Final term Project report on NESTLE foods

Ratios Analysis of NESTLE foods

Subject:

Financial Statement Analysis

Submitted to:
Prof. Omer Zia
5th Semester
By
Fezan Akhtar
MBAP-F13-19
Faisal Saeed
MBAP-F13-07
Hina Shaheen
MBAP-F13-10
Ammara Ch
MBAP-F13-24

MASTERS IN BUSINESS ADMINISTRATION

Faculty of Management Sciences
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THE SUPERIOR UNIVERSITY LAHORE

Campus, Okara, Pakistan

Acknowledgement
Thanks to almighty Allah for enabling us to fulfill all the requirements for the completion of our
project report. It would not be a justice in presenting this report without mentioning the people
around us who have been inextricably related with the completion of this report.
For assisting us in all respect and regards to complete this report our heartfelt thanks to our
teacher" Prof. Omer Zia" who enriched us knowledge with wealth led ideas to pursue and
power of writing this report. It could not have been possible to accomplish this report without his
thoughtful guidance and expertise. It is also a great pleasure to record honorable regards to all
those who helped us lot in learning and enhancing our knowledge and ability during the project.
Finally, for all possible errors, omissions and shortcomings in writing of this report only we are
responsible for which we hope that all concerning regards of this report will forgive us.

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Executive Summary

Financial statements provide summarized view of the financial position and Operation of the
company. Therefore, now a day it is necessary to all companies to know as well as to show the
financial soundness i.e. position and operation of Company to their stakeholders. It is also
necessary to company to know their financial position and operation of the company.

In this report we made an effort to know the financial position of NESTLE foods Pakistan, and
gave a complete analysis on the profitability ratios (Gross profit margin, Net profit margin,
return on equity, return on assets etc.) by using the Annual Reports & Financial Statements of the
firm. The results of various ratios indicated that NESTLE Company is making progress to
achieve its objectives i-e profits in coming years.
There is also a competitive analysis of the NESTLE foods with MITCHELLS foods. The results
show that the NESTLE foods are better than MITCHELLS in order to gains profit and is more
preferred by the customers.
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MITCHELLS company, on the other hands has limited products and less geographical area to
provide products to its customers has not shown a good financial position as compared it with the
NESTLE foods which shows a far better position of business.
We concluded our report with the aim that the NESTLE foods maintains its better position in
future and the MITCHELLS company also takes steps to attract the customers by offering a
wide product line.
At the end, we gave some suggestions for the improvement of the both MITCHELLS and
NESTLE foods.

Table of Contents
History of NESTLE foods.................................................................................. 5
NESTLE foods Pakistan............................................................................................ 6
Vision.................................................................................................................... 6
Mission.................................................................................................................. 7
Goals and Objective.................................................................................................. 7
Ratios Analysis of NESTLE foods................................................................................ 8
Profitbility Analysis.................................................................................................. 8
1. Gross Profit Margin....................................................................................... 8
2. Net Profit Margin.......................................................................................... 9
3. Operating Profit Margin............................................................................... 10
4. Total Assets Turnover................................................................................... 11
5. Fixed Assets Turnover................................................................................... 12
6. Return on Assets.......................................................................................... 13
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Du-Pont Analysis................................................................................................... 14
1. Operating Income Margin.............................................................................14
2. Return on Investment................................................................................... 15
3. Return on Equity......................................................................................... 16
Recommendation................................................................................................... 17
Conclustion........................................................................................................... 18
References............................................................................................................ 19

NESTL
Good Food, Good Life
Nestl, the Company which is renowned for its vast collection of food products. The Company
was formed in 1905 by the merger of the Anglo-Swiss Milk Company, established in 1866 by
brothers George Page and Charles Page, and Farine Lacte. Nestl was found in 1866 by Henri
Nestl. The company grew significantly during the First World War and again following the
Second World War, expanding its offerings beyond its early condensed milk and infant formula
products. The company has made a number of corporate acquisitions, including Crosse &
Blackwell in 1950, Findus in 1963, Libby's in 1971, Rowntree Mackintosh in 1988 and Gerber in
2007.
As Nestl started with a condensed milk and later it climbed so fast at the ladder of
success that it is now a leading brand in food products with so many sub-brands. Currently
Nestl is dealing with bottled water, breakfast cereals, coffee, confectionery, dairy products, ice
cream, pet foods, other beverages, shelf stable, chilled, Ice cream, Infant nutrition, performance
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nutrition, healthcare nutrition, frozen foods, refrigerated products, food services and professional
products and snacks.29 of Nestl's brands have annual sales of over 1 billion Swiss francs (about
$ 1.1 billion). Nestl has around 450 factories, operates in 86 countries, and employs around
328,000 people. It is one of the main shareholders of L'Oral, the world's largest cosmetics
company.
NESTL in Pakistan
Nestl has been serving Pakistani consumers since 1988, when parent company, the
Switzerland-based Nestl SA, first acquired a share in Milk Pak Ltd. Today Nestl is fully

