Nestle Group Company

Comparative Statement of Financial Position

December 31, 2014 and 2013

Increase (Decrease)
2014 2013 Amount Percent
Assets

Current Assets
Cash and cash equivalents 7, 448 6,415 1,033 16.1
Short-term investments 1,433 638 795 80.2
Inventories 9,172 8,382 790 9.4
Trade and other receivables 13,459 12,206 1,253 10.3
Prepayments and accrued income 565 762 (197) (25.9)
Derivative assets 400 230 170 73.9
Current income tax assets 908 1,151 (243) (21.1)
Assets held for sale 576 282 294 104.3
Total Current Assets 33,961 30,066 3,895 13.0

Non-current assets
Property, plant and equipment 28,421 26,895 1,526 5.7
Goodwill 34,557 31,039 3,518 11.3
Intangible assets 19,800 12,673 7,127 56.2
Investments in associates and joint 8,649 12,315 (3,666) (29.8)
ventures
Financial assets 5,493 4,550 943 20.7
Employee benefits assets 383 537 (154) (28.7)
Current income tax assets 128 124 4 3.2
Deferred tax assets 2,058 2,243 (185) (8.2)
Total Non-current Assets 99,849 90,376 9,113 10.1

Total assets 133,450 120,442 13,008 10.8

Liabilities and equity

Current liabilities
Financial debt 8,810 11,380 (2,570) (22.6)
Trade and other payables 17,437 16,072 1,365 8.5
Accruals and deferred income 3,759 3,185 574 18.0
Provisions 695 523 172 32.9
Derivative liabilities 757 381 376 98.7
Current income tax liabilities 1,264 1,276 12 1.0
Liabilities directly associated with assets 173 100 73 73
held for sale
Total current liabilities 32,895 32,917 (22) (0.1)
Non-current liabilities
Financial debt 12,396 10,363 2,033 19.6
Employee benefits liabilities 8,081 6,279 1,802 28.7
Provisions 3,161 2,714 447 16.5
Deferred tax liabilities 3,191 2,643 548 20.7
Other payables 1,842 1,387 455 32.8
Total Non-current liabilities 28,671 23,386 5,285 22.6

Total liabilities 61,566 56,303 5,263 9.3

Equity
Share capital 322 322 0.0 0.0
Treasury shares (3,918) (2,196) (1,722) 78.4
Translation reserve (17,255) (20,811) 3,556 17.1
Retained earnings and other reserves 90,981 85,260 5,721 6.7
Total equity attributable to shareholders of 70,130 62,575 7,555 12.1
the parent
Non-controlling interests 1,754 1,564 190 12.1
Total equity 71,884 64,139 7,745 12.1

Total liabilities and equity 133,450 120,442 13,008 10.8

I. Analysis of the Comparative Balance Sheet

The 10.3% increase in receivables is unfavorable as the business shows that there is
slower conversion of receivables to cash. The credit sales from the customers increase.

Much of the company’s increase in current assets is from the 73.9% increase in its
derivative assets – assets that derive their values from the values of other assets. The company’s
derivative assets are more on hedging to reduce the risk of adverse price movements in an asset.
The increase in company’s derivative assets is favorable, because it allows the company to
manage the currency and commodity price risks arising from its operations.

There is a substantial decrease on the company’s financial debt. A decrease in 22.6%

from the previous year. This shows that the company has settled some of its obligation from the
other banks.
 The company didn’t issue new shares from year 2013 to 2014.

Total assets increased by 10.8%.

Total liabilities increased by 9.3%.

Total equity increased by 12.1%.

Total liabilities and equity increased by 10.8%.

