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SUBMITTED BY: Yuthika Singh

ROLL NO 48. SEC - A

RATIO ANALYSIS OF FINANCIAL STATEMENTS OF NESTLE


INDIA LTD.

TABLE OF CONTENTS ::

(1)INTRODUCTION TO FOOD AND BEVERAGES INDUSTRY


(2)PROFILE OF NESTLE INDIA LTD.
(3)OBJECTIVE OF ANALYSIS AND METHODOLOGY
(4)FINANCIAL ANALYSIS USING RATIO ANALYSIS
(5)INTERPRETATIONS OF THE RATIOS
(6)REFERENCES

INTRODUCTION TO FOOD AND BEVERAGES


INDUSTRY
Nestl's relationship with India dates back to 1912, when it began trading as The Nestl
Anglo-Swiss Condensed Milk Company (Export) Limited, importing and selling finished
products in the Indian market.

After India's independence in 1947, the economic policies of the Indian Government
emphasised the need for local production. Nestl responded to India's aspirations by forming
a company in India and set up its first factory in 1961 at Moga, Punjab, where the
Government wanted Nestl to develop the milk economy. Progress in Moga required the
introduction of Nestl's Agricultural Services to educate, advise and help the farmer in a
variety of aspects. From increasing the milk yield of their cows through improved dairy
farming methods, to irrigation, scientific crop management practices and helping with the
procurement of bank loans.

Nestl set up milk collection centres that would not only ensure prompt collection and pay
fair prices, but also instil amongst the community, a confidence in the dairy business.
Progress involved the creation of prosperity on an on-going and sustainable basis that has
resulted in not just the transformation of Moga into a prosperous and vibrant milk district
today, but a thriving hub of industrial activity, as well.

Nestl has been a partner in India's growth for over nine decades now and has built a very
special relationship of trust and commitment with the people of India. The Company's
activities in India have facilitated direct and indirect employment and provides livelihood to
about one million people including farmers, suppliers of packaging materials, services and
other goods.

The Company continuously focuses its efforts to better understand the changing lifestyles of
India and anticipate consumer needs in order to provide Taste, Nutrition, Health and Wellness
through its product offerings. The culture of innovation and renovation within the Company
and access to the Nestl Group's proprietary technology/Brands expertise and the extensive
centralized Research and Development facilities gives it a distinct advantage in these efforts.
It helps the Company to create value that can be sustained over the long term by offering
consumers a wide variety of high quality, safe food products at affordable prices.

Nestl India manufactures products of truly international quality under internationally famous
brand names such as NESCAF, MAGGI, MILKYBAR, KIT KAT, BAR-ONE, MILKMAID
and NESTEA and in recent years the Company has also introduced products of daily
consumption and use such as NESTL Milk, NESTL SLIM Milk, NESTL Dahi and
NESTL Jeera Raita.

Nestl India is a responsible organisation and facilitates initiatives that help to improve the
quality of life in the communities where it operates.

Nestle has its presence in India for around nine decades, making it one of the oldest
company in India. Nestl India is a subsidiary of Nestl SA of Switzerland.
The company has its headquarters at Gurgaon near Delhi and has seven factories spread all
overIndia. It started its journey in India in 1912 by entering into the dairy business.
Nestl India, one the biggest players in FMCG segment, has a presence in milk & nutrition,
beverages, prepared dishes & cooking aids & chocolate & confectionery segments.
Nestle has created brands like Nestl Milkmaid, Nestl Everyday, Maggi Noodles, Maggi
Soups, Polo, Kit Kat, Nescafe & many more.
As per the market-wise position Nestl India stands first in instant noodles & ketchups,
second in healthy soups, No.1 in instant coffee, & No.2 in overall chocolate category.
Nestle India continuously focuses on understanding changing lifestyles in India. This helps
it to foresee needs in hts product offerings. The company innovates new product &
renovates existing one providing high quality, safe food products at affordable prices.

Milestones achieved

CNBC Awaaz Consumer Awards has honoured Nescafe as the most preferred coffee
brand.

Business India has rated Nestl India as No.1 on Return On Capital Employed
amongst Super 100 companies.

In 2006-2007 Nestl India was awarded the Best Exporter of Instant Coffee,
Highest Exporter to Russia and CIS, Highest Exporter to Far East Countries.

Recent developments
The company has introduced products in milk segment for daily consumption and use such
as Nestle Milk, Nestle Slim Milk, Nestle Fresh 'n' Natural Dahi and Nestle Jeera Raita.

Dairy Division / LC1


The dairy products at Nestl are a big driving force for the growth of the companys sales.
With the health kick of the many individuals around the world, it pushes the innovator and
renovators of Nestl to reach new height in finding better and healthier products for their
consumers. In 1998, the dairy business had accounted for 5% of the companys sales revenue
(Rodgers, 2000). More recent, in the first half of 2004, Nestl milk-based products, nutrition,
and ice cream accounted for 60% of Nestl revenue growth (Nutraingredients.com). The
amount of 60% is a big potion of the companys earnings, so it would be best for Nestl to
focus a big portion of their core competences and resources on the fast growing dairy
division. Which leads us into the most recent yogurt produced by Nestls, which is the LC1.
Nestl strives on being innovator and renovators. So their research team in Switzerland

discovered a culture called Lactobacillus acidophilus, or La-1. This particular product was
chosen because it contains a probiotic agent, which is living microbial feeding supplements
that allow the lower intestine to function better (Rodgers, 2000). La-1 helps the small
intestine function by improving the bodys immune system, and in turn helping the body in
preventing diseases. Nestl has now found a solution for their health conscious consumers,
but now they need to find away to implement it into one of their products. That when the
researchers at Nestl discovered that if they replace one of the mixes in their yogurt with the
La-1 the same texture would be maintained. Now with the combination of Nestl yogurt mix
and the La-1; Nestl has given their yogurt the name of LC1.

PROFILE OF NESTLE INDIA LTD.

Nestl India is a subsidiary of Nestle S.A. of Switzerland. With seven factories and a large
number of co-packers, Nestl India is a vibrant Company that provides consumers in India
with products of global standards and is committed to long-term sustainable growth and
shareholder satisfaction.
The Company insists on honesty, integrity and fairness in all aspects of its business and
expects the same in its relationships. This has earned it the trust and respect of every strata
of society that it comes in contact with and is acknowledged amongst India's 'Most
Respected Companies' and amongst the 'Top Wealth Creators of India

PRESENCE IN INDIA
Beginning with its first investment in Moga in 1961, Nestls regular and substantial
investments established that it was here to stay. In 1967, Nestl set up its next factory at

Choladi (Tamil Nadu) as a pilot plant to process the tea grown in the area into soluble tea.
The Nanjangud factory (Karnataka), became operational in 1989, the Samalkha factory
(Haryana), in 1993 and in 1995 and 1997, Nestl commissioned two factories in Goa at
Ponda and Bicholim respectively. Nestl India has commissioned in 2006 its 7th factory at
Pant Nagar in Uttarakhand.
NESTLE & COMMUNITY
Nestl India has always focused on long term, sustainable and profitable growth and helped
communities around its factories to improve their quality of life in a similar manner. Nestl
Agricultural Services has used the experience gained by Nestl across the world to set up a
system of direct and efficient contact with the farmers. Company veterinarians and
agronomists supervise the milk routes and advise farmers on various issues including proper
feed for the herds. Milk storage facilities have been set up close to the farmers. Veterinary
services are provided free, and medicines provided at wholesale cost. The company assists
farmers in artificial insemination programs for their cattle, provides subsidy and helps them
in procuring loans.For more on Nestl Agricultural Services.

Nestle India

Nestl India is a subsidiary of Nestl S.A.of Switzerland.


Nestls relationship with India dates back to 1912,when it began trading as The
NestlAnglo-Swiss Condensed Milk Company (Export) Limited,importing and selling
finished products in the Indian market.
After independence,in response to the then economic policies,which emphasized local
production, Nestle formed a company in India,namely Nestle India Ltd,and set up its first
factory in 1961 at Moga,Punjab,where the Government wanted Nestle to develop the milk
economy.
The Company insists on honesty,integrity and fairness in all aspects of its business
and expects the same in its relationships.This has earned it the trust and respect of
every strata of society that it comes in contact with and is acknowledged amongst India's
'Most Respected Companies' and amongst the 'Top Wealth Creators of India'.
The 4 branch offices in the country help facilitate the sales and marketing of its
products.They are in Delhi,Mumbai,Chennai and Kolkata. The Nestl India head office is
located in Gurgaon,Haryana.

BRANDS
. MILK PRODUCTS AND NUTRITION
EVERYDAY DAIRY WHITENER
EVERYDAY GHEE
MILK
SLIM MILK
SILM MILK

NEVISTA PRO-HEART MILK


FRESH n NATURAL DAHI
FREAH n NATURAL SLIM DAHI
JEERA RAITA
NESVITA DAHI
MILKMAID FRUIT YOGHURT
MILKMAID
MILKMAID FUNSHAKES
NIDO
BEVERAGES
NESCAFE CLASSIC
SUNRISE PREMIUM
SUNRISE SPECIAL
CAPPUCCINO
MILO SMART PLUS READY TO- DRINK
ICED TEA WITH GREEN TEA
NESTEA ICED TEA
PREPARED DISHES AND COOKING AIDS
MAGGI 2 MINUTE NOODLES
VEG ATTA NOODLES
RICE NOODLES MANIA
CUPPA MANIA
SAUCES
PICHKOO
PIZZA MAZZA
MAGIC CUBES
BHUNA MASALA
COCONUT MILK POWDER
HEALTHY SOUPS
HEALTHY SOUP-SANJEEVNI
CHOCOLATES AND CONFECTIONERY
KIT-KAT
KIT-KAT CHUNKY
MUNCH
MUNCH POP CHOC

MILKYBAR
MILKYBAR CHOO
BAR-ONE
MILK CHOCOLATE
POLO
ECLAIRS
MILKYBAR ECLAIRS

Research and Development Centre in India

Research and Development (R&D) in India is part of Nestl S.A.s global R&D network and
supports all markets worldwide with new product development and manufacturing excellence
for Noodles. It is also a Centre of expertise for local Indian cuisine within the Nestl R&D
network and offers assistance to Culinary, Confectionery, Nutrition and Dairy products in the
South
Asia
Region
(SAR).
Better nutrition in the region is a perpetual challenge. Its meaning changes with the stage of
development, the degree of social awareness, and scientific advancement. The new Nestl
R&D facility in India will help develop great tasting food solutions that are relevant for
consumers in the South Asia Region, creating products that take the promise of taste and
health to a broader economic and social section than ever before. It will also strengthen

