roject report on comparative financial analysis of Nestle and Cadbury.

IN PARTIAL FULFILLMENT OF THE REQUIREMENTS OF THE DEGREE OF MASTER OF BUSINESS ADMINSTRATION

Under the Supervision Ms.Jiwanjit kaur. Faculty of Management DIMT, Doraha

Submitted By Name: Jasmeet kaur Class: MBA 4th.sem Roll No:104442247820

DECLARATION

I, Jasmeet kaur , doing MBA

from Doraha Institute of Management &

Technology , Doraha do hereby indemnify my project work to be authentic and original in all respects of the process carried out in this project Under any evitable circumstance.

DATE: PLACE: SIGNATURE

PREFACE

Todays competitive age, the person who gets the fastest information and uses it, win. Information is very important resources just like other physical resources such as men, material, machinery and money. The right information provided to the right time can choose right persons for the right job. Information plays a very significant role in decision making to as it provides alternatives from which a choice can be made. MBA is the stone to management carrier in order to achieve practical, positive and course results the class rooms learning needs to be effectively to the situation existing outside the class rooms. In the present context not only the theoretical knowledge is important, but the practical exposure of that theoretical knowledge has an equal importance too. To tame or to become an expert in a particular discipline a person needs practical doses of that knowledge from time to time.

TABLE OF CONTENTS

S.NO 1. 2 3 4 5 6 9 10

TOPICS Introduction industry to FMCG

PAGES

Introduction to Nestle and Cadbury Review of literature Research Methodology Data analysis & Interpretation Findings and Suggestions Conclusion Bibliography

CHAPTER-1 INTRODUCTION

(1.1) THE FMCG INDUSTRY IN INDIA

Fast Moving Consumer Goods (FMCG), also known as Consumer Packaged Goods (CPG) are products that have a quick turnover and relatively low cost. Consumers generally put less thought into the purchase of FMCG than they do for other products.The Indian FMCG industry witnessed significant changes through the 1990s. Many players had been facing severe problems on account of increased competition from small and regional players and from slow growth across its various product categories. As a result, most of the companies were forced to revamp their product, marketing, distribution and customer service strategies to strengthen their position in the market. By the turn of the 20th century, the face of the Indian FMCG industry had changed significantly. With the liberalization and growth of the Indian economy, the Indian customer witnessed an increasing exposure to new domestic and foreign products through different media, such as television and the Internet. Apart from this, social changes such as increase in the number of nuclear families and the growing number of working couples resulting in increased spending power also contributed to the increase in the Indian consumers' personal consumption. The realization of the customer's growing awareness and the need to meet changing requirements and preferences on account of changing lifestyles required the FMCG producing companies to formulate customer-centric strategies. These changes had a positive impact, leading to the rapid growth in the FMCG industry. Increased availability of retail space, rapid urbanization, and qualified manpower also boosted the growth of the organized retailing sector. Though the absolute profit made on FMCG products is relatively small, they generally sell in large numbers and so the cumulative profit on such products can be large. Unlike some industries, such as automobiles, computers, and airlines, FMCG does not suffer from mass layoffs every time the economy starts to dip. A person may put off buying a car but he will not put off having his dinner. The FMCG sector, which is growing at the rate of 9% is the fourth largest sector in the Indian Economy and is worth Rs.93000 crores. The main contributor, making up 32% of the sector, is the South Indian region. It is predicted that in the year 2010, the FMCG sector will be worth Rs.143000 crores. The sector being one of the biggest sectors of the Indian Economy provides up to 4 million jobs.

(1.2)Introduction to Nestle

(HENRY NESTLE - FOUNDER OF NESTLE) Nestle India is a multinational company with its worldwide operations in over 84 countries. Nestle is the worlds largest food company with its international headquarters at Vevey, Switzerland. Nestle has almost 500 factories world wide out of which 220 are located in Europe, 150 in America and 130 in Africa, Asia and Oceania. It employs almost 2,30,000 people. Founder of Nestle was German born Henry Nestle who was living in a small town of Switzerland named Vevey. From a modest beginning he founded the company in 1866 at Switzerland for manufacturing milk powders for babies. Necessity is mother of invention is applicable in the invention of a special food product Farine Lactee made from Cereals & milk to saved the lives of many infants because, at that time Switzerland faced one of the highest infant mortality rate & the milk formula act as nectar that saved the lives of many infants whose mothers were un-able to breast feed successfully. There are unwriten guidelines which are to be followed, based on common senses & a strong set of moral principals emphasizing a lot of respect for fellow beings. Nestle has always adapted to the local conditions and at the same time integrates its Swiss heritage. It has always taken a long-term view in the countries in which it operates.

The Nest
When Henry Nestle introduced the first commercial infant formula in 1867, he also created a symbol of the Birds Nest, graphic translation of his name, which personifies the companys business. The symbol, which is universally understood, evokes security, motherhood and affection, nature and nourishment, family and tradition.

