BALOCHISTAN UNIVERSITY OF INFORMATION

TECHONOLOGY ENGINEERING AND MANAGEMENT

SCIENCES

Financial Ratios Analysis

Nestle VS Engro Foods
Rabia Iftikhar, 12285

MBA 4th B
Dec 31, 2012

Ma'am Ayesha Javaid

ACKNOWLEDGEMENTS
Praise and thanks to ALLAH Almighty, the one testing us all at all times and making
decisions about what we dont know and cant know.
The report being submitted today is a result of collective effort. There are innumerous
helping hands behind who have guided us on our way. Writing this report appeared to be a
great experience to us. It added a lot to our knowledge. This report is one of our memorable
experiences in student life.
Though words are inadequate in offering thanks to our teacher but we owe our profound
gratitude to Maam Ayesha Javaid for stimulating our creative abilities by assigning this
project to us and for her able guidance and useful suggestions, which helped us in completing
the project in time. Whatever we have learnt from her and this project report has put indelible
impression on our minds and it is our conviction that this learning experience will always be
a source of help in our practical life and professional career.

Finally, yet importantly, we would like to express our heartfelt thanks to our beloved parents,
for cooperation, help, kindness and blessings, our family and friends for their help and wishes
for the successful completion of the work.

Table of Content
1.Executive summary... 1
2.Introduction ...2
3.NESTLE.....3
3.1NESTLE Pakistan..3
3.2Vision.4
3.3Mission...4
3.4Goals and Objectives..5
3.5SWOT.....9
4.ENGRO FOODS..10
4.1Vision10
4.2Mission..10
4.3Core values10
4.4SWOT12
5.Financial Statements of NESTLE ......... 14
5.1Balance Sheet14
5.2Income Statement.16
6.Financial Statements of ENGRO....17
6.1Balance sheet17
6.2Income Statement.19
7.Data Table...20
7.1 The calculations.21
8.Balance sheet Analysis ....23
9. Income Statement Analysis .24

10. Ratios of NESTLE...24

11. Ratios of ENGRO....27
12.Financial Ratio Analysis.......28
12.1Liquidity Analysis28
12.2Profitability Analysis28
12.3Activity Analysis..29
12.4Capital Structure...29
12.5 Capital Market Analysis Ratio 29
13.Cash Budget of NESTLE...30
14.Cash Budget of ENGRO.31
15.Conclusion..32
16. Recommendations..33
17. References..34

1. Executive Summary
The report which is based on the financial analysis of NESTLE and ENGRO FOODS. By
going through all the financial statements it is known that overall NESTLE is working so
well if compared to ENGRO FOODS. But by going through the financial ratio analysis the
facts were that ENGRO is much more competitive than NESTLE.
As ENGRO FOODS is not in the market as long as NESTLE is. This is analyzed through
financial analysis that ENGRO is working so efficiently and effectively and is coming up
with new features and advanced technology that others are not using.
In the report history of both companies, SWOT analysis, financial statements, financial
ratios, financial ratio analysis, cash budget and finally the report is concluded and
recommendations are given at the end.

2. Introduction
This is the project about financial statement analysis of two companies of the same
industry. In this regard the companies which were chosen to be analyzed are NESTL
PAKISTAN and ENGRO FOODS LIMITED. Both the companies are of food industry
and are dealing in food business for many years. The companies are well reputed in the
market and deal in a very wide range of food products.
As NESTL, a very, well-known brand started its business life with only one product
and that was condensed milk for infants. And now it has captured everyones mind for its
tempting products; as chocolates, coffee, bottled water, powdered milk, flavored milk, tea
whitener and many more. The company has strong marketing strategies to come up with
in a competitive market. It has targeted all of its customers no matter they are of what
age. The company is standing in the market with share price of 4,844. How it standing in
the market with such price? How it satisfies its shareholders? Why dont investors
invest in other companies?
The answer to all above question is clear after going through its financial reports. The
profit that the company earns and the balance it has kept between its assets and liabilities
is also easily understandable after going through its financial statements. The company is
running its business so well. And that is why it never loses its value.
ENGRO FOODS is also a very, well-reputed company which produces a wide range of
healthy food products. Is product line contains products such as milk, tea whitener,
cream, ice cream, juices, flavored milk and many others. ENGRO FOODS is the 1st
company which is using Bactofuge technology.
The company has not been in this business for as long as NESTL is, but the way it has
grown up is appreciable. It has come up with innovative features in its products. Through
its financial statements it is analyzed that how efficiently it has increased its share price
from Rs. 17 to Rs. 25. It provides many incentives to it stockholders is also growing its
market share. The company has capability to pay it liabilities on time and to keep its
assets managed.
ENGRO FOODS not only provide incentives to its stockholders but also to its
employees. It offers its employees much outdoor training so that they can work in a
healthy environment and dont get tired of their hectic routine. That is why it has many
loyal employees to work with.

