Fm project

FINANCIAL MANAGEMENT RATIO ANALYSIS

FOREWORD

Nestlé S.A. is the largest food and beverage company in the world with a
manufacturing facility or office in nearly every country of the world, Nestlé
often is referred to as "the most multinational of the multinationals." Nestlé
markets approximately 7,500 brands organized into the following
categories: baby foods, breakfast cereals, chocolate and confectionery,
beverages, bottled water, dairy products, ice cream, prepared foods,
foodservice, and pet care.

The object of this piece of paper is to present the current situation of
Nestlé regarding its ratio analysis. We all have learned a lot by preparing
this project. It provides us a chance to view the practical use of ratio
analysis in market. The practical importance of this analysis is not
something hidden or fake but it is something that can distinguish us in the
market.

-1-


ABSTRACT

This project is divided into seven parts. The first part describes the
historical background and some recent information about company. The
second part describes the de tailed view of financial ratios. The third part
consists of company’s three year financial statements (balance sheet,
income statement and cash flow statement).

Fourth part gives details about these financial statements. Fifth part
comprises of the theoretical framework of ratio analysis for these three
years financial statements of the company. Sixth part provides conclusion
and recommendations and last but not least is related to the summary of
this financial ratio.

2


.

ACKNOWLEDGEMENT

First of all we are much thankful to our ALLAH, by the help of which we are
able to complete our work.

Secondly, we are thankful to MR. ADNAN MASOOD, Business Controller
Dairy, having an experience of 10 years, and MR. IJAZ AHMAD Control
Coordinator of Supply Chain Division, having an experience of 13 years in
NESTLE Pakistan Ltd. In providing every kind of information and relative
material we needed. They treated us very well and encouraged at every
step that build up our thoughts and increase our knowledge a lot.

Special attention to the thing is that only knowing about formulas doesn’t
make any sense or help out in ratio analysis but it’s all about the
knowledge provided by MRS. LABIBA SHEIKH as this guided us like light
in darkness. The project presented in this manuscript is completed under
the supervision and guidance of MRS. LABIBA SHEIKH.

It is a collective and cohesive effort put by all group members and provided
opportunity to get together for the purpose of financial analysis.

In the end we again are very thankful to corresponding persons who
helped and guided us in making this project.

3


TABLE OF CONTENTS

FOREWORD..................................................................................................
ABSTRACT....................................................................................................
ACKNOWLEDGEMENT................................................................................
ABOUT COMPANY.....................................................................................5
INTRODUCTION TO RATIO ANALYSIS....................................................7
THEORETICAL FRAME WORK OF RATIO ANALYSIS............................9
LIQUIDITY RATIOS....................................................................................
ACTIVITY RATIO.......................................................................................
DEBT RATIOS............................................................................................
PROFITABILITY RATIOS..........................................................................
CONCLUSIONS AND RECOMMENDATIONS.............................................
SUMMARY.....................................................................................................
APPENDIX.....................................................................................................
BIBLIOGRAPHY............................................................................................
Glossary………………………………………………………………………...

4


The origins of the Nestlé Company go all the way
back to 1867, when Henri Nestlé created a
nutritious product for infants that could be used
by mothers who were unable to breast-feed.
Henri Nestlé made use of his family escutcheon,
the "Nest", a graphic translation of his name,
little nest, to personify the business. Evocative of
security, maternity and affection, nature and
nourishment, family and tradition, this symbol
remains the central element in the Nestlé corporate
identity.

Merchant, chemist and inventor Henri Nestlé,
established in Vevey, Switzerland, makes a
breakthrough when his new formula saves the life
of a premature infant. Later that year, he begins
production of his new product, Farine Lactée
Nestlé. In the years since Nestlé developed his
infant formula, the history of the Nestlé Company
has been marked by many firsts.

The first commercially sold infant formula; the first condensed milk
produced in Europe; the first milk chocolate; the first soluble coffee; the
first freeze-dried coffee; the first granulated instant coffee -- to name just a
few. Today, the Nestlé Company has grown and expanded to include the
widest range of wholesome foods for people throughout the world.

Nestlé now produces the world's favorite brands in 489 factories
worldwide. In 130 years of growth and diversification, we have never lost
sight of our core business: improving the quality of people's lives through
high-quality, nutritious, and convenient prepared foods and beverages.
Today, Nestlé brands are known on every continent, and some products --
like Nescafe, Carnation and Maggi -- are sold in more than 100 countries.
Nestlé, in its 129th year of operation, is the largest food company in the
world and is still based in Vevey, Switzerland.

5


Nestlé has been serving Pakistani consumers since 1988, when the parent
company, the Switzerland-based Nestlé SA, first acquired a share in
Milkpak Ltd. Today Nestle is fully integrated in Pakistani life, and are
recognized as producers of safe, nutritious and tasty food, and leaders in
developing and uplifting the communities in which they operate.