Nestls position as the leader in Nutrition, Health and Wellness in the emerging markets.
Nestl India has always had Research and Development support from the Nestl R&D
network across the world. Now, with the new R&D Centre in Manesar, Nestl South Asia
Region will benefit from a greater regional consumer focus. Having an R&D Centre in
India also brings Research and Development closer to Nestl India businesses, and reflects
the Nestl spirit of R&D-Business partnership towards developing winning concepts, suited
to the local consumer. It will in turn help Nestl R&D to bring out strong local concepts that
are in accordance with the Nestl Group ambition to provide affordable Nutrition, Health
and
Wellness.
Ultimately, these concepts will not just be relevant for emerging markets like India, but could
be transferred to Nestl worldwide. Research and Development (R&D) in India is part of
Nestl S.A.s global R&D network and supports all markets worldwide with new product
development and manufacturing excellence for Noodles. It is also a Centre of expertise for
local Indian cuisine within the Nestl R&D network and offers assistance to Culinary,
Confectionery, Nutrition and Dairy products in the South Asia Region (SAR).
Better nutrition in the region is a perpetual challenge. Its meaning changes with the stage of
development, the degree of social awareness, and scientific advancement. The new Nestl
R&D facility in India will help develop great tasting food solutions that are relevant for
consumers in the South Asia Region, creating products that take the promise of taste and
health to a broader economic and social section than ever before. It will also strengthen
Nestls position as the leader in Nutrition, Health and Wellness in the emerging markets.
Nestl India has always had Research and Development support from the Nestl R&D
network across the world. Now, with the new R&D Centre in Manesar, Nestl South Asia
Region will benefit from a greater regional consumer focus. Having an R&D Centre in
India also brings Research and Development closer to Nestl India businesses, and reflects
the Nestl spirit of R&D-Business partnership towards developing winning concepts, suited
to the local consumer. It will in turn help Nestl R&D to bring out strong local concepts that
are in accordance with the Nestl Group ambition to provide affordable Nutrition, Health
and
Wellness.
Ultimately, these concepts will not just be relevant for emerging markets like India, but could
be transferred to Nestl worldwide.

Production Facilities

Products

Brands

Beverages

Milk Products

Prepared dishes and cooking aids

Chocolates and Confectionery

Future Plans

Nestle India will invest Rs 700 crore in a factory in Himachal Pradesh for the
production of noodles and chocolates.
The company is also in the process of investing Rs 360 crore in the production facility
for noodles at Nanjangud in Karnataka.
The company is spending Rs 200 crore on a R&D centre at Manesar. The centre will
employ 100 people and will come out with new products in the popular foods category.

OBJECTIVES:

To make companys customers winners by constantly exceeding their expectations

Nestle Indias main objective is to manufacture and market the products in such away as to
create value that can be sustained over the long term for shareholders,employees, consumers,
and business partners.

Be a good corporate citizen and contribute positively to the society in which itoperates.

Conservation of natural resources and minimization of waste.

VISION:
People understand that food is a source of nourishment and satisfaction, but also pleasure,
health, happiness and peace of mind. They are increasingly aware that their food and
beverage choices can impact their quality of life and affect the lives of others.

Innovation has been at the heart of our company since its beginning. Ever since Henri Nestl
invented Farine Lacte to alleviate infant mortality, we have been dedicated to enhance
peoples lives.

Each day we strive to make our products tastier and healthier choices that help consumers
care for themselves and their families. This would not be possible without our
unmatched R&D capability, nutrition science and passion for quality in everything we do.
We have the largest R&D network of any food company in the world, with 34 R&D facilities
(3 Science & Research centres and 31 Product Technology Centres and R&D centres
worldwide), and over 5,000 people involved in R&D.

Behind every one of Nestls products there is a team of scientists, engineers, nutritionists,
designers, regulatory specialists and consumer care representatives dedicated to earn our
consumers trust with safe products of the highest quality: at Nestl, safety and quality are
non-negotiable.

Whether it is in terms of convenience, health or pleasure, we are able and committed to create
trustworthy products, systems and services that contribute to improving the quality of
consumers lives.

Nestl's aim is to meet the various needs of the consumer everyday by marketing and selling
foods of a consistently high quality.

MISSION:
Nestl is the world's leading nutrition, health and wellness company. Our mission of "Good
Food, Good Life" is to provide consumers with the best tasting, most nutritious choices in a
wide range of food and beverage categories and eating occasions, from morning to night.
We strive to bring consumers foods that are safe,of high quality and provide optimal nutrient
to meet physiological needs. Nestle helps provide selections for all individual taste and
lifestyle preferences.

Revenue and Net Income, EPS Growth Rate


Sales/ Revenue/ Top line
Rupees74.91 Billion83.35 Billion91.01
BillionRevenue20112012201320140B50B100BCraytheon.com

Year to Year Sales Growth (%)


Revenue or turnover or top line is income that a company receives from its normal business
activities. Revenue Growth is used to measure how fast a company's business is expanding.
The figure shows the annual rate of increase/decrease in a company's revenue or sales growth
in terms of percentage change from the previous year.
An ideal company should have an steady upward trend. Year-over-year performance is
frequently used by investors seeking to gauge whether a company's financial performance is
improving or worsening.

Compound Annual Growth Rate of Nestle India Limited


1
year
Revenue
Net Income
EPS Basic

9.20%
5%
5%

If Sales Revenue shows a moderate or stable growth while EPS shows an explosive growth, it
could possibly be due to accounting manipulation.
Reserves, Dividends Growth Retained Earnings Growth
Retained Earnings Growth is the percent increase / decrease of a company's retained net
income or reserves/surplus over time. A company can use retained earnings to maintain
current operations, or to invest in new ventures. Generally speaking, retained earnings growth
is accompanied by subsequent increases in sales and profitability.
Dividend Growth Nestle India LimitedSign up for premium membershipsign up for free
membership
A company paying dividends is generally a good sign. Well established companies offer
dividends back to its shareholders while high growth companies usually do not pay dividends
since they reinvest the profits back in the business. If a dividend paying company stops
paying dividends then that is a big red flag. Dividend per share is better metric compared to
looking at just the dividends because DPS takes into account the number of shares as well.
Accounts Receivable & Inventory GrowthSign up for premium membershipsign up for free
membership
Watch the Accounts (trade) Receivables (aka Sundry Debtors) and Inventory columns closely.
A company can get into serious trouble very quickly if it's customers are not paying the bills
or if its inventory is piling up in warehouses. If Recievables are growing much faster than
sales, it usually means that the company is having trouble collecting money from customers.
More inventory on the balance sheet means the company is having trouble delivering goods
to customers.
An increase of receivables and inventory above 50% is usually not a good sign and needs to
be investigated further.Days Sales Outstanding
Days Sales Outstanding or DSO is also known as "average collection period and receivable
days". It's a measure of the average time it takes to collect the cash from sales, in simple
words, how fast customers pay their bill. DSO does tend to vary a good deal by industry
sector.
A high DSO may be a red flag, which suggests that customers aren't paying their bills in a
timely fashion. Maybe the customers themselves are in financial trouble or maybe the
company's operations and financial management are poor. If the DSO is rising rapidly, you
should know why.
DSO = Accounts Receivables / ( Revenue / 365 )

Exports:
It has been a tough year in the global market scenario. Nevertheless, export sales grew during
the year by 47% and were Rs. 6261.3 millions. This was mainly on account of good sales of
coffee and Infantnutrition products to Affiliate companies. Exports of culinary products,

destined for the Indian diaspora picked up during the year, particularly into a few new
markets. The forthcoming year should see further improvement in this category. The Coffee
Board once again awarded your Company for being a leading exporter of coffee from India.
The strategy to develop new products and target new export regions would continue, so that
we have a broadbased direction of exports.

Contribution To The Exchequer


Your Company has been a leading tax payer of the country and over the years has been
enabling significant contribution to various taxes. During the year 2013, the Company
through its business, enabled tax collections at Central and State level Close to 7 20 billions,
in aggregate.
Dividends
The Board of Directors has recommended a final dividend of Rs. 12.5 per equity share of the
face value of Rs. 10/ each for the year 2013, amounting to Rs. 1205.2 millions. This is in
addition to the two Interim Dividends for 2013, aggregating Rs. 36.0 per equity share, paid in
August and November, 2013(amounting to Rs. 3,471.0 millions). The total dividend per share
for 2013 aggregates to Rs. 48.5 and the total dividend payout for 2013 is Rs. 4676.2 millions.
The same is in line with the financial strategy of the company.

OBJECTIVE OF ANALYSIS AND METHODOLOGY


OBJECTIVE OF THE STUDY ::
Marketing objectives are compatible with the overall corporate objectives of nestle.
Companys objective is to be the worlds largest and best branded food manufacturer while
insuring that nestle name is synonymous with the products of the highest quality.
Its chief objectives are:
To achieve compatibility with international voluntary standards on environmental
management systems.
To build mutual trust with consumers, governmental authorities and business partners.
To ensure continuous improvement of nestles environmental performance.
Conservation of natural resources and minimization of waste.
Total compliance with the laws.
To establish the benchmark for good business practice.
Employing new technologies and processing.
By committing to resources, both human and financial.
Measuring the cost and benefits to business of its activities
METHODOLOGY USED ::

(1) Source of data :


The data extracted for the purpose of analysis is from a secondary but reliable source.

(2) Period of analysis :

The period taken into consideration for the purpose financial analysis is from
years ranging from 2011 to 2015. That is :
: 1/1/2011 to 31/12/2011
: 1/1/2012 to 31/12/2012
: 1/1/2013 to 31/12/2013
: 1/1/2014 to 31/12/2014
: 1/1/2015 to 31/12/2015

(3) Technique used for analysis :


The technique used for the financial analysis is ratio analysis. A ratio is a statistical
yardstick by means of which relationship between two or various accounting figures can
be compared or measured. It is essentially concerned with the calculation of relationships
which after proper identification and interpretation may provide information about the
operations and state of affairs of a business enterprise.
The analysis is used to provide indicators of past performance in terms of critical success
factors of a business. This assistance in decision-making reduces reliance on guesswork
and intuition and establishes a basis for sound judgement.

