Fm project

FINANCIAL MANAGEMENT RATIO ANALYSIS

FOREWORD

Nestlé S.A. is the largest food and beverage company in the world with a manufacturing facility or office in nearly every country of the world, Nestlé often is referred to as "the most multinational of the multinationals." Nestlé markets approximately 7,500 brands organized into the following categories: baby foods, breakfast cereals, chocolate and confectionery, beverages, bottled water, dairy products, ice cream, prepared foods, foodservice, and pet care.

The object of this piece of paper is to present the current situation of Nestlé regarding its ratio analysis. We all have learned a lot by preparing this project. It provides us a chance to view the practical use of ratio analysis in market. The practical importance of this analysis is not something hidden or fake but it is something that can distinguish us in the market.

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http://www.answers.com/topic/confectionery

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ABSTRACT

This project is divided into seven parts. The first part describes the historical background and some recent information about company. The second part describes the de tailed view of financial ratios. The third part consists of company’s three year financial statements (balance sheet, income statement and cash flow statement).

Fourth part gives details about these financial statements. Fifth part comprises of the theoretical framework of ratio analysis for these three years financial statements of the company. Sixth part provides conclusion and recommendations and last but not least is related to the summary of this financial ratio.

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ACKNOWLEDGEMENT

First of all we are much thankful to our ALLAH, by the help of which we are able to complete our work.

Secondly, we are thankful to MR. ADNAN MASOOD, Business Controller Dairy, having an experience of 10 years, and MR. IJAZ AHMAD Control Coordinator of Supply Chain Division, having an experience of 13 years in NESTLE Pakistan Ltd. In providing every kind of information and relative material we needed. They treated us very well and encouraged at every step that build up our thoughts and increase our knowledge a lot.

Special attention to the thing is that only knowing about formulas doesn’t make any sense or help out in ratio analysis but it’s all about the knowledge provided by MRS. LABIBA SHEIKH as this guided us like light in darkness. The project presented in this manuscript is completed under the supervision and guidance of MRS. LABIBA SHEIKH.

It is a collective and cohesive effort put by all group members and provided opportunity to get together for the purpose of financial analysis.

In the end we again are very thankful to corresponding persons who helped and guided us in making this project.

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TABLE OF CONTENTS

FOREWORD ................................................................................................ 1

ABSTRACT ................................................................................................. 2

ACKNOWLEDGEMENT .............................................................................. 3

ABOUT COMPANY .....................................................................................5

INTRODUCTION TO RATIO ANALYSIS ERROR: REFERENCE SOURCE NOT FOUND7

THEORETICAL FRAME WORK OF RATIO ANALYSIS ............................9

LIQUIDITY RATIOS ................................................................................ 10 ACTIVITY RATIO ................................................................................... 12 DEBT RATIOS ........................................................................................ 16 PROFITABILITY RATIOS ...................................................................... 18

CONCLUSIONS AND RECOMMENDATIONS ......................................... 26

SUMMARY ........................ ERROR: REFERENCE SOURCE NOT FOUND

APPENDIX ........................ ERROR: REFERENCE SOURCE NOT FOUND

BIBLIOGRAPHY ............... ERROR: REFERENCE SOURCE NOT FOUND

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Glossary………………………………………………………………………...Error: Reference source not found

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The origins of the Nestlé Company go all the way back to 1867, when Henri Nestlé created a nutritious product for infants that could be used by mothers who were unable to breast-feed. Henri Nestlé made use of his family escutcheon, the "Nest", a graphic translation of his name, little nest, to personify the business. Evocative of security, maternity and affection, nature and nourishment, family and tradition, this symbol remains the central element in the Nestlé corporate identity.

Merchant, chemist and inventor Henri Nestlé, established in Vevey, Switzerland, makes a breakthrough when his new formula saves the life of a premature infant. Later that year, he begins production of his new product, Farine Lactée Nestlé. In the years since Nestlé developed his infant formula, the history of the Nestlé Company has been marked by many firsts.

The first commercially sold infant formula; the first condensed milk produced in Europe; the first milk chocolate; the first soluble coffee; the first freeze-dried coffee; the first granulated instant coffee -- to name just a few. Today, the Nestlé Company has grown and expanded to include the widest range of wholesome foods for people throughout the world.

Nestlé now produces the world's favorite brands in 489 factories worldwide. In 130 years of growth and diversification, we have never lost sight of our core business: improving the quality of people's lives through high-quality, nutritious, and convenient prepared foods and beverages. Today, Nestlé brands are known on every continent, and some products -- like Nescafe, Carnation and Maggi -- are sold in more than 100 countries. Nestlé, in its 129th year of operation, is the largest food company in the world and is still based in Vevey, Switzerland.

