Nestle Ltd

Central to financial analysis is the calculation of financial ratios. A ratio has a numerator and denominator which converse the financial data into %age. This provides you one approach to standardize financial information for useful compression. The major Categorize are: Liquidity Ratio. Performance Ratio. Activity Ratio. Leverage Ratio.

Liquidity Ratios:
These ratios tell us about the companys cash that the company has enough cash and current assets to pay their obligations as they came due. Current Ratio: Currant Assets = Current Liabilities 2004 35285/29117 1.212 2005 41765/35818 1.166

The Current Ratio is Lower In 2005. The reason is that the company has purchases on credit more as compare to the last year 2004 by Rs. 2010 in this year, so the liabilities are increased and the ratio answer is low. Quick Ratio: Current Assets Inventories = Current liabilities 2004 35285-7025/29117 .97 2005 41765-8162/35818 .93

The reason is that the company has more inventory as compare to last year by Rs. 1137. It also affects the company most liquid ratio, so it shows that the company does not have enough cash to pay their obligations. Cash to Current liabilities: Cash + Marketable securities = Current liabilities 2004 15282/29117 .52 2005 17393/35818 .48

The company low invest in to the marketable securities as compare to the loan which they receive from bank and it also show that the company have less enough cash to pay their obligations.

Performance Ratios:
These ratios tell us about the performance of the company and it also tells about that how much profitability is involved in it. Gross Profit Ratio: Gross Profit = Net Sales 2004 50623/86769 58% 2005 53129/91075 58%

Gross profit Ratio is same in both years because there is not sufficient earning on sales Net Profit Ratio: Net Profit = Net Sales 2004 6717/86769 7.74% 2005 7631/91075 7.72%

Net profit Ratio is not same in both years because there is not sufficient earning on sales, it is decreased in the current year 2005.

Return on Assets: Net Income = Avg/Total Assets 2004 6717/88328 .076 2005 7031/95246 .073

This ratio tells us that how many assets are efficient to increase our profit and sales in year 2005 the assets are less efficient as compare to the last year 2004 means the sales are increased but the assets are more used as compare to sales. Pre Tax Return on Assets: EBIT = Avg/Total Assets 2004 10970/88328 .124 2005 11720/95246 .123

Return on Total Equity: Net Income = Avg/Total Share Holder Equity 2004 6717/38050 .176 2005 7031/45327 .155

Return on equity in this case has decreased in the year 2005 which apparently does not seem good. The main reason of this decrease is the increase in the shareholders equity.

Activity Ratio:
It will tell about that how efficient the operations of the company are. Inventory Turn Over: C.G.S = Avg Inventory 2004 36146/7010 5.15 2005 37946/7594 5

Inventory turn over in time has decreased as compare to the last years which shows the deficiency of the company means that the company is not efficient to increase their sales and the inventory of the company increased as compare to last year. Accounts Receivable Turn Over: Sales = Avg Account Receivable 2004 86769/12330 7.037 2005 91075/13050 6.98

Receivable turnover ratio tells us that how many times the firm collects its receivable from its debtors. This ratio in the case is showing a decrease in the firms efficiency to collect its receivables that was very good in 2004. Payable Turn Over: Purchases/C.G.S = Avg Account Payable 2004 36146/318 2005 37946/2565

113.667

148.22

To delay the period of payment is favorable for the company making payment. In this case the payable turnover has increased which is showing that company has taken some measures to linger its payments to its creditors. And it is favorable for the company. Working Capital Turnover: Sales = Avg Working Capital 2004 86769/6018 14.41 Fixed Assets Turn Over: Sales = Avg Fixed Assets 2004 86769/17246 5.03 2005 91075/17943 5.075 2005 91075/6058 15.03

This ratio tells us that how many fixed assets are efficient to increase our profit and sales in year 2005 the assets are more efficient as compare to the last year 2004 means the sales are increased but the assets are more used as compare to sales. Total Assets Turn Over Sales = Avg Total Assets 2004 86769/88328 .982 2005 91075/95246 .956

This ratio tells us that how many assets are efficient to increase our profit and sales in year 2005 the assets are less efficient as compare to the last year 2004 means the sales are increased but the assets are more used as compare to sales.

Leverage Ratios:
These Ratios tell about how much debt and how much equity involved in it. Debt to Equity: Total Liability = Total Share Holder Equity 2004 46818/39219 1.193 2005 51962/51435 1.01

As lower is the debt to equity ratio as beneficial for the company In this particular case this ratio is decreasing continuously which shows the decreasing trend of financing through debts and creditors. This ratio shows that company is relying more on the finance provided by the shareholders and is discouraging the financing from creditors. Debt to Total Assets: Total Liability = Total Assets 2004 46818/87094 .53 2005 51962/103397 .50

Debt to total assets ratio means that how much portion of the total assets is being supported by the debt financing. In the case of Packages Company the debt to asset ratio is decreased in comparison of last two years which is a good sign. This situation tells us that the most of the assets are financed through shareholders equity. Interest Coverage: EBIT = Interest Expenses

2004 10970/6696 16.39

2005 11720/574 20.41

This ratio indicates what up to what extent the firm is able to meet its interest payments. As higher is the interest coverage ratio as higher is the firms ability to meet its interest payment needs. In this case interest coverage ratio of the firm in 2005 is high. While in previous it was very low. This means firms ability to meet its interest payment need is increased. Long Term Debt to Equity: Long Term Debt = Total Share Holder Equity 2004 10731/39219 .273 2005 8153/51435 .158

This ratio indicates that how much equity is used to finance the long term debts and it is lower is beneficial for the company. In this case Long term debt to equity ratio of the firm in 2005 is low. While in previous it was very high. This means firms ability to meet its long term debts need is decreased through equity because the equity is more expensive source of finance as compare to debt.

Conclusion