UNIVERSITI MALAYSIA SABAH LABUAN INTERNATIONAL CAMPUS

GT00103 PRINCIPLES OF ACCOUNTING GROUP ASSIGMENT Prepared for : SIR AZLAN ZAINOL ABIDIN Prepared by : No. 1. 2. 3. 4. 5. Name Matric Number Afif Fakrudin Bin Safidar BG12110006 Ummi Norasyidah Binti Mohd Salleh BG10110534 Adzrin Bin Muhajim BG10160578 Ibnihar Bin Amat BG09110383 Sitiza Binti Abdullah BG09110489

INTRODUCTION Nestle Who never heard this company before? Nestle become a biggest company that supply food and beverage in the world especially in Malaysia. Many of their product we have consumed everyday. As an example is Nescafe. And many product is under this company commercially sold in market. About to know this company, Nestle (Malaysia) Berhad is an investment holding company. The Company has two segments: Food and beverages and Others, which include Nutrition and Nestle Professional. Its products are categorized into coffee and beverages, culinary aids/prepared foods, milks, liquid drinks, junior foods, breakfast cereals, chilled dairy, ice cream, chocolate and confectionery, healthcare nutrition, performance nutrition and Nestle professional. The Company is the regional manufacturer for infant cereal. The Companys subsidiaries include Nestl Products Sdn. Bhd., Nestle Manufacturing (Malaysia) Sdn. Bhd., Nestle Asean (Malaysia) Sdn. Bhd. and Nestle Foods (Malaysia) Sdn. Bhd.

Activities Based on Nestle Malaysia Annual report, the activities of Nestle Malaysia can be divided into name of subsidiary such as Nestle Products Sdn.Bhd, Nestle Manufacturing (Malaysia) Sdn. Bhd, and Nestle Foods (Malaysia) Sdn. Bhd. This entire subsidiary has own principal activities. These activities are as follows:1.Nestle Products Sdn. Bhd The principal activities of this subsidiaries is marketing and sales of ice-cream, powdered milk and drinks, liquid milk and juices, instant coffee and other beverages, chocolate confectionery products, instant noodles, culinary products, cereals, yogurt and related products. The effective ownership interest is 100% in 2011 and 2010. 2.Nestle Manufacturing (Malaysia) Sdn.Bhd and sales The activities of Nestle manufacturing including the manufacturing and sales of icecream, powdered milk and drinks, liquid milk and juices, instant coffee and other beverages, instant noodles, culinary products, cereals, yogurt and related products. The effective ownership interest is 100 % for year 2010 and 2011. 3.Nestle Foods (Malaysia) Sdn. Bhd The Food Business continued to sustain strong growth driven by its core categories within noodles, stocks, seasoning and sauces, supported by investments in consumer engagements and renovations. The Me and My MAGGI Campaign promoted tasty and balanced preparation of MAGGI noodles with fresh eggs, meat and vegetables, which was supported by the launch of a new packaging with noodle recipe suggestions. Consumers were also encouraged to share their unique recipes through a digital campaign. The effective ownership is inactive in year 2010 and 2011.

FINANCIAL STATEMENT ANALYSIS Accounting analysis is one of the most common techniques for accounting analysis is calculating rations from the data to compare with those of other companies or with the past performance of the company. For instance, return on assets as well as a measure of its profitability.1 Financial statement analysis applies analytical tools to general-purpose financial statements and related data for making business decisions. It involves transforming accounting data into more useful information. Financial statement analysis reduces reliance and hunches, guesses, and intuition as well as uncertainty in decision making.2 Advantages of Financial Statement Analysis i Provides an idea to the investor about deciding on investing their funds in a particular company. ii The regulatory authorities can ensure the company following the required accounting standard. iii iv Helpful to the government in analyzing the taxation owe to the firm. The company is able to analyze its own performance over a specific time period.3

Comparative Statements

Comparing financial statements over relatively short period (two to three years) is often done by analyzing changes in line items.4 A change analysis usually includes analyzing absolute Ringgit Malaysia (RM) amount changes and percent changes. Both analyses are relevant because RM changes can yield large percent changes inconsistent with their importance. Reference to Ringgit Malaysia is necessary to retain a proper perspective and to assess the importance of changes. We compute the Ringgit Malaysia change for a financial statement item as follows:

1 2

Investopedia dictionary Financial Accounting INFORMATION FOR DECISIONS by John J. Wild and Winston Kwok, page 520 3 http://www.readyratios.com/reference/analysis/financial_statement_analysis.html 4 Financial Accounting INFORMATION FOR DECISIONS by John J. Wild and Winston Kwok, page 523

Analysis period is the point or period of time for the financial statements under analysis, and base period is the point or period of time for the financial statements used for comparison purposes. The prior year is 2010 for the Financial Statement of Nestle Malaysia Berhad Company. We compute the percent change by dividing the Ringgit Malaysia change by the base period amount and then multiplying this quantity by 100 as follows:

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COMPARATIVE BALANCE SHEETS

NESTLE MALAYSIA BERHAD Comparative Balance Sheets For The Year Ended December 31, 2010 and December 31, 2011 Group 2011 RM 000 Assets Property, plant and equipment Goodwill Investment in subsidiaries Investment in an associate Deferred tax assets Trade and other receivables TOTAL NON-CURRENT ASSETS Trade and other receivables Inventories Current tax assets Cash and cash equivalent TOTAL CURRENT ASSETS 889, 741 61, 024 3, 210 9, 482 23, 802 987, 259 444, 854 517, 573 176 52, 461 1, 015, 064 2010 RM 000 897, 505 61, 024 3, 189 10, 441 22, 653 994, 812 354, 303 380, 539 344 48, 683 783, 869 RM Change (7, 764) 0 21 (959) 1, 149 (7, 553) 90, 551 137, 034 (168) 3, 778 231, 195 Group Percent Change (0.87) 0 0.66 (9.18) 5.07 (0.76) 25.56 36.01 (48.84) 7.76 29.49

TOTAL ASSETS Equity Share capital Reserves Retained earning TOTAL EQUITY ATTRIBUTLE TO OWNERS OF THE COMPANY Liabilities Loans and borrowings Employee benefits Deferred tax liabilities TOTAL NON-CURRENT LIABILITIES Loans and borrowings Trade and other payables Taxation TOTAL CURRENT LIABILITIES TOTAL LIABILITIES TOTAL EQUITY AND LIABILITIES

2, 002, 323 234, 500 10, 560 395, 800 640, 860

1, 778, 681 234, 500 37, 016 341, 820 613, 336

223, 642 0 (26, 456) 53, 980 27, 524

12.57 0 (71.47) 15.79 4.49

337,711 42, 316 66,696 446, 723 4, 223 878, 321 32, 196 914, 740 1, 361, 463 2, 002, 323

326, 298 42, 537 75, 595 444, 430 87, 256 623, 269 10, 390 720, 915 1, 165, 345 1, 778, 681

11, 413 (221) (8, 899) 2, 293 (83, 033) 255, 052 21, 806 193, 825 196, 118 223, 642

3.50 (0.52) (11.77) 0.52 (95.16) 40.92 209.87 26.89 16.83 12.57

According to the comparative balance sheets, it shows that the inventories increase up to 36.01% from 2010 to 2011. The difference between the amounts of inventories for Nestle Malaysia Berhad in 2011 compared in year 2010 is RM137, 034. The total asset in 2011 shows the positive growth to 12.57% compared with the year 2010 from RM1, 778,681 to RM 2,002,323. But, in equity shows the decrease of reserve to RM26, 456 for Nestle Malaysia Berhad in the year 2010 to the year 2011. In total, the equity and the liabilities have increase to 12.57% from RM 1, 778, 681 to RM 2, 002, 323. The difference between equity and liabilities in year 2010 and 2011 is RM 223, 642.

COMPARATIVE INCOME STATEMENTS

NESTLE MALAYSIA BERHAD Comparative Income Statements For the Year Ended December 31, 2010 and December 31, 2011 Group 2011 RM 000 4, 700, 994 (3, 158, 877) 1, 542, 117 1, 595 (828, 947) (128, 711) (6, 626) 579, 428 458 (21, 398) (20, 940) 321 558, 809 (102, 508) 456, 301 2010 RM 000 4, 026, 319 (2, 682, 027) 1, 344, 292 736 (749, 794) (95, 576) (12, 167) 487, 491 35 (21, 669) (21, 634) (113) 465, 744 (74, 346) 391, 398 RM Change 674, 675 476, 850 197, 825 859 79, 153 33, 135 (5, 541) 91, 937 423 (271) (694) 208 93, 065 28, 162 64, 903 Group Percent Change 16.76 17.78 14.72 116.71 10.56 34.67 (45.54) 18.86 1, 208.57 (1.25) (3.21) 184.07 19.98 37.88 16.58