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Nestlé has been serving Pakistani consumers since 1988, when the parent company, the Switzerland-based Nestlé SA, first acquired a share in Milkpak Ltd. Today Nestle is fully integrated in Pakistani life, and are recognized as producers of safe, nutritious and tasty food, and leaders in developing and uplifting the communities in which they operate.

The first half of the 1990s proved to be a favorable time for Nestlé: tradeBarriers crumbled and world economic markets developed into a series ofMore or less integrated trading areas. The opening of Central and Eastern Europe, as well as China, and a general trend towards liberalization of direct foreign investment was good news for a company with interests as far-flung and diverse as Nestlé. While progress since then has not been as encouraging, the overall trends remain positive. Nestlé is looking forward for stronger financial position.

Nestle is committed to the following Business Principles in all countries, taking into account local legislation, cultural and religious practices:

Nestle's business objective is to manufacture and market the Company's products in such a way as to create value that can be sustained over the long term for shareholders, employees, consumers, and business partners.

Nestle does not favor short-term profit at the expense of successful long-term business development.

Nestle recognizes that its consumers have a sincere and legitimate interest in the behavior, beliefs and actions of the Company behind brands in which they place their trust, and that without its consumers the Company would not exist.

Nestle believes that, as a general rule, legislation is the most effective safeguard of responsible conduct, although in certain areas, additional guidance to staff in the form of voluntary business principles is beneficial in order to ensure that the highest standards are met throughout the organization.

Nestle is conscious of the fact that the success of a corporation is a reflection of the professionalism, conduct and the responsible attitude of its management and employees. Therefore recruitment of the right people and ongoing training and development are crucial.

Nestlé continues to maintain its commitment to follow and respect all applicable local laws in each of its markets.

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Financial ratio analysis is the calculation and comparison of ratios which are derived from the information in a company's financial statements. The level and historical trends of these ratios can be used to make inferences about a company's financial condition, its operations and attractiveness as an investment.

One of the ways in which financial statements can be put to work is through ratio analysis. Ratios are simply one number divided by another; as such they may or not be meaningful. In finance, ratios are usually two financial statement items that may be related to one another and may provide the prudent user a good deal of information. Of the myriad of ratios that could be generated, some will be more meaningful than others. Generally ratios are divided into four areas of classification that provide different kinds of information:

1. LIQUIDITY RATIOS2. TURNOVER RATIOS3. DEBT RATIOS4. PROFITABILITY RATIOS

1. LIQUIDITY RATIOS

A class of financial metrics that is used to determine a company's ability to pay off its short-terms debts obligations. Generally, the higher the value of the ratio, the larger the margin of safety that the company possesses to cover short-term debts.

A company's ability to turn short-term assets into cash to cover debts is of the utmost importance when creditors are seeking payment. Bankruptcy analysts and mortgage originators frequently use the liquidity ratios to determine whether a company will be able to continue as a going concern.

2. ACTIVITY RATIO

Accounting ratios measure a firm's ability to convert different accounts within their balance sheets into cash or sales.Companies will typically try to turn their production into cash or sales as fast as possible because this will generally lead to higher revenues.

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Such ratios are frequently used when performing fundamental analysis on different companies. The asset turnover ratio and inventory turnover ratio are good examples of activity ratios.The most used activity ratios are INVENTORY TURNOVER, AVERAGE COLLECTION PERIOD, AVERAGE PAYMENT PERIOD and TOTAL ASSET TURNOVER.

3. DEBT RATIO

A ratio that indicates what proportion of debt a company has relative to its assets. The measure gives an idea to the leverage of the company along with the potential risks the company faces in terms of its debt-load.

A debt ratio of greater than 1 indicates that a company has more debt than assets; meanwhile, a debt ratio of less than 1 indicates that a company has more assets than debt. Used in conjunction with other measures of financial health, the debt ratio can help investors determine a company's level of risk.Generally used DEBT RATIOS are DEBT RATIO and TIME INTEREST EARNED RATIO.

4. PROFITABILITY RATIOS

A class of financial metrics that are used to assess a business's ability to generate earnings as compared to its expenses and other relevant costs incurred during a specific period of time. For most of these ratios, having a higher value relative to a competitor's ratio or the same ratio from a previous period is indicative that the company is doing well.

These are closely linked with income ratios, which shed light upon the overall effectiveness of management regarding the returns generated on sales and investment.

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LIQUIDITY RATIOS

Liquidity ratios include the current ratio and the quick ratio. Different analysts consider different assets to be relevant in calculating liquidity. Some analysts will calculate only the sum of cash and equivalents divided by current liabilities because they feel that they are the most liquid assets, and would be the most likely to be used to cover short-term debts in an emergency.

