6. To create value for customer. 7. To keep the loyalty of customer with Nestlé. 8. To be the top nutrition company ofPakistan. 9. To be the leading FMCG company around the world as well as inPakistan. 10. It aims to be the socially responsible and helping company in bad times. 11. Nestlé aims to be proactive innovation and renovation culture, which is the key to Nestlé’s success in the marketplace. 12. Nestlé aims to have fully integrated systems with suppliers & retailers so that every single market can be tapped & focused. 3.5 SWOT Analysis 3.5.1 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. 3.5.2 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. 3.5.3 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 theirpersonal 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.
  • 10. 3.5.4 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 thequality 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-establishedDANONE. The consumers frequently tend to change their preference of brands, so change in consumer trends is a threat to Nestlé.
  • 11. 4. 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. 4.1 Vision “To be the Premier Pakistani Enterprise with a global reach, passionately pursuing value creation for all stake holders”. 4.2 Mission “To help farmers maximize their farm produce by providing quality plantnutrients and technical services upon which they can depend. To create wealth by building new businesses based on company and country strengths inPetrochemicals, Information Technology, Infrastructure and other Agriculturalsectors. In pursuing the mission we shall at all-time be guided in our conductand decision making by our Core Values.” 4.3 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.
  • 12. 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. 4.4 SWOT Analysis 4.4.1 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. 4.4.2 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.
  • 13. 4.4.3 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 thoseare 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 healthand hygiene issues have led to increased processed milk consumption. 4.4.4 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 EngroFoods 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 interms of the profit margins for ENGRO FOODS.
  • 14. 5. Financial Statements of NESTLÉ Pakistan 5.1 Balance Sheet NESTLÉ PAKISTAN LIMITED Balance sheet As at December 31st 2011 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
  • 15. 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
  • 16. 5.2 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
  • 17. 6 Financial Statements of ENGRO FOODS Limited 6.1 Balance Sheet ENGRO FOODS LIMITED Balance Sheet As at December 31st 2011 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
  • 18. 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 Accruedinterest/ 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
  • 19. 6.2 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
  • 20. 7. 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 Equity** 6,597,144.5 2,923,870.5 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
  • 21. 7.1 The calculations of: * Average Total Assets = (BeginningAssets + EndingAssets)/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 Equity = (5,581,873+7,612,416) / 2 = (5,124,047+7,236,942) / 2 = 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
  • 22. 8. 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.
  • 23. 9. 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 angro.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 uses more advertising compains so that’s why their administrative expenses are more. Nestle Finance cost is also more because their interest expense are 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.
  • 24. 10.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
  • 25. 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 d. Capital Structure Analysis Ratios Debt to Equity Ratio Debt to Equity Ratio = Total Liabilities / Total Stockholders' Equity = 2,756,443 / 7,612,416 = 3.62 Debt to Asset Ratio Debt to Asset Ratio =Total Debt/ Total Assets = 2,756,443 / 35,179,859 = 0.08 Interest Coverage Ratio Interest Coverage Ratio = Income Before Interest and Income Tax Expenses*** / Interest Expense = 6,586,973*** / 84,109 = 78.31
  • 26. e. Capital Market Analysis Ratios Price Earnings (PE) Ratio Price Earnings (PE) Ratio = Market Priceper Share / Earnings per Share = 4,844 / 102.94 = 47.06
  • 27. 11.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 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
  • 28. 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 d. Capital Structure Analysis Ratios Debt to Equity Ratio Debt to Equity Ratio = Total Liabilities / Total Stockholders' Equity = 9,402,242 / 7,236,942 = 1.30 Debt to Asset Ratio Debt to Asset Ratio = Total Debt/ Total Assets = 9,402,242/16,639,184 = 0.57 Interest Coverage Ratio Interest Coverage Ratio = Income Before Interest and Income Tax Expenses*** / Interest Expense = 1,388,430 / 25,770 = 53.88
  • 29. e. Capital Market Analysis Ratios Price Earnings (PE) Ratio Price Earnings (PE) Ratio = Market Price of Common Stock per Share / Earnings per Share = 25 / 1.22 = 20.49
  • 30. 12.Financial Ratios Analysis 12.1 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. 12.2Profitability 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 sales. 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.
  • 31. 12.3Activity 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 is 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. 12.4Capital Structure Analysis Debt to Equity Ratio Debt to equity ratio shows the comparison to equity this ratio tells that how much firm has ability to pay its debt and if equity is more than the total debt of the firm so firm will face low risk. In nestle the firm has 3.62 against $ 1 to pay debt whereas Engro food has 1.30 to pay against $ 1 debt. Here Nestle has more ability to pay its debt. Debt to Asset Ratio Debt to asset ratio shows if the firms have more assets regardless of total debt than that firm will easily pay off its debts. The debt to asset ratio in nestle is 0.08 whereas 0.57 in Engro foods. So Engro foods will pay off its debt more easily than nestle. Interest Coverage Ratio Interest coverage ratio measures the extent to which the operating income of the firm can decline before the firm is unable to meet its annual interest cost. Nestle has 78.31 times interest coverage ratio whereas Engro foods has 53.88 times interest coverage ratio so Engro foods has less chances of failure and facing bankruptcy than nestle.
  • 32. 13. Cash Budget of NESTLE 2011(Rs) Collection: Cash 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
  • 33. 14. 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: Taxes 603,853 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
  • 34. 15.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.
  • 35. 16.Recommendations NESTLE doesn’t have any direct market and outlets so it can be a disadvantage so they should facilitate their customers through pricing strategies and if they start direct market or open the outlets so the prices will fall automatically and customers need not to pay any extra money to the suppliers. NESTLE Pakistan mostly depends on the local raw material and sometimes the quality of the raw material is not as good as in the other countries so they should not rely on the local raw material if they want to provide the quality products. ENGRO foods should introduce other product lines and expand the business. ENGRO foods should distribute their products to more geographical areas. As NESTLE is a well-known product and ENGRO food is not as known internationally as NESTLE is, so they need to spend more money on the marketing activities. ENGRO food is better than NESTLE in the financial analysis so if they expand their product line and cover the same geographical area as NESTLE has covered so ENGRO can appear as a strong competitor of NESTLE and HALEEB.
  • 36. 17.References 1. NESTLE annual report 2011 2. ENGRO FOODS annual report 2011 3. www.nestle.pk 4. www.engrofoods.com

×