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Nestle report group 5

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Nestle report group 5

  1. 1. 1 REPORTON FINANCIAL STATEMENT ANALYSIS OF NESTLE INDIA LTD. PREPAREDBY- ASHWIN K (032) JATIN KUMARMAHESHWARI (062) LAKSHMI NARASIMHAN (072) MILAN AGARWAL (081) MISHANIGAM (172) MONINTHAR KUMARNAYAK(082)
  2. 2. 2 TABLE OF CONTENTS I. Purpose and Scope…………………………………………………………………..................... -2- A. Objective of the Research ………………………………………………………………………..………….…. -2- B. Data Sources ………………………………………………………………………………………………………….. -2- C. Research Methodology …………………………………………………………………………..………..…….. -2- II. Analysisof Financial Statements(RatioAnalysis)….……………………………… -3- A. Balance Sheet ………………………………………………………………………………………..……….……… -3- B. Income Statement …………………………………………………………………………………………...…….. -8- C. Cash Flow Statement ………………………………………………………………………….………….………-10- D. Financial Statement Ratios …………………..……………………………………………………………… -11- E. Other important values …………………………………………………………………….….……………… -15- III. Percentagecontribution tosales(2015)….…………………………………...…..…-17- IV. SWOTAnalysis………………………………………………………………………………..……..-17- V. Major Competitors………………………………………………………………………….……..-17- VI. Results………………………………………………………………………………………………….-18- A. Major and Minor Finding ………………………………………………………………………………..…....-18- B. Conclusions …………………………………………………………………………………………………………..-18- C. Projections …………………………………………………………………………………………………………...-19- VII. WorksCited…………………………………………………………………………………….....-22-
  3. 3. 3 I. PURPOSE& SCOPE A. Objective of the Research The objective of this paper is to thoroughly analyze Nestle India Ltd’s financial history and status for the last five years (2011 – 2015). Also, Nestle India’s future growth and financial stability for the next two years will be examined (forecast for 2016-2017). Other important topics will be discussed which include: the growth in net income, the growth in sales revenue, the growth in operating income, the growth in assets, and the growth in various and significant costs. Moreover, MVA, EVA, earnings per share, movements of the stock prices in the past, and the capital structure of will be examined. To support the analysis, different relevant ratios will be calculated for the company in order to estimate its current status, and also to compare Nestle India Ltd. to Britannia Ltd. B. Data Sources Based on the sources cited above, the following tables were extracted or created: • Nestle India Ltd’s Balance Sheet, Income Statement and Cash Flow Statement • Comparative Historical Total Assets growth analysis • Nestle India Ltd’s Asset Structure – Common Size • Nestle India Ltd's 5 Yr. Common Size Balance Sheet • Comparative Balance Sheet, Income Statement, Cash Flow Statement & Ratios • Nestle India Ltd’s 5-year Average Ratio Report C. Research Methodology The financial analysis of Nestle India Ltd is based on evaluating company and industry data from various sources. A trend analysis was performed using data for the last five years, and presented in Excel charts and tables. A vertical analysis was performed, which also involved an industry comparison. Common-size statements were created, where each item was shown in percentage terms from a common base. In the case of a firm’s assets, I treated the total assets as equalling 100.