1) Current ratio = Current assets / Current liabilities

Current assets include cash, marketable securities, inventory, and prepaid expenses. Current liabilities includes accounts payable (1 year or less), current portions of long-term debt, and salaries payable. The current ratio measures the ability of the firm to pay is current bills while still allowing for a safety margin above their required amount needed to pay current obligations

FOR 2005:

Current ratio = 3,518,718 / 4,333,228

Current ratio = 0.812

FOR 2006:

Current ratio = 4,627,685 / 5,224,488


FOR 2007:

Current ratio = 5,623,823 / 5,978,522


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2) Quick ratio = (Current Assets - Inventory) / Current Liabilities

The quick ratio is similar to the current ratio but eliminates the inventory figure in the current assets section of the balance sheet. The inventory figure is thought to be the least liquid figure and should thus, be eliminated. Generally, the quick ratio should be lower than the current ratio because it eliminates the inventory figure from the calculation.

For 2005:

Quick ratio = (3,518,718 – 1,742,904) /4,333,228

Quick ratio = 1,775,814 / 4,333,228

Quick ratio = 0.410

For 2006:

Quick ratio = (4,627,685 – 2,236,646) /5,224,488

Quick ratio = 2,391,039/5,224,488

Quick ratio = 0.458

For 2007:

Quick ratio = (5,623,823 – 2,829,879)/ 5,978,522

Quick ratio = 2,793,944/5,978,522

Quick ratio = 0.467

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ACTIVITY RATIO

An indicator of how rapidly a firm converts various accounts into cash or sales. In general, the sooner management can convert assets into sales or cash, the more effectively the firm is being run.

1. Inventory Turnover = Cost of Goods / Total Inventory

The inventory turnover ratio measures the number of times during a year that a company replaces its inventory. The turnover is only meaningful when comparing other firms in the industry or a company’s prior inventory turnover. Differences in turnover rates result from differing operating characteristics within an industry. The higher the inventory turnover rate means the more efficiently a company is able to grow sales volume

For 2005:

Inventory Turnover = 12,357,079/ 1,742,904

Inventory Turnover = 7.090

For 2006:

Inventory Turnover = 15,778,330/2,236,646


For 2007:

Inventory Turnover = 20,291,270/ 2,829,879


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2. Avg. collection period=Accounts Receivable/(Sales / 360 days)

Total accounts receivable includes all outstanding credit obligations from customers. The sales figure includes sales for the prior four quarters of financial performance. The figure may also include amounts on a quarterly basis only. The accounts receivable period is a measure of a company’s ability to collect accounts receivable within a timely and reasonable period. The accounts collection period varies from industry to industry. The smaller the accounts receivable period, the more effectively a company is in managing and collecting money from customers.

For 2005:

Avg. Collection period = 865,897 / (17,142,363 / 360 days)

Avg. Collection period= 865,897 / 47,617.675

Avg. Collection period= 18.18 days

For 2006:

Avg. Collection period = 2,109,314 / (22,030,958/360 days)

Avg. Collection period = 2,109,314 / 61,197.11

Avg. Collection period = 34.47 days

For 2007:

Avg. Collection period = 2,022,387 / (28,235,393/360 days)

Avg. Collection period = 2,022,387 / 78,431.65

Avg. Collection period = 25.79 days

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3. Avg. Payment Period = Accounts Payable/(Purchases/360 days)

The accounts payable turnover ratio includes all outstanding obligations that a company owes its creditors. The total purchases include a percentage of sales based on historical figures.

For 2005:

Avg. Payment Period = 2,233,660 / (9,496,409/360)

Avg. Payment Period = 2,233,660 / 26,378.91

Avg. Payment Period = 84.68 days

For 2006:




For 2007:




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4. Total Asset Turnover = Sales / Total Assets

The total asset turnover is a measure of how efficiently and effectively a company uses its assets to generate sales. The higher the total asset turnover ratio, the more efficiently firm’s assets have been used.

For 2005:

Total Asset Turnover = 17,142,363 / 8,836,780

Total Asset Turnover = 1.94

For 2006:



For 2007:



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DEBT RATIOS

Debt ratios measure the total amount and proportion of debt within the liabilities section of a firm’s balance sheet. These figures are normally appropriate for comparing a company performance from one period to another.

a)Debt Ratio = Total Liabilities / Total Assets

The debt ratio is calculated by dividing the total liabilities by total assets. The higher this ratio, the greater the degree of outside financing by creditors. It indicates that the firm is more highly leveraged (debt) and highly risky for creditors.

For 2005:

Debt Ratio = 6,881,733 / 8,836,780

Debt Ratio = 77.88%

For 2006:

Debt Ratio = 10,396,822 / 12,927,902

Debt Ratio = 80.42%

For 2007:

Debt Ratio = 11,736,869 / 15,848,574

Debt Ratio = 74.06%

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b) Times Interest Earned = EBIT / Interest

Times interest earned ratio measures the ability of the firm to service all debts. The figure will indicate how many times a company can cover its fixed contractual obligations to its creditors. The higher the times interest earned ratio, the more likely the firm can meet its obligations. The figure is determined from the income statement by finding the operating profit margin. The operating profit margin is the profits of the firm before interest and taxes are subtracted. The interest figure is the interest obligations for the prior four quarters of financial performance from the use of long term debt funds.