The first half of the 1990s proved to be a favorable time for Nestlé: trade
Barriers crumbled and world economic markets developed into a series of
More or less integrated trading areas. The opening of Central and Eastern
Europe, as well as China, and a general trend towards liberalization of
direct foreign investment was good news for a company with interests as
far-flung and diverse as Nestlé. While progress since then has not been as
encouraging, the overall trends remain positive. Nestlé is looking forward
for stronger financial position.

Nestle is committed to the following Business Principles in all countries,
taking into account local legislation, cultural and religious practices:

• Nestle's business objective is to manufacture and market the
Company's products in such a way as to create value that can be
sustained over the long term for shareholders, employees,
consumers, and business partners.
• Nestle does not favor short-term profit at the expense of successful
long-term business development.
• Nestle recognizes that its consumers have a sincere and legitimate
interest in the behavior, beliefs and actions of the Company behind
brands in which they place their trust, and that without its consumers
the Company would not exist.
• Nestle believes that, as a general rule, legislation is the most
effective safeguard of responsible conduct, although in certain
areas, additional guidance to staff in the form of voluntary business
principles is beneficial in order to ensure that the highest standards
are met throughout the organization.
• Nestle is conscious of the fact that the success of a corporation is a
reflection of the professionalism, conduct and the responsible
attitude of its management and employees. Therefore recruitment of
the right people and ongoing training and development are crucial.
• Nestlé continues to maintain its commitment to follow and respect all
applicable local laws in each of its markets.

6


Financial ratio analysis is the calculation and comparison of ratios which
are derived from the information in a company's financial statements. The
level and historical trends of these ratios can be used to make inferences
about a company's financial condition, its operations and attractiveness as
an investment.

One of the ways in which financial statements can be put to work is
through ratio analysis. Ratios are simply one number divided by another;
as such they may or not be meaningful. In finance, ratios are usually two
financial statement items that may be related to one another and may
provide the prudent user a good deal of information. Of the myriad of ratios
that could be generated, some will be more meaningful than others.
Generally ratios are divided into four areas of classification that provide
different kinds of information:

1. LIQUIDITY RATIOS
2. TURNOVER RATIOS
3. DEBT RATIOS
4. PROFITABILITY RATIOS

1. LIQUIDITY RATIOS

A class of financial metrics that is used to determine a company's ability to
pay off its short-terms debts obligations. Generally, the higher the value of
the ratio, the larger the margin of safety that the company possesses to
cover short-term debts.

A company's ability to turn short-term assets into cash to cover debts is of
the utmost importance when creditors are seeking payment. Bankruptcy
analysts and mortgage originators frequently use the liquidity ratios to
determine whether a company will be able to continue as a going concern.

2. ACTIVITY RATIO

Accounting ratios measure a firm's ability to convert different accounts
within their balance sheets into cash or sales.
Companies will typically try to turn their production into cash or sales as
fast as possible because this will generally lead to higher revenues.

7


Such ratios are frequently used when performing fundamental analysis on
different companies. The asset turnover ratio and inventory turnover ratio
are good examples of activity ratios.
The most used activity ratios are INVENTORY TURNOVER, AVERAGE
COLLECTION PERIOD, AVERAGE PAYMENT PERIOD and TOTAL
ASSET TURNOVER.

3. DEBT RATIO

A ratio that indicates what proportion of debt a company has relative
to its assets. The measure gives an idea to the leverage of the company
along with the potential risks the company faces in terms of its debt-load.

A debt ratio of greater than 1 indicates that a company has more debt than
assets; meanwhile, a debt ratio of less than 1 indicates that a company
has more assets than debt. Used in conjunction with other measures of
financial health, the debt ratio can help investors determine a company's
level of risk.
Generally used DEBT RATIOS are DEBT RATIO and TIME INTEREST
EARNED RATIO.

4. PROFITABILITY RATIOS

A class of financial metrics that are used to assess a business's ability to
generate earnings as compared to its expenses and other relevant costs
incurred during a specific period of time. For most of these ratios, having a
higher value relative to a competitor's ratio or the same ratio from a
previous period is indicative that the company is doing well.

These are closely linked with income ratios, which shed light upon the
overall effectiveness of management regarding the returns generated on
sales and investment.

8


LIQUIDITY RATIOS

Liquidity ratios include the current ratio and the quick ratio. Different
analysts consider different assets to be relevant in calculating liquidity.
Some analysts will calculate only the sum of cash and equivalents divided
by current liabilities because they feel that they are the most liquid assets,
and would be the most likely to be used to cover short-term debts in an
emergency.