  4. 4. 4 II. ANALYSIS &FINANCIAL STATEMENTS Nestle’s fiscal year always ends in the end of December. The following results have been collected and following graphs have been drawn and interpretations drawn: A. BALANCE SHEET RATIOS 1. ASSET GROWTH:  TOTAL ASSETS:- The Total Assets of the company has decreased over the years and there has been a decline in growth over the years with the exception of Dec-15 where it showed a growth of 4.48% to the base year 2010. 2010 2011 2012 2013 2014 2015 0 10000 20000 30000 40000 50000 60000 70000 Asset Growth Fixed Assets Inventories Cash&Bank Loans&Adv Trade Receivables Current Assets Total Assets
  5. 5. 5 Year 2011 2012 2013 2014 2015 Total Assets 44017.8 51639.2 63142.7 58195 60804.6 Percentage Growth% 72.00 17.31 22.27 -7.83 4.48 Total Current Assets: Current assets have increased over the years with the exception of Dec-14 where it displayed a dip in growth of -15% in 2014. The growth for the past year has been high showing 26% in 2015 compared to its previous year. Year 2011 2012 2013 2014 2015 Total Current Assets 12903.4 14901.2 23017.2 19636.7 24796.1 Percentage Growth 23% 15% 54% -15% 26% 2. ASSET STRUCTURE: 2010 2011 2012 2013 2014 2015 0.00% 10.00% 20.00% 30.00% 40.00% 50.00% 60.00% 70.00% AssetStructure Analysis Fixed Assets Inventories Cash&Bank Loans&Adv Trade Receivables Current Assets
  6. 6. 6 The current assets form a significant portion of the total assets as FMCG companies do not have lot of Non-Current assets. Inventories form a major portion of the current assets over the years, contributing to 35% of it on an average. Inventories are valued at the lower of cost and net realisable value. Cost is computed on a weighted average basis. The percentage of trade receivables has been increasing very slightly over the years indicating the company is not providing much on credit. In the non-current assets, long term loans have not changed significantly. Cash and bank balance has been increasing on an average of 8 to 9 %. 3. LIABILITIES AND EQUITY GROWTH: Total liabilities and Equity has increased over the years. Out of the liabilities and Equity, trade payables forma major part contributing to over 35-45% over the years. Long term provisions include Provision for employee benefits (pension, medical, compensated absences and others).Provision for income tax (net of advance tax) and other provisions (including for statutory levies etc. 2011 2012 2013 2014 2015 0 10000 20000 30000 40000 50000 60000 70000 Liability & Equity Growth ShareholdersFund Longterm Borrowings Other Current Liabilities Longterm Provisions Trade Payables Current Liabilities Total Liabilities
  7. 7. 7 TOTAL LIABILITIES: Total Liabilities havedecreased over the years showing a growth of 22.907%in the year ending 2013.Thegrowth has been around -8% for the year ending 2014 and and started to increaseby 4% by the end of 2015. Year 2011 2012 2013 2014 2015 Total Capital And Liabilities 44017.8 51639.2 63142.7 58195 60804.6 Percentagegrowth 72% 17% 22% -8% 4% RESERVES AND SURPLUS: There was an increasein the reserves and surplus over theyears till 2014. The reserves and surplus growth has declined marginally in the year ending 2015 when compareto the year before. Year 2011 2012 2013 2014 2015 Reserves and Surplus 11775.41 17019.9 22723.3 27407.9 27214.2 4. FINANCIAL STRUCTUREANALYSIS: 2011 2012 2013 2014 2015 0.00% 5.00% 10.00% 15.00% 20.00% 25.00% 30.00% 35.00% 40.00% 45.00% 50.00% Financial Structure Analysis Shareholders Fund Long Term Debt Other Current Liabilities Long Term Provisions Trade Payables Current Liabilities
  8. 8. 8 In the period 2011 – 2015, NestleEquity/ Shareholders fund keeps increasing which denotes its strong financial stability. Nestle is able to finance its operations with both Current& Other CurrentLiabilities but in the main formof Trade Payables. The company made provisions for Long termunder Long term Provisions. B. PROFIT AND LOSS RATIOS 1. INCOMESTATEMENTGROWTH: REVENUES: During the analysed period the amount of Total Revenues increased successively till 2014 which showed a positive trend but there was a sharp decline in 2015 which went below 2012. The net sales increase was high in 2011 which was 20% and there after it followed a slower increase growth of 11%, 9%, 8% & finally went to negative 17%. 2010 2011 2012 2013 2014 2015 0 10000 20000 30000 40000 50000 60000 70000 80000 90000 100000 INCOMEGROWTH net sales cogs gross income