 Nestle Group Company
Comparative Income Statement
For the Years Ended December 31, 2014 and 2013

Increase (Decrease)
2014 2013 Amount Percent
Sales 91,612 92,158 (546) (0.6)

Other revenue 253 215 38 17.7

Cost of goods sold (47,553) (48,111) 558 (1.2)
Distribution expenses (8,217) (8,156) (61) 0.7
Marketing and administration expenses (19,651) (19,711) 60 (0.3)
Research and development costs (1,628) (1,503) (125) 8.3
Other trading income 110 120 (10) (8.3)
Other trading expenses (907) (965) 58 (6.0)
Trading operating profit 14,019 14,047 (28) (0.2)

Other operating income 154 616 (462) (75)

Other operating expenses (3,268) (1,595) (1,673) 104.9
Operating profit 10,905 13,068 (2,163) (16.6)

Financial income 135 219 (84) (38.4)

Financial expense (772) (850) 78 (9.2)
Profit before taxes, associates and joint ventures 10,268 12,437 (2,169) (17.4)

Taxes (3,367) (3,256) (111) 3.4

Income from associates and joint ventures 8,003 1,264 6,739 533.1
Profit for the year 14,904 10,445 4,459 42.7
Of which attributable to non-controlling interests 448 430 18 4.2
Of which attributable to shareholders of the parent 14,456 10,015 4,441 44.3
(Non profit)

As percentages of sales
Trading operating profit 15.3% 15.2%
Profit for the year attributable to shareholders of the 15.8% 10.9%
parent (Net profit)

Earnings per share

Basic earnings per share 4.54 3.14 1.4 44.6
Diluted earnings per share 4.52 3.13 7.7 244.4

II. Analysis of the Comparative Income Statement

There is a slight decrease in the company’s net sales by 0.6%. Meaning, there is a slow
inflow of cash into the company.

The cost of goods sold decreased by 1.2% from the previous year.
 There is a decrease of 0.3% in the marketing and administrative expenses. That’s why
maybe the net sales decreases by 0.6%
 III. Financial Statements Analysis of Nestle Group Company

Short-term Solvency Analysis

As shown on the statement of financial position, there is an increase in total current assets
by 13.0% while there is a decrease of 0.1% in total current liabilities. It can be observed that the
financial debt decreases. Meaning, the company has settled some of its obligations from other
banks. While, it can also be observed that there is an increase in trade and other payables. Trade
receivables and inventory increased at a much higher percentage than the percentage of decrease
in Sales (0.6%). This indicates slower conversion of inventory and receivables to cash. The
changes mentioned were some favorable and unfavorable. It is favorable because the total assets
exceed the total liabilities. Both of the total assets and the total liabilities increases but the
percentage of increase in total assets (10.8%) was higher than the percentage of increase in total
liabilities (9.3%).

Long-term Financial Position Analysis

Total liabilities increased by 9.3%, whereas shareholders’ equity increased by 12.1%.

Thus, the company’s capital structure shifted slightly away from borrowing and toward capital
provided by profitable operations. These changes can be viewed favorably because they indicate
strengthening of the long-term financial position by end of year 2014.

Operating Efficiency and Profitability Analysis

Sales decreases by 0.6% while cost of goods sold decreased by 1.2%. This is unfavorable
because this could indicate that the company was able to adjust the selling price of the goods but
it has affected the sales revenue. The 0.6% increase in sales was accompanied by a 0.3%
decrease in marketing and administrative expenses, which shows that people tend to buy their
product without much advertisement.

On overall basis, operating performance could be considered satisfactory or favorable because of