1) Current ratio = Current assets / Current liabilities

Current assets include cash, marketable securities, inventory, and
prepaid expenses. Current liabilities includes accounts payable (1 year
or less), current portions of long-term debt, and salaries payable. The
current ratio measures the ability of the firm to pay is current bills while
still allowing for a safety margin above their required amount needed to
pay current obligations

FOR 2005:

Current ratio = 3,518,718 / 4,333,228

Current ratio = 0.812

FOR 2006:

Current ratio = 4,627,685 / 5,224,488


FOR 2007:

Current ratio = 5,623,823 / 5,978,522


9


2) Quick ratio = (Current Assets - Inventory) / Current Liabilities

The quick ratio is similar to the current ratio but eliminates the
inventory figure in the current assets section of the balance sheet.
The inventory figure is thought to be the least liquid figure and
should thus, be eliminated. Generally, the quick ratio should be
lower than the current ratio because it eliminates the inventory figure
from the calculation.

For 2005:

Quick ratio = (3,518,718 – 1,742,904) /4,333,228

Quick ratio = 1,775,814 / 4,333,228

Quick ratio = 0.410

For 2006:

Quick ratio = (4,627,685 – 2,236,646) /5,224,488

Quick ratio = 2,391,039/5,224,488

Quick ratio = 0.458

For 2007:

Quick ratio = (5,623,823 – 2,829,879)/ 5,978,522

Quick ratio = 2,793,944/5,978,522

Quick ratio = 0.467

10


ACTIVITY RATIO

An indicator of how rapidly a firm converts various accounts into
cash or sales. In general, the sooner management can convert
assets into sales or cash, the more effectively the firm is being run.

1. Inventory Turnover = Cost of Goods / Total Inventory

The inventory turnover ratio measures the number of times during a
year that a company replaces its inventory. The turnover is only
meaningful when comparing other firms in the industry or a
company’s prior inventory turnover. Differences in turnover rates
result from differing operating characteristics within an industry. The
higher the inventory turnover rate means the more efficiently a
company is able to grow sales volume

For 2005:

Inventory Turnover = 12,357,079/ 1,742,904

Inventory Turnover = 7.090

For 2006:

Inventory Turnover = 15,778,330/2,236,646


For 2007:

Inventory Turnover = 20,291,270/ 2,829,879


11


2. Avg. collection period=Accounts Receivable/(Sales / 360 days)

Total accounts receivable includes all outstanding credit obligations
from customers. The sales figure includes sales for the prior four
quarters of financial performance. The figure may also include
amounts on a quarterly basis only. The accounts receivable period is
a measure of a company’s ability to collect accounts receivable
within a timely and reasonable period. The accounts collection
period varies from industry to industry. The smaller the accounts
receivable period, the more effectively a company is in managing
and collecting money from customers.

For 2005:

Avg. Collection period = 865,897 / (17,142,363 / 360 days)

Avg. Collection period= 865,897 / 47,617.675

Avg. Collection period= 18.18 days

For 2006:

Avg. Collection period = 2,109,314 / (22,030,958/360 days)

Avg. Collection period = 2,109,314 / 61,197.11

Avg. Collection period = 34.47 days

For 2007:

Avg. Collection period = 2,022,387 / (28,235,393/360 days)

Avg. Collection period = 2,022,387 / 78,431.65

Avg. Collection period = 25.79 days

12


3. Avg. Payment Period = Accounts Payable/(Purchases/360 days)

The accounts payable turnover ratio includes all outstanding
obligations that a company owes its creditors. The total
purchases include a percentage of sales based on historical
figures.

For 2005:

Avg. Payment Period = 2,233,660 / (9,496,409/360)

Avg. Payment Period = 2,233,660 / 26,378.91

Avg. Payment Period = 84.68 days

For 2006:




For 2007:




13


4. Total Asset Turnover = Sales / Total Assets

The total asset turnover is a measure of how efficiently and
effectively a company uses its assets to generate sales. The higher
the total asset turnover ratio, the more efficiently firm’s assets have
been used.

For 2005:

Total Asset Turnover = 17,142,363 / 8,836,780

Total Asset Turnover = 1.94

For 2006:



For 2007:



14


DEBT RATIOS

Debt ratios measure the total amount and proportion of debt within the
liabilities section of a firm’s balance sheet. These figures are normally
appropriate for comparing a company performance from one period to
another.

a) Debt Ratio = Total Liabilities / Total Assets

The debt ratio is calculated by dividing the total liabilities by total
assets. The higher this ratio, the greater the degree of outside
financing by creditors. It indicates that the firm is more highly
leveraged (debt) and highly risky for creditors.

