Project Report on Financial Ratios

INTRODUCTION TO BUSINESS FINANCE

Presented to | Sundus Rauf

Presented by | Ata-u-Samad(FA17-MBAG-0019)
| Mujawar Abbas(FA17-MBAP-0138)
| Osama Shah(FA16-MBAP-0062)
| Farhanullah( )
CONTENTS
Introduction .................................................................................................................................................. 3
Engro Foods .............................................................................................................................................. 3
Nestle ........................................................................................................................................................ 3
Calculation – Engro Foods............................................................................................................................. 4
Calculation – Nestle Pakistan ........................................................................................................................ 5
Trend Analysis ............................................................................................................................................... 6
t1. Current Ratio ....................................................................................................................................... 6
t2. Quick Ratio........................................................................................................................................... 6
t3. Debt to Equity ...................................................................................................................................... 7
t4. Debt to Total Assets............................................................................................................................. 8
t5. Interest Coverage ................................................................................................................................ 8
t6. Recievable Turnover Days ................................................................................................................... 9
t8. Inventory Turnover Days ................................................................................................................... 10
t9.Total Assets Turnover ......................................................................................................................... 10
t11. Net Profit Margin ............................................................................................................................. 11
t12. Return on Investment ...................................................................................................................... 11
t13. Return on Equity .............................................................................................................................. 12
Cross Sectional Analysis .............................................................................................................................. 13
c1.Current Ratio ...................................................................................................................................... 13
c2. Acid-Test ............................................................................................................................................ 13
c3. Debt to Equity.................................................................................................................................... 14
c4. Debt to Total Assets .......................................................................................................................... 14
c5. Interest Coverage .............................................................................................................................. 15
c6. Recievable Turnover Days ................................................................................................................. 15
c8. Inventory Turnover Days ................................................................................................................... 16
c10. Assets Turnover ............................................................................................................................... 16
c11. Net Profit Margin............................................................................................................................. 17
c12. Return on Investment ..................................................................................................................... 17
c13. Return on Equity.............................................................................................................................. 18

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INTRODUCTION

We have selected the Engro Foods as our base company and Nestle for comparison. This report contains
the ratio analysis of Engro Foods both Trend-wise and cross-sectional.

ENGRO FOODS

Engro Foods is among the biggest and fastest growing companies in Pakistan with a vision to cater to
local needs with products conforming to global standards.

Highly passionate about providing millions of people across the length and breadth of Pakistan and
beyond with the ultimate brand experience, Their product portfolio comprises some of the country's
biggest and best selling brands including Olper's, Olper's Lite, Omore, Dairy Omung, Olper's Lassi and
Tarang.

But whether it is their thick, creamy all-purpose milk, scrumptious ice-cream high on nutrition content
or refreshing range of beverages, their approach remains largely the same as they strive to keep product
innovation at the forefront of their guiding philosophy and consumer satisfaction at the heart of their
operational strategy.

NESTLE

Nestlé Pakistan today is the leading Food & Beverages Company in Pakistan with key focus on Nutrition,
Health and Wellness and reaching the remotest of locations throughout Pakistan to serve the
consumers. Nestlé Pakistan also prides itself in being the leaders in Nutrition, Health & Wellness.

Today Nestle products range covers a diversified group of food group items as EveryDay powder tea
whitener, Nido full cream powder milk, Milo chocolate drink-mix, Nescafe coffee, Cerelac infant cereal,
Lactogen infant milk formulae, Maggi 2-minute noodles and Maggi.

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CALCULATION – ENGRO FOODS

4
CALCULATION – NESTLE PAKISTAN

5
TREND ANALYSIS

T1. CURRENT RATIO

Good

Engro keeps the current ratio around 1 as a best practice, it means Engro has more than enough to
cover its liabilities if they become due.

Current Ratio
2
1.9
1.8
1.7
1.6
1.4
1.3 1.3
1.2 1.2
1
0.8
0.6
0.4
0.2
0
2013 2014 2015 2016 2017

T2. QUICK RATIO

Ok

The quick ratio measures the amount of liquid assets available for each Rupee of current liabilities, it
was best in 2017 but decreases in 2017.

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 Acid-Test
1.2
1.1
1 1
0.9
0.8
0.7 0.7
0.6

0.4

0.2

0
2013 2014 2015 2016 2017

T3. DEBT TO EQUITY

Good

The Debt to Equity ratio indicates how much debt a company is using to finance its assets relative to the
value of shareholders’ equity, Engro debt to Equity ratio is low which is good.

Debt to Equity
0.45
0.40 0.40
0.35
0.32
0.30 0.30
0.25
0.20
0.15
0.13
0.10
0.05
0.03
0.00
2013 2014 2015 2016 2017

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T4. DEBT TO TOTAL ASSETS
Good

Ratio below 1 indicates that greater portion of Engro’s assets are funded by equity rather than debt
which is good.

Debt to Total Assets

0.90
0.80 0.81
0.70
0.60
0.55 0.56
0.50
0.43
0.40
0.30 0.29
0.20
0.10
0.00
2013 2014 2015 2016 2017

T5. INTEREST COVERAGE

Bad

Interest coverage ratio was best in 2016 then in decreased in 2017 to 2.1 which is bad.

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 Interest Coverage
14.0

12.0 12.1

10.0

8.0

6.0 6.2

4.0
2.8
2.0 2.1
1.4
0.0
2013 2014 2015 2016 2017

T6. RECIEVABLE TURNOVER DAYS

Best

Due to Engro’s low volume of credit sales the receivable turnover is very low. Usually they make sales on
cash.