integrated in Pakistani life, and is recognized as the producer of safe, nutritious and tasty food,
and leaders in developing and uplifting the communities in which they operate. Nestl Pakistan
ensures that their products are made available to consumers wherever in the country they might
be. Convenience is at the heart of the Nestl philosophy, and their aim is to bring products to
people's doorsteps.

Vision
Nestls global vision is to be the recognized leading Nutrition, Health and Wellness
Company. Nestl Pakistan subscribes fully to this vision of being the number one Nutrition,
Health, and Wellness Company in Pakistan. In particular, we envision to;

Lead a dynamic, passionate and professional workforce proud of our heritage and
positive about the future.

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Meet the nutrition needs of consumers of all ages from infancy to old age, from
nutrition to pleasure, through an innovative portfolio of branded food and beverage
products of the highest quality.

Deliver shareholder value through profitable long-term growth, while continuing to play
a significant and responsible role in the Social, Economic, and Environmental sectors of
Pakistan.

Mission
Nestl is dedicated to providing the best foods to people throughout their day,
throughout their lives, throughout the world. With our unique experience of anticipating
consumers needs and creating solutions, Nestl contributes to your well-being and enhances
your quality of life.

Goals and Objectives

The goals and objectives of Nestl Pakistan are simple and well designed with the core
strategies to meet the demand of the consumers and to fulfill the needs of the customers.
Following are the main goals and:
1. To be, the best and quality providing brand among other brands in Pakistan.
2. To fulfill customers needs and requirements.
3. To capture its desired market share.
4. To dwell into the life of people and consumers.
5. To boost up its sales.
6. To create value for customer.
7. To keep the loyalty of customer with Nestl.
8. To be the top nutrition company of Pakistan.
9. To be the leading FMCG company around the world as well as in Pakistan.
10. It aims to be the socially responsible and helping company in bad times.

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11. Nestl aims to be proactive innovation and renovation culture, which is the key to
Nestls success in the marketplace.
12. Nestl aims to have fully integrated systems with suppliers & retailers so that every
single market can be tapped & focused.

RATIOS ANALYSIS OF NESTLE FOODS

Profitability Ratio:
The Ratio which is used to indicates the overall profitability of the firm. As a group, these
measures enable the analyst to evaluate the firms profit with respect to a given level of sales, a
certain level of assets, or the owners investments.
1. Gross Profit Margin:
Indicates the efficiency of the operations and the firms pricing policies.
Formula=Gross profit/Net sales

NESTLE Ltd.
Gross profit margin

Year 2014
28.32%

Year 2013
28.02%

Year 2012
27.21%

Year 2014
27,323,990/96,457,743 x100=28.32%
Year 2013
24,160,797/86,226,869 x100=28.02%
Year 2012
21,523/79,088 x100=27.21%

MITCHELLS
Gross profit margin

Year 2014
26.80%

Year 2013
25.79%

Year 2012
24.56%

Self-Analysis:
The Gross profit margin of NESTLE has gradually increased from previous years which
indicated that the production cost is less from previous years. If the company maintains this
position of increasing gross profit margin, it will lead to success in future.

Competitive Analysis:

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MITCHELLS gross profit margin is also increased from the previous years which indicated that
the production cost is less from previous years, but the overall level of NESTLE in far higher
than MITCHELLS.