For 2005:

Debt Ratio = 6,881,733 / 8,836,780

Debt Ratio = 77.88%

For 2006:

Debt Ratio = 10,396,822 / 12,927,902

Debt Ratio = 80.42%

For 2007:

Debt Ratio = 11,736,869 / 15,848,574

Debt Ratio = 74.06%

15


b) Times Interest Earned = EBIT / Interest

Times interest earned ratio measures the ability of the firm to service
all debts. The figure will indicate how many times a company can
cover its fixed contractual obligations to its creditors. The higher the
times interest earned ratio, the more likely the firm can meet its
obligations. The figure is determined from the income statement by
finding the operating profit margin. The operating profit margin is the
profits of the firm before interest and taxes are subtracted. The
interest figure is the interest obligations for the prior four quarters of
financial performance from the use of long term debt funds.

For 2005:

Times Interest Earned = 2,114,085 / 180,108

Times Interest Earned = 11.74

For 2006:

Times Interest Earned = 2,640,418 / 447,774


For 2007:

Times Interest Earned = 3, 511,145 / 584,434


16


PROFITABILITY RATIOS

The profitability figures measure the ability of the business firm to earn a
profit from its operations through assets, sales, and equity.

a. Gross Profit Margin = ( Sales - Cost of Goods Sold )/ Sales

The gross profit margin indicates the percentage of each sales dollar
remaining after a firm has paid for its goods. The higher the GPM
the better pricing flexibility and cost management controls a firm has
in its operations

For 2005:

Gross Profit Margin = (17,142,863 – 12,357,079)/17,142,863

Gross Profit Margin = 4,785,784 / 17,142,863

Gross Profit Margin = 27.92%

For 2006:




For 2007:




17


b. Operating Profit Margin = Operating Profits / Sales

The operating profit margin indicates the profits of the company
before interest and taxes are deducted from firms operations. The
higher the operating profit margin, the greater pricing flexibility a firm
has in its operations. However, it could also indicate the degree of
cost control management a firm possesses.

For 2005:

Operating Profit Margin = 2,114,085 / 17,142,863

Operating Profit Margin = 12.33%

For 2006:



For 2007:



18


Ratio Formula 2006 2007 2008
GUL AHMAD AL KARAM
LIQUIDITY 2008 2008
CURRENT RATIO CURRENT ASSETS/ 0.941 0.855
CURRENT
LIABILITIES
QUICK RATIO (CURRENT 0.467 0.387
ASSETS-
INVENTORY) /
CURRENT
LIABILITIES
ACTIVITY
INVENTORY COST OF GOODS 7.170 13.917
TURNOVER SOLD / INVENTORY

TOTAL ASSET SALES / TOTAL 1.782 2.515
TURNOVER ASSETS
DEBT
DEBT RATIO TOTAL 74.06% 78.0%
LIABILITIES/
TOTAL ASSETS
TIMES INTEREST EBIT / INTEREST 5.897 6.421
EARNED RATIO
PROFITABILITY
GROSS PROFIT GROSS PROFIT / 28.38% 7.40%
MARGIN SALES
OPERATING OPERATING 12.44% 7.30%
PROFIT MARGIN PROFIT / SALES

19


NET PROFIT EARNINGS 6.39% 4.40%
MARGIN AVAILBLE FOR
COMMON
STOCKHOLDERS
EQUITY / SALES
EARNINGS PER EARNINGS 39.81 24.53
SHARE AVAILBLE FOR
COMMON
STOCKHOLDERS
EQUITY/ NO. OF
SHARES OF
COMMON STOCK
OUTSTANDING
RETURN ON EARNINGS 11.39% 11.0%
TOTAL ASSETS AVAILBLE FOR
COMMON
STOCKHOLDERS
EQUITY / TOTAL
ASSETS
RETURN ON EARNINGS 43.90% 41.20%
COMMON EQUITY AVAILBLE FOR
COMMON
STOCKHOLDERS
EQUITY / COMMON
STOCK EQUITY

20


c. Net Profit Margin = Net Profits /Sales

The net profit margin measures the amount of profits available to
shareholders after interest and taxes have been deducted on the
income statement. The higher the profit margin, the more pricing
flexibility a firm may have in its operations or the greater cost control
initiated by management.

For 2005:

Net Profit Margin = 1,148,722 / 17,142,863

Net Profit Margin = 6.7%

For 2006:



For 2007:



21


d. Earnings per share(EPS)

The earnings per share measures the per share dollar return to
owners of a company.

EPS= earnings available for common stockholders equity /
number of shares of common stock outstanding

For 2005:

EPS= 1,148,722 / 45,350

EPS= Rs. 25.33

For 2006:

EPS= 1,363,290 / 22,030,958

EPS= Rs. 30.06

For 2007:

EPS= 1,805,212 / 45,350

EPS= Rs, 39.81

22


e. RETURN ON TOTAL ASSETS(ROA)

Return on total assets shows that how much the firm is performing
well in generating profits with its available assets.

