ANALYSIS ON NESTLÉ FINANCIAL

STATEMENTS 2017

NAME : PUTU DENY WIJAYA

89,79−89,47
× 100% = 0.35%
89,47

When the growth of Sales numbers is more than the compared base, it is termed as positive Sales Growth. Every
company always strives for positive sales growth and it is always beneficial for the financial well-being of a company
to have positive sales growth.

Nestle has a net revenue of 89,79billion CHF in 2017 while they’re only making 89,47 billion CHF in 2016 adding
all sort of items sold by Nestle, the positive sales growth would be of 0.32 billion CHF

Importance of Sales Growth

 Sales growth is an indicator that the steps taken towards policies are correct and working. A positive sales growth
is a green signal which means things are being done right while a negative sales growth is a red signal which
means it is time to stop and rethink.
 A positive sales growth is the objective sought by a company because it means more profits. Positive sales growth
also signals that conditions are favorable in the market and the strategy or technique company is currently
following is working in their favor. While getting a positive sales growth may be easy but maintaining it is a
challenging task.
 A positive sales growth also indicates an increase in market share, customer acceptance, and user base. It means
the product is being accepted in the market.
 To maintain a positive growth, the company needs to adapt to the changing market. Thus, a positive sales growth
also indicates making necessary changes to the current working of the company, in order to improvise and adapt
the market needs and customer demands in long run

2. ASSETS

*In millions CHF

32.190−32.040
× 100% = 0.47%
32.040

Generally, increasing assets are a sign that the company is growing, but everyone can relate to the fact that there is
much more behind the scenes than just looking at the assets. The goal is to determine how the asset growth of a
company is financed. Because increase in assets doesn’t necessarily mean a positive trend towards the financial
situation of the company, they could increase their assets by increasing liabilities such as loans from banks.

Which should be answered later in the analysis

The gross profit margin ratio, also known as gross margin, is the ratio of gross margin expressed as a percentage
of sales. Gross margin, alone, indicates how much profit a company makes after paying off its Cost of Goods Sold.
It is a measure of the efficiency of a company using its raw materials and labor during the production process. The
value of gross profit margin varies from company and industry. The higher the profit margin, the more efficient
a company is. This can be assigned to single products or an entire company.

As we can see there’s an increase of 0.48% to Nestle’s gross income from 2016 to 2017 that should mean that the
management is getting more and more efficient with their resources

4. NET PROFIT
*In millions CHF

7156−8531
× 100% = -16 %
8531

A decline in net profit margin means a decline in performance and profitability levels. Net profit margin is
determined by the difference between total revenue and total expense. The margin goes up if the difference between
revenue and expense becomes bigger, but it will decline once the difference between these two accounts becomes
smaller. A lower margin compared to other margins is indicative of a lower performance level.
*ALL DENOMINATIONS ARE IN MILLION CHF

5. NET PROFIT MARGIN

The net profit margin ratio is used to describe a company’s ability to produce profit and to consider several
scenarios, such as an increase in expenses which is deemed ineffective. It is used extensively in financial
modeling and company valuation.

Net profit margin is a strong indicator of a firm’s overall success and is usually stated as a percentage. However,
keep in mind that a single number in a company report is rarely adequate to point out overall company performance.
An increase in revenue might translate to a loss if followed by an increase in expense. On the other hand, a decrease
in revenue, followed by tight control over expenses, might put the company further in profit.

A low net profit margin means that a company uses an ineffective cost structure and/or poor pricing strategies.
Therefore, a low ratio can result from:

 Inefficient management

 High costs (expenses)

 Weak pricing strategies

6. RETURN ON EQUITY
7156
62580
× 100% = 11,4%

Return on equity measures how efficiently a firm can use the money from shareholders to generate profits and
grow the company. Unlike other return on investment ratios, ROE is a profitability ratio from the investor’s
point of view—not the company. In other words, this ratio calculates how much money is made based on the
investors’ investment in the company, not the company’s investment in assets or something else.
That being said, investors want to see a high return on equity ratio because this indicates that the company is
using its investors’ funds effectively. Higher ratios are almost always better than lower ratios, but have to be
compared to other companies’ ratios in the industry. Since every industry has different levels of investors and
income, ROE can’t be used to compare companies outside of their industries very effectively.
Many investors also choose to calculate the return on equity at the beginning of a period and the end of a period
to see the change in return. This helps track a company’s progress and ability to maintain a positive earnings
trend.
7. RETURN ON ASSETS

7156
× 100% = 22,2 %
32115

The return on assets ratio measures how effectively a company can earn a return on its investment in assets. In other
words, ROA shows how efficiently a company can convert the money used to purchase assets into net income or
profits.