Why only ratio analysis is used for financial analysis?

Simplifies financial statements

Facilitates inter-firm comparison: It provides data for inter-firm comparison.


Ratios highlight the factors associated with with successful and unsuccessful firm.
They also reveal strong firms and weak firms, overvalued and undervalued firms.

Helps in planning: It helps in planning and forecasting. Ratios can assist


management, in its basic functions of forecasting. Planning, co-ordination, control
and communications.

Makes inter-firm comparison possible: Ratios analysis also makes possible


comparison of the performance of different divisions of the firm. The ratios are
helpful in deciding about their efficiency or otherwise in the past and likely
performance in the future.

Help in investment decisions: It helps in investment decisions in the case of


investors and lending decisions in the case of bankers etc.

Provides sufficient insight to appraise the future prospect of the firm.

The type of ratios analyzed ::

(a) LIQUIDITY RATIOS :


Liquidity refers to the ability of a firm to meet its short-term financial obligations
when and as they fall due. The main concern of liquidity ratio is to measure the ability of
the firms to meet their short-term maturing obligations. Failure to do this will result in
the total failure of the business, as it would be forced into liquidation.

Current Ratio : Current ratio may be defined as the relationship between current
assets and current liabilities. This ratio is also known as "working capital ratio". It
is a measure of general liquidity and is most widely used to make the analysis for
short term financial position or liquidity of a firm. It is calculated by dividing the
total of the current assets by total of the current liabilities.
Current Ratio = Current Assets / Current Liabilities

This ratio is a general and quick measure of liquidity of a firm. It represents


the margin of safety or cushion available to the creditors. It is an index of the firms
financial stability. It is also an index of technical solvency and an index of the strength
of working capital.

A relatively high current ratio is an indication that the firm is liquid and has the ability
to pay its current obligations in time and when they become due. On the other hand, a
relatively low current ratio represents that the liquidity position of the firm is not good
and the firm shall not be able to pay its current liabilities in time without facing
difficulties. An increase in the current ratio represents improvement in the liquidity
position of the firm while a decrease in the current ratio represents that there has been
a deterioration in the liquidity position of the firm. A ratio equal to or near 2 : 1 is
considered as a standard or normal or satisfactory. The idea of having double the
current assets as compared to current liabilities is to provide for the delays and losses
in the realization of current assets. However, the rule of 2 :1 should not be blindly
used while making interpretation of the ratio. Firms having less than 2 : 1 ratio may
be having a better liquidity than even firms having more than 2 : 1 ratio. This is
because of the reason that current ratio measures the quantity of the current assets and
not the quality of the current assets. If a firm's current assets include debtors which

are not recoverable or stocks which are slow-moving or obsolete, the current ratio
may be high but it does not represent a good liquidity position.

Quick Ratio : The quick ratio, also referred to as acid test ratio, examines the
ability of the business to cover its short-term obligations from its quick assets
only (i.e. it ignores stock & prepaid expenses).
As a general rule of thumb suggests that the quick ratio should be around 1.

Quick Ratio = Quick Assets / Current Liabilities

The quick ratio/acid test ratio is very useful in measuring the liquidity position
of a firm. It measures the firm's capacity to pay off current obligations
immediately and is more rigorous test of liquidity than the current ratio. It is
used as a complementary ratio to the current ratio. Liquid ratio is more
rigorous test of liquidity than the current ratio because it eliminates
inventories and prepaid expenses as a part of current assets. Usually a high
liquid ratios an indication that the firm is liquid and has the ability to meet its
current or liquid liabilities in time and on the other hand a low liquidity ratio
represents that the firm's liquidity position is not good. As a convention,
generally, a quick ratio of "one to one" (1:1) is considered to be satisfactory.
Although liquidity ratio is more rigorous test of liquidity than the current
ratio , yet it should be used cautiously and 1:1 standard should not be used
blindly. A liquid ratio of 1:1 does not necessarily mean satisfactory liquidity
position of the firm if all the debtors cannot be realized and cash is needed
immediately to meet the current obligations. In the same manner, a low liquid
ratio does not necessarily mean a bad liquidity position as inventories are not
absolutely non-liquid. Hence, a firm having a high liquidity ratio may not have
a satisfactory liquidity position if it has slow-paying debtors. On the other
hand, A firm having a low liquid ratio may have a good liquidity position if it
has a fast moving inventories. Though this ratio is definitely an improvement
over current ratio, the interpretation of this ratio also suffers from the

same limitations as of current ratio.

Absolute Liquid Ratio : The absolute liquid ratio is the measure of absolute liquid
assets (cash-in-hand, cash at bank, marketable securities, fixed deposits) of the
firm against the current liabilities. A standard of 0.5: 1 absolute liquidity ratio is
considered an acceptable norm. That is, from the point of view of absolute
liquidity, fifty paisa worth of absolute liquid assets are considered sufficient for
one rupee worth of current liabilities. This ratio gains much significance only
when it is used in conjunction with the current and liquid ratios.
Absolute Liquid Ratio = Absolute Liquid Assets / Current liabilities

(b) SOLVENCY RATIOS :


The ratios indicate the degree to which the activities of a firm are supported
by creditors funds as opposed to owners. The relationship of owners equity
to borrowed funds is an important indicator of financial strength. The debt
requires fixed interest payments and repayment of the loan and legal action
can be taken if any amounts due are not paid at the appointed time. A
relatively high proportion of funds contributed by the owners indicates a
cushion (surplus) which shields creditors against possible losses from default
in payment.
Note: The greater the proportion of equity funds, the greater the degree of
financial strength. Financial leverage will be to the advantage of the ordinary
shareholders as long as the rate of earnings on capital employed is greater
than the rate payable on borrowed funds.
The following ratios can be used to identify the financial strength and risk of
the business.

Equity Ratio : It is also known as equity ratio or net worth to total assets ratio.
This ratio relates the shareholder's funds to total assets. Proprietary/Equity ratio
indicates the long-term or future solvency position of the business. This ratio
throws light on the general financial strength of the company. It is also regarded as
a test of the soundness of the capital structure. Higher the ratio or the share of
shareholders in the total capital of the company, better is the long-term solvency

position of the company. A low equity ratio will include greater risk to the
creditors.
Equity Ratio = Shareholders funds / Total Assets

Fixed Assets to Shareholders fund Ratio : This ratio establishes the relationship
between fixed assets and shareholders funds. The purpose of this ratio is to
indicate the percentage of the owner's funds invested in fixed assets. The ratio of
fixed assets to net worth indicates the extent to which shareholder's funds are sunk
into the fixed assets. Generally, the purchase of fixed assets should be financed by
shareholder's equity including reserves, surpluses and retained earnings. If the
ratio is less than 100%, it implies that owners funds are more than fixed assets and
a part of the working capital is provide by the shareholders. When the ratio is
more than the 100%, it implies that owners funds are not sufficient to finance the
fixed assets and the firm has to depend upon outsiders to finance the fixed assets.
There is no rule of thumb to interpret this ratio.
Fixed Assets to Shareholders Fund = Fixed Assets / Shareholders Fund

Current Assets to Shareholders Fund Ratio : This ratio establishes the relationship
between current assets and shareholder's funds. The purpose of
this ratio is to calculate the percentage of shareholders funds invested in
current assets. Different industries have different norms and therefore, this
ratio should be studied carefully taking the history of industrial concern into
consideration before relying too much on this ratio.

Current Assets to Proprietors Funds = Current Assets / Proprietor's Funds

Debt-Equity Ratio of Hero MotoCorp: Debt-to-Equity ratio indicates the


relationship between the external equities or outsiders funds and the internal
equities or shareholders funds. It is also known as external - internal equity ratio.
It is determined to ascertain soundness of the long term financial policies of the
company. Debt to equity ratio indicates the proportionate claims of owners and the
outsiders against the firms assets. The purpose is to get an idea of the cushion
available to outsiders on the liquidation of the firm. However, the interpretation of
the ratio depends upon the financial and business policy of the company. The
owners want to do the business with maximum of outsider's funds in order to take
lesser risk of their investment and to increase their earnings (per share) by paying
a lower fixed rate of interest to outsiders. The outsider creditors on the other hand,
want that shareholders (owners) should invest and risk their share of proportionate
investments. A ratio of 1:1 is usually considered to be satisfactory ratio although
there cannot be rule of thumb or standard norm for all types of businesses.

Theoretically if the owners interests are greater than that of creditors, the
financial position is highly solvent. In analysis of the long-term financial position
it enjoys the same importance as the current ratio in the analysis of the short-term
financial position.
Debt Equity Ratio = External Equities / Internal Equities

Debt-Service Ratio of Hero MotoCorp : This ratio relates the fixed interest
charges to the income earned by the business. It indicates whether the business has
earned sufficient profits to pay periodically the interest charges. The debt service
ratio is very important from the creditors point of view. It indicates the number of
times interest is covered by the profits available to pay interest charges. It is an
index of the financial strength of an enterprise. A high debt service ratio assures
the creditors a regular and periodical interest income. But the weakness of the
ratio may create some problems to the financial manager in raising funds from
debt sources.

Debt-Service Ratio = Net Profit Before Interest and Tax / Fixed Interest Charge
(c) PROFITABILITY RATIOS :
Profitability is the ability of a business to earn profit over a period of time. Although the
profit figure is the starting point for any calculation of cash flow, as already pointed out,
profitable companies can still fail for a lack of cash.
Note: Without profit, there is no cash and therefore profitability must be seen as a
critical success factors.
-A company should earn profits to survive and grow over a long period of time.
-Profits are essential, but it would be wrong to assume that every action initiated by
management of a company should be aimed at maximising profits, irrespective of social
consequences.
Profitability is a result of a larger number of policies and decisions. The profitability
ratios show the combined effects of liquidity, asset management (activity) and debt
management (gearing) on operating results. The overall measure of success of a business
is the profitability which results from the effective use of its resources.