For 2005:

Times Interest Earned = 2,114,085 / 180,108

Times Interest Earned = 11.74

For 2006:

Times Interest Earned = 2,640,418 / 447,774


For 2007:

Times Interest Earned = 3, 511,145 / 584,434


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PROFITABILITY RATIOS

The profitability figures measure the ability of the business firm to earn a profit from its operations through assets, sales, and equity.

a. Gross Profit Margin = ( Sales - Cost of Goods Sold )/ Sales

The gross profit margin indicates the percentage of each sales dollar remaining after a firm has paid for its goods. The higher the GPM the better pricing flexibility and cost management controls a firm has in its operations

For 2005:

Gross Profit Margin = (17,142,863 – 12,357,079)/17,142,863

Gross Profit Margin = 4,785,784 / 17,142,863

Gross Profit Margin = 27.92%

For 2006:




For 2007:




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b. Operating Profit Margin = Operating Profits / Sales

The operating profit margin indicates the profits of the company before interest and taxes are deducted from firms operations. The higher the operating profit margin, the greater pricing flexibility a firm has in its operations. However, it could also indicate the degree of cost control management a firm possesses.

For 2005:

Operating Profit Margin = 2,114,085 / 17,142,863

Operating Profit Margin = 12.33%

For 2006:



For 2007:



Ratio Formula 2006 2007 2008

LIQUIDITYGUL AHMAD 2008

AL KARAM2008

CURRENT RATIO CURRENT ASSETS/CURRENT LIABILITIES

0.941 0.855

QUICK RATIO (CURRENT ASSETS- INVENTORY) / CURRENT LIABILITIES

0.467 0.387

ACTIVITY

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INVENTORY TURNOVER

COST OF GOODS SOLD / INVENTORY

7.170 13.917

TOTAL ASSET TURNOVER

SALES / TOTAL ASSETS

1.782 2.515

DEBT

DEBT RATIO TOTAL LIABILITIES/TOTAL ASSETS

74.06% 78.0%

TIMES INTEREST EARNED RATIO

EBIT / INTEREST 5.897 6.421

PROFITABILITY

GROSS PROFIT MARGIN

GROSS PROFIT / SALES

28.38% 7.40%

OPERATING PROFIT MARGIN

OPERATING PROFIT / SALES

12.44% 7.30%

NET PROFIT MARGIN

EARNINGS AVAILBLE FOR COMMON STOCKHOLDERS EQUITY / SALES

6.39% 4.40%

EARNINGS PER EARNINGS 39.81 24.53

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SHARE AVAILBLE FOR COMMON STOCKHOLDERS EQUITY/ NO. OF SHARES OF COMMON STOCK OUTSTANDING

RETURN ON TOTAL ASSETS

EARNINGS AVAILBLE FOR COMMON STOCKHOLDERS EQUITY / TOTAL ASSETS

11.39% 11.0%

RETURN ON COMMON EQUITY

EARNINGS AVAILBLE FOR COMMON STOCKHOLDERS EQUITY / COMMON STOCK EQUITY

43.90% 41.20%

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c. Net Profit Margin = Net Profits /Sales

The net profit margin measures the amount of profits available to shareholders after interest and taxes have been deducted on the income statement. The higher the profit margin, the more pricing flexibility a firm may have in its operations or the greater cost control initiated by management.

For 2005:

Net Profit Margin = 1,148,722 / 17,142,863

Net Profit Margin = 6.7%

For 2006:



For 2007:



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d. Earnings per share(EPS)

The earnings per share measures the per share dollar return to owners of a company.

EPS= earnings available for common stockholders equity / number of shares of common stock outstanding

For 2005:

EPS= 1,148,722 / 45,350

EPS= Rs. 25.33

For 2006:

EPS= 1,363,290 / 22,030,958

EPS= Rs. 30.06

For 2007:

EPS= 1,805,212 / 45,350

EPS= Rs, 39.81

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e. RETURN ON TOTAL ASSETS(ROA)

Return on total assets shows that how much the firm is performing well in generating profits with its available assets.

ROA= earnings available for common stockholders equity / Total assets

For 2005:

ROA= 1,148,722 / 8,836,780

ROA= 13%

For 2006:

ROA= 1,363,290 / 12,927, 902

ROA= 10.55%

For 2007:

ROA= 1,805,212 / 15,848,574

ROA= 11.39%

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f. RETURN ON COMMON EQUITY(ROE)

The return on equity measures the return earned on the owners’ equity in the firm. The higher the rate the better the firm has increased wealth to shareholders.