  9. 9. 9 COSTOF GOODS SOLD: The COGS growth was 16% in 2011 & till 2013 the growth was very small and again in 2014, the growth was 15% and then declined to negative 25% in 2015 which is mainly because of fluctuations in sales. GROSS INCOME: The Gross incomewas high initially in 2011 which was 24% and then the growth was less and went low in 2014 which was only 3% and finally followed a similar pattern of Revenues & COGS and declined to 10%. SELLING, GENERAL AND ADMINISTRATIVEEXPENSES: According to the overall growth these expenses also increased till 2014 with total increase of 57% and then declined in 2015 by 15% compared to 2014. EBITA: Earnings BeforeInterest, Taxes, Depreciation and Amortization increased from 2010 till 2014 with slower growth rate but declined tremendously in 2015 which went below 2010 from 12,789.3 million in 2010 to 11,641.8 million in 2015. 2010 2011 2012 2013 2014 2015 0 10000 20000 30000 40000 50000 60000 70000 80000 90000 IncomeGrowth total expense EBITA income tax net income
  10. 10. 10 INCOMETAX: The growth in the amount of income taxes reflects the growth in Nestle’s operating income. The income taxes also followed a similar pattern of increasing till 2014 and then declined drastically in 2015 from 2014 with 58% which was below 2010. This means company managed to keep taxes as low as possible in recently. NET INCOME: There was very little growth in Net income for Nestle till 2014, which again drastically declined in 2015 at 52% ratecompared to 2014. TheNet income 2010 was 8,186.6 million and in 2015 itwas 5,632.7 million which shows 31% decline. C. CASH FLOW STATEMENT RATIOS (i) Net Cashfrom Operating Activities The net cash flow fromoperating activities saw an increasefrom2011 till 2013 which was followed by a decline till 2015. Thenet cash fromoperating activities saw an overalldecline of 5.19% from115.817 billion (2009) to 109.81 billion (2015). 115.817 169.338 179.64 164.402 109.81 -155.523 -94.083 -44.094 -43.17 -7.048 32.31 -51.316 -58.012 -163.528 -49.832 -4.439 23.939 77.534 -42.296 52.93 2011 2012 2013 2014 2015 -200 -150 -100 -50 0 50 100 150 200 Cash Flow Growth Net Cash from OperatingActivities Net Cash used in InvestingActivities Net Cash used in FinancingActivities Net change in cash and cash equivalents All figuresinbillions
  11. 11. 11 (ii) Net Cashusedin Investing Activities The net cash used in investing activities has seen a significant decreasein outflow of cash for investing activities. The reason could be also attributed to the increasein interestand dividends received. Overallthe cash outflow used for investing activities decreased by 95.47%. (iii) Net Cashusedin Financing Activities The net cash used in financing activities rosefrom32.32 billion (2011) and posted negative numbers for the next 4 years indicating cash outflow. Ittouched the peaks in 2014 with -163.528 billion. (iv) Net change inCash and Cash Equivalents There was a negativechange in cash for 2 years 2011 and 2013 with the figures being 4.439 billion and 42.296 respectively. Thepeak change was recorded in 2013 with 77.354 billion. D. FINANCIAL STATEMENT RATIOS 1.) LIQUIDITY RATIOS (i) Current Ratio: Defined as the ratio of current assets and current liabilities, the current ratio shows the ability of the company to meet its short-term liabilities and obligations. Therefore, the current ratio is better if greater than 1 because the company should have greater current assets as compared to current liabilities. 2:1 is the standard current ratio. 2015 2014 2013 2012 2011 0 0.2 0.4 0.6 0.8 1 1.2 1.4 1.6 1.8 CURRENT RATIO QUICK RATIO DEBT TO EQUITY
  12. 12. 12 Nestle’s current ratio has been improving over the years. In the recent years, it has been close to 2:1. Hence, Nestle gives an indication of good performance. (ii) Quick Ratio: This is the ratio of quick assets to the current liabilities. It is clear from the graph that the quick ratio has risen at a steady rate. The ratio is close to 1:1, which is the standard quick ratio. This is a positive sign, meaning Nestle had no problems in meeting its short-term obligations. (iii) Debt to Equity: This ratio indicates the financial leverage of the company. The graph indicates that the company is using neither too much debt to finance its operations, nor the company is not leveraging. The declining trend of ratios (0.7 to 0.1) indicates the lesser application of debt to finance the assets. 2.) ASSET MANAGEMENT RATIOS (i) Inventory Turnover Ratio: The company’s inventory turnover has remained almost the same over the years. Indicating the number of times the inventory is sold or used in a year. In the recent years, this ratio has declined a little, which is a good indicator and shows that the company has been able to sell its goods faster. 2015 2014 2013 2012 2011 0 20 40 60 80 100 120 INVENTORY TURNOVER ASSET TURNOVER DEBTORS TURNOVER