3. NESTL
Good Food, Good Life
Nestl, theCompany which is renowned for its vast collection of foodproducts. The
Companywas formed in 1905 by the merger of the Anglo-Swiss Milk Company, established
in 1866 by brothers George Page and Charles Page, and Farine Lacte.Nestl was found in
1866 by Henri Nestl. The company grew significantly during the First World War and again
following the Second World War, expanding its offerings beyond its early condensed milk
and infant formula products. The company has made a number of corporate acquisitions,
including Crosse & Blackwell in 1950, Findus in 1963, Libby's in 1971, Rowntree
Mackintosh in 1988 and Gerber in 2007.
As Nestl started with a condensed milk and later it climbed so fast at the ladder of
success that it is now a leading brand in food products with so many sub-brands.Currently
Nestl is dealing with bottled water, breakfast cereals, coffee, confectionery, dairy products,
ice cream, pet foods, other beverages, shelf stable, chilled, Ice cream, Infant nutrition,
performance nutrition, healthcare nutrition, frozen foods, refrigerated products, food services
and professional products and snacks.29 of Nestl's brands have annual sales of over 1 billion
Swiss francs (about $ 1.1 billion). Nestl has around 450 factories, operates in 86 countries,
and employs around 328,000 people. It is one of the main shareholders of L'Oral, the world's
largest cosmetics company.
3.1 NESTL in Pakistan
Nestl has been serving Pakistani consumers since 1988, when parentcompany, the
Switzerland-based Nestl SA, first acquired a share in Milk PakLtd. Today Nestl is fully
integrated in Pakistani life, and is recognized asthe producer of safe, nutritious and tasty food,
and leaders in developing anduplifting the communities in which they operate.Nestl Pakistan
ensures that their products are made available toconsumers wherever in the country they
might be. Convenience is at theheart of the Nestl philosophy, and there aim is to bring
products to people'sdoorsteps.
The following project is about Nestl Pakistan and the necessary details about Nestl
Pakistan are as follow:
Ticker: NESTL
Country: PAKISTAN
Exchanges: KAR
Major Industry: Food & Beverages
Sub Industry: Diversified Food

2011 Sales: 64,824,364,000 (Year Ending Jan 2012)

Employees: 2,422
Currency: Pakistan Rupees
Market Capture: 210,875,565,600
Fiscal Year Ends: December
Shares Outstanding: 45,349,584
Share Type: Ordinary
Closely Held Shares: 35,545,078
3.2 Vision
Nestls global vision is to be the recognized leading Nutrition, Health and Wellness
Company. Nestl Pakistan subscribes fully to this vision of being the number one Nutrition,
Health, and Wellness Company in Pakistan. In particular, we envision to;

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

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

Deliver shareholder value through profitable long-term growth, while continuing to

play a significant and responsible role in the Social, Economic, and Environmental
sectors of Pakistan.

3.3 Mission
Nestl is dedicated to providing the best foods to people throughout their day,
throughout their lives, throughout the world. With our uniqueexperience of anticipating
consumers needs and creating solutions, Nestlcontributes to your well-being and enhances
your quality of life.
3.4 Goals and Objectives
The goals and objectives of Nestl Pakistan are simple and well designed with the core
strategies to meet the demand of the consumers and to fulfill the needs of the customers.
Following are the main goals and;
1. To be, the best and quality providing brand among other brands in Pakistan.