(1.3)PRODUCT RANGE OF NESTL

Its activities include manufacturing and marketing of: Condensed Milk Powdered Milk Ice Creams Other Dairy Products Infant Foods Chocolates & Confectionery Items Tea & Coffee Culinary Products Frozen Products Fruit Juices Mineral Water Pet Foods Pharmaceuticals And Cosmetics

(1.4)NESTLE`S ORGANIZATION

Some names seem to belong to legend and Nestl now synonymous with a prestigious trademark and worlds foremost food group originally consisted of two companies Henri Nestle of Vevey Switzerland & Anglo Swiss Condensed Milk Company in Cham. Both companies competed vigorously from 1866- 1905. These groups merged in 1905 and become the starting point of the recent food group with development of different products as well as acquisitions, mergers and purchasing of interests in other companies. Nestle is now the No. 1 food company in the world. It is present on all five continents has an annual turnover of nearly 80 Billion Swiss Francs. At present there are around 500 factories in around 84 countries with 200 operating companies, One basic research center & 17 technological development groups and has in excess of 200,000 employees. Currently Mr. PAUL STIENKAMP is controller the Nestl group.

Nestl operations worldwide are divides into 3 zones: ZONE EUR : Europe ZONE AOA : Asia and Oceania ZONE AMS : Americas

India comes under zone AOA which includes South- East Asian trading giants of the likes of Thailand, Indonesia, Malaysia, Singapore, China etc.

(1.5)NESTLE IN INDIA

Nestle set up its operations in India, as a trading company, in 1912. It began trading as Nestl Anglo-Swiss Condensed Milk Company (Export) Ltd. for importing &selling finished products in the Indian market. After Independence in 1947, the economic policies of the Indian Govt. emphasized the need for local production. Nestl responded to Indias aspirations by forming a company in India & set up its first factory in 15th of November 1961 at Moga (Punjab) to develop Moga as milk economy. The production started with the manufacture of Milkmaid at Moga factory in 1962 & other products were gradually brought into the fold. At present Nestl has 6 manufacturing units at Choladi (Tamil Nadu), Nanajangad (Karnataka), Samlakha (Haryana), Ponda & Bicholim (Goa) which are successfully engaged in meeting the domestic as well as the exports demand. Nestl India is now putting up the 7th factory at Pant Nagar in Uttaranchal.Among them Moga factory is the largest and the oldest producing the widest range of food products. The corporate office is located at Gurgaon & the registered office at M-5A, Cannaught Circus,New Delhi. 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 provide direct & indirect employment & livelihood to about one million people including farmers, suppliers of packaging materials, services and other goods.

(1.6)Nestl Has Seven Factories in India

MOGA FACTORY Moga factory started production in 1962. It contributes almost 75% of Nestls total production volume, manufacturing 80,000 tons of food products & employs 1500 people. The entire range of milk, culinary products, cereals & vending mixes is manufactured in Moga.

CHOLADI FACTORY The factory in Choladi started production in 1967, situated in south India, about 275 kms. from Bangalore. The factory today has 80 employees. It processes about 500 tons of instant tea, coffee which is all exported.

NANJANGUD FACTORY In Nanjangud factory production started in 1989 with manufacturing of Nescafe Sunrise. Milo manufacture at Nanjangud began in 1996.It is situated 160 kms south of Banglore, the factory has 245 employees. Coffee capacity currently is 15,000 tons and Milo 3000 tons p.a.

SAMALKHA FACTORY Samalkha factory started production in 1993, it is situated 70 kms from Delhi and it has 203 employees & manufactures about 11,000 tons of food products comprising Cerelac, Nestum & Ethnic deserts. Pure Life, treated water & Nestl Dahi are also being produced here.

PONDA FACTORY

Ponda Factory began production of Kit Kat in 1995.It currently employees 140 people. It is located 40kms from Panjim, capital city of Goa. It has been expanded into other confectionery products comprising Jellies Pastilles, & Chocolate based confectionery.

BICHOLIM FACTORY Bicholim Factory, a satellite factory of Ponda(Goa) began production in 1997. Noodles & Cold Sauces are manufactured here.

PANT NAGAR FACTORY This factory is situated in Pant Nagar of Uttranchal. Noodles & other culinary products are manufactured here.

