Financial Accounting Assignment

Analysis of Financial Statements of Cadbury India Ltd and Nestle India Ltd for year ending on 31st December 2008

Submitted by Aniket Deshpande, 31064 Ankit Saxena, 31065 Raj Kumar,31098

Index

y Cadburys India Ltd. o Overview.2 o Financial Statements as per 31st Dec 2008  Balance Sheet.3  Profit and Loss Account4

y Nestle India Ltd. o Overview.5 o Financial Statements as per 31st Dec 2008  Balance Sheet.6  Profit and Loss Account7 y Financial Ratios..8

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Cadbury India Ltd.

Overview
Cadbury India is a fully owned subsidy of Kraft Foods Inc. The combination of Kraft Foods and Cadbury creates a global powerhouse in snacks, confectionery and quick meals. It is currently the world's No.1 confectionery and biscuit company. Cadbury is also the worlds second-largest food company with sales in approximately 160 countries. Cadbury India is a fully owned subsidy of Kraft Foods Inc. The combination of Kraft Foods and Cadbury creates a global powerhouse in snacks, confectionery and quick meals. With annual revenues of approximately $50 billion, the combined company is the world's second largest food company, making delicious products for billions of consumers in more than 160 countries. We employ approximately 140,000 people and have operations in more than 70 countries. Cadbury enjoys a value market share of over 70% - the highest Cadbury brand share in the world! Cadburys billion-dollar brand Cadbury Dairy Milk is considered the "gold standard" for chocolates in India. The pure taste of CDM defines the chocolate taste for the Indian consumer. In the Milk Food drinks segment our main product is Bournvita - the leading Malted Food Drink (MFD) in the country. Similarly in the medicated candy category Halls is the undisputed leader. In India, Cadbury began its operations in 1948 by importing chocolates. After 60 years of existence, it today has five company-owned manufacturing facilities at Thane, Induri (Pune) and Malanpur (Gwalior), Bangalore and Baddi (Himachal Pradesh) and 4 sales offices (New Delhi, Mumbai, Kolkota and Chennai). The corporate office is in Mumbai. Since 1965 Cadbury has also pioneered the development of cocoa cultivation in India. For over two decades, we have worked with the Kerala Agriculture University to undertake cocoa research and released clones, hybrids that improve the cocoa yield. Our Cocoa team visits farmers and advise them on the cultivation aspects from planting to harvesting. We also conduct farmers meetings & seminars to educate them on Cocoa cultivation aspects. Our efforts have increased cocoa productivity and touched the lives of thousands of farmers. Hardly surprising then that the Cocoa tree is called the Cadbury tree! Today, as a combined company with an unmatched portfolio in confectionery, snacking and quick meals, we are poised in our leap towards quantum growth. We are the world's No.1 Confectionery Company. And we will continue to make today delicious!

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Financial Statements
y Balance Sheet as on 31st December 2008 Particulars
Equity Capital Preference Capital Share Capital Reserves and Surplus Loan Funds Current Liabilities Provisions Current Liabilities and Provisions Total Liabilities and Stockholders Equity Tangible Assets Net Intangible Assets Net Net Block Capital Work In Progress Net Fixed Assets Investments Inventories Accounts Receivable Cash and Cash Equivalents Other Current Assets Current Assets Loans & Advances Miscellaneous Expenditure Other Assets Total Assets

Amount (in Million Rs)

321.83 0.00 321.83 4322.20 417.03 4291.79 203.96 4495.75 9280.43 2513.89 0.00 2513.89 1238.65 3752.54 29.24 2228.05 196.75 2695.90 43.54 5164.24 654.62 0.00 9600.64

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y Profit and Loss Account as on 31st December 2008 Particulars

Net Sales Material Cost Increase Decrease Inventories Personnel Expenses Manufacturing Expenses Gross Profit Administration Selling and Distribution Expenses EBITDA Depreciation Depletion and Amortization EBIT Interest Expense Other Income Pretax Income Provision for Tax Extra Ordinary and Prior Period Items Net Net Profit Adjusted Net Profit Dividend - Preference Dividend - Equity

Amount (In Million Rs)

15885.95 7309.63 -513.19 1302.20 798.13 6989.18 4803.67 2185.51 365.22 1820.29 52.04 250.65 2018.90 361.07 0.00 1657.85 1657.85 0.00 0.00

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Nestle India Ltd.