ROE= earnings available for common stockholders equity / Common stock equity

For 2005:

ROE= 1,148,722 / 1,957,047

ROE= 58.70%

For 2006:

ROE= 1,363,290 / 2,531,080

ROE= 53.86%

For 2007:

ROE= 1,805,212 / 4,111,705

ROE= 43.90%

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Conclusions and recommendations

Company has the current ratio of 0.812 in 2005, 0.886 in 2006, and 0.941 in 2007 that is not a good ratio as a current ratio of at least 2.0 is cited acceptable in manufacturing firms. So it shows that firm is not able to pay its short term obligations as they come due.

Company’s quick ratio is 0.410 for 2005, 0.458 for 2006, and 0.467 for 2007 that is not good because the quick ratio of 1.0 is acceptable in manufacturing firms. As quick ratio provides a better measure of overall liquidity only when a firm’s inventory cannot be easily converted into cash. So it shows that company is not in good condition to pay its short term obligations.

Company’s inventory turnover is 7.090 for 2005, 7.054 for 2006 and 7.170 for 2007. As inventory turnover shows the liquidity of firm’s inventory and so is compared in the same industry or with firms past inventory turnover. In this ratio Analysis Company has maximum inventory turnover in 2007

Average collection period of firm for 2005 is 18.18 days, for 2006 is 34.47 days and for 2007 is 25.79 days. The average collection period is meaningful only in relation to the firm’s credit terms. If the firm’s credit term is greater than average collection period then that average collection period will be acceptable.

Firm’s average payment period for 2005, 2006 and 2007 are 84.68, 70.79 and 70.88 days respectively. This figure is meaningful only in relation to the average credit terms extended to the firm. A good average payment period should be less than the average credit terms extended.

The total assets turnover of the firms for 2005 is 1.94, for 2006 is 1.704 and for 2007 is 1.782. Total assets turnover shows that how much efficiently firm is using its assets. The given figures show that company turnover its assets 1.94 times in 2005, 1.704 times in 2006 and 1.782 times in 2007.

Company’s debt ratio for 2005, 2006 and 2007 are 77.88%, 80.42% and 74.06% respectively. It means that firm has financed its 77.88% assets by

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debt in 2005, and 80.42 % assets in 2006 and 74.06% in 2007 as these ratios are high so they shows the firm’s degree of indebtedness and the more financial leverage it has.

Gross profit margin of firm for 2005, 2006 and 2007 are 27.92%, 28.38% and 28.14% respectively. The firm has higher gross profit in 2006. The higher gross profit margin is better as it shows the lower relative cost of merchandise sold.

Company’s operating profit margins for 2005, 2006 and 2007 are 12.33%, 11.99% and 12.44% respectively. Operating profit margin shoes the “pure profits” that is profits without interest, taxes and preferred stock dividends. The firm has high operating profit in 2007 that is not a good indicator of firm’s position.

Net profit margin of firm for 2005 is 6.701%, for 2006 is 6.19% and for 2007 is 6.39%. The high net profit margin is better as it shows the percentage of each sales dollar remain after all costs and expensive included interest, taxes and preferred stock dividends has been deducted. The firm’s net profit margin is not s good and the maximum net profit margin is 6.701% in last three years.

Firm has earned earnings per share for 2005, 2006 and 2007 Rs. 25.33, Rs. 30.06 and Rs. 39.81 respectively. Which shows the amount in rupees that is earned on each outstanding share of common stock equity. The firms EPS is improving as shown from the figures. Higher EPS cause in attracting new peoples to invest in the company.

Return on total assets of firm is 13%, 10.55% and 11.39% for 2005, 2006 and 2007 respectively. This shows that the firm has earned 13%, 10.55% and 11.39% in respective years on each rupee of asset investment. The firm is not performing well in generating profits with its available assets.

Return on equity of firm is 58.7%, 53.86% and 43.90% for 2005, 2006 and 2007 respectively. It indicates that how much firms earned on its each rupee of common stockholder’s investment. This ratio is decreasing from last three years. The higher the ratio, the better off is the owners.