Gross profit ratio: It is the ratio of gross profit to net sales expressed as a
percentage. It expresses the relationship between gross profit and sales. Gross
profit ratio may be indicated to what extent the selling prices of goods per unit
may be reduced without incurring losses on operations. It reflects efficiency with
which a firm produces its products. As the gross profit is found by deducting cost
of goods sold from net sales, higher the gross profit better it is. There is no
standard GP ratio for evaluation. It may vary from business to business. However,

the gross profit earned should be sufficient to recover all operating expenses and
to build up reserves after paying all fixed interest charges and dividends.
Gross Profit Ratio = (Gross profit / Net sales) 100

Operating Ratio: Operating ratio is the ratio of cost of goods sold plus operating
expenses to net sales. It is generally expressed in percentage. It measures the cost
of operations per rupee of sales. This is closely related to the ratio of operating
profit to net sales Operating ratio shows the operational efficiency of the business.
Lower operating ratio shows higher operating profit and vice versa. This ratio is
considered to be a yardstick of operating efficiency but it should be used
cautiously because it may be affected by a number of uncontrollable factors
beyond the control of the firm. Moreover, in some firms, non-operating expenses
from a substantial part of the total expenses and in such cases operating ratio may
give misleading results.

Operating Ratio = [(Cost of goods sold + Operating expenses) / Net sales]100

Operating profit ratio: The operating profit ratio is another measurement of


managements efficiency. It compares the quality of a companys operations to its
competitors. A business that has a higher operating margin than its industrys
average tends to have lower fixed costs and a better gross margin, which gives
management more flexibility in determining prices. This pricing flexibility
provides an added measure of safety during tough economic times.

Net profit ratio: Net profit ratio is the ratio of net profit (after taxes) to net sales. It
is expressed as percentage. The two basic components of the net profit ratio are
the net profit and sales. The net profits are obtained after deducting income-tax
and, generally, non-operating expenses and incomes are excluded from the net
profits for calculating this ratio. Thus, incomes such as interest on investments
outside the business, profit on sales of fixed assets and losses on sales of fixed
assets, etc are excluded. NP ratio is used to measure the overall profitability and
hence it is very useful to proprietors. The ratio is very useful as if the net profit
is not sufficient, the firm shall not be able to achieve a satisfactory return on its
investment. This ratio also indicates the firm's capacity to face adverse economic
conditions such as price competition, low demand, etc. Obviously, higher the ratio
the better is the profitability. But while interpreting the ratio it should be kept in
mind that the performance of profits also be seen in relation to investments or
capital of the firm and not only in relation to sales.
Net Profit Ratio = (Net profit / Net sales) 100

Return On Investment : It is the ratio of net profit to share holder's investment. It is


the relationship between net profit (after interest and tax) and share
holder's/proprietor's fund. This ratio establishes the profitability from the share
holders' point of view. The ratio is generally calculated in percentage.The two basic
components of this ratio are net profits and shareholder's funds. Shareholder's funds
include equity share capital, (preference share capital) and all reserves and surplus
belonging to shareholders. Net profit means net income after payment of interest and
income tax because those will be the only profits available for share holders. This
ratio is one of the most important ratios used for measuring the overall efficiency of a
firm. As the primary objective of business is to maximize its earnings, this ratio
indicates the extent to which this primary objective of businesses being achieved. This
ratio is of great importance to the present and prospective shareholders as well as the
management of the company. As the ratio reveals how well the resources of the firm
are being used, higher the ratio, better are the results. The interfirm comparison of this
ratio determines whether the investments in the firm are attractive or not as the
investors would like to invest only where the return is higher.
Return on investment = [Net profit (after interest and tax) / Net worth] 100

Return on Equity Capital : In real sense, ordinarily shareholders are the real owners of
the company. They assume the highest risk in the company. (Preference share holders
have a preference over ordinary shareholders in the payment of dividend as well as
capital. Preference share holders get a fixed rate of dividend irrespective of the
quantum of profits of the company). The rate of dividends varies with the availability
of profits in case of ordinary shares only. Thus ordinary shareholders are more
interested in the profitability of a company and the performance of a company should
be judged on the basis of return on equity capital of the company. This ratio is more
meaningful to the equity shareholders who are interested to know profits earned by
the company and those profits which can be made available to pay dividends to them.
Interpretation of the ratio is similar to the interpretation of return on investments and
higher the ratio better is.

Return on Equity Capital = [(Net profit after tax Preference dividend) / Equity share
capital] 100

Earning Per Share ratio: EPS Ratio is a small variation of return on equity capital
ratio and is calculated by dividing the net profit after taxes and preference dividend by
the total number of equity shares. The earnings per share is a good measure of
profitability and when compared with EPS of similar companies, it gives a view of the
comparative earnings or earnings power of the firm. EPS ratio calculated for a number
of years indicates whether or not the earning power of the company has increased.

[Earnings per share (EPS) Ratio = (Net profit after tax Preference dividend) / No. of
equity shares (common shares)]

Price Earning Ratio: Price earning ratio (P/E ratio) is the ratio between market price
per equity share and earning per share. The ratio is calculated to make an estimate of
appreciation in the value of a share of a company and is widely used by investors to
decide whether or not to buy shares in a particular company. Price earnings ratio helps
the investor in deciding whether to buy or not to buy the shares of a particular
company at a particular market price. Generally, higher the price earning ratio the
better it is. If the P/E ratio falls, the management should look into the causes that have
resulted into the fall of this ratio. The ratio is useful in financial forecasting. It also
helps in knowing whether the share of a company are under or over valued.
P/E ratio = market price per share/earning per share

Dividend Payout Ratio : It is calculated to find the extent to which earnings per share
have been used for paying dividend and to know what portion of earnings has been
retained in the business. It is an important ratio because ploughing back of profits
enables a company to grow and pay more dividends in future. The payout ratio is the
indicator of the amount of earnings that have been ploughed back in the business. The
lower the payout ratio, the higher will be the amount of earnings ploughed back in the
business and vice versa. A lower payout ratio or higher retained earnings ratio means
a stronger financial position of the company.
Dividend Payout Ratio = Dividend per Equity Share / Earnings per Share

(d) ACTIVITY RATIOS :


If a business does not use its assets effectively, investors in the business would rather take
their money and place it somewhere else. In order for the assets to be used effectively, the
business needs a high turnover.
Unless the business continues to generate high turnover, assets will be idle as it is impossible
to buy and sell fixed assets continuously as turnover changes. Activity ratios are therefore
used to assess how active various assets are in the business.
Note: Increased turnover can be just as dangerous as reduced turnover if the business does
not have the working capital to support the turnover increase. As turnover increases more
working capital and cash is required and if not, overtrading occurs.

Stock Turnover Ratio : Every firm has to maintain a certain level of inventory of
finished goods so as to be able to meet the requirements of the business. But the level
of inventory should neither be too high nor too low. A too high inventory means
higher carrying costs and higher risk of stocks becoming obsolete whereas too low
inventory may mean the loss of business opportunities. It is very essential to keep
sufficient stock in business.This ratio is a relationship between the cost of goods sold
during a particular period of time and the cost of average inventory during a particular

period. It is expressed in number of times. Stock turn over ratio/Inventory turn over
ratio indicates the number of time the stock has been turned over during the period
and evaluates the efficiency with which a firm is able to manage its inventory. This
ratio indicates whether investment in stock is within proper limit or not. Stock
turnover ratio measures the velocity of conversion of stock into sales. Usually a high
inventory turnover/stock velocity indicates efficient management of inventory
because more frequently the stocks are sold, the lesser amount of money is required to
finance the inventory. A low inventory turnover ratio indicates an inefficient
management of inventory. A low inventory turnover implies over-investment in
inventories, dull business, poor quality of goods, stock accumulation, accumulation of
obsolete and slow moving goods and low profits as compared to total investment. The
inventory turnover ratio is also an index of profitability, where a high ratio signifies
more profit, a low ratio signifies low profit. Sometimes, a high inventory turnover
ratio may not be accompanied by relatively high profits. Similarly a high turnover
ratio may be due to under-investment in inventories. It may also be mentioned here
that there are no rule of thumb or standard for interpreting the inventory turnover
ratio. The norms may be different for different firms depending upon the nature of
industry and business conditions. However the study of the comparative or trend
analysis of inventory turnover is still useful for financial analysis. The ratio is
calculated by dividing the cost of goods sold by the amount of average stock at cost.
Stock Turnover Ratio = Cost of goods sold / Average inventory at cost

Debtors Turnover Ratio: A concern may sell goods on cash as well as on credit.
Credit is one of the important elements of sales promotion. The volume of sales can
be increased by following a liberal credit policy. The effect of a liberal credit policy
may result in tying up substantial funds of a firm in the form of trade debtors (or
receivables). Trade debtors are expected to be converted into cash within a short
period of time and are included in current assets. Hence, the liquidity position of
concern to pay its short term obligations in time depends upon the quality of its trade
debtors. Debtors turnover ratio indicates the velocity of debt collection of a firm. In
simple words it indicates the number of times average debtors (receivable) are turned
over during a year. This ratio indicates the number of times the debtors are turned
over a year. The higher the value of debtors turnover the more efficient is the
management of debtors or more liquid the debtors are. Similarly, low debtors turnover
ratio implies inefficient management of debtors or less liquid debtors. It is the reliable
measure of the time of cash flow from credit sales. There is no rule of thumb which
may be used as a norm to interpret the ratio as it may be different from firm to firm.
Debtors Turnover Ratio = Net Credit Sales / Average Trade Debtors

Working Capital Turnover ratio: It indicates the velocity of the utilization of net
working capital. This ratio represents the number of times the working capital is
turned over in the course of year.The working capital turnover ratio measures the

efficiency with which the working capital is being used by a firm. A high ratio
indicates efficient utilization of working capital and a low ratio indicates otherwise.
But a very high working capital turnover ratio may also mean lack of sufficient
working capital which is not a good situation. If the information about cost of sales is
not available the figure of sales may be taken as the numerator.
Working Capital Turnover Ratio = Cost of goods sold / Net Working Capital

Fixed Assets Turnover Ratio: It is also known as sales to fixed assets ratio. This ratio
measures the efficiency and profit earning capacity of the concern. Higher the ratio,
greater is the intensive utilization of fixed assets. Lower ratio means under-utilization
of fixed assets. The ratio is calculated by using following formula:

Fixed Assets Turnover Ratio = Cost of goods sold / Net Fixed Assets
(1) Method used for interpretation :
The interpretation of the various ratios are done at two levels :
(i) The individualistic firms performance from years 1/1/20011-31/12/011 to 31/12/15.
For example, in the case of interpreting the current ratio the data interpreted will be
shown in this manner :
Dec'11

Dec'12

Dec'13

Dec'14

Dec'15

0.60177

0.62496
8

0.60128
7

0.54018
9

0.65281
2

(ii) The firms performance pitched with the industrial performance and competitor
(BRITANIA). For example, in the data interpreted for the current ratio will be shown in
this manner :
Dec'11
1.08722
0.60177
1.08251
(4) Data of Industry :

Dec'12
1.07341
7
0.62496
8
1.03570
5

Dec'13
Dec'14
1.00217
3 1.137112
0.60128 0.54018
7
9
0.69793
2 0.96876

Dec'15
1.23983
3
0.65281
2
0.84002
8

For arriving at a rational interpretation the industrys data is imperative. The performance
of the firms ratios with respect to industrial ratios for the period 09 to 13 is a relevant
yardstick for gauging the firms overall performance.