Nestl India is a subsidiary of Nestl S.A. of Switzerland. With seven factories and a large number of co-packers, Nestl India is a vibrant Company providing consumers in India with products of global standards committed to long-term sustainable growth and shareholder satisfaction. After Indias independence in 1947, the economic policies of the Indian Government emphasized the need for local production. Nestl responded to Indias aspirations by forming a company in India and set up its first factory in 1961 at Moga, Punjab, where the Government wanted Nestl to develop the milk economy. Progress in Moga required the introduction of Nestls Agricultural Services to educate advice and help the farmer in a variety of aspects. From increasing the milk yield of their cows through improved dairy farming methods, to irrigation, scientific crop management practices and helping with the procurement of bank loans. Nestl set up milk collection centers that would not only ensure prompt collection and pay fair prices, but also instill amongst the community, a confidence in the dairy business. Progress involved the creation of prosperity on an on-going and sustainable basis that has resulted in not just the transformation of Moga into a prosperous and vibrant milk district today, but a thriving hub of industrial activity, as well. Nestl has been a partner in India's growth for over nine decades now and has built a very special relationship of trust and commitment with the people of India. The Company's activities in India have facilitated direct and indirect employment and provides livelihood to about one million people including farmers, suppliers of packaging materials, services and other goods. The Company continuously focuses its efforts to better understand the changing lifestyles of India and anticipate consumer needs in order to provide Taste, Nutrition, Health and Wellness through its product offerings. The culture of innovation and renovation within the Company and access to the Nestl Group's proprietary technology/Brands expertise and the extensive centralized Research and Development facilities gives it a distinct advantage in these efforts. It helps the Company to create value that can be sustained over the long term by offering consumers a wide variety of high quality, safe food products at affordable prices. Nestl India manufactures products under internationally famous brand names such as NESCAF, MAGGI, MILKYBAR, MILO, KIT KAT, BAR-ONE, MILKMAID and NESTEA and in recent years the Company has also introduced products of daily consumption and use such as NESTL Milk, NESTL SLIM Milk, NESTL Fresh 'n' Natural Dahi and NESTL Jeera Raita.

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Financial Statements
y

Balance Sheet as on 31st December 2008 Amount (in Million Rs)

964.16 0.00 964.16 3769.34 0.00 5074.67 6773.16 11847.83 16950.14 7386.92 143.00 7529.92 1091.69 8621.61 348.99 4349.12 455.93 1936.89 0.00 6741.94 1237.59 0.00 16950.14

Particulars
Equity Capital Preference Capital Share Capital Reserves and Surplus Loan Funds Current Liabilities Provisions Current Liabilities and Provisions Total Liabilities and Stockholders Equity Tangible Assets Net Intangible Assets Net Net Block Capital Work In Progress Net Fixed Assets Investments Inventories Accounts Receivable Cash and Cash Equivalents Other Current Assets Current Assets Loans & Advances Miscellaneous Expenditure Other Assets Total Assets

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y Profit and Loss Account as on 31st December, 2008 Particulars

Net Sales Material Cost Increase Decrease Inventories Personnel Expenses Manufacturing Expenses Gross Profit Administration Selling and Distribution Expenses EBITDA Depreciation Depletion and Amortization EBIT Interest Expense Other Income Pretax Income Provision for Tax Extra Ordinary and Prior Period Items Net Net Profit Adjusted Net Profit Dividend - Preference Dividend - Equity

Amount (in Million Rs)

43242.45 21036.25 156.82 3321.05 4249.16 14479.17 6149.73 8329.44 923.60 7405.84 16.43 338.85 7728.26 2387.45 0.00 5340.82 5340.82 0.00 4097.67