the decrease in the cost of goods sold and marketing and administrative expenses accompanied
by an increase in sales revenue.
 Nestle Group Company
Comparative Statement of Financial Position, Common-size Percentages*
For the years ended December 31, 2013 and 2014
(in millions)
2014 2013
Assets
Current Assets
Cash and Cash Equivalents 5.58 5.33
Short-term Investments 1.07 0.53
Inventories 6.87 6.96
Trade and Other Receivables 10.09 10.13
Prepayments and Accrued Income 0.42 0.63
Derivative Assets 0.3 0.19
Current Income Taxes 0.68 0.96
Assets Held for Sale 0.43 0.23
Total Current Assets 25.45 24.96
Non-curent Assets
Property, Plant and Equipment 21.3 22.33
Goodwill 25.9 25.77
Intangible Assets 14.84 10.52
Investments in Associates and Joint Ventures 6.48 10.22
Financial Assets 4.12 3.78
Employee Benefits Assets 0.29 0.45
Current Income Tax Assets 0.1 0.1
Deferred Tax Assets 1.54 1.86
Total Non-current Assets 74.55 75.04
TOTAL ASSETS 100 100
Liabilities and Equity
Current Liabilities
Financial Debt 6.6 9.45
Trade and Other Payables 13.07 13.34
Accruals and Deferred Income 2.82 2.64
Provisions 0.52 0.43
Derivative Liabilities 0.57 0.32
Current Tax Liabilities 0.95 1.06
Liabilities Directly Associated with Assets Held For Sale 0.13 0.08
Total Current Liabilities 24.65 27.33
Non-current Liabilities
Financial Debt 9.29 8.6
Employee Benefits Liabilities 6.06 5.21
Provisions 2.37 2.25
Deferred tax Liabilities 2.39 2.19
Other Payables 1.38 1.15
Total Non-current Liabilities 21.48 19.42
TOTAL LIABILITIES 46.13 46.75
Equity
Share Capital 0.24 0.27
Treasury Shares 2.94 1.82
Translation Reserve 12.93 17.28
Retained Earnings and Other Reserves 68.18 70.79
Total Equity Attributable to Shareholders of the Parent 52.55 51.95
Non-controlling Interests 1.31 0.3
Total Equity 53.87 53.25
TOTAL LIABILITIES AND EQUITY 100 100
 Nestle Group Company
Comparative Income Statement, Common-size Percentages*
2014 2013
Sales 100 100

Other Revenue 0.3 0.2

Cost of Goods Sold 51.9 52.2
Distribution Expenses 9 8.9
Marketing and Administration Expenses 21.5 21.4
Research and Development Cost 1.8 1.6
Other Trading Income 0. 1 0. 1
Other Trading Expenses 1 1. 1
Trading Operating Profit 15.3 15.2

Other Operating Income 0.2 0.7

Other Operating Expenses 3.6 1.7
Operating Profit 11.9 14. 18

Financial Income 0.2 0.2

Financial Expense 0.8 0.9
Profit before taxes, associates and joint ventures 11.2 13.5

Taxes 3. 1 3.5
Income from associates and joint ventures 8.7 1.4
Profit for the year 16..3 11.3
 Of which attributable to non – controlling interests 0.5 0.5
 Of which attributable to shareholders of the parent (Net
15.8 10.9
Profit)

As Percentage of Sales
 Trading Operating Profit 0.02 0.02
 Profit for the year attributable to shareholders of the parent 0.02 0.01

Earnings per Share (in SHE)

 Basic Earnings per Share 4.96 3.47
 Diluted Earnings per Share 4.93 3.97

For the Years Ended, December 31, 2013 to 2014

Evaluation of the Financial Position

1. The Nestle Group Company’s statements of financial position showed that there is a
substantial increase in the proportions of current and fixed assets. While there is a
decrease in current liabilities and an increase in long-term liabilities during the period
from December 31, 2013 to December 31, 2014. The percentage shows an improvement
on its liquidity status and there are decreases in the liabilities which gives the company
the ability to liquidate its debt.
2. It can be observed that Cash balance as a percentage of total assets had been increasing
while trade and other receivables and inventories in relation to total assets have been
decreasing. This may be due to the consumers preferring to acquire the said inventories
on cash basis. The volume of sales shows a decrease that can be unfavorable to the
business of the company.
3. There is an increase in the percentage of the equity. Though there are increases in the
treasury shares and a decrease in the translation reserve and retained earnings of the
company.
4. The decreasing percentage of total liabilities and the increase of assets show that the
company has lessen their dependability to borrow or loan cash for their capital. Showing
that the company can know provide their own profit. This is because of the increase in the
long-term investment of the company, indicating that the company is in it for the long
run.