2. Net Profit Margin:

Indicates the firms profitability after taking account of all expenses and income taxes.
Formula=Net profit after taxes/Net sales

NESTLE Ltd.
Net profit margin

Year 2014
8.22%

Year 2013
6.80%

Year 2012
7.41%

Year 2014
7929, 271/96,457,743 x 100 = 8.22%
Year 2013
5866, 763/86,226,869 x100=6.80%
Year 2012
5865/79,088 x100=7.41%

MITCHELLS
Net profit margin

Year 2014
5.52%

Year 2013
6.35%

Year 2012
5.75%

Self-analysis:
In case of NESTLE company the Net profit increases that show our expenses of Tax and our
expenses for interest decrease. An increase in sales leads towards increase in profits of the
company.

Competitive analysis:
In Case of MITCHELLS the net profit ratio is decreased which shows that the companys
expenses of tax and interest increases as compared with previous years, and the net profit ratio of
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NESTLE company is higher than MITCHELLS company due to increase in sales of NESTLE
company.

3. Operating Profit Margin:

Operating income/Net sales x100

NESTLE Ltd.
Operating profit margin

Year 2014
14.63%

Year 2013
13.30%

Year 2012
13.86%

Year 2014
14,113,463/96,457,743 x100=14.63%
Year 2013
11,471,270/86,226,869 x100=13.30%
Year 2012
10,966/79088 x100=13.86%

MITCHELLS
Operating profit margin

Year 2014
8.12%

Year 2013
9.81%

Year 2012
9.30%

Self-analysis:
Operating profit margin is increasing in case of NESTLE Company its mean our profit margin
increase as compare to expenses. Firms operations become effective and save the operating cost.

Competitive analysis:
In case of MITCHELLS the operating profit margin is decreased as compared to previous years
it means the companys profit margin is decreased as compared to its expenses, by comparing it
with NESTLE, the companys profit margin is higher.

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4. Total Assets Turnover:

Net sales/Total assets
NESTLE Ltd
Total assets turnover

Year 2014
1.86 times

Year 2013
1.64 times

Year 2012
3.61 times

Year 2014
96,457,743/51,730,695=1.86 times
Year 2013
86,226,869/52,289,521=1.64 times
Year 2012
79,088/21,882=3.61 times
MITCHELLS
Total assets turnover

Year 2014
1.38 times

Year 2013
2.25 times

Year 2012
2.31 times

Self-analysis:
In case of NESTLE, there will be an increase in total assets turnover which indicates that the
company is efficient in utilizing its assets to generate sales.

Competitive analysis:
In case of MITCHELLS the ratio is decreased as compared to previous years which means the
company is not efficient in utilizing its assets to generate sales.

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5. Fixed Assets Turnover:

Net sales/Total fixed assets

NESTLE Ltd.
Fixed assets turnover

Year 2014
3.15 times

Year 2013
2.74 times

Year 2012
3.61 times

Year 2014
96,457,743/30,550,199=3.15times
Year 2013
86,226,869/31,467,872=2.74times
Year 2012
79088/21,882=3.61times

MITCHELLS
Fixed assets turnover

Year 2014
2.84 times

Year 2013
5.30 times

Year 2012
5.36 times

Self-analysis:
The fixed assets turnover ratio is increased of the NESTLE from the previous year which
indicated that the firms fixed assets are fully utilized to generate sales.

Competitive analysis:
In case of MITCHELLS there is a gradual decrease in the fixed assets turnover ratio which
shows that the company is not generated sales against its fixed assets, by comparing it with
NESTLE, MITCHELLS is not making progress.

6. Return On Assets:
Return on assets measures the firms ability to utilize its assets to create profits by comparing
profits with the assets that generate the profits.
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Return on Assets=Net income before non-controlling interest and non-recurring items/ Average
total assets

NESTLE Ltd.
Return on Assets

Year 2014
0.22

Year 2013
0.16

Year 2012
1.69

Year 2014
7929, 271/34674445=0.22
Year 2013
5866, 763/34674445=0.16
Year 2012
5865/34674445=1.69

MITCHELLS
Return on Assets

Year 2014
1.39 times

Year 2013
2.25 times

Year 2012
2.31 times

Self-analysis:
There is an increase in return on Assets of the NESTLE, which is beneficial to the company and
also for the investors who indorses capital in order to gain better return.

Competitive analysis:
There is a decrease in return on Assets of the MITCHELLS company which is not beneficial for
the company or to the investors, but the company having greater return on Assets when it
compared with NESTLE for providing better return on Assets.