India has the co packing arrangement in:

Nestle Polo-Bakemans (Nagpur) Chocolates-Campo (Puttur) Tasters ChoiceWilliamson Major company (silliguri) Toffee-Nutrine (Sunder Nagar) Pickles-Choride foods Ltd. (Puna) Cold sauce 200 gm. Nijjer Agro Pvt.Ltd. (Amritsar) Dosa & Samber mix Indian foods & fermentation Ltd. (Nagpur)

(1.7)ORGANISATION STRUCTURE OF NESTLE INDIA LTD. (MOGA)

Establishment Moga is located in the Malwa region of Punjab State, about 400kms. North of New Delhi. It is popularly known among the famous grain markets of the world. In 1959, Nestl took a decision to establish milk processing factory at Moga town for economic & social development of the area. Moga factory was established in 15th Nov.1961 & the production commenced in early 1962. Initially it was started as a small Milk Factory manufacturing milk product Milkmaid. Thereafter, with passage of time there has been a continuous & rapid expansion in the factory. Nestl India Ltd. was formally incorporated in 1978 & prior to which the manufacturing license was issued in the name of Food Specialties Ltd. After 28 Years of the company it was realized that in order to survive in the international competition and to keep up with the changing time a better and closer relationship was required between Nestl International and its Indian counterpart. So in 1990 a unified production & marketing front, under the name of Nestl India Ltd. was conceived. Today, Moga Factory is one of the largest Nestl Factories in the World in terms of Area, Product range, Manpower, etc. It contributes 75-80 % of the total production volume of Nestl producing 80,000 tons of high quality products p.a. The factory buildings are spread over an area of 57 acres. It employs about 1600 men & women. It deals with over 85,000 farmers in 1025 villages for collection of milk through Milk agencies. The credit of bringing this town on the industrial map of the world goes to Nestl The World Food Company engaged in the largest food processing operations in the world.

(1.8)SALIENT FEATURES OF MOGA FACTORY

Nestle India Ltd. (Moga Factory) is the oldest & largest factory among 500 Nestle Factories worldwide with a layout spread over nearly 57 acres & having three major plants within the factory.

The plants are briefly described as follow:

MILK OPERATIONS This plant has many sub- plants engaged in the processing of milk & all the related activities that take place in Moga Factory includes Fresh milk reception, Ghee plant, De odourisation plant, Liquid plant, Egrons

POWDER FILLING PLANT The filling & packing of milk like Everyday, Lactogens, Nestogen and Cerelac Tin is done in this plant.

CEREALS This plant is engaged in the production of cereal-based baby foods. The production process consists of the addition of various Enzymes, Vitamins, Minerals & Fruit extracts as Wheat, Apple, Orange & Vegetables to the cereal base.

INSTANT DRINKS This plant is engaged in the filling of vending pre - mixes.

CULINARY

This plant is engaged in the production of Noodles, Tastemakers, Soups, Sauces & the like. The plant is divided into three sections: NOODLES SEASONING COLD SAUCES

NOODLES It is one of the major plants of Nestle. Manufacturing of Noodles is semi

automatic process consists this procedure. Tipping of wheat flour in the hoppers at the start of the line, Mixing of dough releasing on the line, Sheet formation with the help of rollers, Strand formation, Steaming, Frying in oil, Cooling, Wrapping cakes in sachets along with tastemaker, Palestine of cakes.

SEASONING The seasoning section is engaged it the production of Taste marker, Soups & spice for use in cold sauces. Main products are as follow: Maggi Taste Makers Sweet & Sour Maggi soups (Chicken, Tomato, Mushroom & Vegetable) Maggi Super Seasoning Mango Wonder-Mix Maggi Export Mixes.

(1.10)Introduction to Cadbury

Cadbury is one of the well known names in world of MNCS. It is market leader of chocolate confectionery market with a 70% share. Cadbury story shows how a small family business developed into an international company, combining the most sophisticated technology with highest standards of quality, technical skills & innovation established by founders. In 1824, a young Quaker, John Cadbury opened the one-man business selling cocoa & chocolate, in Bull Street, Birmingham, which was to be the foundation of Cadbury Limited, one of the world's largest producers of chocolate. His lifelong involvement provide tea, coffee, cocoa & chocolate as an alternative to alcohol, which was believed to be one of the causes of poverty & deprivation amongst working people. Synonymous with word chocolate, Cadbury has a unique relationship with consumer. This relationship is underpinned by the powerful visual icons of the Cadbury brands - the Cadbury signature, purple colour, the 'glass and a half' trademark, & the chocolate itself. These all come together to form the brand identity - the Cadbury Master Brand Cadbury is the single largest brand in chocolate on international basis. In 1969 the two great household named Schweppes & Cadbury merged to form Cadbury Schweppes plc. Since then business have been expanded throughout the world by a programme of organic and acquisition led growth. Products of unique brands are producing & selling which give or bring pleasure to millions of consumers around the world every day which is done successfully for over 200 years. This success has been built upon understanding the needs of our consumers, customers and other

(1.11)Milestones of Cadbury 1824 1831 1842 1847

John Cadbury, founder of Cadbury, opens his shop in Bull Street of Birmingham selling tea, coffee, cocoa & drinking chocolate, which he prepares himself using a mortar and pestle. A small factory is rented in Birmingham & John Cadbury becomes a manufacturer of drinking chocolate and cocoa. John Cadbury is selling 16 sorts of drinking chocolate and eleven cocoas. The earliest preserved price list shows drinking chocolate in cakes and powder. John Cadbury takes his brother Benjamin into partnership and the family business becomes Cadbury Brothers of Birmingham. A larger factory in Bridge Street, the centre of Birmingham is rented. Under Prime Minister William Gladstone the British government reduces tax on imported cocoa beans, bringing cocoa and chocolate within the reach of more people.