Evaluation of Profitability

1. Unfavorable changes could be observed in the gross profit percentage in relation to net
sales. The percentage of gross profit declined because the cost of goods sold increase.
The decrease in percentage over the period could be due to increasing of raw materials
without increasing its price.
2. Marketing and administrative expenses increase. The company should lessen their
advertisement costs.
3. The decrease in percentage of other expenses can be traced on the trade and other
payables because it shows a decrease on the financial position of the company.
 Nestle Group Company

Financial Ratio Analysis

I. Analysis of Liquidity or Short-Term Solvency

This shows the company’s ability to meet the cash needs the company will be obligated
to.

Current Ratio

Current Assets
Formula:
Current Liabilities

33961
2014: = 1.03 times
32895

30066
2013: = 0.91 times
32917

Current ratio widely regarded as a measure of short-term debt-paying ability. It is a

financial ratio that measures whether or not a firm has enough resources to pay its debts over
the next operating cycle. The Nestlé shows an increase from 0.91 to 1.083 showing an
improvement on the financial situation of the company.

Quick or Acid Test Ratio

Quick Assets
Formula:
Current Liabilities

20907
2014: = 0.64 times
32895

18621
2013: = 0.57 times
32917
Quick or Acid Test Ratio measures the ability of a company to use its near cash or quick
assets to extinguish or retire its current liabilities immediately. This is a much more rigorous test
of a company’s ability to meet its short-term debts because this will show the independent way of
a company to pay liabilities without having to depend on its inventories. It is computed by
dividing quick assets, cash, accounts receivable and marketable securities, and total current
liabilities
The decrease results between 2013 and 2014 show that the company can liquidate all its
debt by just using its quick assets.
Cash-Flow Liquidity

Cash+ Marketable Securities+ Cash flow form operating activities

Formula:
Current Liabilites

7448+14700
2014: = 0.67 times
32895

6415+ 14992
2013: = 0.65 times
32917

Cash-Flow Liquidity Ratio considers cash flow from operating activities in addition to the
truly liquid assets, cash and marketable securities. This is computed by dividing the sum of
cash, marketable securities, and cash from operating activities to the total current liabilities.

The ratios show that there is a slight improvement on the company. This is because of the
operating profit being low. But still this just proves that the company have short-term
solvency.

II. Analysis of Asset Liquidity and Asset Management Efficiency

Accounts Receivable Turnover

Net Sales
Formula:
Average Accounts Receivable Turnover

91612
2014: 13459+12206 = 7.14 times
2

92158
2013: = 7.55 times
122606

The accounts receivable turnover roughly measures how many times a company’s
accounts receivable have been turned into cash during the year. The Accounts Receivable
Turnover shows a decrease from 7.55 to 7.14 indicating a slow conversion of cash of its
goods being sold or an increase on the accounts receivable. This result is unfavorable to the
company.

Average Collection Period

365 days
Formula:
Accounts Receivable Turnover
 365
2014: = 52.12 or 52 days
7.14

365
2013: = 48.34 or 48 days
7.55

The average collection period of accounts receivable is the average number of days
required to convert receivable into cash,

The ratios for Nestle Group Company indicate that during 2014, the firm collected its
accounts in 52 days which means lack of effectiveness in terms of collection in their claims.

Inventory Turnover

Cost of Goods Sold

Formula:
Average Inventory Balance

47553
2014: 9172+8382 = 5.42 times
2

48111
2013: = 5.74 times
8382

The inventory turnover measures the efficiency of the firm in managing and selling
inventory. The results show a decrease showing a sign of inefficiency of managing their
inventory and their profit or maybe there is an underinvestment in terms of their inventory
because they didn’t issue new shares.

Average Sale Period

365 days
Formula:
Inventory Turnover

365
2014: = 67.34 days
5.42

365
2013: = 63.59 days
5.74

The number of days being taken to sell the entire inventory one time is called the average
sale period. Nestle Group Company’s average sale period increased from 64 days to 67 days
in 2014.
Fixed Assets Turnover

Net Sales
Formula:
Average net property , plant∧equipment

91612
2014: 28421+26895 = 3.31 times
2

92158
2013: =3.43 times
26895

The fixed asset turnover is another approach to assessing management’s effectiveness in

generating sales from investments in fixed assets particularly for a capital intensive firm.