Revenue Cost of goods sold Gross profit Other income Distribution and selling expenses Administrative expenses Other expenses Results from operating activities Finance income Finance cost Net finance (costs)/income Share of profit/ loss of an equity accounted associate, net of tax Profit before tax Income tax expense Profit for the year

Other comprehensive (expense)/ income, net of tax Cash flow hedge Defined benefit plan actuarial (losses)/ gains Other comprehensive (expenses) /income for the year , net of tax Total of comprehensive income for the year Basic and diluted earnings per ordinary share (sen) (26, 456) (3, 671) (30, 127) 426, 174 195 4, 125 2, 384 6, 509 397, 907 167 22, 331 1, 287 23, 618 28, 267 28 541.36 53.98 362.85 7.10 16.77

Nestle Malaysia Berhad has modest revenue growth of 16.76% in 2011. This finding helps support managements expansion strategy as reflected in the comparative balance sheets. Nestle Malaysia Berhad shows their ability to control cost of goods sold, which increase 17.78%. Nestle Malaysia Berhad net income decrease 3.21% on revenue growth of 16.76% is good.

RATIO ANALYSIS Below are the analysis of the ratio of Nestle Malaysia Berhad for 2011 and 2010. (For the calculation, refer to the APPENDIX). Liquidity and Efficiency Ratio Financial Ratio Current ratio Acid-test ratio Account Turnover Inventory Turnover Days sales uncollected Days sales in inventory Total asset turnover 7.034 times 34.5 days 59.80 days 2.49 times 5.973 times 32.1 days 51.79 days 2.13 times 2011 1.110 0.54 Receivable 11.76 times 2010 1.087 0.56 10.08 times

Solvency Ratio Financial Ratio Debt Ratio 2011 67.99% 2010 65.52%

Equity Ratio Debt to Equity Ratio

32.00% 212%

34.48% 190%

Profitability Ratio Financial Ratio Profit Margin Ratio Gross Margin Ratio Return on assets Return on stockholders equity 2011 9.71% 32.80% 24.14% common 72.74% 2010 9.72% 33.39% 20.70% 62.41%

Trend Analysis
Trend analysis, also called trend percent analysis or index number trend analysis is a form of horizontal analysis that can reveal patterns in data across successive periods. In a trend analysis, the financial statements of the company are compared with each other for the several years after converting them in the percentage. Specifically, a trend percent is compute as follows5:

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Nestle Malaysia Berhad data;

The trend percents; 2011 RM 000 2010 RM 000 2009 RM 000 2008 RM 000 2007 RM 000

Financial Accounting INFORMATION FOR DECISIONS by John J. Wild and Winston Kwok, page 525

TURNOVER

3, 416, 028 = 100%

The base period is 2007 and the trend percent is computed in each subsequent year by dividing that years amount by its 2007 amount. For instance, the sales trend percent for 2011 is 137.62%.

turnover (%)
160 140 120 100 80 60 40 20 0 2007 2008 2009 2010 2011 turnover (%)

Trend analysis has a great advantage that it can used to predict the future events. This is possible by forecasting the future cash flow based on data available in the past. With the help of trend analysis, we can predict and track the variances to add performance. Trend analysis is apart from investment and financial data of the company useful tool that can be used effectively for the projection. This allows the company to conduct market research and draw trend to forecast the demand of difference product and help in marketing purpose to select the right marketing approaches to address the issue.

Common-Size Statements
Common-size financial statements are to reveal changes in the relative importance of each financial statement item. All individual amounts in common-size statements are redefined in terms of commonsize percents. A common-size percent is measured by dividing each individual financial statement amount under analysis by its base amount:6

Financial Accounting INFORMATION FOR DECISIONS by John J. Wild and Winston Kwok, page 527

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COMMON-SIZE BALANCE SHEETS

NESTLE MALAYSIA BERHAD Common-Size Comparative Balance Sheets For The Year Ended December 31, 2010 and December 31, 2011 Group 2011 RM 000 Assets Property, plant and equipment Goodwill Investment in subsidiaries Investment in an associate Deferred tax assets Trade and other receivables TOTAL NON-CURRENT ASSETS Trade and other receivables Inventories Current tax assets Cash and cash equivalent TOTAL CURRENT ASSETS TOTAL ASSETS Equity Share capital Reserves Retained earning TOTAL EQUITY ATTRIBUTLE TO OWNERS OF THE COMPANY Liabilities Loans and borrowings Employee benefits Deferred tax liabilities TOTAL NON-CURRENT LIABILITIES 889, 741 61, 024 3, 210 9, 482 23, 802 987, 259 444, 854 517, 573 176 52, 461 1, 015, 064 2, 002, 323 2010 RM 000 897, 505 61, 024 3, 189 10, 441 22, 653 994, 812 354, 303 380, 539 344 48, 683 783, 869 1, 778, 681 Common-size percents 2011 2010