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Ratio Formula 2005 2006 2007

LIQUIDITYCURRENT RATIO CURRENT ASSETS/

CURRENT LIABILITIES

0.812 0.886 0.941

QUICK RATIO (CURRENT ASSETS- INVENTORY) / CURRENT LIABILITIES

0.410 0.458 0.467

ACTIVITY

INVENTORY TURNOVER

COST OF GOODS SOLD / INVENTORY

7.090 7.054 7.170

AVERAGE COLLECTION PERIOD

ACCOUNTS RECEIVABLE / AVERAGE SALES PER DAY

18.18 DAYS 34.47 DAYS 25.79 DAYS

AVERGE PAYMENT PERIOD

ACCOUNTS PAYABLE / AVERAGE PURCHASE PER DAY

84.68 days 70.79DAYS 70.88DAYS

TOTAL ASSET TURNOVER

SALES / TOTAL ASSETS

1.94 1.704 1.782

DEBT

DEBT RATIO TOTAL LIABILITIES/TOTAL ASSETS

77.88% 80.42% 74.06%

TIMES INTEREST EARNED RATIO

EBIT / INTEREST 11.74 6.01 5.897

PROFITABILITY

GROSS PROFIT MARGIN

GROSS PROFIT / SALES

27.92% 28.14% 28.38

OPERATING PROFIT MARGIN

OPERATING PROFIT / SALES

12.33% 11.99% 12.44%

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NET PROFIT MARGIN

EARNINGS AVAILBLE FOR COMMON STOCKHOLDERS EQUITY / SALES

6.701% 6.19% 6.39%

EARNINGS PER SHARE

EARNINGS AVAILBLE FOR COMMON STOCKHOLDERS EQUITY/ NO. OF SHARES OF COMMON STOCK OUTSTANDING

25.33 30.06 39.81

RETURN ON TOTAL ASSETS

EARNINGS AVAILBLE FOR COMMON STOCKHOLDERS EQUITY / TOTAL ASSETS

13% 10.55% 11.39%

RETURN ON COMMON EQUITY

EARNINGS AVAILBLE FOR COMMON STOCKHOLDERS EQUITY / COMMON STOCK EQUITY

58.70% 53.86% 43.90%

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NESTLE PAK LTD.BALANCE SHEETAs at 31 December 2007

Authorized capital

75,000,000 (2006: 75,000,000) ordinary shares of Rs. 10 each

750,000

Issued, subscribed and paid up capital 453,496

Share premium 249,527

General reserve 280,000

Accumulated profit 3,128,682

Non-current liabilities

4,111,705

Long term finances 4,028,700Deferred taxation 1,371,675Retirement benefits 238,370Liabilities against assets subject to finance lease 119,602

Current liabilities

5,758,347

Current portion of:

Long term finances -Liabilities against assets subject to finance lease 29,863

Short term borrowings – secured 1,035,000Short term running finance under mark-up arrangements – secured

1,637,799

Customer security deposits - interest free 124,572Trade and other payables 3,062,027Interest and mark-up accrued 89,261

5,978,522

Contingencies and commitment

Total 15,848,574

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Equity and liabilities Share capital and reserves (rupees in ‘000’)


Property, plant and equipmentCapital work-in-progress

9,074,428971,183

Intangible assets

Long term loans and advances

Long term security deposits

Current assets

10,045,611

92,382

80,670

Stores and spares 436,573

Stock in trade 2,393,306Trade debts 344,053

Current portion of long term loans and advances 21,279Advances, deposits, prepayments and other receivables 2,022,38

7Cash and bank balances 406,225

5,623,823

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ASSETS Tangible Fixed Assets (Rupees in ‘000’)


NESTLE PAK LTD.PROFIT AND LOSS STATEMENTFor the year ended December 31, 2007

Sales – net 28,235,393

Cost of goods sold (20,291,270)

Gross profit 7,944,123

Distribution and selling expenses (3,538,669)

Administration expenses (894,309)

Operating profit 3,511,145

Finance cost (584,434)Other operating expenses (442,914)

(1,027,348)

Other operating income 65,959

Profit before taxation 2,549,756

Taxation (744,544)

Profit after taxation 1,805,212

Earnings per share - basic and diluted (Rupees) 39.81

NESTLE PAK LTD.Cash FLOW STATEMENTFor the month ended December 31, 2007

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(Rupees in ‘000’)


Cash generated from operations 4,534,010(Increase) in long term security deposits -

(Increase) in long term loans and advances (27,170)

Retirement benefits paid (74,690)

Finance cost paid (593,722)

Taxes paid (234,803)

Net cash generated from operating activities

Cash flow from investing activities

3,603,625

Fixed capital expenditure (2,909,391)Sale proceeds of property, plant and equipment 67,321Net cash used in investing activities

Cash flow from financing activities

(2,842,070)

Receipt of long term finances -Repayment of long term finances (300,000)Net movement in short term borrowings – secured 335,000Payment of finance lease liabilities (18,333)Dividend paid (226,748)

Net cash (used in)/generated from financing activities (210,081)

Net increase/(decrease) in cash and cash equivalents 551,474

Cash and cash equivalents at the begging of the year (1,783,048)

Cash and cash equivalents at the end of the year (1,231,574)

NESTLE PAK LTD.BALANCE SHEETFor the moth ended December 31, 2006

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(Rupees in ‘000’)


Authorized capital75,000,000 (2006: 75,000,000) ordinary shares of Rs. 10 750,000Issued, subscribed and paid up capital 453,496