2. Tofulfillcustomersneeds and requirements.

3. To capture its desired market share.
4. To dwellinto the life of people and consumers.
5. To boost upits sales.
6. To create value for customer.
7. To keep the loyalty of customer with Nestl.
8. To be the top nutrition company ofPakistan.
9. To be the leading FMCG company around the world as well as inPakistan.
10. It aims to be the socially responsible and helping company in bad times.
11. Nestl aims to be proactive innovation and renovation culture, which is the key to
Nestls success in the marketplace.
12. Nestl aims to have fully integrated systems with suppliers & retailers so that every
single market can be tapped & focused.
3.5 SWOT Analysis
3.5.1 Strengths
Strength of Nestl is the presence of its factories or operations in almost every country
in the world employing around 283000 people. The sales values have touched CHF 109.9
billion, with a net profit of CHF 18.0 billion. Nestle has recorded a financial growth even in
times of recession by promoting the sales of smaller and cheaper versions of products in
developing economies.
3.5.2 Weaknesses
Nestl do not have direct market outlets and this can be one of the weaknesses as it
can cause difference in profit made. There another weakness is not having enough raw
material production units; they depend on either local raw material producers or through
other trade channels.
3.5.3 Opportunities
Nestls weakness of not having a direct outlet can be converted as an opportunity by
introduction of new direct outlets. The acquisition of Cadburys for an example is an
opportunity since they are one of the main competitors for Nestl. Setting up theirpersonal
farms and raw material production units is an opportunity as it would reduce the cost for
Nestl.By acquisitions Nestl can enter the new market, which is easy through already
existing companies. Nestl has great opportunities in a society which is becoming more and
more health conscious.

3.5.4 Threats
Their weakness of not having enough raw material production units (which cause
them to depend on other producers) and their dependency on other producers can threaten to
reduce thequality of products they offer. The contamination of food products is a major threat
to Nestl in the market. Intense competition in its market segments also possesses a major
challenge to Nestl as its competitors are also trying to increasing their product ranges which
might make inroads into Nestl's profit.
Another threat to Nestle can be the maturity of the markets which they are entering n.
For example, in France, DANONE has already established itself as a market leader in case of
yogurt before Nestle launched its LC-1 division in France and could not compete against the
well-establishedDANONE. The consumers frequently tend to change their preference of
brands, so change in consumer trends is a threat to Nestl.

4. ENGRO FOODS
The Local Flavor with a global Vision
Engro Foods (Pvt.) Limited (EFL) has been established in 2005 as part of a
diversification process at the Engro Group. The plant located at Sukkhur on 23 acre land, has
the raw milk reception capability of 300,000 liters per day and UHT milk capacity of 200,000
liters per day. The plant has been established at a cost of Rs. 1 billion which provides direct
employment to 750 people.
Engro Foods has entered the Food business through milk processing and sale with the
companys vision to pursue growth opportunities based on country fundamentals and own
strength. It also positions the company to leverage its corporate social responsibility
initiatives and work closely with rural communities to promote integrated farming and
livestock development. This effort is expected to play a pivotal role in poverty alleviation and
improving livelihoods of the poor in the milk collection areas.
4.1 Vision
To be the Premier Pakistani Enterprise with a global reach, passionately pursuing
value creation for all stake holders.
4.2 Mission
To help farmers maximize their farm produce by providing quality plantnutrients and
technical services upon which they can depend. To create wealth by building new businesses
based on company and country strengths inPetrochemicals, Information Technology,
Infrastructure and other Agriculturalsectors. In pursuing the mission we shall at all-time be
guided in our conductand decision making by our Core Values.
4.3 Core Values
1.
2.
3.
4.
5.
6.
7.
8.

To possess leadership among other companies.

To introduce innovative products.
To capture diversified marked and international focus.
To maintain quality and work for continuous improvement.
Candid and open communications.
External & Community Involvement
To focus on individual growth and development.
Enthusiastic pursuit of profit.

