financial report analysis

1. Financial Reporting & Analysis
Accounting Ratios & Analysis:
Submitted To: Submitted By:
Prof. FMA Khan Kshitij Seth
Roll No. 23
Section - A

2. What are Accounting Ratios?
Accounting ratios assist in measuring the efficiency and profitability of a company based
on its financial reports. They are also called financial ratios; accounting ratios provide a
way of expressing the relationship between one accounting data point and another, which
is intended to provide a useful comparison.
Dream Company: Nestle India Ltd.
Competitor:Britannia Industries Ltd.

3. FINANCIAL ANALYSIS USING RATIO ANALYSIS
Liquidity Ratios:
Current Ratio of Nestle:
Current Ratio 2012 2013 2014 2015 2016
Nestle 0.61 0.54 0.65 0.54 0.50
Now, by seeing the current ratios of Nestle from 2012-16, we can easily examine that there is
a decreasing trend.
As we can observe thatthe firmwashavinga highcurrent ratioin FY14 that is0.65 whichis lower
than the standard.Thisfigure can be explainedwiththe factthatthe firmwas tradingwithmore
currentliabilitiesinitsbooks.
The CurrentRatio decreasesandreachesto0.50 in 2016 whichshowsthatcurrent liabilitieswere
increasingoverthe years.
0.00
0.20
0.40
0.60
0.80
2012 2013 2014 2015 2016
Current Ratio(Nestle)
Current Ratio(Nestle)

4. COMPARISON OF CURRENTRATIO WITH INDUSTRY AND BRITANNIA
Current Ratio 2012 2013 2014 2015 2016
Nestle 0.61 0.54 0.65 0.54 0.50
Britannia 0.70 0.97 0.84 1.00 1.07
Industry 1.68 1.82 1.64 1.72 1.5
There isa noticeable decrease incurrentratioof Nestle Indiafrom0.61 in 2012 to 0.50 in 2016 as
against1.68 & 1.5 inthe case of industryforthe same periodrespectively.
We can observe from the above chart that Nestle has always been maintaining its current
ratio below the industry benchmark.
Quick Ratio of Nestle:
Quick Ratio 2012 2013 2014 2015 2016
Nestle 0.272 0.223 0.386 0.250 0.248
The quickratio representsthe abilityof the firmtocoverits currentliabilitieswithoutconsideringits
inventoriesanditalsoprovidesuswithaninsightmuchclearand deeperthanthe currentratio.
It showsthe performance of quickassetsincompensatingthe currentliabilitiesandpresentsuswith
weightof fundsblockedininventories.
Generallyaquickratioof 1:1 isconsideredsatisfactory,subjecttodeeperenquiry.
From the table we can notice thatNestle hasseenadecrease trendinits quickratio fromYear 2014
- Year 2016.
0.00
0.50
1.00
1.50
2.00
2012 2013 2014 2015 2016
Nestle
Britannia
Industry
0.000
0.500
2012 2013 2014 2015 2016
Nestle(Quick Ratio)
Nestle

5. As we can observe thatthe firmwashavinga highliquidratioinFY14 that is0.386 whichlowerthan
the standard.
COMPARISON OF QUICKRATIO WITH INDUSTRY AND BRITANNIA
Quick Ratio 2012 2013 2014 2015 2016
Nestle 0.272 0.223 0.386 0.250 0.248
Britannia 0.36 0.58 0.47 0.72 0.79
Industry 1.09 1.20 1.07 1.11 0.93
As we can observe fromthe chart above that Nestle hasperformedbelow the industrystandards
and has shownits weakliquidityfrontwitha low quickratios.
Super Quick Ratio of Nestle:
Super Quick Ratio 2012 2013 2014 2015 2016
Nestle 0.21 0.19 0.56 0.33 0.36
Super quick assets do not include also debtors and bills receivable. This ratio is the most
strict and very conservative test of the firm’s liquidity position.
Now, by seeing the super quick ratio of Nestle from 2012-16, we can easily examine that
there is an increasing trend.
As we can observe thatthe firmwashavinga highSuperQuick ratioinFY14 that is 0.56 whichis
lowerthanthe standard.
0.000
0.500
1.000
1.500
2012 2013 2014 2015 2016
Nestle
Britannia
Industry
0.00
0.20
0.40
0.60
2012 2013 2014 2015 2016
Nestle(Super Quick Ratio)
Nestle