Recievable Turnover(Days)
1.6
1.5
1.4
1.3
1.2
1.1
1

0.8 0.8 0.8

0.6

0.4

0.2

0
2013 2014 2015 2016 2017

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T8. INVENTORY TURNOVER DAYS
Good

Engro is a FMCG company it sells its inventory fast.

Inventory Turnover(Days)
45
40 40 40
35 35 36
32
30
25
20
15
10
5
0
2013 2014 2015 2016 2017

T9.TOTAL ASSETS TURNOVER

Good

Engro is generating more revenue per Rupee of its assets.

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 Total Assets Turnover
2
1.9
1.8 1.8
1.6 1.6 1.6
1.5
1.4
1.2
1
0.8
0.6
0.4
0.2
0
2013 2014 2015 2016 2017

T11. NET PROFIT MARGIN

Ok

Engro Net Profit margin is decreasing over the years but still it is earning enough.

Net Profit Margin

7.0%
6.4%
6.0%
5.4%
5.0%

4.0%

3.0%

2.0% 2.1%

1.0% 1.1%
0.6%
0.0%
2013 2014 2015 2016 2017

T12. RETURN ON INVESTMENT

Bad

Engro’s Roi is decreasing from the past years which is not a good sign for investors and shareholders.

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 Return on Investment
14.0%

12.0% 12.0%

10.0% 9.7%
8.0%

6.0%

4.0%
3.5%
2.0% 1.71%
0.9%
0.0%
2013 2014 2015 2016 2017

T13. RETURN ON EQUITY

Bad

Decrease in ROE indicates bad sign. Engro is not using its equity to generate revenue.

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 Return on Equity
25.0%

21.2%
20.0%

15.0%
13.9%

10.0%
7.7%
5.0%
3.9%
2.0%
0.0%
2013 2014 2015 2016 2017

CROSS SECTIONAL ANALYSIS

C1.CURRENT RATIO
Good

Current ratio
2
1.9
1.8
1.7
1.6
1.4
1.3 1.3
1.2 1.2
1 1
0.8
0.66 0.72
0.6 0.59 0.62
0.4
0.2
0
2013 2014 2015 2016 2017

Engro Nestle

C2. ACID-TEST
Good

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 Chart Title
1.2
1.1
1 1
0.9
0.8
0.7 0.7
0.6
0.56
0.4
0.31 0.34
0.25 0.24
0.2

0
2013 2014 2015 2016 2017

Engro Nestle

C3. DEBT TO EQUITY

Good

Debt to Equity
14.00

12.00 11.59
10.00

8.00

6.00
4.76
4.00
3.41 3.10 2.90
2.00

0.00 0.40 0.32 0.13 0.03 0.30

2013 2014 2015 2016 2017

Engro Nestle

C4. DEBT TO TOTAL ASSETS

Good

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 Debt to Total Assets
1.00
0.90 0.92
0.80 0.81 0.83
0.77 0.76 0.74
0.70
0.60
0.55 0.56
0.50
0.40 0.43
0.30 0.29
0.20
0.10
0.00
2013 2014 2015 2016 2017

Engro Nestle

C5. INTEREST COVERAGE

Bad

Interest Coverage
25.0

21.6
20.0 19.97

15.0
12.1
10.0 9.46
6.5 6.2
5.0 5.38
2.8 2.1
1.4
0.0
2013 2014 2015 2016 2017

Engro Nestle

C6. RECIEVABLE TURNOVER DAYS

Good

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 Recievable Turnover Days
2.5
2.33
2
1.77
1.5 1.5 1.43
1.3
1.17
1.1
1 1.04
0.8 0.8
0.5

0
2013 2014 2015 2016 2017

Engro Nestle

C8. INVENTORY TURNOVER DAYS

Ok

Inventory Turnover Days

80
70 72.42

60 61.73
57.54
50
40 40 40
35 36
30 32

20
10
0 1.77 1.17
2013 2014 2015 2016 2017

Engro Nestle

C10. ASSETS TURNOVER

Good

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 Total Assets Turnover
2.5
2.25
2 2.04
1.85 1.9
1.8
1.67 1.6 1.6
1.5 1.5 1.48

0.5

0
2013 2014 2015 2016 2017

Engro Nestle

C11. NET PROFIT MARGIN

Bad

Net Profit Margin

18.0%
17%
16.0%
14.0%
12.0%
10.0% 10.54%

8.0% 8.22% 8.51%

6.80% 6.4%
6.0%
5.4%
4.0%
2.0% 2.1%
0.6% 1.1%
0.0%
2013 2014 2015 2016 2017

Engro Nestle

C12. RETURN ON INVESTMENT

Bad

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 Return on Investment
30.0%

25.0% 25.09%
23.3%
20.0%
17.8%
15.0% 15.3%

11.2% 12.0%
10.0% 9.7%

5.0%
3.5%
0.9% 1.71%
0.0%
2013 2014 2015 2016 2017

Engro Nestle

C13. RETURN ON EQUITY

Bad

Return on Equity
350.0%
316%
300.0%

250.0%

200.0%

150.0%
134%
100.0%
63% 69%
50.0% 49.5%
21.2% 13.9%
0.0% 2.0% 7.7% 3.9%
2013 2014 2015 2016 2017

engro Nestle

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