Since all assets are either funded by equity or debt, some investors try to disregard the costs of acquiring the assets
in the return calculation by adding back interest expense in the formula.

It only makes sense that a higher ratio is more favorable to investors because it shows that the company is more
effectively managing its assets to produce greater amounts of net income. A positive ROA ratio usually indicates an
upward profit trend as well. ROA is most useful for comparing companies in the same industry as different
industries use assets differently. For instance, construction companies use large, expensive equipment while
software companies use computers and servers.

As you can see, Nestle’s ratio is 22,3 percent. In other words, every dollar that Nestle invested in assets during the
year produced $223 of net income.

8. CURRENT RATIO
32303
× 100% = 83,4 %=0,834
38692

 The current ratio shows that Nestle can only pay off 83 % of its current liabilities
 Liquidity position is strong

9. QUICK RATIO

32303−9297,87
× 100% = 59,4 %
38692
The current ratio is the proportion (or quotient or fraction) of the amount of current assets divided by the amount
of current liabilities.
The quick ratio (or the acid test ratio) is the proportion of 1) only the most liquid current assets to 2) the amount of
current liabilities. In other words, the quick ratio assumes that only the following current assets will turn to
cash quickly: cash, cash equivalents, short-term marketable securities, and accounts receivable. Hence, the quick
ratio does not include inventories, supplies, and prepaid expenses.

10. NET WORKING CAPITAL

32303-38692= -6389
Negative working capital is when a company's current liabilities exceed its current assets. This means that the
liabilities that need to be paid within one year exceed the current assets that are monetizable over the same period.
A buyer usually considers negative working capital in a target as detrimental because it signifies additional capital
that will be required to run the business after closing. A buyer actually prefers to see a working capital ratio of 1 to
1.5 times, which means there is at least one dollar of current assets for every dollar of current liabilities. This assures
the buyer that the company can generate sufficient cash over the short term to cover supplier and payroll obligations.

That being said, there are some businesses in which negative working capital is a positive. The famous case study is
Dell Computers, which had negative working capital as a result of its business model for years, allowing it to collect
cash up-front, but pay suppliers later. Similar situations that result from a competitive advantage are more the
exception than the rule, but they show that negative working capital can be a positive attribute in some cases.
11. DEBT EQUITY RATIO
38692
× 100% = 61,3 %
63048,63

12. DEBT ASSETS RATIO

Debt is the amount borrowed from Banks

Equity is the amount contributed by Promoters

Assets are those purchased using the Debt and Equity

So, Debt to Equity ratio is ratio of the outside funds (Borrowed from Banks) and inside funds (Infused by the
Promoters)

Debt to Total Assets Ratio is the ratio of the funds borrowed from outside to the total assets purchased using Debt
and Equity

13. INVENTORY TURNOVER

FA TURNOVER 0,59 0,58

TA TURNOVER 0,34 0,34

The inventory turnover ratio is an efficiency ratio that shows how effectively inventory is managed by
comparing cost of goods sold with average inventory for a period. This measures how many times average inventory
is “turned” or sold during a period. In other words, it measures how many times a company sold its total average
inventory dollar amount during the year. A company with $1,000 of average inventory and sales of $10,000
effectively sold its 10 times over.

This ratio is important because total turnover depends on two main components of performance. The first
component is stock purchasing. If larger amounts of inventory are purchased during the year, the company will have
to sell greater amounts of inventory to improve its turnover. If the company can’t sell these greater amounts of
inventory, it will incur storage costs and other holding costs.