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TAYLOR’S UNIVERSITY | SABD | FNBE | BASIC ACCOUNTING
SCHOOL OF ARCHITECTURE, BUILDING AND DESIGN
FOUNDATION IN NATURAL AND BUILT ENVIRONMENT
MODULE: Basic Accounting [ACC30205]
ASSIGNMENT: Financial Ratio Analysis
COMPANY SELECTED: Nestlé (Malaysia) Berhad
LECTURER: MR.Chang Jau Ho
SUBMISSION DATE: 4 JUNE 2015
LAU MAO HUA 0320249
FOO ZHI FUNG 0320226
NGO JIA HAUR 0320144
LAU MAO HUA | FOO ZHI FUNG | NGO JIA HAUR
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TAYLOR’S UNIVERSITY | SABD | FNBE | BASIC ACCOUNTING
BRIEF BACKGROUND HISTORY
Nestlé Malaysia has more than 100 years of history in Malaysia. It is started in 1912 as Anglo­Swiss
Condensed Milk Company in Penang. In 1939, the company moved to Kuala Lumpur as the growth and
expansion during that time was fast. First factory was built in 1962 at Petaling Jaya and currently Nestlé
Malaysia manufactures its products in 7 factories and operates from the head office, Mutiara Damansara.
The company was publicly listed on Bursa Malaysia Berhad on 13 December 1989. Nestlé Malaysia employs
more than 5000 employee and manufactures more than 300 Halal products in Malaysia.​Nestlé (Malaysia)
Berhad manufactures junior foods, powdered milk and drinks, breakfast and hot cereals, creamers,
beverages, coffee, seasonings, instant noodles, chilled dairy products, ice creams, confectionery and
chocolate products, meal replacements, and performance nutrition products.​ ​MILO​®​
, NESCAFÉ​®​
, MAGGI​®​
,
NESPRAY​®​
and KIT KAT​® ​
are the brand name which produced under Nestlé Malaysia which are very
well­known in Malaysia as well as international.
LAU MAO HUA | FOO ZHI FUNG | NGO JIA HAUR
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TAYLOR’S UNIVERSITY | SABD | FNBE | BASIC ACCOUNTING
RECENT DEVELOPMENT
During the year 2013, ​Nestlé Malaysia cooperated with Sime Darby Foundation to manage and
optimise funding and resources for Project RiLeaf. Project RiLeaf is an initiative to reforest critical riparian
reserves along the Kinabatangan River,Sabah to provide a natural buffer to filter the river from pollutants,
mainly soil sediments and chemical fertiliser run­offs, thereby giving it a chance to repair itself over the
course of time. The project will also engage local communities and oil palm smallholder companies to adopt
sustainable practices through awareness and knowledge sharing programmes.
The partnership between Nestlé Malaysia and WWF­Malaysia have been formed in 2006. When
come to the recent year of 2014, Nestlé Malaysia and WWF­Malaysia recently visited the local community in
Setiu, comprising members of PEWANIS and representatives from Kg. Pengkalan Gelap, at PEWANIS’s
activity centre in Kampung Mangkok, known as the Pink House. As a part of Nestlé’s approach to Creating
Shared Value, Dr. Zawiah Hashim, Nutrition Expert from the Nutrition Society of Malaysia, was also invited to
give a nutrition talk at the Pink House. To commemorate the renewal of the partnership, Nestlé Malaysia and
WWF­Malaysia representatives exchanged the Memorandum of Understanding (MoU) document during the
visit.
Currently , Nestlé Malaysia Berhad also owned 7 factory in Malaysia . It also will contributing more 8
factory to expanse the capacity soon. In addition, it also exported about 300 halal products in food and
beverage range to more than 50 countries worldwide. Nestlé Malaysia also will invest in R&D, innovate
further and renovate existing products to emphasize the concept of Nutrition, Health and Wellness.
LAU MAO HUA | FOO ZHI FUNG | NGO JIA HAUR
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TAYLOR’S UNIVERSITY | SABD | FNBE | BASIC ACCOUNTING
RATIO ANALYSIS AND INTERPRETATION
i) Profitability Ratio
Profitability Ratio 2013 2014 Interpretation
Return on Equity (ROE)
= x 100Net Profit
Average Owner Equitity
= x100561701
(751206+816444)÷2
= x100783825
561701
= 71.7%
= x100550384
(816444+777137)÷2
= x100796791
550384
= 69.1%
During the period 2013 to 2014,
Return on Equity (ROE) has
decreased from 71.7% to
69.1%.The owner is getting less
return of his capital compare to
last year.