ROA= earnings available for common stockholders equity /
Total assets

For 2005:

ROA= 1,148,722 / 8,836,780

ROA= 13%

For 2006:

ROA= 1,363,290 / 12,927, 902

ROA= 10.55%

For 2007:

ROA= 1,805,212 / 15,848,574

ROA= 11.39%

23


f. RETURN ON COMMON EQUITY(ROE)

The return on equity measures the return earned on the owners’
equity in the firm. The higher the rate the better the firm has
increased wealth to shareholders.

ROE= earnings available for common stockholders equity /
Common stock equity

For 2005:

ROE= 1,148,722 / 1,957,047

ROE= 58.70%

For 2006:

ROE= 1,363,290 / 2,531,080

ROE= 53.86%

For 2007:

ROE= 1,805,212 / 4,111,705

ROE= 43.90%

24


Conclusions and recommendations

Company has the current ratio of 0.812 in 2005, 0.886 in 2006, and 0.941
in 2007 that is not a good ratio as a current ratio of at least 2.0 is cited
acceptable in manufacturing firms. So it shows that firm is not able to pay
its short term obligations as they come due.

Company’s quick ratio is 0.410 for 2005, 0.458 for 2006, and 0.467 for
2007 that is not good because the quick ratio of 1.0 is acceptable in
manufacturing firms. As quick ratio provides a better measure of overall
liquidity only when a firm’s inventory cannot be easily converted into cash.
So it shows that company is not in good condition to pay its short term
obligations.

Company’s inventory turnover is 7.090 for 2005, 7.054 for 2006 and 7.170
for 2007. As inventory turnover shows the liquidity of firm’s inventory and
so is compared in the same industry or with firms past inventory turnover.
In this ratio Analysis Company has maximum inventory turnover in 2007

Average collection period of firm for 2005 is 18.18 days, for 2006 is 34.47
days and for 2007 is 25.79 days. The average collection period is
meaningful only in relation to the firm’s credit terms. If the firm’s credit term
is greater than average collection period then that average collection
period will be acceptable.

Firm’s average payment period for 2005, 2006 and 2007 are 84.68, 70.79
and 70.88 days respectively. This figure is meaningful only in relation to
the average credit terms extended to the firm. A good average payment
period should be less than the average credit terms extended.

The total assets turnover of the firms for 2005 is 1.94, for 2006 is 1.704
and for 2007 is 1.782. Total assets turnover shows that how much
efficiently firm is using its assets. The given figures show that company
turnover its assets 1.94 times in 2005, 1.704 times in 2006 and 1.782
times in 2007.

Company’s debt ratio for 2005, 2006 and 2007 are 77.88%, 80.42% and
74.06% respectively. It means that firm has financed its 77.88% assets by
debt in 2005, and 80.42 % assets in 2006 and 74.06% in 2007 as these

25


ratios are high so they shows the firm’s degree of indebtedness and the
more financial leverage it has.

Gross profit margin of firm for 2005, 2006 and 2007 are 27.92%, 28.38%
and 28.14% respectively. The firm has higher gross profit in 2006. The
higher gross profit margin is better as it shows the lower relative cost of
merchandise sold.

Company’s operating profit margins for 2005, 2006 and 2007 are 12.33%,
11.99% and 12.44% respectively. Operating profit margin shoes the “pure
profits” that is profits without interest, taxes and preferred stock dividends.
The firm has high operating profit in 2007 that is not a good indicator of
firm’s position.

Net profit margin of firm for 2005 is 6.701%, for 2006 is 6.19% and for
2007 is 6.39%. The high net profit margin is better as it shows the
percentage of each sales dollar remain after all costs and expensive
included interest, taxes and preferred stock dividends has been deducted.
The firm’s net profit margin is not s good and the maximum net profit
margin is 6.701% in last three years.

Firm has earned earnings per share for 2005, 2006 and 2007 Rs. 25.33,
Rs. 30.06 and Rs. 39.81 respectively. Which shows the amount in rupees
that is earned on each outstanding share of common stock equity. The
firms EPS is improving as shown from the figures. Higher EPS cause in
attracting new peoples to invest in the company.

Return on total assets of firm is 13%, 10.55% and 11.39% for 2005, 2006
and 2007 respectively. This shows that the firm has earned 13%, 10.55%
and 11.39% in respective years on each rupee of asset investment. The
firm is not performing well in generating profits with its available assets.

Return on equity of firm is 58.7%, 53.86% and 43.90% for 2005, 2006 and
2007 respectively. It indicates that how much firms earned on its each
rupee of common stockholder’s investment. This ratio is decreasing from
last three years. The higher the ratio, the better off is the owners.