Now, for calculating the industrial ratios, the cumulative data of the following firms are
taken into consideration ::

Nestle India Ltd.


Britannia
Kwality Ltd.
DFM Foods Ltd.
Haritage Foods Ltd.
GlaxosmithKlin Consumer Helthcare Ltd.

(4) Profile of Britania India Ltd. :


Britannia is a Mutual Insurance Association of shipowners throughout the world, which
is registered in the United Kingdom (see details at bottom of the page), authorised by
the Prudential Regulation Authority ("PRA") and is regulated by the PRA and the
Financial Conduct Authority ("FCA"), reference number 202047.
The fundamental distinction between a Mutual and other types of insurance company is that a
Mutual is not trying to make a profit, has no shareholders and exists purely for the benefit of
its Members. The funds of the Mutual are invested and the investment return is used to
benefit the Members. The Members are both the insurer and the insured. Mutual insurance is
collective self-insurance which operates at cost.
Formation and Development
On May 1 1855, the day the UK Merchant Shipping Act 1854 came into force, the
Shipowners' Mutual Protection Society commenced business in London as the first
shipowners' Protection Association. Whilst the 1854 Act did provide shipowners, for the first
time, with a measure of limitation of liability for loss of life and personal injury - it stipulated
that the value of the ship for limitation purposes should be assessed at not less than 15 per
ton - many ships in fact had a lower value and the shipowner's liabilities potentially exceeded
the value of his ship. It was such liabilities, not covered by the conventional marine market,
which the Protection Society met.
The Britannia Steam Ship Insurance Association was formed in 1871 as a mutual insurance
association for steamships with Classes 1 and 2 covering hull and machinery risks and freight
risks respectively. Five years later Class 3 of Britannia took over the protection risks which
had until then been covered by the Shipowners' Mutual Protection Society. The first two
Classes were subsequently wound up but Class 3 has continued to the present day to cover
the liability risks of shipowners. In 1886 Britannia became a Protection & Indemnity (P&I)
Club by treating cargo or 'indemnity' risks separately from the other 'protection' risks. Over
succeeding years cover was widened to meet the increasing liabilities of shipowners.

Growth
Britannia has grown substantially in the last 50 years. In 1960 the gross tonnage entered in
the Association was 3 million. By 1970 it had reached 10 million and by 1980 had
quadrupled to 40 million. Britannia now insures approximately 138 million tons of owned
and chartered tonnage and is one of the largest P&I Clubs, accounting for over 10% of the
world merchant fleet, with many of the world's best-known shipowners as Members.
Service, Strength and Quality
Britannia is determined to maintain a position at the forefront of the P&I insurance world.
The principal factors which have governed its successful progress and which will provide the
foundation for its future development are:

A high quality membership selected from the world's leading shipowners.

A thorough understanding of Members' businesses backed up by a realistic risk


management programme.
Prudent underwriting leading to unrivalled predictability of insurance cost.

The application of legal, marine and commercial expertise in the active management
of claims so as to minimise Members' ultimate liabilities.

A successful investment policy which has made a substantial contribution to the


reduction of Members' costs.

A world-wide network of correspondents, including many who are exclusive to


Britannia, who provide assistance to Members on all aspects of P&I.

A highly motivated management team which keeps close control on all aspects of the
business.

Financial strength, underpinned by total assets of over US$1 bn .

In summary, the objective is to provide a strong membership with high quality service at low
cost.
(7) Why Britannia Ltd. is chosen to be a competitor for comparison :

As we can reckon from the above profile BRITANNIA LTD, that it has substantial presence
in India as well as it is trying to expand globally. The firm has greater exposure to the market,
market capitalization and revenue centers than Nestle India Ltd.

Additionally, Nestle India Ltd. also is in a phase of sales that is going neck to neck with
Britania Ltd. It also has 2 more manufacturing plants than its competitor.
Therefore comparing Nestle India Ltd., will provide us with a rationale of appraising the
futuristic position of NESTLE LTD. in the industry as it tries to extend its advantage over
BRITANNIA LTD. In the future, NESTLE LTD. will have slightly more market
capitalization as BRITANNIA because of their low price skill sets and R&D techniques. .

Hence NESTLE INDIA LTD. can maintain and improve the position, the policies followed,
the managerial framework over BRITANNIA LTD. They can curtail each and every negative
aspect and follow some of the positives of BRITANNIA LTD., so as to improve its
operations.

FINANCIAL ANALYSIS USING RATIO ANALYSIS


LIQUIDITY RATIOS ::

Current ratio of Nestle India Ltd. :


Dec'11

Dec'12

Dec'13

Dec'14

Dec'15

0.60177

0.62496
8

0.60128
7

0.54018
9

0.65281
2

As per the rule of thumb, the current ratio should be atleast 2 that is the current assets should
meet current liabilities at least twice.
Now, by seeing the current ratios of Nestle India Ltd. from 2009 to 2013 we can easily
examine that there is decreasing trend from 2010-12.

Current Ratio (nestle Ltd.)


6

Nestle ltd.

As we can observe that the firm was having a low current ratio in FY09, that is 0.6 which is
lower than the standard. This figure can be explained with the fact that the firm was trading
with more current liabilities in its books, as we compare the current liabilities of all the years.
In 2012 also, it had a weak liquid figure and there was an increase in current liabilities by
86% from 2011 and hence the current ratio increased to a high of 0.62 in 2012.
In FY11, it had a weak liquid figure, it was as same as in 2011. The firm was having a
weakest current ratio as compared with the others i.e. 0.60 and it could not manage to sweep
through its current liabilities.
In FY12, the current ratio showed a negetive sign and the firm managed to attain a current
ratio of 0.54.
COMPARISON OF CURRENT RATIO WITH INDUSTRY AND BRITANNIA LTD.

Current Ratio

Dec'11

Industry

1.08722

Nestle Ltd.

0.60177

Britania

1.08251

Dec'12
1.07341
7
0.62496
8
1.03570
5

Dec'13
Dec'14
1.00217
3 1.137112
0.60128 0.54018
7
9
0.69793
2 0.96876

Dec'15
1.23983
3
0.65281
2
0.84002
8

Current Ratio of Nestle vs britania vs industry


3
2.5
Britania

Nestle Ltd.
Industry

1.5
1
0.5
0

As we can observe from the above chart that Nestle India Ltd. has always been
underperforming and not being able to maintain a high current ratio above the industry
benchmark.
This shows need of proper management of working capital as per current ratio performance.
On the other hand, BRITANNIA LTD. has been managing to fulfil its current liabilities and
trying to match the industry standards and is above the levels of Nestle India Ltd. Its current
ratio position has been decreasing from 1.08 in 2009 to .69 in 11. It just managed to cover up
its current liabilities in 2009 and has to improve on its current ratio.

Quick Ratio of Nestle India Ltd. ::

Dec'11
0.26953

Dec'12
0.29615
6

Dec'13
0.27018
5

Dec'14
0.21816
9

Dec'15
0.38578
7

Quick Ratio Nestle Ltd.


0.45
0.4
0.35
0.3

Nestle Ltd.

0.25
0.2
0.15
0.1
0.05
0
Dec'09

Dec'10

Dec'11

Dec'12

Dec'13

As the quick ratio represents the ability of the firm to cover its current liabilities without
considering its inventories and it also provides us with an insight much clear and deeper than
the current ratio. It shows the performance of quick assets in compensating the current
liabilities and presents us with weight of funds blocked in inventories.
Now, as we can observe from the chart above that the quick ratio of Nestle India Ltd. has
showed a decreasing trend from 2011 to 2014 and then stabilized around the 0.38 mark in
2013. But it is a bit higher than the standards and shows that the firm is dependent on its
inventories for clearing its current liabilities and the firm needs to have an efficient inventory
management.

Current Ratio vs Quick Ratio


7
6
Nestle Ltd.

Quick Ratio

Nestle ltd.

3
2
1
0
Dec'09

Dec'10

Dec'11

Dec'12

Dec'13

This chart above in-depth interprets that the quick ratio of Nestle India Ltd.is always
following the same trend as that of the current ratio and the there is a slight difference

between the two ratios. The difference reflects a need for improvement in the liquidity front
for Nestle India Ltd.as it should clear its current liabilities without liquidating its inventories.
COMPARISON OF QUICK RATIO WITH INDUSTRY AND BRITANNIA LTD.
Quick Ratio

Dec'11

Industry

0.73889

Nestle Ltd.

0.26953

Britania

20.3185

Dec'12
0.75373
7
0.29615
6
15.3515
5

Dec'13
Dec'14
Dec'15
0.69808
8 0.78285 0.934811
0.27018 0.21816 0.38578
5
9
7
10.3658
8.96524
9 11.20319
3

Quick Ratio of Nestle vs Britannia vs industry


25
20
Britania
15

Nestle Ltd.
Industry

10
5
0
Dec'09

Dec'10

Dec'11

Dec'12

Dec'13

As we can observe from the chart above that Nestle India Ltd. has always performed below
the industry standards and has displayed it with moderate quick ratios. This also reflects in a
need for efficient planning in investing funds into its inventory and having least dependency
on inventory for clearing its current liabilities, which is below than the industrial standards

Super Quick Ratio of Nestle India Lttd. ::


Dec'11
0.10365

Dec'12
0.14574
6

Dec'13
0.10248
7

Dec'14
0.10234
4

Dec'15
0.27189
8

The Super Quick ratio is the measure of Super Quick Assets (cash-in-hand, cash at bank,
marketable securities, fixed deposits) of the firm against the current liabilities. A standard of

0.5: 1 Super Quick Ratio is considered an acceptable norm. That is, from the point of view of
absolute liquidity, fifty paisa worth of Super Quick Assets are considered sufficient for one
rupee worth of current liabilities.