Share premium 249,527General reserve 280,000Accumulated profit 1,548,057

Non-current liabilities

2,531,080

Long term finances 3,963,700Deferred taxation 942,858Retirement benefits 234,305Liabilities against assets subject to finance lease 31,471

Current liabilities

5,172,334

Current portion of:

Long term finances 300,000

Liabilities against assets subject to finance lease 8,392Short term borrowings – secured 700,000Short term running finance under mark-up arrangements – secured

1,817,711Customer security deposits - interest free 102,307Trade and other payables 2,197,529Interest and mark-up accrued 98,549

5,224,488

Contingencies and commitment

Total 12,927,902

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04


Property, plant and equipmentCapital work-in-progress

6,986,049 1,107,052

Intangible assets

Long term loans and advances

Long term security deposits

Current asset

8,093,101

135,020

66,008

Stores and spares 329,346Stock in trade 1,907,300Trade debts 238,291Current portion of long term loans and advances 8,771Advances, deposits, prepayments and other receivables 2,109,314Cash and bank balances 34,663

4,627,685

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ASSETS Tangible Fixed Assets (Rupees in ‘000’)


NESTLE PAK LTDINCOME STATEMENTFOR THE YEAR ENDED DECEMBER 31, 2006

Sales – net 22,030,958





operating profit 2,640,418

Finance cost (447,774)

Other operating expenses (245,150)

(692,924)


Profit before taxation 2,005,455

Taxation (642,165)



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Note (Rupees in ‘000’)


NESTLE PAK LTD.Cash FLOW STATEMENTFor the month ended December 31, 2006

Cash generated from operations 1,619,014(Increase) in long term security deposits (750)(Increase) in long term loans and advances (23,464)Retirement benefits paid (69,295)Finance cost paid (394,483)Taxes paid (484,975)Net cash generated from operating activities

Cash flow from investing activities:

646,047

Fixed capital expenditure (3,584,428)Sale proceeds of property, plant and equipment 63,512Net cash used in investing activities

Cash flow from financing activities:

(3,520,916)

Receipt of long term finances 3,066,850Repayment of long term finances (1,150,000)Net movement in short term borrowings – secured 575,000Payment of finance lease liabilities (5,213)Dividend paid (1,132,770)

Net cash (used in)/generated from financing activities

1,353,867

Net increase/(decrease) in cash and cash equivalents (1,521,002)

Cash and cash equivalents at the begging of the year (262,046)

Cash and cash equivalents at the end of the year (1,783,048)

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(Rupees in’000’)


NESTLE PAK LTD.BALANCE SHEETFor the moth ended December 31, 2005

Current liabilities:

Trade and other payables 11,117

Liabilities directly associated with

Assets held for sale 38Financial liabilities 18,805

Tax liabilities 705

Derivative liabilities 922

Accruals and deferred income 4,231

Total current liabilities 35

Non-current liabilities:

Financial liabilities 8,153

Employee benefits liabilities 3,794

Deferred tax liabilities 665

Other payables 185

Provisions 3,347

Total non-current liabilities 16,144

Total liabilities

EquityShare capital 404

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Share premium 5 926

Reserve for treasury shares 2 616

Translation reserve (3 984)

Retained earnings 47 655

52,213

Treasury shares (2770)

Total equity attributable to the Group 49,847

Minority interests 1588

Total equity 51,435

Total liabilities and equity 103,397

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Assets (rupees in 000)

Current assetsLiquid assets

Cash and cash equivalents 4658Other liquid assets 12,735

17, 393Trade and other receivables 14, 291Assets held for sale 633Inventories 8, 162Derivative assets 645Prepayments and accrued income 641 24, 372

Total current assets 41765

Non-current assetsProperty, plant and equipment

Gross value 44,976Accumulated depreciation and impairment

(26,142)

18, 834Investments in associates 7, 073Deferred tax assets (a) 1, 697Financial assets 2, 513Employee benefits assets 1, 673Goodwill 26, 990Intangible assets 2, 852

Total non-current assets (a) 61, 632

Total assets (a) 103,397

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NESTLE PAK LTDINCOME STATEMENTFOR THE YEAR ENDED DECEMBER 31, 2005

2005

Sales – net 17,142,363





Operating profit 2,120,561

Finance cost (180,108)

Other operating expenses (356,528)

(536,636)


Profit before taxation1,637,076

Taxation (484,145)



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NESTLE PAK LTD.CASH FLOW STATEMENTFOR THE YEAR ENDED DECEMBER 31, 2005

(Rupees in 000)

Cash flow from operating activities

Cash generated from operations 3,755,450(Increase)/decrease in long term security deposits 659(Increase) in long term loans and advances (27,992)Retirement and other benefits paid (81,911)Finance cost paid (147,720)Taxes paid (582,411)