  13. 13. 13 (ii) Asset Turnover Ratio: Measuring the ratio of net sales and total assets, this ratio indicates the utilisation of the assets of the company towards its sales. The graph does not show a very good picture of the utilisation of assets as the ratio has been very low and constant all over. (iii) Debtors Turnover Ratio: It shows the efficiency of the company to use its assets. A high ratio in the graph shows that the company’s collection of accounts receivable is efficient and it runs on cash basis. 3.) PROFITABILITY RATIOS (i) Return on Equity: This is the ratio of Net Incomeand Shareholders’ equity and shows how many dollars of profit a company generates with each dollar of shareholders’ equity. With growth companies, there is generally a higher ratio. However, the graphs shows a declining trend of this ratio which means that the company has not been earning sufficient cash against the shareholder’s funds. 2015 2014 2013 2012 2011 0 10 20 30 40 50 60 70 80 RETURN ON EQUITY RETURN ON CAPITAL EMPLOYED RETURN ON ASSETS NET PROFIT MARGIN
  14. 14. 14 (ii) Return on Capital Employed: With the ratio of EBIT and Capital employed, this ratio measures the profitability of the company and the efficiency with which it employs its capital, i.e. the total of shareholders’ equity and debt liabilities. A higher ratio shows a better utilisation of capital. However, the graph shows a falling trend. In 2015 this ratio is as low as 12 approx. Thus, Nestle is not putting its capital to the best use and has got opportunities for improvement. (iii) Return on Assets: The ratio of net income and total assets shows how efficiently the management is utilising its assets towards the generation of earnings. This ratio has not fluctuated too much over the 5 years, however in 2015 it declined significantly, which is not a good sign as it shows that Nestle has not been able to earn optimum earnings on the assets employed. (iv) Net Profit Margin: Itshows therevenue earned, against the sales made, after deducting all operating expenses, interest, taxes, etc. The graph shows a significant decline in this ratio in 2015 which is a bad indicator. 4.) MARKET VALUE RATIOS 2015 2014 2013 2012 2011 0 20 40 60 80 100 120 140 EPS DPS P/E MP/BV
  15. 15. 15 (i) Earnings Per Share (EPS): Itshows theearnings made per share of the company. Nestle had a nice record of EPS for the 4 years, however in 2015 it declined significantly which is a bad signal for the company. It might not attract the investors. (ii) Dividend Per Share (DPS): The dividend paid per share of company has recorded a good show till previous years but declined in 2015 due to fall in EPS. This is not a good signal but can also be seen in the sense that company might be using more part of its earnings for reinvesting in the business rather than distributing as dividends. (iii) Price/ Earnings Ratio: The ratio of market price and earnings per share shows the rising trend of P/E ratio is a good news for the company because this means the company has a high standing in the market as compared to what it actually values. (iv) Market Price to Book Value Ratio: This ratio has declined over the years which means what market standing the company has in comparison to its book value has declined but is all the way a good number.
  16. 16. 16 E. OTHER IMPROTANT VALUES  Calculationof Tax Rate: PBT= 8136.3 TAX= 2503.6 TAX RATE= 2503.6*100/8136.3 = 30.77% Year 2016-15 2015-14 2014-13 2013-12 2012-11 Tax Rate 30.77 33.23 33.43 31.22 30.72  WeightedAverage Cost of Capital (WACC): WACC (2016) =E/E+D * Cost of Equity + D/E+D * Cost of Debt * (1-tax rate) Year 2015 2014 2013 2012 2011 WACC 9.01 5.05 5.42 3.37 0.00 As of today, Nestle India Ltd's weighted average costof capital is N/A. Nestle India Ltd's return on capital invested is 136.10%.