The company should improve their sales. This is an unfavorable result to the company.
Showing that their capital intensive is low, indicating no growth.

Total Assets Turnover

Net Sales
Formula:
Average Total Assets

91612
2014: 133450+120442 = 0.72 times
2

92158
2013: = 0.77 times
120442

The total asset turnover shows the measurement and the efficiency of management to
generate sales and thus earn more profit for the firm. For Nestle Group Company, the total
asset turnover decreases because the fixed assets, inventory and accounts receivable turnover
decreases.

III. Analysis of Leverage: Debt Financing and Coverage

Debt Ratio

Total Liabilities
Formula:
Total Assets

61566
2014: = 46.13%
133450

56303
2013: = 47.75%
120442
 The debt ratio measure the proportion of all asserts that are financed with debt.
Generally, the higher the proportion of debt, the greater the risk because creditors must be
satisfied before owners in the event of bankruptcy.
Nestle Company’s ratios in 2014 and 2013 has decreased a mere.62 percent which which
is favorable for the company.

Debt to Equity Ratio

Total Liabilities
Formula:
Total Equity

61566
2014: = 85.64%
71884

56303
2013: =87.78%
64139

The debt to equity ratio measures the riskiness of the firm’s capital structure in
terms of relationship between the funds supplied by creditors and investors.
Nestle Company’s debt to equity ratio has decreased between 2013 and 2014,
implying an improvement on its capital structure.

IV. Operating Efficiency and Profitability

Gross Profit Margin

Gross Profit
Formula:
Net Sales

44059
2014: = 48%
91612

44047
2013: = 47.80%
92158

Gross profit margin shows the relationship between sales and the cost of products sold,
measures the ability of a company both to control costs and inventories or manufacturing of
products and to pass along price increases through sales to customers.
Nestle Company’s gross profit margin for both 2014 and 2013 have been stable which
is considered a positive sign because there is a mere change with the percentages.

Operating Profit Margin

 Operating Profit
Formula:
Net Sales

10905
2014: = 11.90%
91612

13068
2013: = 14.18%
92158

The operating profit margin is a measure of overall operating efficiency and incorporates
all of the expenses associated with the ordinary or normal business activities.
Nestle Company’s operating profit margin has decreased from 14.48% in 2013 to 11.90%
in 2014 which means its is slightly unfavorable for the company due to the slight lack of
ability to control its operating expenses while sharply increasing sales.

Net Profit Margin

Net Income
Formula:
Net Sales

14456
2014: = 15.78%
91612

10015
2013: = 10.87%
92158

Net profit margin measures profitability after considering all revenue and expenses,
including interest, taxes and nonoperating items such as extraordinary items, cumulative
effect of accounting change.

Nestle Company decrease which means the profitability after considering all revenue and
expense is at risk.

Cash Flow Margin

Cas h flow
Formula: ¿ operating activities ¿
Net Sales

14700
2014: = 16.05%
91612

14992
2013: = 16.27%
92158

Cash flow margin measures the ability of the firm to translate sales to cash to enable it to
service debt, pay dividends or invest in new capital assets.
 The operating margin is higher than the cash flow margin. This indicates a weak
and negative generation of cash. The performance on both years seemed to be the same.

Return on Investment on Asset (ROA)

Net Income
Formula:
Average Total Assets

14456
2014: 71884+64139 = 11.39%
2

10015
2013: = 8.32%
120442

Rate of return on assets (ROA) measures overall efficiency of the firm in managing assets
and generating profits.

As shown in the figures, looks like their overall efficiency of the firm improves. The
increase shows that it’s favourable to the business.

Return on Investment on Equity (ROE)

Net Income
Formula:
Average Total Equity

14456
2014: 71884+64139 = 21.26%
2

10015
2013: = 15.61%
64139

Rate of return on equity measures rate of return on resources provided by owners.

As shown on figures, return on equity increased and it was quite favourable to the business.
Regardless of the increase in their treasury shares they still managed to increase their net
worth which leads to increase in both ROA and ROE.