9. To keep satisfied ethics and integrity.

10. To promote safety, health and pure environment.
11. To create opportunities of enjoyment and fun.
12. To promote teamwork and partnership.
4.4 SWOT Analysis
4.4.1 Strengths

Engro Foods is a well-established brand name; customers automatically have a brand

association.
They can easily afford research and development costs in order to introduce new
products.
They have strong supply chain (good PR with farmers provides world class supply
chain management).
The increasing sale figures form years to years showing customer satisfaction upon
Engro Foods Limited products.
Engro Foods involve in consumer and product research before and after launching a
product.
Engro Foods is having strong relationship with global research partners like AC
Nielsen, JWT Asiatic.
Company is not relying on third parties for sale and distribution and has its own sale
and distributing network.
Engro Foods Limited only has the third-generation UHT milk plant in the country.
Engro Foods Limited plant is the only plant in Pakistan that uses Bactofuge
technology to virtually eliminate bacteria and ensure premium quality and hygiene.

4.4.2 Weaknesses

One major weakness of Engro Foods in dairy products, which is that 85% of its milk
collection centers are in Punjab, while processing unit is in Sindh.
Higher transportation cost.
Dependency on TETRA PAK for the entire packing of its dairy products.

Paying higher cost of packing of products results in higher overall products cost.
The product range of Engro Foods narrows as compared to its competitors.

4.4.3 Opportunities

Pakistan is the fourth largest milk producing country. So, its an opportunity for
company to grow in this sector.
Engro Foods can increase awareness though different media, by showing ads thoseare
according to cultural requirements of Pakistan.
By increasing the milk related products company can go globally.
Engro can launch products like dry milk, cereal and Yogurts etc.
Growing dissatisfaction with milkmens milk and increasing awareness about
healthand hygiene issues have led to increased processed milk consumption.

4.4.4 Threats

Engro Foods competitors Nestle and Haleeb are biggest threat.

There are opportunities and doors for new players are open who can be the future
competitors.
Consumer is aware now, there is need to maintain the quality of products. If
EngroFoods will not do so it loses its business in foods. There is threat from the
customer side.
Consumers perceptions and price differentials can cause a threat for the company.
Consumers preferences change with time and prices might create certain barriers
interms of the profit margins for ENGRO FOODS.

5. Financial Statements of NESTL Pakistan

5.1 Balance Sheet
NESTL PAKISTAN LIMITED
Balance sheet
As at December 31st2011

Assets:

2011(Rs)

Tangible fixed assets

Property, plant and equipment
Capital work in progress
Total tangible assets

16,230,528
5,370,561
21,601,089

Intangible assets
Long term loan and advances
Long term security deposits
Total intangible assets

11,954
161,982
9,817
183,753

Current assets
Stores and spares
Stock in trade
Trade debts
Current portion of long term loans and advances
Advances, deposits, prepayments and other receivables
Cash and bank balances
Total current assets
Total assets

1,278,416
7,064,170
276,858
30,914
4,042,634
702,025
13,395,017
35,179,859

Equity and Liabilities:

2011(RS)

Owners Equity
Share capital and reserves
Authorized capital 75,000,000(2010:75,000,000)ordinary Shares of Rs 10 each

750,000

Issued, subscribed and paid up capital

Share premium
General reserve

453,496
249,527
280,000

Accumulated profit
Total Owners Equity

6,629,393
7,612,416

Non-current liabilities
Long term finances
Deferred taxation
Retirement benefits
Liabilities against assets Subject to finance lease
Total non-current liabilities

7,848,050
2,476,871
440,377
13,690
10,778,988

Current liabilities
Current portion of non-current liabilities
Short term borrowings from associated company - unsecured
Short term borrowings secured
Short term running finance under markup arrangements-secured
Customer security deposit Interest free
Trade and other payables
Interest and markup accrued
Total current liabilities
Total Equity and Liabilities