Mid 1850s 1854 The Cadbury Brothers receive their first Royal Warrant as 'manufacturers of cocoa

and chocolate to Queen Victoria'. Today Cadbury continues to hold Royal Warrants of appointment. 1866 The Cadbury brothers introduce a new process to produce a much more palatable cocoa essence - the forerunner of the cocoa we know today. The plentiful supply of cocoa butter remaining after the cocoa is pressed makes it possible to produce a wider variety of eating chocolate. 1897 Cadbury manufactures its first milk chocolate. 1905 Cadbury's Dairy Milk is introduced with a new recipe using fresh milk. 1915 Cadbury's Milk Tray is introduced. 1920 Cadbury's Flake is introduced. mid- Cadbury's Dairy Milk gains its status as brand leader in the UK, a position that it has 1920's enjoyed ever since. 1930 Cadbury opens a factory in New Zealand. 1932 Cadbury opens factories in Canada & Ireland which compliments the manufacturing strength with other factories around the world. 1938 Cadbury's Roses are launched. 1939 Cadbury opens a factory in South Africa. 1940's During the war years, cocoa & chocolate products are regarded as essential foods for the forces & civilian population. Rationing continues until 1949. 1947 Cadbury opens a factory in India. 1960's Cadbury introduces the latest technologies and installs specialist plants for milk processing and cocoa bean processing in the UK.

Key products of Cadbury

Dairy Milk (largest selling chocolate in the country) 5 Star Gems Dairy milk Choclate Coated wafer biscuits Malted food Sugar confectionery Cadbury Roses. Cadbury Fruits Cadbury desserts. Perk Eclairs. Dollops (1989) Drinking chocolate Malted foods Cocoa powder

(1.13)CADBURY IN INDIA
In 1947 Cadbury opens a factory in India as Cadbury India (formerly Hindustan Cocoa Products) which is a subsidiary of Cadbury Schweppes Overseas, UK. The company has expanded the installed capacity of Malted Foods by 700 Tonnes & with this expansion, total capacity has risen to 8600 Tonnes. Company is committed to ethical business practices, fair dealing, honesty & full compliance with laws affecting businesses. In 2004 it was the winner of Britain's most admired company award as voted by other leading businesses. Company has organized into four regions & six global functions. Each region is focused on commercial operations in its geographical & product area, it also maintains teams from each of the six functions. THE REGIONs ARE: Americas Beverages; Americas Confectionery; Europe, Middle East and Africa (EMEA); Asia Pacific. Australia & New Zealand are largest markets in the region having leading position in Australian confectionery market, with a 55% market share & in New Zealand with a 43% share. Australia is 11th largest confectionery market in the world. Overall Indian business has a leading presence in chocolate with a 71% market share, and also sells sugar confectionery. Cadbury opens factories in New Zealand, Canada, South Africa & Ireland which compliments the manufacturing strength with other factories around the world in Malaysia, Africa, Jamaica, France, Spain, South America, Germany, Australia, India, Japan, Thailand, China & Singapore.

(1.14)Factories & Regional Offices in India

Cadbury has four factories & seven Regional offices in India as follow:
Plant Locations: Thane (Maharashtra), Induri (Maharashtra), Baddi (H.P.) Malanpur (M.P).

Out of which Induri Farm is a wholly-owned subsidiary of the company which exports malted foods & chocolates to the Gulf & Asian countries. Cadbury employ around 50,000 people.

Regional Offices: Cadbury has seven ragional offices in following cities: Delhi Kolkatta Mumbai Kerala Chennai Banglore Cochin

The company has received permission from the RBI for payment of royalty of 1% on domestic and exports sales for use of Trade Marks to Cadbury Schweppes Overseas, UK.

(1.15)MEANING OF FINANCIAL ANALYSIS

The first task of financial analysis is to select the information relevant to the decision under consideration to the total information contained in the financial statement. The second step is to arrange the information in a way to highlight significant relationship. The final step is interpretation and drawing of inference and conclusions. Financial statement is the process of selection, relation and evaluation.

Features of Financial Analysis

To present a complex data contained in the financial statement in simple and understandable form. To classify the items contained in the financial statement in convenient and rational groups. To make comparison between various groups to draw various conclusions.

Purpose of financial Analysis

To know the earning capacity or profitability. To know the solvency. To know the financial strengths. To know the capability of payment of interest & dividends.