26


Ratio Formula 2005 2006 2007

LIQUIDITY
CURRENT RATIO CURRENT ASSETS/ 0.812 0.886 0.941
CURRENT
LIABILITIES
QUICK RATIO (CURRENT 0.410 0.458 0.467
ASSETS-
INVENTORY) /
CURRENT
LIABILITIES
ACTIVITY
INVENTORY COST OF GOODS 7.090 7.054 7.170
TURNOVER SOLD / INVENTORY
AVERAGE ACCOUNTS 18.18 DAYS 34.47 DAYS 25.79 DAYS
COLLECTION RECEIVABLE /
PERIOD AVERAGE SALES
PER DAY
AVERGE ACCOUNTS 84.68 days 70.79DAYS 70.88DAYS
PAYMENT PAYABLE /
PERIOD AVERAGE
PURCHASE PER
DAY
TOTAL ASSET SALES / TOTAL 1.94 1.704 1.782
TURNOVER ASSETS
DEBT
DEBT RATIO TOTAL 77.88% 80.42% 74.06%
LIABILITIES/
TOTAL ASSETS
TIMES INTEREST EBIT / INTEREST 11.74 6.01 5.897
EARNED RATIO
PROFITABILITY
GROSS PROFIT GROSS PROFIT / 27.92% 28.14% 28.38
MARGIN SALES
OPERATING OPERATING 12.33% 11.99% 12.44%
PROFIT MARGIN PROFIT / SALES

27


NET PROFIT EARNINGS 6.701% 6.19% 6.39%
MARGIN AVAILBLE FOR
COMMON
STOCKHOLDERS
EQUITY / SALES
EARNINGS PER EARNINGS 25.33 30.06 39.81
SHARE AVAILBLE FOR
COMMON
STOCKHOLDERS
EQUITY/ NO. OF
SHARES OF
COMMON STOCK
OUTSTANDING
RETURN ON EARNINGS 13% 10.55% 11.39%
TOTAL ASSETS AVAILBLE FOR
COMMON
STOCKHOLDERS
EQUITY / TOTAL
ASSETS
RETURN ON EARNINGS 58.70% 53.86% 43.90%
COMMON EQUITY AVAILBLE FOR
COMMON
STOCKHOLDERS
EQUITY / COMMON
STOCK EQUITY

28


NESTLE PAK LTD.
BALANCE SHEET
As at 31 December 2007
Equity and liabilities
Share capital and reserves (rupees in ‘000’)

Authorized capital
75,000,000 (2006: 75,000,000) ordinary shares of Rs. 10 750,000
each
Issued, subscribed and paid up capital 453,496

Share premium 249,527

General reserve 280,000

Accumulated profit 3,128,682

Non-current liabilities
Long term finances 4,028,700
Deferred taxation 1,371,675
Retirement benefits 238,370
Liabilities against assets subject to finance lease 119,602
5,758,347

Current liabilities
Current portion of:

Long term finances -
Short term borrowings – secured 1,035,000
Short term running finance under mark-up arrangements 1,637,799
– secured
Customer security deposits - interest free 124,572
Trade and other payables 3,062,027
Interest and mark-up accrued 89,261

5,978,522
Contingencies and commitment
Total 15,848,574

29


ASSETS
Tangible Fixed Assets (Rupees in ‘000’)

Property, plant and equipment 9,074,428
Capital work-in-progress 971,183

10,045,611
Intangible assets
92,382
Long term loans and advances
80,670
Long term security deposits

Current assets

Stores and spares 436,573
Stock in trade 2,393,30
Trade debts 6
344,053
Current portion of long term loans and advances 21,279
Advances, deposits, prepayments and other receivables 2,022,38
Cash and bank balances 7
406,225
5,623,823

30


NESTLE PAK LTD.
PROFIT AND LOSS STATEMENT
For the year ended December 31, 2007

(Rupees in ‘000’)

Sales – net 28,235,393

Cost of goods sold (20,291,270)

Gross profit 7,944,123

(3,538,669)
Distribution and selling expenses
Administration expenses (894,309)
Operating profit 3,511,145

Finance cost (584,434)
Other operating expenses (442,914)
(1,027,348)
Other operating income 65,959

Profit before taxation
2,549,756
(744,544)
Taxation
Profit after taxation 1,805,212

Earnings per share - basic and diluted (Rupees) 39.81

NESTLE PAK LTD.
Cash FLOW STATEMENT

31


For the month ended December 31, 2007

(Rupees in ‘000’)

Cash generated from operations 4,534,010
(Increase) in long term security deposits -

(Increase) in long term loans and advances (27,170)
Retirement benefits paid (74,690)
Finance cost paid (593,722)
Taxes paid (234,803)

Net cash generated from operating activities 3,603,625

Cash flow from investing activities
Fixed capital expenditure (2,909,391)
Sale proceeds of property, plant and equipment 67,321
Net cash used in investing activities (2,842,070)

Cash flow from financing activities
Receipt of long term finances -
Repayment of long term finances (300,000)
Net movement in short term borrowings – secured 335,000
Payment of finance lease liabilities (18,333)
Dividend paid (226,748)
Net cash (used in)/generated from financing activities (210,081)