Net cash generated from operating activities 2,916,075

Cash flow from investing activities

Fixed capital expenditure (2,766,273)Sale proceeds of property, plant and equipment 4,622

Net cash used in investing activities (2,761,651)

Cash flow from financing activities

Receipt of long term finances 896,850Repayment of long term finances (200,000)Net movement in short term borrowings – secured 125,000

Payment of finance lease liabilities (115)

Dividend paid (226,346)

Net cash generated from financing activities 595,389

Net (decrease)/increase in cash and cash equivalents

749,813

Cash and cash equivalents at beginning of the year (1,011,859)

Cash and cash equivalents at end of the year (262,046)

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1) www.Nestle.Pk2) Lawrence j. gitman (2006), principles of managerial finance3) http://en.wikipedia.org/wiki/Financial_ratio4) http://www.finpipe.com5) http://www.winne.com6) Addison Wesley (New York City Of Publishing), 11th Edition,

Financial Management 7) http://www.financialregulator.com

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http://www.winne.com/

http://www.finpipe.com/

http://en.wikipedia.org/wiki/Financial_ratio

http://Www.Nestle.Pk/


A

Accounts receivable: Amounts of money owed to a firm by customers who have bought goods or services on credit. A current asset, the accounts receivable account is also called receivables.

Accrued expenses: Amounts owed but not yet paid for wages, taxes, interest, and dividends. The accrued expenses account is a short-term liability.

Acid-test (quick) ratio: Current assets less inventories divided by current liabilities. It shows a firm's ability to meet current liabilities with its most liquid (quick) assets.

Activity ratios: Ratios that measure how effectively the firm is using its assets.

B

Balance sheet: A summary of a firm's financial position on a given date that shows total assets = total liabilities + owners' equity.

C

Capital structure: The mix (or proportion) of a firm's permanent long-term financing represented by debt, preferred stock, and common stock equity.

Cash insolvency: Inability to pay obligations as they fall due.

Common-size analysis: An analysis of percentage financial statements where all balance sheet items are divided by total assets and all income statement items are divided by net sales or revenues.

Common stock: Securities that represent the ultimate ownership (and risk) position in a corporation.

Credit period: The total length of time over which credit is extended to a customer to pay a bill.

Current ratio: Current assets divided by current liabilities. It shows a firm's ability to cover its current liabilities with its current assets.

D

Debt ratios: Ratios that show the extent to which the firm is financed by debt.

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Depreciation : The systematic allocation of the cost of a capital asset over a period of time for financial reporting purposes, tax purposes, or both.

E

Earnings per share (EPS): Earnings after taxes (EAT) divided by the number of common shares outstanding.

F

Financial ratio: An index that relates two accounting numbers and is obtained by dividing one number by the other.

Financial (statement) analysis: The art of transforming data from financial statements into information that is useful for informed decision making.

I

Income statement: A summary of a firm's revenues and expenses over a specified period, ending with net income or loss for the period.

Interest: Money paid (earned) for the use of money.

Interest coverage ratio: Earnings before interest and taxes divided by interest charges. It indicates a firm's ability to cover interest charges. It is also called Verdana interest earned.

L

Liquidation: The sale of assets of a firm, either voluntarily or in bankruptcy.

Liquidation value: The amount of money that could be realized if an asset or a group of assets (e.g., a firm) is sold separately from its operating organization.

Liquidity: The ability of an asset to be converted into cash without a significant price concession.

Liquidity ratios: Ratios that measure a firm's ability to meet short-term obligations.

M

Market value: The market price at which an asset trades.

P

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Preferred stock: A type of stock that promises a (usually) fixed dividend but at the discretion of the board of directors. It has preference over common stock in the payment of dividends and claims on assets

Price/earnings (P/E) ratio: The market price per share of a firm's common stock divided by the most recent 12 months of earnings per share; also known as a trailing P/E ratio.

Profitability ratios: Ratios that relate profits to sales and investment.

S

Safety stock: Inventory stock held in reserve as a cushion against uncertain demand (or usage) and replenishment lead time.

Shareholders' equity: Total assets minus total liabilities. Alternatively, the book value of a company's common stock (at par) plus additional paid-in capital and retained earnings.

Simple interest: Interest paid (earned) on only the original amount, or principal, borrowed (lent).

Stakeholders: All constituencies with a stake in the fortunes of the company. They include shareholders, creditors, customers, employees, suppliers, and local communities.

Statement of cash flows: A summary of a firm's cash receipts and cash payments during a period of time.

Stock dividend: A payment of additional shares of stock to shareholders. Often used in place of or in addition to a cash dividend.

T

Treasury bills (T-bills): Short-term, non-interest bearing obligations of the US Treasury issued at a discount and redeemed at maturity for full face value

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