6. COMPARISON OF LIQUID RATIO WITH INDUSTRY AND BRITANNIA
Super Quick Ratio 2012 2013 2014 2015 2016
Nestle 0.21 0.19 0.56 0.33 0.36
Britannia 0.04 0.11 0.10 0.23 0.03
Industry 0.403 0.249 0.363 0.278 0.254
There isa noticeable increase insuperquickratioof Nestlefrom0.21 in 2012 to 0.36 in2016 as
against0.403 & 0.254 inthe case of industryforthe same periodrespectively.
Nestle hasperformedbetterthanitscompetitor(Britannia) buthasunderperformedascomparedto
the industry.
Capital Structure Ratios:
Debt Equity Ratio:
Debt Equity Ratio 2012 2013 2014 2015 2016
Nestle 0.762 0.584 0.502 0.007 0.006
Now, by seeing the debt equity ratios of Nestle from 2012-16, we can easily examine that
there is a decreasing trend.
0.00
0.20
0.40
0.60
2012 2013 2014 2015 2016
Nestle
Britannia
Industry
0.000
0.500
1.000
2012 2013 2014 2015 2016
Nestle(Debt Equity Ratio)
Nestle

7. The debt-to-equity ratio (D/E) indicates the relative proportion of shareholders' equity and
debt used to finance a company's assets.
As we can observe thatthe firmwashavinga highdebtequityratioinFY12 that is 0.762 .
The Debt Equityratio decreasesandreachesto0.006 in2016 andshowsthat the debtis
comparativelylowerthanthe firm’sequity.
COMPARISON OF DEBTEQUITY RATIO WITH INDUSTRY AND BRITANNIA
Debt Equity Ratio 2012 2013 2014 2015 2016
Nestle 0.762 0.584 0.502 0.007 0.006
Britannia 0.054 0.304 0.005 0.003 0.002
Industry 0.660 0.554 0.499 0.377 0.297
There isa noticeable decrease in debtequity ratioof Nestlefrom0.762 in2012 to 0.006 in2016 as
against0.660 & 0.297 inthe case of industryforthe same periodrespectively.
Nestle hasperformed muchbetterthanitscompetitor(Britannia)andhasmaintainedabetterdebt
equityratio.Nestle hasperformed betterascomparedtothe industry asa whole inyears2012,
2013, 2014.
Nestle andBritanniahasan ideal ratioof debtandequitywhichimpliesthatboththe companies
have a perfectblendof loanas well asthe shareholder’sfunds.
Interest Coverage Ratio:
Interest Coverage
Ratio 2012 2013 2014 2015 2016
Nestle 272.61 59.37 46.58 125.20 400.53
Now, by seeing the interest coverage ratios of Nestle from 2012-16, we can observe that there
is an increasing trend.
0.000
0.200
0.400
0.600
0.800
1.000
2012 2013 2014 2015 2016
Nestle
Britannia
Industry

8. Interest Coverage ratio is a measure of a company's ability to honor its debt payments.
As we can observe thatthe firmwashavinga highinterestcoverage ratioinFY12 that is272.61.
The interestcoverage ratioincreasesandreachesto400.53 in2016.
COMPARISON OF INTERESTCOVERAGERATIO WITH INDUSTRY AND
BRITANNIA
Interest Coverage
Ratio 2012 2013 2014 2015 2016
Nestle 272.61 59.37 46.58 125.20 400.53
Britannia 7.63 9.80 104.42 613.02 914.51
Industry 50.66 14.95 30.38 128.32 224.80
There isa noticeable increase ininterestcoverageratioof Nestle from272.61 in 2012 to 400.53 in
2016 as against50.66 & 224.80 in the case of industryforthe same periodrespectively.
Nestle hasperformedinferiorthanitscompetitor(Britannia).Nestle hasperformedbetteras
comparedto the industryasa whole overthe years.
It meansboth Nestle andBritanniaare makingmore thanenoughmoneytopay itsinterest
obligationswithsome extraearningsleftovertomake the principle payments.
0.00
100.00
200.00
300.00
400.00
500.00
2012 2013 2014 2015 2016
Nestle (Interest Coverage Ratio)
Nestle
0.00
200.00
400.00
600.00
800.00
1000.00
2012 2013 2014 2015 2016
Nestle
Britannia
Industry