Super Quick Ratio ( Nestle Ltd.)


0.3
0.25
0.2

Nestle Ltd.

0.15
0.1
0.05
0
Dec'09

Dec'10

Dec'11

Dec'12

Dec'13

The firm was having a low absolute liquid ratio. It was as low as 0.10, which means the firm
could not easily overcome its current liabilities from its absolute liquid assets. This low figure
can explained by the fact that the firm had removed a quantum amount from fixed deposits,
which was higher than the total current liabilities of that year.
In 2015, the firm again striked with Super Quick ratio recovering back from its lows and
gaining a respectful Super Quick of position of 0.27. This can explained by introduction of
heavy amount into fixed deposits and increase in cash balances as compared with 12. The
total current liabilities decreased by of the firm.
COMPARISON OF SUPER QUICK RATIO WITH INDUSTRY & BRITANNIA LTD.
Super Quick Ratio

Dec'11

Industry

0.31465

Nestle Ltd.

0.10365

Britania

0.04579

Dec'12
0.31532
2
0.14574
6
0.04592
9

Dec'13
0.25155
9
0.10248
7
0.02752
3

Dec'14
0.39073
6
0.10234
4
0.07587
1

Dec'15
0.48121
4
0.27189
8
0.06669

Super Quick Ratio of Nestle vs Britania vs Industry


0.9
0.8
0.7

Britania

0.6

Nestle Ltd.

0.5

Industry

0.4
0.3
0.2
0.1
0
Dec'09

Dec'10

Dec'11

Dec'12

Dec'13

As we can observe from the chart that Nestle India Ltd. is at higher than the industrial
standards, it was only weak in its absolute liquid assets in 2013 which was still higher than
the industry. It recovered its strong absolute liquidity integrity in 2015.(prompt in keeping
making short term investment in deposits)
On the other hand, Bajaj Auto has been always an outperformer in its absolute liquid ratio.Its
above the industrial standard and was able to fulfil the 0.5 standard norm in 20011.The firm
had low Super Quick Assets in 2013, this means the firm depended upon its other sources of
current assets. And through analyzing the balance sheet, it can be assumed that the firm has
covered up its current liabilities by using its advances and loans, which is not a healthy sign
for its liquidity front.
SOLVENCY RATIOS ::

Debt Equity Ratio of Nestle India Ltd.:


Dec'11
500.419

Dec'12
777.166
5

Dec'13
1200.53
3

Dec'14
1726.00
3

Dec'15
2300.91
4

Debt Equity Ratio Nestle Ltd.


2500
2000
1500

Nestle Ltd.

1000
500
0
Dec'09

Dec'10

Dec'11

Dec'12

Dec'13

As we can observe from the above chart there is increasing trend in the debt-equity ratio, it
has increased from 500.41 in 2011 to 0.5 in 2015.
This presents us a fact that the proportion of the debt in the firms capital structure has not
been increasing than compared with shareholders equity. Let's take a closer look:
In 2011, the debt-equity ratio of 500.41 was showing a strong solvency figure with more
funds invested by the shareholders than the creditors. The shareholder funds were
contributing more in the total liabilities of the firm as compared to the debt portion
In 2013, the debt equity ratio increased to 777.16 showing a change compared with the
previous year. This figure represents the fact that contribution of creditors in the capital
structure of firm has not increased from that of the shareholders.
In year 2013, the debt- equity ratio increased to 1200.53 showing an increase as compared
with 2012. This means that the proportion of debt increased substantially because of the
secured loans.

COMPARISON WITH INDUSTRY AND BAJAJ AUTO


Debt Equity Ratio

Dec'11

Industry

1828.75

Nestle Ltd.

500.419

Britania

393.712

Dec'12
2238.28
7
777.166
5
453.612
2

Dec'13
2974.96
6
1200.53
3
543.205
3

Dec'14
3969.01
2
1726.00
3
644.937
4

Dec'15
5335.92
5
2300.91
4
870.585
5

Debt Equity Ratio of Nestle vs Britania vs Industry


9000
8000
7000

Britania

6000

Nestle Ltd.

5000

Industry

4000
3000
2000
1000
0
Dec'09

Dec'10

Dec'11

Dec'12

Dec'13

As we can observe from the chart that Nestle India Ltd. is all together on a samelevel in its
debt-equity ratio, its following the industrial standards and is way above its peer. By seeing
this position, we can say that Nestle India Ltd. has a strong growth position as far as debtequity ratio is concerned. The disadvantage for Nestle India Ltd. is that the firm will
experience a high debt-interest burden and will have to generate the extra sales to cover-up
the extra burden of debt. The creditors are liable to lesser risk than the shareholders. The firm
has no need to perform in each and every aspect to keep its creditors satisfied on their
nominal investment.
But BRITANNIA is highly leveraged in the industry and enjoys the advantages of a highly
leveraged firm. It seems that it is following a policy to do the business with maximum of
outsider's funds in order to take lesser risk of their investment and to increase their earnings
(per share) by paying a lower fixed rate of interest to outsiders.

ACTIVITY RATIOS ::
Debtors Turnover Ratio of Nestle India Ltd.:
Dec'11
53.6537

Dec'12
51.7372
7

Dec'13
47.0514
1

Dec'14
64.2575
8

Dec'15
107.998
7

DebtorsTurnover Ratio (Nestle Ltd.)


120
100
80

Nestle Ltd.

60
40
20
0
Dec'09

Dec'10

Dec'11

Dec'12

Dec'13

As we can observe from the above chart that the debtors turnover ratio has followed an
overall decreasing trend from 53.65 in 2009 to 47.45 in 2011 and then increased by 64.25 to
107.99 from 2012 to 2013.This represents that the management is following, maintaining and
implementing an optimum credit policy for its debtors.
COMPARISON WITH INDUSTRY AND BRITANNIA LTD.::
Debtors Turnover Ratio

Dec'11

Dec'12

Industry

21.1906

Nestle Ltd.

53.6537

Britania

49.9772

17.6866
51.7372
7
50.6063
1

Dec'13
14.6075
7
47.0514
1
54.8422
3

Dec'14
Dec'15
12.0393 17.4985
6
7
64.2575 107.998
8
7
54.0132
7 117.4779

Debtors Turnover Ratio of Nestle vs Britania vs Industry


300
250
Britania

200

Nestle Ltd.

150

Industry

100
50
0
Dec'09

Dec'10

Dec'11

Dec'12

Dec'13

As we can observe from the above chart thatNestle India Ltd. has followed the respective
trend of the industry but in an amplified manner and is way above its Industry. Hero
MotoCorp has a better debtors turnover ratio performance as compared with the industry.
Nestle India Ltd has better average debtors turnover ratio of 53.65 vs 21.91 of industry. Also
the Nestle India Ltd. has superior average debtors velocity.
This shows that the management has implemented an optimum credit policy for generating
sales as well as converting the debtors into cash as soon as possible in the industry. This
shows a positive sign for the managements activity as per debtors turnover ratio is
concerned.

Inventory Turnover Ratio of Hero MotoCorp:


Inventory Turnover Ratio
Nestle Ltd.

Dec'11

Dec'12

3.46448 3.621133

Dec'13
3.64194
1

Dec'14
3.76089
9

Dec'15
6.18264

Inventory Turnover Ratio Nestle Ltd.


7
6
5
Nestle Ltd.

4
3
2
1
0
Dec'09

Dec'10

Dec'11

Dec'12

Dec'13

As per the chart the firm has shown a respectable performance in converting its
inventory into stock. The ratio has followed an increasing trend from 3.46 in 2011
to 6.18 in 2013 with increase in efficiency of converting its stock into sales. This
is a positive sign for the management and their effective implementation of their
efficient sales and inventory management policies as per stock turnover ratio is
concerned

COMPARISON WITH INDUSTRY AND BRITANIA LTD.::


Inventory Turnover Ratio

Dec'11

Dec'12
4.06013
5

Industry

3.72579

Nestle Ltd.

3.46448 3.621133
6.25359
5.90539
3

Britania

Dec'13
4.08892
3
3.64194
1
5.88754
2

Dec'14
4.51806
8
3.76089
9
6.95630
4

Dec'15
8.00318
1
6.18264
10.5977
2

Inventory Turnover Ratio Of Nestle vs Britania vs Industry


30
25
20
15
10
5
0

Britania
Nestle Ltd.
Industry

As we can observe from the chart above that Nestle India Ltd. is very good in respect to the
stock-turnover ratio with an average stock velocity less than that of its peer and the industry.
The firm has great efficiency in their inventory management and overall sales policies. This is
a positive sign for Nestle India Ltd. in its management activity as far as the stock turnover
ratio is concerned.
Working Capital Turnover ratio of Nestle India Ltd. :

Working Capital TurnOver Ratio


Nestle Ltd

Dec'11
-2.9425

Dec'12
-3.10738

Dec'13
-2.84629

Dec'14
-2.71408

Dec'15
-4.75513

Working Capital Turnover Ratio (Nestle Ltd.)