DuPont Ratios
1. Operating Income margin:
Operating income margin=Operating Income/Net sales
NESTLE Ltd.
Operating Income margin

Year 2014
0.03

Year 2013
0.04

Year 2012
0.13
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Year 2014

3628187/96,457,743=0.037
Year2013
3552873/86,226,869=0.041
Year 2012
10966/79088=0.13

MITCHELLS
Operating Income margin

Year 2014
0.08

Year 2013
0.09

Year 2012
0.09

Self-analysis:
The NESTLE firms operating income margin is decreased as compared to previous years which
show that the companys sales is not much increased against its operating income.

Competitive analysis:
MITCHELLS firm also having decreasing operating income margin as compared to previous
years but compared with NESTLE it is much higher.

2. Return On Investment:
Indicates the profitability on the assets of the firm (after all expenses and taxes).
Formula=Net income/Average total assets

NESTLE Ltd.
Return on investment

Year 2014
0.22%

Year 2013
0.16%

Year 2012
1.69%

Year 2014
7929, 271/34674445=0.22

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Year 2013
5866, 763/34674445=0.16
Year 2012
5865/34674445=1.69

MITCHELLS
Return on investment

Year 2014
7.67%

Year 2013
14.31%

Year 2012
13.31%

Self-analysis:
There is an increase in return on investment of the NESTLE, which is beneficial to the company
and also for the investors who indorses capital in order to gain better return.

Competitive analysis:
There is a decrease in return on investment of the MITCHELLS, which indicated that the
investors not getting a higher return on capital indorsed but the ratio is far higher as compared
with NESTLE firm which is good sign for the MITCHELLS firm.

3. Return On Equity:
Indicates the profitability to the shareholders of the firm (after all expenses and taxes).
Formula=Net income/Average equity.

NESTLE Ltd.
Return on equity

Year 2014
25.89%

Year 2013
19.16%

Year 2012
19.15%

Year 2014
7929,271/306184=25.89
Year 2013
5866763/306184=19.16
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Year 2012
5865/306184=19.15

MITCHELLS
Return on equity

Year 2014
18.56%

Year 2013
25.47%

Year 2012
25.25%

Self-analysis:
The increase in return on equity indicates that the NESTLE firms generates more income on both
common and preferred stockholders.

Competitive analysis:
There is a decrease in return on equity in case of MITCHELLS company which indicated that
the firm is not generating more income on both common and preferred stockholders from
previous years the return on equity of NESTLE firm is higher than MITCHELLS.

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Recommendations

NESTLE doesnt have any direct market and outlets so it can be a disadvantage so they
should facilitate their customers through pricing strategies and if they start direct market
or open the outlets so the prices will fall automatically and customers need not to pay any
extra money to the suppliers.
NESTLE Pakistan mostly depends on the local raw material and sometimes the quality of
the raw material is not as good as in the other countries so they should not rely on the
local raw material if they want to provide the quality products.
MITCHELLS should introduce other product lines and expand the business.
MITCHELLS foods should distribute their products to more geographical areas.
As NESTLE is a well-known product and MITCHELLS food is not as known
internationally as NESTLE is, so they need to spend more money on the marketing
activities.
NESTLE is better than MITCHELLS in the financial analysis so if they expand their
product line and cover the same geographical area as NESTLE has covered so
MITCHELLS can appear as a strong competitor of NESTLE and HALEEB.

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Conclusion:
After all the findings, it is concluded that financial ratios are the basic and most
important part of any business. It describes the firms financial position. As the data indicates
that NESTLE is an international brand and has expanded its business on the large geographical
area and also offers the large range of products, but on the other side MITCHELLS food offers
the limited range of the products and most of them are dairy products.
From the financial statements it is clear that the financial position of the NESTLE
is far better than MITCHELLS as it is more preferred by the customers and also an
internationally distributed. It also has less risk. It gives more return because it gains more profit
than MITCHELLS. On the other hand, MITCHELLS deals with the limited products in a
limited geographical area but on the basis of financial ratios MITCHELLS have a better
financial position and also has an opportunity to expand its business. Both the companies have
some opportunities and threads and they need to work on it.

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References
1.
2.
3.
4.
5.

NESTLE annual report 2012, 2013, 2014

Mitchells FOODS annual report 2012, 2013, 2014
Financial Statement Analysis 12 Edition by Gibson
www.NESTLE.pk
www.mitchells.foods.com.pk

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