Net Profit Margin (NPM)
= x 100Net Sales
Net Profit
= x100561701
4787925
= 11.7%
= x100550384
4808933
= 11.4%
During the period 2013 to 2014,
Net Profit Margin(NPM) has
decreased from 11.7% to
11.4%.The business’s ability to
control its expenses is getting
worse when compare to last year.
Gross Profit Margin (GPM)
= x 100Net Sales
Gross Profit
= x1004787925
1698017
= 35.5%
= x1004808933
1699952
= 35.3%
During the period 2013 to 2014,
Gross Profit Margin (GMP) has
decreased from 35.5% to 35.3%.
The business’s ability to control its
Cost Of Goods Sold (COGS)
expenses is worse when compare
with last year.
Selling Exp. Ratio (SER)
= x 100Net Sales
Total Selling Expenses
= x100824375
4787925
= 17.2%
= x100844464
4808933
= 17.6%
During the period 2013 to 2014,
Selling Expenses Ratio (SER) has
increased from 17.2% to 17.6% ).
The business ability to control its
selling expenses is getting worse
when compare than last year.
General Expenses Ratio
(GER)
= x 100Net Sales
Total General Expenses
= x1004787925
136171+6625
= x100142796
4787925
= 3.0%
= x1004808933
128337+3785
= x100132122
4808933
= 2.7%
During the period 2013 to 2014,
General Expenses Ratio (GER)
has decreased from 3.0% to 2.7%.
The ability to control its general
expenses is getting better when
compare with last year.
LAU MAO HUA | FOO ZHI FUNG | NGO JIA HAUR
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TAYLOR’S UNIVERSITY | SABD | FNBE | BASIC ACCOUNTING
Financial Expenses Ratio
(FER)
= x 100Net Sales
Total Financial Expenses
= x10021937
4787925
= 0.46%
= x10025722
4808933
= 0.53%
During the period 2013 to 2014,
Financial Expenses Ratio (FER)
has increased from 0.46% to
0.53%. The ability to control its
financial expenses is getting
worse when compare with last
year.
*All figures are shown in RM’000 .
ii) Financial Stability Ratio
Financial Stability Ratio 2013 2014 Interpretation
Working Capital
= x 100Total Current Assets
Total Current Liabilities
= 929987
1071862
= 0.87:1
= 893350
1306084
= 0.68:1
During the period 2013 to
2014, the business’s
working capital has
decreased from 0.87:1 to
0.68:1. The business
ability to pay current
liabilities is getting worse
than last year. In addition,
it does not satisfied the
minimum 2:1 ratio.
Total Debt
= x 100Total Assets
Total Liabilities
= x1002088734
1272290
= 60.9%
= x1002303296
1526159
=66.3%
During the period 2013 to
2014, the business’s total
debt has increased from
60.9% to 66.3%. The
business total debt has
increased. However, it still
exceed the maximum 50%
limit.
LAU MAO HUA | FOO ZHI FUNG | NGO JIA HAUR
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TAYLOR’S UNIVERSITY | SABD | FNBE | BASIC ACCOUNTING
Stock Turnover
=365 ÷ Average Inventory
Cost Of Goods Sold
=365÷ 3089908
(411170+408614)÷2
=365÷ 409892
3089908
= 48.4 days
=365÷ 3108981
(408614+370291)÷2
=365÷ 389453
3108981
= 45.7 days
During the period 2013 to
2014, the business’s stock
turnover has decreased
from 48.4 days to 45.7
days. The business sell its
goods faster when
compared to last year.
Debtor Turnover
=365 ÷ Credit Sales
Average Debtor
=365÷
2393963
[(22001+394144)+(21866+502207)]÷2
=365÷ 470109
2393963
=71.7 days
=365÷
2404467
[(21866+502207)+(23576+504540)]÷2
=365÷ 526095
2404467
=79.9 days
During the period 2013 to
2014, the business’s
debtor turnover has
increased from 71.7 days
to 79.9 days. The business
is taking more time to
collect this debt.