Net increase/(decrease) in cash and cash equivalents 551,474

Cash and cash equivalents at the begging of the year (1,783,048)
Cash and cash equivalents at the end of the year (1,231,574)

NESTLE PAK LTD.
BALANCE SHEET

32


For the moth ended December 31, 2006


Authorized capital
75,000,000 (2006: 75,000,000) ordinary shares of Rs. 10 750,000
Issued, subscribed and paid up capital 453,496

Share premium 249,527
General reserve 280,000
Accumulated profit 1,548,057
2,531,080

Non-current liabilities
Long term finances 3,963,700
Deferred taxation 942,858
Retirement benefits 234,305
5,172,334
Current liabilities
Current portion of:

Long term finances 300,000
Short term borrowings – secured 700,000
Short term running finance under mark-up arrangements – 1,817,711
secured security deposits - interest free
Customer 102,307
Trade and other payables 2,197,529
Interest and mark-up accrued 98,549
5,224,488
Contingencies and commitment

Total 12,927,902

33

0
4


ASSETS
Tangible Fixed Assets (Rupees in ‘000’)

6,986,049
Property, plant and equipment 1,107,052
Capital work-in-progress
Intangible assets 8,093,101

Long term loans and advances
135,020
Long term security deposits
66,008
Current asset

Stores and spares 329,346
Stock in trade 1,907,300
Trade debts 238,291
Current portion of long term loans and advances 8,771
Advances, deposits, prepayments and other receivables 2,109,314
Cash and bank balances 34,663
4,627,685

34


NESTLE PAK LTD
INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 2006

Note (Rupees in ‘000’)

Sales – net 22,030,958



Distribution and selling expenses (2,925,118)


operating profit 2,640,418


(692,924)

Other operating income 57,961

Profit before taxation 2,005,455

Taxation (642,165)


Earnings per share - basic and diluted (Rupees) 30.06

35


NESTLE PAK LTD.
Cash FLOW STATEMENT
For the month ended December 31, 2006

(Rupees in’000’)

(Increase) in long term security deposits (750)
Retirement benefits paid (69,295)
Net cash generated from operating activities 646,047

Cash flow from investing activities:

Cash flow from financing activities:
Receipt of long term finances 3,066,850
Repayment of long term finances (1,150,000)
Payment of finance lease liabilities (5,213)
Dividend paid (1,132,770)
Net cash (used 1,353,867
in)/generated from
financing activities
Net increase/(decrease) in cash and cash equivalents (1,521,002)

Cash and cash equivalents at the begging of the year (262,046)

Cash and cash equivalents at the end of the year (1,783,048)

36


NESTLE PAK LTD.
BALANCE SHEET
For the moth ended December 31, 2005


Current liabilities:
Trade and other payables 11,117
Liabilities directly associated with
Assets held for sale 38
Financial liabilities 18,805
Tax liabilities 705
Derivative liabilities 922
Accruals and deferred income 4,231

Total current liabilities 35

Non-current liabilities:
Financial liabilities 8,153
Employee benefits liabilities 3,794
Deferred tax liabilities 665
Other payables 185
Provisions 3,347
1
Total non-current liabilities
6,144

Total liabilities

Equity
Share capital 404

37


Share premium 5 926
Reserve for treasury shares 2 616
Translation reserve (3 984)
Retained earnings 47 655

52,213

Treasury shares (2770)

Total equity attributable to the Group
49,847
Minority interests 1588

Total equity 51,435

Total liabilities and equity 103,397

38


Assets (rupees in 000)

Current assets
Liquid assets
Cash and cash equivalents 4658
Other liquid assets 12,735
17, 393
Trade and other receivables 14, 291
Assets held for sale 633
Inventories 8, 162
Derivative assets 645
Prepayments and accrued income 641 24, 372

Total current assets 41765

Non-current assets
Property, plant and equipment
Gross value 44,976
Accumulated depreciation and (26,142)
impairment
18, 834
Investments in associates 7, 073
Deferred tax assets (a) 1, 697
Financial assets 2, 513
Employee benefits assets 1, 673
Goodwill 26, 990
Intangible assets 2, 852

Total non-current assets (a) 61, 632

Total assets (a) 103,397

39


NESTLE PAK LTD
INCOME STATEMENT

2005

Sales – net 17,142,363


Distribution and selling expenses (2,090,469)


Operating profit 2,120,561


(536,636)

Other operating income
53,151
Profit before taxation
1,637,076

Taxation (484,145)


25.42
Earnings per share - basic and diluted (Rupees)

40


NESTLE PAK LTD.
CASH FLOW STATEMENT

(Rupees in 000)

Cash flow from operating activities
(Increase)/decrease in long term security deposits 659
Retirement and other benefits paid (81,911)