41,587
--4,950,000
4,175,236
149,791
7,343,507
128,334
16,788,455
35,179,859

5.2 Income Statement

NESTL PAKISTAN LIMITED
Income statement
For the year ended December 31st 2011

2011(Rs)
Net sales
Cost of goods sold
Gross profit

64,824,364
(48,099,046)
16,725,318

Distribution and selling expenses

Administration expenses
Operating profit
Finance cost
Other operating expenses

(6,862,113)
(1,405,298)
8,457,907
(1,050,355)
(1,064,233)
(2,114,588)
159,545
6,502,864
(1,834,507)
4,668,357
102.94

Other operating income

Profit before taxation
Taxation
Profit after taxation
Earnings per share (Basic and dilute)

6 Financial Statements of ENGRO FOODS Limited

6.1 Balance Sheet
ENGRO FOODS LIMITED
Balance Sheet
As at December 31st2011

Assets
Non-Current Assets
Property,plant and equipment
Biological Assets
Intangible Assets
Long term advances, deposits and payments
Total non-current assets

2011(Rs)
9,615,426
496,809
133,598
24,212
10,270,045

Current Assets
Stores,spares and loose tools
Stock in trade
Trade debts
Advances, deposits and prepayments
Other receivables
Taxes recoverable
Derivative financial instrument
Short term investments
Cash and bank balance
Total current assets
Total Assets

571,812
2,637,816
87,121
266,093
1,160,126
1,443
--1,294,000
350,728
6,369,139
16,639,184

Equity and Liabilities

2011(Rs)

Owners equity
Share capital
Share premium
Hedging reserve
Accumulated loss
Total Owners Equity

7517,889
722,182
(18,178)
(984,951)
7,236,942

Non- Current Liabilities

Long term finances
Obligation under finance lease
Deferred taxation
Deferred liabilities
Total non-current liabilities
Current Liabilities
Current portion of
-long term finance
-obligations under finance lease
Trade and other payables
Derivative financials instruments
Accruedinterest/ markup on
-long term finance
-short term finance
Short term finance
Total current liabilities
Total Equity and Liabilities

5,610,000
1,295
308,090
1,870
5,921,255

465,000
3,884
2,343,506
27,966
368,152
20,229
252,250
3,480,987
16,639,184

6.2 Income Statement

ENGRO FOODS
Income Statement
As at December 31st 2011

2011(Rs)
Net sales
Cost of goods sold
Gross profit

29,859,226
(23,230,445)
6,628,781

Less operating expenses

Distribution and marketing expenses
Administrative expenses
Other operating expenses
Other operating income
Operating profit
Finance costs
Profit before taxation
Taxation
Profit for the year
Earnings per share (Basic and dilute)

(3,716,489)
(504,722)
(208,902)
213,133
2,411,801
(1,049,141)
1,362,660
(471,687)
890,973
1.22

7. Data Table
The other data of NESTL and ENGRO FOODS used in financial ratios analysis is as
follow:
NESTL
ENGRO FOODS
Total Assets
35,179,859
16,639,184
Current Assets
13,395,017
6,369,139
Current Liabilities
16,788,455
3,480,987
Inventories
7,046,126.522
3,046,859.795
Net Income
4,524,771
890,973
Average Total Assets*
10,873,970
14,549,624
Beginning Assets
8,352,923
12,460,064
Ending Assets
13,395,017
16,639,184
Average Stockholders
6,597,144.5
2,923,870.5
Equity**
Beginning Equity
5,581,873
5,124,047
Ending Equity
7,612,416
7,236,942
Sales
64,824,364
29,859,226
Number of Common Stock
45,350.272
370,305.7377
Cost of Goods Sold
48,099,046
23,230,445
Total Stockholders Equity
7,612,416
7,236,942
EBIT***
6,586,973
1,388,430
EBT
6,502,864
1,362,660
Interest Expenses
84,109
25,770
Market Price Per Shares
4,844
25
EPS
102.94
1.22
Inventory Turnover
9.2
8.9
EAT
4,668,357
890,973
Gross Profit
16,725,318
6,628,781
Total Liabilities
2756443
9,402,242

7.1 The calculations of:

* Average Total Assets = (BeginningAssets + EndingAssets)/2
**Average Stockholders Equity = (Beginning Equity + Ending Equity)/2
***EBIT = EBT + Interest Expenses