Interest Coverage
= Interest Expenses
Interest Expenses + Net Profit
= (610+765)
(610+765) + 561701
= 1375
563076
= 409.5 times
= (427+422)
(427+422) + 550384
= 849
551233
=649.3 times
During the period 2013 to
2014, the business’s
interest coverage is
increased from 409.5
times to 649.3 times. The
business ability to pay its
interest expense better. In
addition, it satisfied the
minimum 5 times.
*All figures are shown in RM’000 .
Price/ Earning (P/E) Ratio
= ​Current Share Price
Earning Per Share
= ​RM72.50
RM2.35
= 30.9 times
*As at 3 June 2015
Interpretation: The P/E ratio for this business is 30.9 times. Investor will need to wait for 30.9 years to claim
back his original principal which he had invested in this company. The higher the P/E ratio, the more
expensive a share is. A conservative investor will normally pay no more than P/E of 15 for a share that he
invested.
LAU MAO HUA | FOO ZHI FUNG | NGO JIA HAUR
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TAYLOR’S UNIVERSITY | SABD | FNBE | BASIC ACCOUNTING
INVESTMENT RECOMMENDATION
Based on the analysis we had done, we decided not to invest in this company because the share price is
too high although it’s good in profitability and strong financial stability.
The share price of this company is too high as it has the P/E ratio of 30.9 times. This mean that the
investors need to wait for 30.9 years to claim back their money that they had invested in the company. In
addition, a conservative investor will not invest in the company which had a P/E ratio of more than 15 times.
Although this company’s profitability ratio and financial stability ratio showed that the company’s overall
performance is getting worse in 2014 when compare with 2013, but the company still making enough profit in
order to survive in the market. Besides that, Nestlé company is a well­known and big company in Malaysia
which give the company a benefit of having lots of loyalty customers in the market. The company is existing
since 1912 hence the company has its strategy to stand strong in financial stability and survive in this
market.
This company is demonstrating getting poor result in controlling its overall expenses which result in getting
less profit. The business’s ability to control its general expenses in 2014 is better than 2013 which didn’t
cover the overall poor result in other expenses. Besides that, this company also getting poor result in
financial stability. The company’s liabilities figures is exceeding the assets figures which mean this company
is owing other company debts. Besides that, the company’s total debts was increased in 2014 when
compare with 2013 which is still exceeding 50% maximum limit. This company is taking more times in
collecting its debts from debtors. This company sell its goods is faster in 2014 than in 2013. The business’s
ability to pay its interest expenses is getting better in 2014. In the nutshell, although the company is getting
an overall poor result, but this company is good in profitability and strong in financial stability in the market.
LAU MAO HUA | FOO ZHI FUNG | NGO JIA HAUR
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TAYLOR’S UNIVERSITY | SABD | FNBE | BASIC ACCOUNTING
APPENDICES
Balance Sheet 2013
LAU MAO HUA | FOO ZHI FUNG | NGO JIA HAUR
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TAYLOR’S UNIVERSITY | SABD | FNBE | BASIC ACCOUNTING
Income Statement 2013
LAU MAO HUA | FOO ZHI FUNG | NGO JIA HAUR
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TAYLOR’S UNIVERSITY | SABD | FNBE | BASIC ACCOUNTING
Balance Sheet 2014
LAU MAO HUA | FOO ZHI FUNG | NGO JIA HAUR
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TAYLOR’S UNIVERSITY | SABD | FNBE | BASIC ACCOUNTING
Income Statement 2014
LAU MAO HUA | FOO ZHI FUNG | NGO JIA HAUR
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TAYLOR’S UNIVERSITY | SABD | FNBE | BASIC ACCOUNTING
REFERENCES LIST
​NESTLE (MALAYSIA) BERHAD [S] (4707). (n.d.). Retrieved May 28, 2015, from
http://www.bursamalaysia.com/market/listed­companies/list­of­companies/plc­profile.html?stock_code=4707
Nestle Corporate Governance & Financial Report 2013. (n.d.). Retrieved May 28, 2015, from
http://www.nestle.com.my/asset­library/documents/pdf/aboutus/nestle_corporategovernance_financialreport_
2013.pdf
Nestle Corporate Governance & Financial Report 2014. (n.d.). Retrieved May 28, 2015, from
http://www.nestle.com.my/asset­library/documents/pdf/nestle_ar2014_financial.pdf
Nestle in Malaysia. (n.d.). Retrieved May 31, 2015, from
http://www.nestle.com.my/aboutus/nestle_in_malaysia/index
LAU MAO HUA | FOO ZHI FUNG | NGO JIA HAUR
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