9. Activity Ratios:
Debtors Turnover Ratio:
Debtors turnover ratio 2012 2013 2014 2015 2016
Nestle 65.11 95.18 108.00 99.44 104.25
Now, by seeing the debtors’ turnover ratios of Nestle from 2012-16, we can observe that
there is an increasing trend.
Thisratio showshowefficientacompanyisat collectingitscreditsalesfromcustomers.Companies
are more liquidthe fastertheycanconverttheir receivables intocash.
The debtors’turnoverratioincreases from65.11 and reachesto 104.25 in 2016.
Therefore,itreflectsashortlapse of time betweensalesandthe collectionof cash.
COMPARISON OF DEBTORS TURNOVER RATIO WITH INDUSTRY AND
BRITANNIA:
Debtors turnover ratio 2012 2013 2014 2015 2016
Nestle 65.11 95.18 108.00 99.44 104.25
Britannia 95.40 72.81 117.48 101.10 74.49
Industry 50.61 50.76 60.02 53.34 48.41
0.00
20.00
40.00
60.00
80.00
100.00
120.00
2012 2013 2014 2015 2016
Nestle(Debtors turnover Ratio)
Nestle

10. There is a noticeable increase in debtors’ turnover ratio of Nestle from 65.11 in 2012 to
104.25 in 2016 as against 50.61 & 48.41 in the case of industry for the same period
respectively.
Nestle has performed a little inferior than its competitor (Britannia) but Nestle has
performed better as compared to the industry as a whole over the years.
As the ratio is going up, either collection efforts are improving, sales may be raising or
receivables are being reduced.
Creditors Turnover Ratio:
Creditors turnover ratio 2016 2015 2014 2013 2012
Nestle 2.54 3.36 3.09 3.03 3.42
Now, by seeing the creditors’ turnover ratios of Nestle from 2012-16, we can observe that
there is a decreasing trend.
The creditors’ turnoverratioindicateshow quicklyacompanypaysoff itsvendors,itisusedby
suppliesandcreditorstohelpdecide whetherornotto grant creditto a business.
The creditors’turnoverratiodecreasesfrom3.42 and reachesto 2.54 in2016.
0.00
50.00
100.00
150.00
2016 2015 2014 2013 2012
Nestle
Britannia
Industry
0.00
1.00
2.00
3.00
4.00
2016 2015 2014 2013 2012
Nestle(CreditorsTurnover Ratio)
Nestle

11. Therefore, itshowsthe companyistakinglongertopayoff its suppliersthanitwasinprevioustime
periods.
COMPARISON OF CREDITORS TURNOVERRATIO WITH INDUSTRY AND
BRITANNIA:
Creditors turnover ratio 2016 2015 2014 2013 2012
Nestle 2.54 3.36 3.09 3.03 3.42
Britannia 5.32 5.34 5.78 6.12 3.61
Industry 3.84 4.13 3.76 4.05 3.54
There is a noticeable increase in creditors’ turnover ratio of Nestle from 2.54 in 2012 to 3.42
in 2016 as against 3.84 & 3.54 in the case of industry for the same period respectively.
Nestle has performed a little inferior than its competitor (Britannia) and has
underperformed as compared to the industry.
But as the ratio is going down, it can be said that the firm is taking longer to pay off its
suppliers.
Inventory Turnover Ratio:
Inventory turnover ratio 2016 2015 2014 2013 2012
Nestle 4.55 5.87 6.18 5.62 5.35
Now, by seeing the inventory’ turnover ratios of Nestle from 2012-16, we can observe that
there is a decreasing trend.
0.00
2.00
4.00
6.00
8.00
2016 2015 2014 2013 2012
Nestle
Britannia
Industry

12. A company’s inventory turnover ratio gives you an idea of how well it manages its
resources.
The inventory turnover ratio decreases from 5.35 and reaches to 4.55 in 2016.
Therefore, it may mean the company has much more inventory than it really needs at any
one time.
COMPARISON OF INVENTORY TURNOVER RATIO WITH INDUSTRY AND
BRITANNIA:
Inventory turnover ratio 2016 2015 2014 2013 2012
Nestle 4.55 5.87 6.18 5.62 5.35
Britannia 12.22 12.72 10.60 10.81 8.44
Industry 6.39 6.47 6.24 6.69 5.77
There is a noticeable decrease in inventory turnover ratio of Nestle from 5.35 in 2012 to
4.55 in 2016 as against 5.77 & 6.39 in the case of industry for the same period respectively.
Nestle has performed a little inferior than its competitor (Britannia) and has
underperformed as compared to the industry.
0.00
2.00
4.00
6.00
8.00
2016 2015 2014 2013 2012
Nestle(Inventory Turnover Ratio)
Nestle
0.00
2.00
4.00
6.00
8.00
10.00
12.00
14.00
2016 2015 2014 2013 2012
Nestle
Britannia
Industry