44.4% 3.0% 0.2% 0.5% 1.2% 49.3% 22.2% 25.8% 0.1% 2.6% 50.7% 100.0%

50.5% 3.4% 0.2% 0.6% 1.3% 55.9% 19.2% 21.4% 0.1% 2.7% 44.1% 100.0%

234, 500 10, 560 395, 800 640, 860

234, 500 37, 016 341, 820 613, 336

11.7% 0.5% 19.8% 32.0%

13.2% 2.1% 19.2% 34.5%

337,711 42, 316 66,696 446, 723

326, 298 42, 537 75, 595 444, 430

16.9% 2.1% 3.3% 22.3%

18.3% 2.4% 4.3% 25.0%

4, 223 87, 256 Loans and borrowings 878, 321 623, 269 Trade and other payables 32, 196 10, 390 Taxation TOTAL CURRENT LIABILITIES 914, 740 720, 915 TOTAL LIABILITIES 1, 361, 463 1, 165, 345 TOTAL EQUITY AND LIABILITIES 2, 002, 323 1, 778, 681 *percents are rounded to tenth and thus may not exactly sum to totals and subtotals.

0.2% 43.9% 1.6% 45.7% 68.0% 100.0%

4.9% 35.0% 0.6% 40.5% 65.5% 100.0%

Some relations that stand out on both a magnitude and percentage basis in Nestle Malaysia Berhad includes; i ii iii iv Property, plant and equipment decrease 6.1% as a percentage of assets Trade and other receivable also inventory almost half of total assets. A marked increase in current liabilities. An increase in retained earning which is 0.6%.

Most of these changes are characteristic of a successful stable company. The concern, if any, is whether Nestle Malaysia Berhad can continue to generate sufficient revenues and income to support its asset buildup within a very competitive industry.

COMMON-SIZE INCOME STATEMENTS

NESTLE MALAYSIA BERHAD Common-Size Comparative Income Statements For the Year Ended December 31, 2010 and December 31, 2011 Group 2011 RM 000 4, 700, 994 (3, 158, 877) 1, 542, 117 1, 595 (828, 947) (128, 711) (6, 626) 579, 428 458 (21, 398) (20, 940) 321 558, 809 (102, 508) 456, 301 2010 RM 000 4, 026, 319 (2, 682, 027) 1, 344, 292 736 (749, 794) (95, 576) (12, 167) 487, 491 35 (21, 669) (21, 634) (113) 465, 744 (74, 346) 391, 398 Common-Size Percent 2011 100.0% 67.2% 32.8% 0.03% 17.6% 2.7% 0.1% 12.3% 0.001% 0.5% 0.4% 0.01% 11.9% 2.2% 9.7% 2010 100.0% 66.6% 33.4% 0.02% 18.6% 2.4% 0.3% 12.1% 0.00% 0.5% 0.5% 0.002% 11.6% 1.8% 9.7%

Revenue Cost of goods sold Gross profit Other income Distribution and selling expenses Administrative expenses Other expenses Results from operating activities Finance income Finance cost Net finance (costs)/income Share of profit/ loss of an equity accounted associate, net of tax Profit before tax Income tax expense Profit for the year

Other comprehensive (expense)/ income, net of tax Cash flow hedge (26, 456) 4, 125 0.6% 0.1% 0.6% 9.1% 0.1% 0.1% 0.2% 9.9%

Defined benefit plan actuarial (3, 671) 2, 384 (losses)/ gains Other comprehensive (expenses) (30, 127) 6, 509 /income for the year , net of tax Total of comprehensive income for 426, 174 397, 907 the year *percents are rounded to tenth and thus may not exactly sum to totals and subtotals.