 To make comparative study with other firms. To know the trend of business. To know the efficiency of mgt.

(1.16)RATIO ANALYSIS
A ratio is a simple arithmetical expression of the relationship of one number to another. It is one of the most powerful techniques of financial analysis. In finance, ratio is used as a bench mark for evaluating the financial position & performance of the concern. It expresses quantitative relationship between figures & group of figures. It is the process of establishing & interpreting various ratios for helping in making certain decision. With help of ratios financial statements can be analyzed more clearly & decisions can be made from such analysis. It is not an end in itself but a means of better understanding of financial strengths & weaknesses of the firm. There are a number of Ratios which can be calculated from information given in financial statements. It may be defined as relation of one amount(a) to another(b) which can be expressed as ratio of a to b, a : b (a is to b), or as a simple fraction, integer, decimal, fraction or percentage(%) According to accountants handbook by Wixon Kell & Bedford A ratio is an expression of the quantitative relationship between two numbers.

Nature of Ratio Analysis

Ratio Analysis is a technique of analysis and interpretation of financial statements. It is a means of better understanding financial strengths and weaknesses of a firm are company. The financial statements of business enterprises bring out the absolute figures which will be too lengthy to remember and come to meaningful conclusions. The institutions conduct an inter-firm comparison at the time of appraisal and also a comparison of past with present. The ratios bring absolute figures closer to judgment as certain benchmarks in ratios based on experience are set as standards. The absolute figures as such may not indicate any thing. The ratios provide information about financial position of a concern.

These are pointers or indicators of financial strength, soundness, position or weakness of an enterprise.

(1.17) Use & Significances of Ratio Analysis

Managerial uses of Ratio Analysis It is helpful for managers in Financial forecasting-planning, decision

making,Communicating,Controlling Co-ordination, Analysis & interpretation.

Utility to Shareholders Investors want to know about financial position of firm before investing for security of his investment & return in form of dividend /interest.

Utility to Creditors Creditors/Suppliers extend short-term loan to the concern so financial position of firm warrants their payments at time.

Utility to Employees Profitability of firm enables employees to put forward their viewpoint for increase of wages & other benefit.

Utility to Government

Govt. may base its future policies on basis of information of units in private sector & to submit audit report for tax purposes.

Chapter-2 Review of literature

 Ball and Brown, (1968), in his article explained that were the first to highlight the
relationship between stock prices and information disclosed in the statements. Empirical research on the value relevance has its roots in the theoretical framework on equity valuation models.

Smith and Nagle, (1994), analyzed that pricing decisions require a balance

between competing forces. Prices must be high enough to yield a profit yet low enough to give buyers sufficient incentive to buy. As representatives of their respective stakeholders, the finance-accounting and marketing-sales functions have legitimate concerns with regard to pricing policy. The problem is that these concerns are often addressed in functional isolation, and they are decided by whichever functional group yields the most political control. You can also compare your firm's ratios to industry data. You can gather data from similar firms in the same industry, calculate their financial ratios, and see how your firm is doing compared to the industry at large.
Ohlson,(1995), depicted in his work that the value of a firm can be expressed as a

linear function of book value, earnings and other value relevant information Financial statement lending is rarely used for small business lending as its look at the audited financial statement of companies that have an access to public credit market. In contrast, relationship lending, is based on soft information about the potential borrower. In other words, banks rely on the subjective information about a borrower that they received out of the lasting relationships rather than on financial condition of the borrowers.

 Allen Berger, (1999), in his article explained that three conditions that should be

met for relationship-based finance to occur. First, information other than data from statements, collateral and other public resources is collected. Second, the information is collected via continuous communication between the lender and the small business, the customers of the small business, and local community.
Cavalluzzo, Cavalluzzo, and Wolken ,(2001), in his article explained that is 84

percent of the loans received by small businesses came from lending institutions located in the same city. The median distance between the firm and the lender was just three miles.

Melissa bushman ,(2007), analyzes that Financial statement information is used by

both external and internal users, including investors, creditors, managers, and executives. These users must analyze the information in order to make business decisions, so understanding financial statements is of great importance. Several methods of performing financial statement analysis exist. This article discusses two of these methods: horizontal analysis and vertical analysis

Rosemary Peavler, (2010), in his article says that Financial ratio analysis is one

tool of investigating and comparing relationships between different pieces of financial information. You use information from the income statement and balance sheet to calculate financial ratios in order to determine information about your small business firm. There are any number of ratios you could calculate. To solve that problem, there are some standard ratios that most business firms use

Chapter-3 Research methodology

(3.1)Objective of study

To study the financial strengths & weaknesses of both the firms. To understand the working & financial position of the firms.. To know about key focus areas of growth and profits To know the Goodwill/Profitability/Liquidity & Solvency of firms.