13. But as the ratio is going down, it can be said that the firm’s capital is tied up in goods or raw
materials that it will take a long time to sell or make a profit.
Fixed Assets Turnover Ratio:
Fixed Assets turnover ratio 2012 2013 2014 2015 2016
Nestle 4.77 2.60 2.70 3.10 2.82
Now, by seeing the fixed assets turnover ratios of Nestle from 2012-16, we can observe that
there is a decreasing trend.
A company’s fixed assets turnover ratio measures the efficiency with which a company uses
its fixed assets to generate its sales revenue.
The fixed assets turnover ratio decreases from 4.77 and reaches to 2.82 in 2016.
Therefore, it may mean inefficient or under-utilization of fixed assets.
COMPARISON OF FIXED ASSETS TURNOVER RATIO WITH INDUSTRY AND
BRITANNIA:
Fixed Assets turnover ratio 2012 2013 2014 2015 2016
Nestle 4.77 2.60 2.70 3.10 2.82
Britannia 13.12 12.43 11.56 13.64 12.43
Industry 4.97 4.52 4.37 4.98 4.83
0.00
1.00
2.00
3.00
4.00
5.00
6.00
2012 2013 2014 2015 2016
Nestle(Fixed Assets Turnover Ratio)
Nestle

14. There is a noticeable decrease in fixed assets turnover ratio of Nestle from 4.77 in 2012 to
2.82 in 2016 as against 4.97 & 4.83 in the case of industry for the same period respectively.
Nestle has performed a little inferior than its competitor (Britannia) and has
underperformed as compared to the industry.
But as the ratio is going down, it implies inefficient or under-utilization of fixed assets.
Profitability Ratios:
Gross Profit Ratio:
Gross Profit Ratio 2016 2015 2014 2013 2012
Nestle 54.35 49.70 50.01 49.75 47.77
Now, by seeing the gross profit ratios of Nestle from 2012-16, we can observe that there is an
increasing trend.
A company’s gross profit ratio measures company's manufacturing and distribution
efficiency during the production process.
0.00
5.00
10.00
15.00
2012 2013 2014 2015 2016
Nestle
Britannia
Industry
44.00
46.00
48.00
50.00
52.00
54.00
56.00
2016 2015 2014 2013 2012
Nestle(Gross Profit Ratio)
Nestle

15. The gross profit ratio increases from 47.77 and reaches to 54.35 in 2016.
Therefore, a higher Gross Profit Ratio indicates, Higher Profitability.
COMPARISON OF GROSS PROFITRATIO WITH INDUSTRY AND BRITANNIA:
Gross Profit Ratio 2016 2015 2014 2013 2012
Nestle 54.35 49.70 50.01 49.75 47.77
Britannia 40.95 38.71 38.36 36.21 35.13
industry 43.10 41.14 42.46 40.48 39.10
There is a noticeable increase in gross profit ratio of Nestle from 47.77 in 2012 to 54.35 in
2016 as against 39.10 & 43.10 in the case of industry for the same period respectively.
Nestle has outperformed its competitor (Britannia) and has performed better as compared
to the industry as a whole over the years.
But as the ratio is going up, it implies higher profitability.
Return on shareholders’ investment ratio:
Return on shareholders’ investment
Ratio 2016 2015 2014 2013 2012
Nestle 9.99 20.88 23.58 29.69 37.74
Now, by seeing the returnon shareholders’ investment ratios of Nestle from 2012-16, we can
observe that there is a decreasing trend.
0.00
10.00
20.00
30.00
40.00
50.00
60.00
2016 2015 2014 2013 2012
Nestle
Britannia
industry