*Average Total Assets

**Average Stockholders
Equity

***EBIT

NESTL
= (8,352,923+13,395,017) / 2
= 21747940 / 2
= 10,873,970
= (5,581,873+7,612,416) / 2

ENGRO FOODS
= (12,460,064+16,639,184) /
2
= 29,099,248 / 2
= 14,549,624
= (5,124,047+7,236,942) / 2

= 13,194,289 / 2
= 6,597,144.5
= 6,502,864+84,109
= 6,586,973

= 5,847,741 / 2
= 2,923,870.5
= 1,362,660+25,770
= 1,388,430

8. Balance Sheet Analysis of NESTLE and ENGRO FOODS

The asset side of balance sheet shows the size of the firm so by comparing balance
sheet of both companies we analyzed that the fixed asset of the nestle company is greater than
ENGRO foods which means that nestle has invested more in the fixed assets than ENGRO
foods whether by starting new project or by any other source. Due to high investment in fixed
assets long term loan and advances of nestle are also greater than engro foods and total assets
of nestle are also greater than engro foods which shows that the size of nestle is greater than
engro. Nestle has more cash and bank balance than engro foods and has more reserves which
shows that nestle hold more than dividing whereas engro divides more than holding with it
means nestle pays less dividend as compared to engro foods.

9. ANALYSIS OF INCOME STATEMENT OF NESTLE AND ENGRO

We have made analysis between engro and nestle companies .here we analyze that
sales of nestle (64824, 364) is more as compare to engro(29859,226). Because their
investment in fixed asset is more as compare to angro.Production is also increase due to more
investment. And as production increase ultimately their sales is also increase.
Nestle have more cost of goods sold that is (48099, 046) whereas engro have (23230,
445). Because engro have only dairy products whereas nestle have broad category of
products. As nestle sales is more so their gross profit is also more as compare to engro.
Nestle have more distribution and selling expense as compare to engro because engro
have their own distribution channels whereas nestle relay on others for distribution. As well
as engro products are also less and due to this their distribution expenses are less.
Nestle company employee (328000) are more as compare to engro. As well as they
uses more advertising compains so thats why their administrative expenses are more.
Nestle Finance cost is also more because their interest expense are more.
Operating expense of nestle (1064233) engro (208902) means they use more
directions to run their business. Nestle operating income is also more nestle is a well-known
brand and they generate high income.
Nestle have more tax because they have more products that is (1834,507) whereas
engro products are limited and their tax is (471,687).
Nestle have more no of shares and more earning.so Earning per share of nestle is also
more that is 102.94 as compare to engro that is 1.22
So after analysis of income statement we see that nestle have more sales and more profit
than engro which shows that nestle company is good than engro.

10.Ratios of NESTL for Financial Statement Analysis

a. Liquidity Ratios

Current Ratio
Current Ratio = Current Assets / Current Liabilities
= 13,395,017 / 16,788,455
= 0.80

Quick Ratio
Quick Ratio = (Current Assets Inventories) / Current Liabilities
= (13,395,017 7,046,126.522) / 16,788,455
= 0.38

Net Working Capital Ratio

Net Working Capital = (Current Assets Current Liabilities) / Total Assets
= (13,395,017 16,788,455) / 35,179,859
= 0.10
b. Profitability Analysis Ratios

Return on Assets (ROA)

Return on Assets (ROA) = Net Income / Average Total Assets*
= 4,524,771 / 10,873,970*
= 0.42

Return on Equity (ROE)

Return on Equity (ROE) = Net Income / Average Stockholders' Equity**
= 4,524,771 / 6,597,144.5
= 0.69

Return on Investment (ROI)

Return on Investment (ROI) = Net Profit After Taxes / Total Assets
= 4,668,357 / 35,179,859
= 0.13

Net Profit Margin

Net Profit Margin = Net Profit After Taxes / Net Sales
= 4,668,357 / 64,824,364
= 0.01

Gross Profit Margin

Gross Profit Margin = Gross Profit / Sales
= 16,725,318 / 64,824,364
= 0.26

Earnings Per Share (EPS)