  17. 17. 17  Market Value Added(MVA): (Number of common shares outstanding * Current stock price) - Investors supplied capital Investors suppliedcapital is the sumof book values for Equity, Debt and Preferred stock This amount represents the difference between the money Nestle’s shareholders have invested in the company since its founding – including retained earnings – versus thecash they could get if the company was sold at that point .  Economic Value Added(EVA): EVA = EBIT*(1-Tax Rate) – (Total Net Operating Capital)*(WACC) Total Net Operating Capital =Cash & Equivalents + AR + Inventories +Net Property+Plant & Equipment + AP Nestle India’s EVA= 816.92*(1-0.30) – (242.77*9.01) = -1615.51
  18. 18. 18 This amount shows the extent to which Nestle India has increased the shareholder value. The negative figure reflects a decline in the shareholder value. Itcan be seen from the data that Nestle India’s stock pricehas shown a sufficient increase in the years. There has been a line of trend of increase in the marketprice. However, in 2015 end the prices declined significantly. But it has shown signs of recovery in the first quarter of 2016. Theshareprices went down in 2015 becauseof the fall in sales and profits of the company. The company is now improving its performanceand recovering its profits and shareprices.  Macroeconomic Variables Many macro-economic factors, which are beyond the company’s control, may affect Nestle’s financial conditions and operating results. The company is subjectto risks associated with laws, regulations, and industry standards. Economic conditions, political events, tax laws, inflation, unemployment rates, etc. can adversely affect company’s operations. Also, considering thefact that the company derives a large portion of its revenue fromabroad, Nestle’s business is subjectto the risk of international operations. The stock market as a whole may experience (as it happened in the past) extreme price and volumefluctuations that may affect Nestle’s marketprice, regardless of its operating performance.
  19. 19. 19 III. PERCENTAGECONTRIBUTION TO SALES IN 2015: The above pie chartshows the sharethat each product type of Nestle India contributes to the total sales of the company. Hereit is evident that Milk Products hold the largestsharein the total sales followed by Prepared Dishes and cooking aides, chocolate and confectionery, while beverages hold the smallest sharein the total sales of Nestle India. Thus, the company earns the highest volume of sale from the Milk Products and Nutrition sector. IV. SWOT ANALYSIS
  20. 20. 20 V. MAJOR COMPETITORS This graph shows thatNestle has earned the mostand got the top position in terms of the total sales in comparison to its major competitors like Pepsi, Unilever, etc. However, in profitmargin, the company lagged behind many competitors like Pepsi, Cadbury, Unilever, etc. This shows thatalthough the company manages to make high sale volume, but the profit value is less because of which the profit margin is low in comparison to other companies.  COMPARISON WITH MAJOR COMPETITORS: 0.00 1,000.00 2,000.00 3,000.00 4,000.00 5,000.00 6,000.00 7,000.00 Market Cap Total Assets
  21. 21. 21 These two graphs show theperformanceof Nestle India in comparison to the competitors. Fromthe aboveinformation we can interpret that it stands at the top position in terms of the marketcap and sales turnover. This means that Nestle India’s performanceis quite good as compared to its competitors. However, keeping in mind the high sales turnover, the profit of the company is not high enough. Thus, we can say that although the company is making high sales, but its profitmaking strategy is not good due to which it earns low profits. VI. RESULTS A. MAJOR & MINOR FINDINGS Based on the findings in the trend and common size analysis, Nestle India’s overall performancehas been above averageover the years but in 2015 itdeclined to some extent and the performancebecame averagein this year. However, therehave been signs of improvement in the coming years. Analysis of company’s Balance Sheet showed that Nestle India’s growth in Total Assets, Common Equity, and Retained Earnings was aboveindustry average. Analysis of company’s IncomeStatement showed that Nestle India’s growth in Net Sales, and Gross Incomewas aboveits competitors. Analysis of company’s Cash Flow Statement showed that Nestle India’s Net Cash Flow fromOperating Activities was abovethe industry average, and that resulted in a positive Net Change in Cash although cash has been used in both investing as well as financing activities. -1000 0 1000 2000 3000 4000 5000 6000 7000 8000 9000 Net Profit Sales Turnover