16. A company’s return on shareholders’ investment ratio measures an overall profitability of
the business.
The return on shareholders’ investment ratio decreases from 37.74 and reaches to 9.99 in
2016.
Therefore, return on shareholders’ investment indicates the efficiency of the management
in using the resources of the business.
COMPARISON OF RETURN ON SHAREHOLDERS’ INVESTMENTWITH
INDUSTRY AND BRITANNIA:
Return on shareholders’ investment
Ratio 2016 2015 2014 2013 2012
Nestle 9.99 20.88 23.58 29.69 37.74
Britannia 22.03 25.19 21.67 18.31 17.95
industry 9.81 10.96 11.87 13.11 12.04
0.00
10.00
20.00
30.00
40.00
2016 2015 2014 2013 2012
Nestle(ROI Ratio)
Nestle
0.00
5.00
10.00
15.00
20.00
25.00
30.00
35.00
40.00
1 2 3 4 5
Nestle
Britannia
industry

17. There is a noticeable decrease in return on shareholders’ investment ratio of Nestle from
37.74 in 2012 to 9.99 in 2016 as against 12.04 & 9.81 in the case of industry for the same
period respectively.
Nestle has performed a little inferior than its competitor (Britannia) but has performed
better as compared to the industry as a whole over the years.
Earningsper Share ratio:
Earning Per Share 2016 2015 2014 2013 2012
Nestle 58.42 122.87 115.87 110.76 99.73
Now, by seeing the earning per share ratios of Nestle from 2012-16, we can observe that
there is a decreasing trend.
EPS is the most widely quoted and relied figure by investors.
The earnings price share ratio decreases from 99.73 and reaches to 58.42 in 2016.
COMPARISON OF EARNING PER SHARERATIO WITH INDUSTRY AND
BRITANNIA:
Earning Per Share 2016 2015 2014 2013 2012
Nestle 58.42 122.87 115.87 110.76 99.73
Britannia 62.44 51.90 30.84 19.57 15.63
industry 29.60 33.97 30.37 32.21 23.54
0.0
20.0
40.0
60.0
80.0
100.0
120.0
1 2 3 4 5
Nestle(Price Earnings Ratio)
Nestle

18. There is a noticeable decrease in earnings per share ratio of Nestle from 99.73 in 2012 to
58.42 in 2016 as against 23.54 & 29.60 in the case of industry for the same period
respectively.
Nestle has performed a little inferior than its competitor (Britannia) in 2016 but has
performed better as compared to the industry as a whole over the years.
It shows that the EPS figure year after year shows less improvement in the earning power of
the company.
Price EarningsRatio:
Price Earnings Ratio 2016 2015 2014 2013 2012
Nestle 96.3 52.5 46.6 44.3 42.0
Now, by seeing the price earning ratios of Nestle from 2012-16, we can observe that there is
an increasing trend.
0.00
20.00
40.00
60.00
80.00
100.00
120.00
140.00
2016 2015 2014 2013 2012
Nestle
Britannia
industry
0.0
20.0
40.0
60.0
80.0
100.0
120.0
2016 2015 2014 2013 2012
Nestle(Price Earnings Ratio)
Nestle

19. A company’s price-earnings ratio (P/E Ratio) is the ratio for valuing a company that
measures its current share price relative to its per-share earnings.
The price-earnings ratio increases from 42.0 and reaches to 96.3 in 2016.
Therefore, generally a high P/E ratio means that investors are anticipating higher growth in
the future.
COMPARISON OF PRICEEARNINGS RATIO WITH INDUSTRY AND BRITANNIA:
Price Earnings Ratio 2016 2015 2014 2013 2012
Nestle 96.3 52.5 46.6 44.3 42.0
Britannia 43.8 42.9 29.4 27.8 37.7
Industry 35.97 44.02 29.29 18.22 20.11
There is a noticeable increase in price earnings ratio of Nestle from 42.0 in 2012 to 96.3 in
2016 as against 20.11 & 35.97 in the case of industry for the same period respectively.
Nestle has outperformed its competitor (Britannia) and has performed better as compared
to the industry as a whole over the years as well.
But as the ratio is going up, it implies that investors are anticipating higher growth in the
future. The investors expect higher earnings in the future from Nestle as compared to
Britannia (which possesses a lower P/E ratio).
0.0
20.0
40.0
60.0
80.0
100.0
120.0
2016 2015 2014 2013 2012
Nestle
Britannia
Industry

20. REFERENCES:
The following are the references from where the relevant information and data for analysis
purposes have been extracted:
https://www.nestle.in/
http://economictimes.indiatimes.com/