Earnings Per Share (EPS) = Earnings After Taxes / Number of Shares
= 4,668,357 / 45,350.272
= 102.94
c. Activity Analysis Ratios

Asset Turnover Ratio

Asset Turnover Ratio = Net Sales / Total Assets
= 64,824,364 / 35,179,859
= 1.84

Inventory Turnover Ratio

Inventory Turnover Ratio = Cost of Goods Sold / inventory
= 48,099,046 / 7,046,126.522
=6.83
d. Capital Structure Analysis Ratios

Debt to Equity Ratio

Debt to Equity Ratio = Total Liabilities / Total Stockholders' Equity
= 2,756,443 / 7,612,416
= 3.62

Debt to Asset Ratio

Debt to Asset Ratio =Total Debt/ Total Assets
= 2,756,443 / 35,179,859
= 0.08

Interest Coverage Ratio

Interest Coverage Ratio = Income Before Interest and Income Tax Expenses*** /
Interest Expense
= 6,586,973*** / 84,109
= 78.31

e. Capital Market Analysis Ratios

Price Earnings (PE) Ratio

Price Earnings (PE) Ratio = Market Priceper Share / Earnings per Share
= 4,844 / 102.94
= 47.06

11.Ratios of ENGRO FOODS for Financial Statement Analysis

a. Liquidity Ratios

Current Ratio
Current Ratio = Current Assets/ Current Liabilities
= 6,369,139 / 3,480,987
= 1.83

Quick Ratio
Quick Ratio = (Current Assets Inventories)/Current Liabilities
= (6,369,139 3,046,859.795) / 3,480,987
= 0.95

Net Working Capital Ratio

Net Working Capital = (Current Assets Current Liabilities)/Total Assets
= (6,369,139 3,480,987) / 16,639,184
= 0.17
b. Profitability Analysis Ratios

Return on Assets (ROA)

Return on Assets (ROA) = Net Income/Average Total Assets*
= 890,973 / 14,549,624
= 0.06

Return on Equity (ROE)

Return on Equity (ROE) = Net Income/Average Stockholders' Equity**
= 890,973 / 2,923,870.5
= 0.03

Return on Investment (ROI)

Return on Investment (ROI) = Net Profit After Taxes/ Total Assets
= 890,973 / 16,639,184
= 0.05

Net Profit Margin

Net Profit Margin = Net Profit After Taxes / Net Sales
= 890,973 / 29,859,226
= 0.03

Gross Profit Margin

Gross Profit Margin = Gross Profit/ Sales
= 6,628,781 / 29,859, 226
= 0.22

Earnings Per Share (EPS)

Earnings Per Share (EPS) =Earnings After Taxes / Number of Shares
= 890,973 / 730,305.7377
= 1.22
c. Activity Analysis Ratios

Asset Turnover Ratio

Asset Turnover Ratio =Net Sales/Total Assets
= 29,859,226 / 16,639,184
= 1.79

Inventory Turnover Ratio

Inventory Turnover Ratio = Cost of Goods Sold / Inventory
= 23,230,445 / 3,046,859.795
= 7.62
d. Capital Structure Analysis Ratios

Debt to Equity Ratio

Debt to Equity Ratio = Total Liabilities / Total Stockholders' Equity
= 9,402,242 / 7,236,942
= 1.30

Debt to Asset Ratio

Debt to Asset Ratio = Total Debt/ Total Assets
= 9,402,242/16,639,184
= 0.57

Interest Coverage Ratio

Interest Coverage Ratio = Income Before Interest and Income Tax Expenses*** /
Interest Expense
= 1,388,430 / 25,770
= 53.88

e. Capital Market Analysis Ratios

Price Earnings (PE) Ratio

Price Earnings (PE) Ratio = Market Price of Common Stock per Share / Earnings per
Share
= 25 / 1.22
= 20.49

12.Financial Ratios Analysis

12.1 Liquidity Analysis

Current Ratio
Current ratio tells us the short term solvency of the firm and tells the ability of
the firm to repay its short term obligations. In nestle the firm has 0.80 ability to repay
against the $ 1 loan and Engro has 1.83 so this implies that Engro food has more
ability to repay its short term obligations.