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Financial Ratios Ratio

Gross Profit Ratio Operating Ratio

Formula

(Gross Profit/Sales)*100 (Cost of Sales+Operating Expenses)/Sales * 100 147.83%

Cadbury Ltd. 44%

India Nestle India Ltd. 32.60% 149.09%

Expense Ratio Expense /Sales *100 i) Selling and Distribution and Administrative Expenses Ratio Administrative Expenses /Sales *100 ii)Interest Ratio Interest Expenses/Sales *100

30.56%

14.25%

30.23% 0.32%

14.22% 0.03%

Net Profit Ratio Return on capital employed Return on Shareholder's funds Return on Equity Share capital

Net Profit(after interest and tax)/Sales *100 10.4% Net Profit/(Share Capital +Reserve + Long term Loans)*100 32.75% Net Profit/(Share Capital +Reserve)*100 35.69% (Net Profit-Preference dividend)/Equity Share Capital *100 515.13% (After tax profit-Preference Dividend)/Number of Equity Shares *100 50.6% Current Assests/Currrent Liabilities Liquid Assests/Liquid Liabilities Quick Assests/Liquid Liabilities

12.8%

112.82% 112.82%

563.26%

Earnings per Share Current ratio Liquid Ratio Acid-test Ratio Proprietary Ratio Debt-Equity Ratio

55.4%

1.2 1.32 Information not Information not available available 0.7 0.5 27.92% 0% 0 0 450.75 6.88 1.05%

Proprietor's Fund/Total assests 48.37% Long term Liabilities/Owner's Funds 8.90% *100 Preference Share capital + Debenture /Equity Share Capital 0 11.11% 34.97 27.21 1.24%

Gearing Ratio Long term funds to fixed assests Long Term Funds/Fixed Assests * 100 Pofit before interest and Interest Coverage Ratio taxes/interest Stock Turnover Debtors' ratio 8|P ag e Cost of sales/Average Stock (Debtors'+Bills Receivables)/Credit sale *100

Current Liability (creditors +Bills payable )/Credit Breakup not Purchases *365 available Creditors' Velocity Total assests Turnover Sales/Total Assets 165.46% Profit(Available for debt Amount of Debt Service Coverage payment)/(instalment of principal Principle not ratio +interest) available

Current Liability Breakup not available 255.11% Amount of Principle not available

Comparative Analysis of Cadbury India Ltd. and Nestle India Ltd.

y y y Both companies have a gross profit ratio of more than 30 %. This is a decent percentage to account for the expenses which will be incurred before the net profit is ascertained. The expense ratio is lower for Nestle India Ltd. by almost half the amount. This indicates the amount of expenses under each head. The lesser the expenses occurred in sales, the greater the profitability of the company. The Net Profit Ratio indicates the profitability of the organization. There is not a major difference between the two companies chosen as they enjoy duopoly in their specific markets. Here as well, Nestle being a larger firm is leading the market with a 2 % advantage over Cadbury. Return on Capital employed and Return to shareholders funds are the indicators of profitability from the shareholders point of view. This will bring more share capital in the next year and better capital investments for the future. Earnings per share is the individual earning which a shareholder will receive on his investment in our company. The more the earnings per share, the better for the company. In our case, there is almost a 50 % increase in both companies which is a great investment for the shareholders. Current Ratio for both the firms is more than 1. This is perfect as the amount of assets should always be more than the total amount of liabilities for a business. The quick asset ratio has been taken as it is from the annual reports of the companies as there is not break up of the liabilities information available about the companies. Analyzing the found ratio, it is a good ratio as the amount of quick assets are comparable to the liquid liabilities. The proprietary ratio gives us the percentage of proprietors funds involved in the total funds of the company. This ratio should ideally be higher as it shows a stronger hold of the company. In our companies, Cadburys position is stronger as compared to Nestle

y y

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when we consider the point of view of the proprietor. For Cadbury, its almost half of the total funds employed in the business. The debt equity ratio should be an optimum value for the business. A higher value would mean low sustainability of the company and lower value would indicate that external credit is not being employed in the company. For Nestle, this value is alarmingly low, as it has not utilized any outside credit which was at its disposition.

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