(3.2)Limitations of study
Predicting the best performing firm by analyzing & considering just perspectives. Ratios may be affected by manipulation of accounts to conceal vital facts & to show better position of firm. So, ratio may not be definite indicator of good or bad management Financial statement analysis does not reflect the future. In many situations the financial statements are not free from bias. one

parameter (Data & graphs) is very difficult as different firms have different

(3.3) RESEARCH METHODOLOGY

Research is the systematic investigation to establish facts or collect information on a predecided subject.

Methodology is the specification of the system of principles and techniques used in a particular discipline.

Research Problem The first step while conducting research is careful definition of Research Problem. Basically, a problem statement refers to some difficulty, which researcher experiences in the context of either a theoretical or practical situation and wants to obtain the solution for the same. The problem statement here is: To study comparative financial analysis of Nestle v/s Cadbury

Research Design Used in this Project Research Design chosen for this study is Descriptive Research Design. Descriptive study is based on some previous understanding of the topic. Research has got a very specific objective and clear cut data requirements.

(3.4)DATA COLLECTION
Secondary Data I took data comprise annual reports and past records. In this study ratio analysis, comparative financial statements has been used for analyzing and interpreting the results. The data is collected through the secondary sources like:

Annual Reports of the company.

Magazines, Reports in the company.

Sampling Design
Sampling is necessary because it is almost impossible to examine the entire parent population (i.e. the entire universe) various factors such as time available cost, purpose of study etc. make it necessary for the researchers to choose a sample. It should neither be too small nor too big. It should be manageable. The sample size of past 5 years is taken for present study due to time limitation.

CHAPTER-4 DATA ANALYSIS AND INTERPRETATIONS

(4.1)CURRENT RATIO Current ratio is measure of firms short-term solvency. It is a measure of general liquidity & widely used for analysis of financial position of a firm. It defines the relationship between current assets & current liability.

Current Ratio = Current Assets Current Liabilities YEAR COMPANY Nestle Cadbury 2009 0.92 1.73 2010 0.60 1.24 2011 0.68 0.91

1.8 1.6 1.4 1.2 1 0.8 0.6 0.4 0.2 0 2009 2010 2011

Nestle Cadbury

Analysis (Nestle India Ltd v/s Cadbury) Generally, Current ratio of 2:1 is considered satisfactory. A firm should ensure that it does not suffer from lack of liquidity. Above table & graphical representation of Nestle & Cadbury is showing that ratios of both the companies have a declining trend. No one of the ratios is nearer to the rule, but financial position of Cadbury is still better than Nestle.

(4.2)Quick Ratio

This ratio establishes a relationship between quick/liquid assets and current liabilities. An asset is liquid if it can be converted into cash immediately or reasonably soon.

Quick/Liquid/Acid Test Ratio = Current assets Inventories Current liabilities

YEAR COMPANY Nestle Cadbury

2009

2010

2011

0.32 1.00

0.23 0.49

0.31 0.40

1 0.8 0.6 0.4 0.2 0

Nestle Cadbury

2009

2010

2011

Analysis (Nestle India Ltd v/s Cadbury) As rule of thumb or as a convention a quick ratio of 1:1 is considered to represent satisfactory current financial conditions. From the data & graph we analyze that the quick ratio of Nestle is not satisfactory as compared to Cadbury. It shows that Nestle has high inventory, which is less liquid.

(4.3)Absolute liquid ratio

Absolute liquid ratio includes cash in hand & cash at bank &marketable securities or temporary investments. The ratio of 1:2 is acceptable.

Absolute liquid ratio = Absolute liquid assets Current liabilities YEAR COMPANY Nestle Cadbury 0.024 0.26 0.015 0.06 0.053 0.08 2009 2010 2011

0.3 0.25 0.2 0.15 0.1 0.05 0 2009 2010 2011 Nestle Cadbury

Analysis (Nestle India Ltd v/s Cadbury Generally absolute liquid ratio of 1:2 is considered to represent satisfactory current financial conditions. As shown in above data & graph we can analyze that absolute liquid ratio of Nestle & Cadbury is not satisfactory according to rule.

(4.4) Solvency Ratio

This ratio indicates the relationship between total liabilities to the outsiders & total assets of the firm. Lower the ratio, more satisfactory or stable is the long-term solvency position of a firm. Solvency Ratio: = Total Liabilities to outsiders Total Assets

YEAR COMPANY Nestle Cadbury

2009

2010

2011

65.7 52.73

66.2 49.48

66.4 46.86

70 60 50 40 30 20 10 0 2009 2010 2011 Nestle Cadbury

Analysis (Nestle India Ltd v/s Cadbury) Ratios indicate relationship between total liabilities & total assets of a firm. Normally lower the ratio, more satisfactory or stable is the long-term solvency position of a firm & according to this rule; ratios of Cadbury are lower than Nestle which shows that solvency position of Cadbury is more satisfactory. Nestle should try to improve its Long-term solvency or to decrease its liabilities.