Quick Ratio
Quick ratio measures the firms ability to pay off short term obligations
without relying on the sale of inventory. Nestle has the quick ratio of 0.38 whereas
Engro foods has 0.95 chances of paying off its short term obligations without relying
on the level or sales of inventory.

12.2Profitability Analysis

Return on Investment
How much a firm is returning to its stockholder only in the case if the firm is
earning profit? Nestle have return on investment ratio 0.13 or 13% whereas Engro
foods has 0.05 or 5% means nestle is returning more than Engro foods so it is better to
invest in nestle.

Net Profit Margin Ratio

Net profit margin is calculated by dividing the net profit after taxes by the
sales means after paying the taxes you are earning some of the profit it means firm is
doing its business well. Nestle is earning 0.01 or 1% against $ 1 and Engro food is
earning 0.03 or 3% it shows in the profitability ratios Nestle is earning more than
Engro foods.

Gross Profit Margin Ratio

It tells that how much a firm will receive against $ 1 sales. Nestle has 0.26
gross profit margin ratio and Engro has 0.22. So in this case nestle is earning more
profit than Engro foods.

12.3Activity Analysis

Asset Turnover Ratio

This ratio measures the turnover of the entire firms asset. It is calculated by
dividing the sales by total assets of the firm. If firm shouldnt increase its sales so
there is a possibility that a firm will sale its some assets. There is 1.84 chances of
asset turnover in nestle and 1.79 in Engro foods against every $ 1.

Inventory Turnover Ratio

Inventory turnover is calculated by dividing the CGS by inventory. The
inventory turnover of nestle is 6.83 times and of Engro foods is 7.62 times. Here the
best ratio is of Engro foods that is much more than nestle.

12.4Capital Structure Analysis

Debt to Equity Ratio

Debt to equity ratio shows the comparison to equity this ratio tells that how
much firm has ability to pay its debt and if equity is more than the total debt of the
firm so firm will face low risk. In nestle the firm has 3.62 against $ 1 to pay debt
whereas Engro food has 1.30 to pay against $ 1 debt. Here Nestle has more ability to
pay its debt.

Debt to Asset Ratio

Debt to asset ratio shows if the firms have more assets regardless of total debt
than that firm will easily pay off its debts. The debt to asset ratio in nestle is 0.08
whereas 0.57 in Engro foods. So Engro foods will pay off its debt more easily than
nestle.

Interest Coverage Ratio

Interest coverage ratio measures the extent to which the operating income of
the firm can decline before the firm is unable to meet its annual interest cost. Nestle
has 78.31 times interest coverage ratio whereas Engro foods has 53.88 times interest
coverage ratio so Engro foods has less chances of failure and facing bankruptcy than
nestle.

13. Cash Budget of NESTLE

2011(Rs)
Collection:
Cash Sales
Credit Sales
Total Sales

63,493,494
1,330,870
64,824,364

Disbursement:
Purchases

10,949,999

Other Payment:
Taxes
Rent
Wages and Salaries
Interest
Depreciation
Other Expenses
Total of Other payment and Purchases

1,834,507
241,502
4,277,554
364,375
1,618,271
405,262
19,691,470

Net Cash Flow:

Beginning Balance
Collections
Disbursement
Ending Balance

67,365
64,824,364
(19,691,470)
45,200,259

14. Cash budget of ENGRO FOODS

2011(Rs)
Collections:
Cash Sales
Credit Sales
Total Sales

29,419,835
439,391
29,859,226

Disbursement:
Purchases

3,334,977

Other payments:
Taxes
Rent
Wages and Salaries
Interest
Depreciation
Other expenses
Total of Other Payments and Purchases
Net Cash flow:
Beginning balance
Collections
Disbursement
Ending Balance

603,853
217,821
1,271,114
51,537
1,023,597
208,902
6,711,801
5,124,407
29,859,226
(6,711,801)
28,271,832

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

16.Recommendations

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

17.References
1.
2.
3.
4.

NESTLE annual report 2011

ENGRO FOODS annual report 2011
www.nestle.pk
www.engrofoods.com