0
Dec'09
-0.5

Dec'10

Dec'11

Dec'12

Dec'13

-1
-1.5

Nestle Ltd

-2
-2.5
-3
-3.5
-4
-4.5
-5

As we can observe from the above chart that the working capital turnover ratio has performed
in an overall decreased trend from -2.94 in 2011 to -3.10% in 2012 with a decrease. The ratio
has travelled a reverse path from 2011 to 2015 with overall decreasing in 2011 to 2015. The
firm does not have positive working capital turnover ratio and means that the majority
percent of net working capital requirements are not covered by the sales
COMPARISON WITH INDUSTRY AND BRITANNIA LTD.::
Working Capital TurnOver Ratio
Industry

Dec'11

Dec'12

Dec'13

15.3433

28.2354

30.7563

Dec'14
8.60581
2

Dec'15
10.1785
1

Nestle Ltd.
Britania

-2.9425
47.0014

-3.10738
-21.3072

-2.84629
-9.1443

-2.71408
-33.9697

-4.75513
-24.6396

orking Capital Turnover Ratio of Nestle vs Britania vs Indust


80
60
Britania

40

Nestle Ltd.
Industry

20
0
-20
-40

As we can observe from the chart that Nestle India Ltd. has followed the pattern of the
industrial standards in case of working capital turnover ratio. The firm may not have high
working capital ratio as that of the industry but has a sustained its turnover ratio in a stable
manner, unlike its peer which has shown volatile performance of working capital ratio.This is
a sign of improvement for the management of Nestle India Ltd.with respect to the working
capital turnover ratio.
Fixed Assets Turnover Ratio of Nestle India Ltd.:
Fixed Assets Turnover Ratio
Nestle Ltd.

Dec'11
894.514

Dec'12

Dec'13

Dec'14

Dec'15

-1087.38

-1329.69

-1247.78

-1796.61

Fixed Assets Turnover Ratio (Nestle Ltd.)


0
-200
-400
-600

Nestle Ltd.

-800
-1000
-1200
-1400
-1600
-1800
-2000

As we can observe from the chart that the fixed assets turnover ratio as shown an decreasing
trend from 894.51 in 2011 to -1796.61 in FY13 with a change. The firm is operating at a high
fixed assets turnover ratio, which means that the firm has high volume of sales as compared
to the value of its fixed assets. This represents that the sales of the firm are doing well and the
fixed assets are utilized efficiently. This is a positive aspect as per the trend analysis is
concerned with respect to the fixed assets turnover ratio of the firm and will have a better
insight after comparing the firm with its peer and the industry.
COMPARISON WITH INDUSTRY AND NESTLE INDIA LTD::
Fixed Assets Turnover Ratio
Industry
Nestle Ltd.
Britania

Dec'11
3575.51
894.514
548.067

Dec'12

Dec'13

Dec'14

Dec'15

-4422.02

-5456.06

-5262

-7038.34

-1087.38

-1329.69

-1247.78

-1796.61

-643.542

-775.506

-816.57

-821.219

Fixed Assets Turnover Ratio of Nestle vs Britania vs Industry


0
-2000
Britania

-4000

Nestle Ltd.
Industry

-6000
-8000
-10000
-12000

As we can observe from the chart, Nestle India Ltd. is an outperformer in its fixed assets
turnover ratio. The ratio is way below the industrial standards and it has not done well in
terms of its peer.
By analyzing the chart we can now reckon distinctly that Nestle has not a good performance
in its fixed assets turnover ratio. This means that the fixed assets of the firm are unutilized
and the sales volumes of the firm are not under pressure. The firm has to stabilise in the
coming years. This shows that the management of the firm has not worked in generating
more volumes of sales and unutilized its fixed assets in a more efficient manner.
This is a negetive sign for the firm as per the ratio is concerned and the management has not worked
forward efficiently.

Proprietary Ratio of Nestle India Ltd.:


Proprietary Ratio
Nestle Ltd.

Dec'11

Dec'12

Dec'13
0.56750
7

Dec'14
0.63133
1

Dec'15
0.66570
8

Proprietary Ratio( Nestle Ltd.)


1.2
1
Nestle Ltd.

0.8
0.6
0.4
0.2
0

As we can observe from the chart that the Proprietary ratio as shown an decreasing trend
from 1 in 2011 to 0.66 in 2015 with a change which means that the firm has high volume of
sales as compared to the value of its Proprietary Ratio. This represents that the sales of the
firm are not doing well and the Propriety is not utilized efficiently. This is a positive aspect as
per the trend analysis is concerned with respect to the net sales ratio of the firm and will not
have a better insight after comparing the firm with its peer and the industry.
COMPARISON WITH INDUSTRY AND BRITANNIA LTD::
Proprietary Ratio

Dec'11

Industry

0.7368

Dec'12
0.73983
7

Nestle Ltd.
Britania

0.4798 0.511243

Dec'13
Dec'14
0.66076
4 0.669011
0.56750 0.63133
7
1
0.94864
9 0.76659

Dec'15
0.71322
8
0.66570
8
0.99461
6

Proprietary Ratio of Nestle vs Britania vs Industry


2.5
2
1.5
1
0.5
0

Britania
Nestle Ltd.
Industry

As we can observe from the chart, Nestle India Ltd. is an outperformer in its Proprietary
ratio. The ratio is way below the industrial standards and it has not done well in terms of its
peer.
By analyzing the chart we can now reckon distinctly that Nestle has not a good performance
in its Proprietary ratio. This means that the total of the firm are unutilized and the sales
volumes of the firm are not under pressure. The firm has to stabilise in the coming years.
This shows that the management of the firm has not worked in generating more volumes of
sales and unutilized its fixed assets in a more efficient manner.
This is a negetive sign for the firm as per the ratio is concerned and the management has not worked
forward efficiently.

Gross Profit Ratio of Nestle India Ltd.:


Dec'11
46.9931

Dec'12
45.4551
8

Dec'13
46.1873
3

Dec'14
49.7520
6

Dec'15
50.0058
8

Gross Profit Ratio (Nestle)


51
50
49
48

Nestle

47
46
45
44
43

As we can observe from the above chart that the gross profit ratio of Nestle India Ltd. has
shown a less over steady growth from 46.5% of net sales in 2011 to 50.00% of net sales in
2015. This steady growth in gross profit ratio can be explained from the fact that as the net
sales decreased from 2011 to 2015 and on the other hand, the cost of goods sold decreased
from 2011 to 2015.

COMPARISON WITH INDUSTRY AND BRITANNIA LTD.:


Gross Profit Ratio

Dec'11

Industry

39.8074

Nestle Ltd.

46.9931

Britania

26.4684

Dec'12
37.7985
4
45.4551
8
25.5149
3

Dec'13
40.4413
2
46.1873
3
35.1347
7

Dec'14
42.6818
7
49.7520
6
36.2132
2

Dec'15
42.7870
8
50.0058
8
38.3599
2

Gross Profit Ratio of Nestle vs Britania vs Industry


140
120

Britania

100

Nestle Ltd.

80

Industry

60
40
20
0

As we can observe from the chart above that Nestle India Ltd. has always performed with
gross profit ratios similar as compared with the industrial standards.
The company has been able to generate sufficient growth rate in nets sales to maintain its
high gross profit ratio in the industry.
This is a positive sign for Nestle in case of general profitability position as it maintain its high
gross profit margins from 2011 to 2015.
Net profit ratio of Nestle India Ltd.:
Net Profit Ratio
Nestle Ltd.

Dec'11

Dec'12

12.7385

13.0772

Dec'13
12.8363
8

Dec'14
12.8133
2

Dec'15
12.2747
4

Net Profit Ratio (Nestle Ltd.)


13.2
13
12.8
Nestle Ltd.

12.6
12.4
12.2
12
11.8

As we can examine from the above chart that the net profit ratio which is represented by the
percentage of net sales has shown an increasing trend from 12.73 in 2011 to 13.07 in 2010.
This can be explained by the fact that net profit increased from 2011 to 2012 which is much
higher than the increase in net sales.
Net sales increased from 2009 to 2010. But in 2011, the ratio showed a dip and decreased in
2012 net sales in 2012. This can be explained by the fact that the net sales decreased by a
higher rate and the net profit increased by only which is lower than the percentage increase of
the net sales.
COMPARISON WITH INDUSTRY AND BRITANNIA LTD.::
Net Profit Ratio

Dec'11

Industry

9.10565

Nestle

12.7385

Britania

3.42203

Dec'12
9.20745
3
13.0772
3.44490
7

Dec'13
9.17320
6
12.8363
8
3.75417
9

Dec'14
9.29202
2
12.8133
2

Dec'15
9.34833
5
12.2747
4

4.16473

5.86344

Net Profit Ratio of Nestle vs Britania Industry


40
35
30
25
20
15
10
5
0

As we can examine from the chart above that Nestle India Ltd. has shown a stable
performance in maintaining a good overall net profit ratio as compared with the industry as
well as with its peer in 2015.
Operating Ratio of Nestle India Ltd. ::
Operating Ratio

Dec'11

Nestle Ltd.

3250.9

Dec'12
4046.42
3

Dec'13
4731.97
5

Dec'14
4207.42
9

Operating Ratio Nestle Ltd.


5000
4500
4000
3500
3000
2500
2000
1500
1000
500
0

Nestle Ltd.

Dec'15
4570.44
9

As we can observe from the above chart that the operating ratio followed an increasing trend
of net sales in 2011 to in 2015. This increase in the operating ratio can be explained by the
fact that the gross profit and the operating expenses increased more, which gives a strong
numerator number for the ratio and for the denominator side the net sales increased from
2011 to 2015. The trend of increase and decrease continued every alternate financial year
COMPARISON WITH INDUSTRY AND BRITANNIA LTD.::
Operating Ratio

Dec'11

Industry

8167.27

Nestle Ltd.

3250.9

Britania

3018.35

Dec'12
Dec'13
Dec'14
10439.2
2 11415.63 11346.37
4046.42 4731.97 4207.42
3
5
9
3253.10 3608.98
3737.77
9
2

Dec'15
13886
4570.44
9
3914.04
7

Operation Ratio of Nestle vs Britania vs Industry


25000
20000
15000

Britania
Nestle Ltd.
Industry

10000
5000
0

As we can reckon from the chart above that Nestle India Ltd. is a good performer in its
operating profit ratio. The firm is above the industrial performance. This shows that the
company has kept its operating expenses in control in an efficient manner for generating
greater operating profits. This is again a positive sign for the firms general profitability as
operating profit ratio is concerned.
Operating profit Ratio of Nestle India Ltd.::

Dec'11
19.7474

Dec'12
19.9145
1

Dec'13
20.5312
6

Dec'14
22.2931
6

Dec'15
21.3995
1

Operating Profit Ratio (Nestle Ltd.)


23
22.5
22
21.5

Nestle Ltd.