(4.5)Proprietory Ratio
This ratio establishes the relationship between shareholders funds to total assets of firm.

Proprietory Ratio = Shareholders funds Total assets YEAR COMPANY Nestle Cadbury 34.3 47.27 33.8 50.52 33.6 53.14 2009 2010 2011

60 50 40 30 20 10 0 2009 2010 2011 Nestle Cadbury

Analysis (Nestle India Ltd v/s Cadbury) This Ratio is very important for determining long term solvency of a firm. Higher the ratio or the share of the shareholders in the total capital of the company, better will be the long term solvency of a firm. This ratio represents the relationship of owners fund to total assets. From Data & Table defined above ratios of Cadbury is higher than Nestle which shows that solvency position of Cadbury is better than Nestle. So, Nestle should try to improve its Long-term solvency.

(4.6)Debt equity ratio

Debt equity ratio also known as External-Internal Equity Ratio is calculated to derive an Idea of claims of outsiders & Owners. The ratio is sufficient to assess the soundness of long term financial position. Debt equity ratio = External Equities Internal Equities YEAR COMPANY Nestle Cadbury 1.92 0.3 1.96 0.4 1.97 0.5 2009 2010 2011

2 1.5 1 0.5 0 Nestle Cadbury

2009

2010

2011

Analysis (Nestle India Ltd v/s Cadbury) Debt equity ratio indicates the proportion between shareholders fund & the long terms borrowed funds. Higher ratio indicates risky financial position while lower ratio indicates safer financial position. Ratio of 1:1 is considered as satisfactory. Ratio in above data & graph indicates that ratio of Nestle is high than Cadbury. Higher ratio of Nestle represents risky financial position while lower ratio of Cadbury indicates safer financial position. Nestle should try to improve its soundness of long term financial position.

(4.7)Inventory turnover ratio

Inventory turnover ratio indicates the efficiency of the firm to manage its Inventory. Every firm has to maintain sufficient level of Inventory to meet the requirements of business. It shows how rapidly the inventory is turning into receivable through sales. Inventory turnover ratio = Sales Inventory YEAR COMPANY Nestle Cadbury 8.9 10.27 9.65 9.17 10.2 10.03 2009 2010 2011

10.5 10 9.5 9 8.5 8 2009 2010 2011 Nestle Cadbury

Analysis (Nestle India Ltd v/s Cadbury) Inventory turnover ratio indicates the efficiency of the firm in producing and selling its product. High inventory turnover indicates efficient management of inventory & vice versa. Above data & table is showing that inventory turnover ratio is increasing. It shows the sales of the company are increasing. But there is close competition between the both firms. Average position of Cadbury is better than Nestle which is now at improving stage & doing well.

(4.8)Inventory conversion period

It represents average no. of days for which a firm has to wait before converted into cash. Inventory conversion period = Days in a year Inventory turnover ratio YEAR COMPANY Nestle Cadbury 41 36 38 40 36 36 2009 2010

receivables are

2011

41 40 39 38 37 36 35 34 33 2009 2010 2011 Nestle Cadbury

Analysis (Nestle India Ltd v/s Cadbury) Normally low period indicates less investment in inventory or quick movement of inventory. Longer the period, larger will be the chances of bad debts. As shown in above data & table inventory conversion period of both the firms is decreasing. It shows equal inventory conversion period in 2005. But overall performance of Cadbury is better than Nestle. Nestle is now at improving stage & doing well because of its efficient management.

(4.9)Debtors turnover ratio

Debtors turnover ratio indicates the number of times the debtors are turned over during a year. Generally, higher the value of Debtors turnover the more efficient is the Mgt. of debtors/sales & vice versa as credit is most important element for sales promotion. Debtors turnover ratio = Net Credit Annual Sales Average trade debtors YEAR COMPANY Nestle Cadbury 73 32.91 82 36.35 84 57.06 2009 2010 2011

90 80 70 60 50 40 30 20 10 0

Nestle Cadbury

2009

2010

2011

Analysis (Nestle India Ltd v/s Cadbury) Above table & graph indicates that Debtors turnover ratio of Nestle is higher than Cadbury. Both the firms represent increasing trend in ratios, which shows efficiency of Management of debtors/sales. But both the firms should keep in mind & precautions should be used because, higher the ratio more are the chances of bad debts. Otherwise shows satisfactory position.

(4.10)Average collection period ratio

It represents the average no. of days for which a firm has to wait before its receivables are converted into cash.