Net cash generated from operating activities 2,916,075

Cash flow from investing activities



Cash flow from financing activities
Receipt of long term finances 896,850
Repayment of long term finances (200,000)
Payment of finance lease liabilities (115)
Dividend paid (226,346)

Net cash generated from financing activities 595,389

Net (decrease)/increase in cash and cash
equivalents 749,813
Cash and cash equivalents at beginning of the year (1,011,859)

Cash and cash equivalents at end of the year (262,046)

41


1) www.Nestle.Pk
2) Lawrence j. gitman (2006), principles of managerial finance
3) http://en.wikipedia.org/wiki/Financial_ratio
4) http://www.finpipe.com
5) http://www.winne.com
6) Addison Wesley (New York City Of Publishing), 11th Edition,
Financial Management
7) http://www.financialregulator.com

42


A

Accounts receivable: Amounts of money owed to a firm by customers who have
bought goods or services on credit. A current asset, the accounts receivable
account is also called receivables.

Accrued expenses: Amounts owed but not yet paid for wages, taxes, interest,
and dividends. The accrued expenses account is a short-term liability.

Acid-test (quick) ratio: Current assets less inventories divided by current
liabilities. It shows a firm's ability to meet current liabilities with its most liquid
(quick) assets.

Activity ratios: Ratios that measure how effectively the firm is using its assets.

B

Balance sheet: A summary of a firm's financial position on a given date that
shows total assets = total liabilities + owners' equity.

C

Capital structure: The mix (or proportion) of a firm's permanent long-term
financing represented by debt, preferred stock, and common stock equity.

Cash insolvency: Inability to pay obligations as they fall due.

Common-size analysis: An analysis of percentage financial statements where
all balance sheet items are divided by total assets and all income statement
items are divided by net sales or revenues.

Common stock: Securities that represent the ultimate ownership (and risk)
position in a corporation.

Credit period: The total length of time over which credit is extended to a
customer to pay a bill.

Current ratio: Current assets divided by current liabilities. It shows a firm's ability
to cover its current liabilities with its current assets.

D

43


Debt ratios: Ratios that show the extent to which the firm is financed by debt.

Depreciation : The systematic allocation of the cost of a capital asset over a
period of time for financial reporting purposes, tax purposes, or both.

E

Earnings per share (EPS): Earnings after taxes (EAT) divided by the number of
common shares outstanding.

F

Financial ratio: An index that relates two accounting numbers and is obtained
by dividing one number by the other.

Financial (statement) analysis: The art of transforming data from financial
statements into information that is useful for informed decision making.

I

Income statement: A summary of a firm's revenues and expenses over a
specified period, ending with net income or loss for the period.

Interest: Money paid (earned) for the use of money.

Interest coverage ratio: Earnings before interest and taxes divided by interest
charges. It indicates a firm's ability to cover interest charges. It is also called
Verdana interest earned.

L

Liquidation: The sale of assets of a firm, either voluntarily or in bankruptcy.

Liquidation value: The amount of money that could be realized if an asset or a
group of assets (e.g., a firm) is sold separately from its operating organization.

Liquidity: The ability of an asset to be converted into cash without a significant
price concession.

Liquidity ratios: Ratios that measure a firm's ability to meet short-term
obligations.

M

Market value: The market price at which an asset trades.

44


P

Preferred stock: A type of stock that promises a (usually) fixed dividend but at
the discretion of the board of directors. It has preference over common stock in
the payment of dividends and claims on assets

Price/earnings (P/E) ratio: The market price per share of a firm's common
stock divided by the most recent 12 months of earnings per share; also known as
a trailing P/E ratio.

Profitability ratios: Ratios that relate profits to sales and investment.

S

Safety stock: Inventory stock held in reserve as a cushion against uncertain
demand (or usage) and replenishment lead time.

Shareholders' equity: Total assets minus total liabilities. Alternatively, the book
value of a company's common stock (at par) plus additional paid-in capital and
retained earnings.

Simple interest: Interest paid (earned) on only the original amount, or principal,
borrowed (lent).

Stakeholders: All constituencies with a stake in the fortunes of the company.
They include shareholders, creditors, customers, employees, suppliers, and local
communities.

Statement of cash flows: A summary of a firm's cash receipts and cash
payments during a period of time.

Stock dividend: A payment of additional shares of stock to shareholders. Often
used in place of or in addition to a cash dividend.

T

Treasury bills (T-bills): Short-term, non-interest bearing obligations of the US
Treasury issued at a discount and redeemed at maturity for full face value

45


46

Fm project

Recommended

Recommended

More Related Content

What's hot

What's hot (20)

Viewers also liked

Viewers also liked (19)

Similar to Fm project

Similar to Fm project (20)

Recently uploaded

Recently uploaded (20)

Fm project