  22. 22. 22 B. CONCLUSION Based on the performed analysis, Nestle India is financially healthy and strong. The company’s growth has been extraordinary during the past five years. In the recent year the performance has degraded to some extent but the company has wide opportunities to recover. Nestle India is able to finance its operations by current liabilities only. It also has a strong base to meet its current liabilities. Its financial structure is outstanding. Nestle India has quite significant amount of long-term obligation; however its ability to meet its short-term and long-term obligation is good, which makes the company very financially independent. Revenues and Net Income are increasing each year. Retained Earnings reached Rs.5632 million in 2015, which is an indicator for the financial power of Nestle India. Due to the fact that sales are constantly increasing, and backed by Rs.5000 million (2015) in Cash and equivalents, the company can afford future acquisitions. During the years, Nestle India substantially improved in its key measures of profitability but declined in the year 2015; however it has a very high brand value and sufficient accumulation of assets and revenues which makes it easy for the company to recover in future. In terms of ROA, ROE, and profit margins, Nestle India strengthened financially and now has better ratios than its competitors and the overall computer hardware industry. Based on the above facts it can be concluded that Nestle India has been doing well over the years, declined in 2015, but has shown signs of improvement in the first two quarters of 2016 and has further opportunities of growth. C. PROJECTION The future for Nestle India looks great. The company has significant momentum in its favour: massivebrand power, innovativeproductdesign, and a strong portfolio that leverages individual products to boostdemand of other products. We believe that Nestle India will continue in the futurewithout a long-term debt. I also assume that there will be no significantchange in capital expenditures and net working capital. Due to the constantdevelopment of innovative technologies, it is highly likely that Nestle India’s revenues willcontinue to grow in the future. Ithas been forecasted that the revenues will grow. Following forecasts arefor 2016, 2017 and 2018:
  23. 23. 23 Annual Income Statement Data Actuals in M INR Estimates in M INR Fiscal Period December 2013 2014 2015 2016 2017 2018 Sales 90 619 98 063 81 233 95 382 110 344 125 500 Operating income(EBITDA) 19 683 21 301 16 810 19 922 23 620 27 351 Operating profit (EBIT) 16 384 17 926 13 338 16 846 20 357 23 682 Pre-Tax Profit(EBT) 16 780 17 744 8 136 17 592 21 506 25 230 Net income 11 171 11 847 5 633 11 676 14 334 16 800 P/E ratio - - - 48,8 39,9 33,7 EPS ( INR ) 116 123 58,4 122 150 177 Dividend per Share( INR) 48,5 63,0 48,5 75,2 93,0 113 Yield - - - 1,26% 1,56% 1,90% Reference price ( INR) 5965.6 5965.6 5965.6 We expect Nestle India to demonstratehigher earning margins than its competitors in the next few years, as they are moving into small consumer electronics, as well as remaining in the lower margin personalcomputer sector. I don’t foreseea major drop in Nestle India’s stock pricein the near future. Instead, we believe that Nestle India’s stock pricewill continue to grow, reflecting the high future growth and profitability expectations. We feel that Nestle India will continue to succeed in the future, and will continue to outperformits peers.
  24. 24. 24 VII. WORKS CITED http://www.4-traders.com/NESTLE-INDIA-LIMITED-9058921/financials/ https://markets.ft.com/data/equities/tearsheet/forecasts?s=NESTLEIND:NSI http://www.moneycontrol.com/financials/nestleindia/balance-sheetVI/NI www.nestleindia.com/investors http://finance.google.com/finance? http://quote.morningstar.com/Quote/Quote.aspx?pgid=hetopquote&ticker http://stocks.us.reuters.com/stocks/overview.asp?symbol http://www.smartmoney.com/eqsnaps/?story=snapshot&symbol http://tobsefin1.swlearning.com http://finance.yahoo.com/q?s

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