The table shows common-size comparative income statements for each Ringgit Malaysia of Nestle Malaysia Berhad sales. The past two years common size numbers are similar. The bad news is that Nestle Malaysia Berhad has not been able to squeeze an extra 0.8 Ringgit Malaysia in earning sales RM. This can be proved when on the year 2010; the percentage of sales is 9.9% and decrease to 9.1% in 2011. This implies that management is not effectively controlling cost and/or the company is not reaping growth benefits. The horrible news is when the distribution and selling expenses and administrative expenses has increase in the year of 2011. Analysis here shows that common-size percents for successive income statement cannot cover the important changes in a companys expenses.

CONCLUSION
Financial records of an organization that register all financial transactions, and must be kept at its principal office or place of business. The purpose of these records is to enable anyone to appraise the organization's current financial position with reasonable accuracy. Firms present their annual accounts in two main parts: the balance sheet, and the income

statement (profit and loss account). The annual accounts of a registered or incorporated firm are required by law to disclose a certain amount of information. And have to be certified by an external auditor that they present a 'true and fair view' of the firm's financial affairs. From the findings, Nestle Malaysia Berhad has modest revenue growth of 16.76% in 2011. This finding helps support managements expansion strategy as reflected in the comparative balance sheets. Nestle Malaysia Berhad shows their ability to control cost of goods sold, which increase 17.78%. Nestle Malaysia Berhad net income decrease 3.21% on revenue growth of 16.76% can be categorized as good. Analysis for common-size percents for successive shows income statement cannot cover the important changes in a companys expenses. Here, we can see the main advantages of accounting are the accounting provides information to the management to enable it to do its work properly. This information helps in planning, decision making and controlling. Accounting reports can be analyzed to provide management with financial information that can be used to run a business and plan ahead and make changes when business is not going as expected. Besides, accounting was systematic record enables a business to compare one years result with those of other years and locate significant factors leading to the change if any. Data entered in an accounting system is venerable data. This accounting information is unbiased because it is not opinions or wishes. Another advantage of accounting information is reliable. If we have a question in any payable or receivable, report can show how the number calculated.

Financial Ratio Analysis of Nestle Malaysia Berhad: 1. Liquidity and Efficiency Ratio Category of Financial Ratios Current ratio = Current Assets Current Liabilities Acid Test Ratio = Cash + short-term investment + current receivables Current Liabilities Account Receivable turnover= Net Sales________ Average account receivable Year 2010 (RM000) 783,869 720,915 = 1.087 402,986 720,915 = 0.56 4,026,319__ (444,854+355,303)/2 10.08 times Inventory Turnover= Cost goods of sold Average inventory 2,682,027 (517,573+380,539)/2 5.97 times Year 2011 (RM000) 1,015,064 914,740 = 1. 11 497,315 914,740 = .054 4,700,994____ (444,854+355,303)/2 11.76 times 3,158,877____ (517,573+380,539)/2 7.034 times

Days sales uncollected= Account receivable x 365 Net sales Days sales in inventory= Ending inventory x 365 Cost of goods sold Total asset turnover= Net sales Average total assets

354,303 x365 4,026,319 32.1 days 380,539 x 365 2,682,027 51.79 days 4,026,319__ (2,002,323+1,778,681)/2 2.13 times

444,854 x365 4,700,994 34.5 days 517,573 x 365 3,158877 59.80 days 4,700,994____ (2,002,323+1,778,681)/2 2.49 times

Solvency Ratio
Category of Financial Ratios Debt ratio = Total liabilities Total assets Equity ratio= Total equity Total assets Debt to equity ratio= Total liabilities Total equity Year 2010 (RM000) 1,165,345 1,778,681 = 0.655 /65.5% 613,336 x100 1,778,681 34.48% 1,165,345 613,336 190% Year 2011 (RM000) 1,361,463 2,002,323 = 0.6799/67.99% 640,860 x100 2,002,323 32.00% 1,361,463 640,860 212%

Profitability Ratio
Category of Financial Ratios Profit margin ratio= Year 2010 (RM000) 391,398 Year 2011 (RM000) 456,301

Net income Net sales Gross margin ratio= Net sales-cost of goods sold Net sales Return on total assets= Net income Average total assets Return on common stockholders equity= Net income-preferred stock Average common stockholders equity

4,026,319 9.72% 4,026,319-2,682,027 4,026,319 33.39% 391,398 (2,002,323+1,778,681)/2 20.70% 391,398-0 (640,860+613,336)/2 62.41%

4,700,994 9.71% 4,700,994-3,158,877 4,700,994 32.80% 456,301 (2,002,323+1,778,681)/2 24.14% 456,301 (640,860+613,336)/2 72.74%