21
20.5
20
19.5
19
18.5
18

As we can observe from the above chart that the operating profit ratio followed an increasing
trend from 19.74 in 2012 to 22.29 in 2014. This increase in the operating profit ratio can be
explained by the fact that the gross profit and the operating expenses increased more, which
gives a strong numerator number for the ratio and for the denominator side the net sales
increased from 2011 to 2014. The trend of increase and decrease continued every alternate
financial year.
COMPARISON WITH INDUSTRY AND BRITANNIA LTD.::
Operating Profit ratio

Dec'11

Industry

14.5145

Nestle Ltd.

19.7474

Britania

6.09305

Dec'12
14.1852
7
19.9145
1
5.46220
2

Dec'13
14.4239
5
20.5312
6
5.61357
7

Dec'14
15.1303
5
22.2931
6
6.61616
4

Dec'15
15.0744
8
21.3995
1
9.45906
3

Operation Profit Ratio of Nestle vs Britania vs Industry


50
45
40

Britania

35

Nestle Ltd.

30

Industry

25
20
15
10
5
0

As we can perceived from the chart above that Nestle India Ltd is a good performer in its
operating profit ratio. The firm is above the industrial performance. This shows that the
company has kept its operating expenses in control in an efficient manner for generating
greater operating profits. This is again a positive sign for the firms general profitability as
operating profit ratio is concerned.
Dividend per Share ratio of Nestle India Ltd:Dec'11
48.5002

Dec'12
48.5002
5

Dec'13
40.6799
7

Dec'14
40.6322
6

Dec'15
40.2578
4

Dividend Per Share (Nestle Ltd.)


60
50
40

Nestle Ltd.

30
20
10
0

As we can observe from the above chart that DPS of Nestle India Ltd has followed mostly a
straight trend from 48.50 in 2009 to 48.50 in 2010 and then from 40.67 in 2011 to 40.25 in

2013 with a some decreasing trend. This represents a earning power of the firm as the ratio
has followed a stable trend and has followed the same path as that of return on equity, which
in turn is a positive sign. The increasing DPS is a positive sign for the profitability of the firm
but we have to compare it with its peers to have a rational projection of the profitability.

COMPARISON WITH INDUSTRY AND BRITANNIA LTD.:-

Dividend Per Share

Dec'09

Industry

31.8248

Nestle Ltd.

48.5002

Britania

25.0021

Dec'10
16.6023
2
48.5002
5
5.44574
8

Dec'11
12.8375
3
40.6799
7
7.12091
2

Dec'12
13.5504
9
40.6322
6
7.05955
2

Dec'13
14.1819
3
40.2578
4
9.96030
9

Dividend Per share of Nestle vs Britanis vs Industry


120
100
Britania

80

Nestle Ltd.

60

Industry

40
20
0
Dec'09

Dec'10

Dec'11

Dec'12

Dec'13

As we can observe from the above chart that both firms have followed a stable trend in their
respective dividend per share ratio. This shows that both the firms have not enough earning
power in the industry and they contribute negatively to the earnings of the whole industry as
well as to the return to their respective shareholders.
Dividend Payout Ratio of Nestle India Ltd:
Dec'09
71.3869

Dec'10
57.1196

Dec'11
40.7901

Dec'12
36.6849

Dec'13
34.7439

Dividend Payout Ratio (Nestle Ltd.)


80
70
60
50

Nestle Ltd.

40
30
20
10
0
Dec'09

Dec'10

Dec'11

Dec'12

Dec'13

As we can observe from the above chart that the dividend payout ratio of Nestle India Ltd has
followed a decreasing trend from 71.38 in 2011 to 34.74 in 2015 with a quantum decrease of
just over 5 years decreasing from 2011 to 2015.
The chart reflects that after 2011, the firm started to payout less percent of dividend and
retained the rest to build its retained earnings block for its long term/expansion objectives. A
clear analysis about this ratio can be made after comparing it with its peer and industry.
COMPARISON WITH INDUSTRY AND BRITANNIA LTD.:Dividend Payout Ratio

Dec'11

Industry

17.5401

Dec'12
9.34394
6

Nesttle

71.3869

57.1196

Britania

51.2653 44.78411

Dec'13
6.04289
5
40.7901
45.5592
5

Dec'14
5.53148
9
36.6849
6
36.0733
4

Dec'15
4.94298
9
34.7439
7
32.2967
2

Dividend Pay Out Ratio of Nestle vs Britania vs Industry


160
140
120

Britania

100

Nesttle
Industry

80
60
40
20
0

As we can observe from the above chart that the industry has a stable trend in its dividend
payout ratio, which means that the every player in the industry is trying to retain its earning to
maximum and give the least dividend, so as to build their respective retained earning block
for utilizing the retained funds in its long term/expansion objectives. Hence we can depict
from this phenomena that the food industry in India is at its expansion.
Now, BRITANIAS dividend payout ratio has also followed the industrial trend and is a bit
above the levels of Nestle India Ltd. This means that the firm is paying out dividend at a
same rate as compared with the industry and higher rate of its peer. Hence we can comment
that the firm is building up its retained earning block with a greater rate as compared with
its peer but can be more restrictive in its dividend paying out policy. Nestle India Ltd has
done well as it has been above the industrial standards and has paid more dividend then
industry.
Earning yield ratio of Nestle India Ltd:Dec'11

Dec'11

10000.8

10000.1

Dec'13
10000.0
7

Dec'14
9999.75
3

Dec'15
10000.3
8

Earning Yield Ratio (Nestle Ltd.)


10001
10000.8
10000.6
10000.4

Nestle Ltd.

10000.2
10000
9999.8
9999.6
9999.4
9999.2

As we can observe from the above chart that EYR of Nestle India Ltd has followed a decreasing trend
from 10000.76 in 2011 to 10000.10 in 2012.Then it has followed an increasing trend from 9999.75 in
2014 to 10000.37 in 2015 which represents a strong earning power of the firm as the ratio has
followed a stable trend and has followed the same path as that of return on equity, which in turn is a
positive sign.

COMPARISON WITH INDUSTRY AND BRITANNIA LTD.:Earning Yield Ratio


Industry
Nestle Ltd.
Britannia

Dec'11
33963.2
10000.8
10000.1

Dec'12
61967.7
10000.1
9997.413

Dec'13
64163.88
10000.07
9997.96

Dec'14
62873.22
9999.753
10001.81

Dec'15
59727.34
10000.38
10000.59

Earning Yield Ratio of Nestle vs Britania vs Industry


90000
80000
70000
60000
50000
40000
30000
20000
10000
0

Britania
Nesttle Ltd.
Industry

As we can observe from the above chart that both firms have followed a stable trend in their
respective earning per share ratio. This means that both the firms have earning power in the
industry and they contribute positively to the earnings of the whole industry as well as to the
return to their respective shareholders.
Price Earning Ratio of Nestle India Ltd:
Price Earning Ratio
Nestle Ltd.

Dec'11
0.01

Dec'12
0.01

Dec'13
0.01

Dec'14
0.01

Dec'15
0.01

Price Earning Ratio (Nestle Ltd.)


0.01
0.01
0.01
0.01

Nestle Ltd.

0.01
0.01
0.01
0.01
0.01
0.01

As we can observe from the chart that the price earning ratio has followed an overall
increasing and decreasing trend from 0.009 in 2009 to 0.01 in 2012 with a increasing change.
The P/E ratio represents the change in the market price with every increase or decrease in the
earning of the firm. The ratio also shows the markets response on the firms earnings that if
the earnings of the firm are within the expectation of the market then the firm will trade on
higher multiples of P/E ratio but if the firms earnings are under the expectations of the
market then the firm will trade on lower multiples of the P/E ratio.
COMPARISON WITH INDUSTRY AND BRITANNIA LTD.:Price Earning Ratio
Industry
Nesttle Ltd.
Britania

Dec'11
0.00294
0.01
0.01

Dec'12
0.00161
4
0.01
0.01000
3

Dec'13
0.00155
9
0.01
0.01000
2

Dec'14
0.00159
1
0.01
0.00999
8

Dec'15
0.00167
4
0.01
0.00999
9

Price Earning Ratio of Nestle vs Britania vs Industry


0.03
0.02
0.02

Britania
Nesttle Ltd.
Industry

0.01
0.01
0

As we can observe from the chart that the overall industrial P/E ratio has shown a steady
trend from 0.01 in 2011 to 0.012 in 2015. This represents that overall market expectation
from the food industry was either neutral or under-valued the over the years it has increased
and stabilized to its realistic figure. BRITANNIA ALSO showed the same trend and
outperformed the industry as a whole. Nestle India Ltd has always exceeded and performed
above the levels of the industry and has shown stable growth in terms of P/E ratio.

INTERPRETATIONS OF THE RATIOS


OVERALL LIQUIDITY PERFORMANCE OF NESTLE INDIA LTD:1. Current ratio is below the standard of 2:1 and that means the current liabilities are
more and the company might plan to expand in future.
2. Quick ratio is below the standard of 1:1 and it indicates that there is less quick asset at
the companys disposal as compared to current liabilities.
3. Super Quick ratio is below standard of 0.5:1 except for 2011 and shows the greater
amount of current liabilities as compared to the absolute liquid assets of the company.
OVERALL SOLVENCY PERFORMANCE OF NESTLE INDIA LTD:1. Equity ratio is nearer to 1:1 and that indicates that the shareholders funds and the
total assets are almost being used in the same proportion.
2. Debt equity ratio is well below the standard of 1:1 and it means that the external
equity is very less as compared to internal equity. This involves lesser risk to the
creditors.
OVERALL PROFITABILITY PERFORMANCE OF NESTLE INDIA LTD:1. The Gross Profit Ratio is varying between 45 to 50 and this means that there is more
of net sales than the cost incurred on the goods.
2. The operating ratio is varying between 19 to 22 and indicates that the company has
operational efficiency.
3. The net profit ratio is varying between 12 to 13 and indicates that the net profit after
taxes is greater than the net sales.

REFERENCES:
The following are the references from where the relevant information and data for analysis
purposes have been extracted:

Annual Report of Nestle India Ltd 2014-2015


www.Nestle India Ltd.com
www.moneycontrol.com
www.nseindia.com
www.economictimes.com
www.ndtvprofit.com
www.accounting-simplified.com

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