Average collection period ratio = No.of working days Debtors turnover ratio

YEAR COMPANY Nestle Cadbury

2009

2010

2011

5 11

4 10

4 6

12 10 8 6 4 2 0 2009 2010 2011 Nestle Cadbury

Analysis (Nestle India Ltd v/s Cadbury) It measures quality of debtors. Generally, shorter the period, better is the quality of debtors as collection period implies quick payment by debtors. Moreover, longer the period larger are chances of bad debts. Above data & table indicates that the average collection period of Nestle is very short as compared to Cadbury which is now at improving stage as longer period indicates larger chances of bad debts. Now both the companies are trying to improve their position.

(4.11) Gross profit Ratio

The G/P ratio reflects the efficiency with which management produces its products. Higher the G/P ratio better will be the results & vice versa.

Gross profit Margin Ratio = Sales COGS Sales YEAR COMPANY Nestle Cadbury 16.2 47.25 20.2 45.27 21 47.26 2009 2010 2011

50 40 30 Nestle 20 10 0 2009 2010 2011 Cadbury

Analysis (Nestle India Ltd v/s Cadbury) Gross profit is a reliable guide to the adequacy of selling prices and efficiency of trading activities. It is seen from the data that G.P ratio of Cadbury is high as compared to Nestle. It maintains a cost G.P. ratio, which is a good sign. Moreover there is an increasing trend, which shows that COGS has decreased & there are less wastage of resources. It is advised that Nestle should try to do its best to improve the G.P ratio

(4.12)Net Profit Ratio

Net profit ratio establishes a relationship between N.P. & sales. It indicates managements efficiency in manufacturing, administrative & other activities of the firm. This ratio is the overall measure of the firms profitability.

Net profit ratio = Profit After Tax Net Sales YEAR COMPANY Nestle Cadbury 9.5 5.52 11.3 5.22 12.5 4.57 2009 2010 2011

14 12 10 8 6 4 2 0 2009 2010 2011 Nestle Cadbury

Analysis (Nestle India Ltd v/s Cadbury) Objective of Net Profit ratio is to determine overall efficiency of the business. Higher the Net profit ratio better is the profitability of business. Nestle shows an increasing trend as compared to Cadbury in N.P. Ratio which is a positive sign, & it indicates that the company is operationally efficient.

(4.13)Dividend Pay out ratio

The dividend pay out ratio is calculated to find the extent to which EPS have been retained in the business. It is important because ploughing back of profits enables a company to grow & pay more dividends in future.

Dividend Pay out ratio = Dividend Per Share Earning Per Share

YEAR COMPANY Nestle Cadbury

2009 0.77 0.57

2010 0.95 0.56

2011 0.78 0.57

1 0.8 0.6 0.4 0.2 0 2009 2010 2011 Nestle Cadbury

Analysis (Nestle India Ltd v/s Cadbury) Dividend pay out ratio means how much out of earning per share have dividend per share been paid out. In other words pay out ratio helps in assessing the amount of earnings, which is not distributed to shareholders retained in the business. The data shows a decreasing trend in dividend pay out ratio of Nestle as compared to Cadbury. i.e. the company is retaining the amount in cash.

(4.14)Earning per Share

EPS is a good measure of profitability of the firm on a per share basis. It does not reflect how much is paid as dividend & how much is retained in the business. But as a profitability index it is a Valuable and widely used ratio. EPS = Net Profit After Tax - Preference Dividends Number of Equity shares

YEAR COMPANY Nestle Cadbury

2009

2010

2011

24.72 12.53

22.88 12.66

28.60 12.59

30 25 20 15 10 5 0 2009 2010 2011 Nestle Cadbury

Analysis (Nestle India Ltd v/s Cadbury) This ratio is calculated to judge the overall profitability of the enterprise. This ratio helps in evaluating the prevailing market price of share. The trend from the chart shows that Nestle has an increasing profitability as compared to Cadbury. This ratio shows strong position of the company in the market.

(4.15)Dividend per share ratio

Shareholders are the real owners of a company & they are interested in the earnings distributed & paid to them as dividend. DPS is calculated to evaluate the relationship between per share paid & market value of the share.

DPS = Dividend paid to shareholders No of shares outstanding

YEAR COMPANY Nestle Cadbury

2009

2010

2011

14 20

27 20

29 20

30 25 20 15 10 5 0 2009 2010 2011 Nestle Cadbury

Analysis (Nestle India Ltd v/s Cadbury)

DPS ratio is calculated to evaluate the

relationship between per share paid & market value of the share. Higher the D.P.S, higher is the confidence of shareholders in the company provided, there is an increase in EPS.We see that D.P.Share ratio of Nestle is showing an increasing trend. So, there is an increase in D.P.Share ratio also. Shareholders will be very much attracted towards this company & will have confidence in

CHAPTER-5

FINDINGS AND SUGGESTIONS

FINDINGS

Both the Companies have cut-throat competition. Liquidity & Solvency position of Cadbury is better than Nestle. Profitability ratio indicates that both the firms have strong market. . Cadbury shows better & safer financial position of the company than Nestle.

 The

Dividend per share ratio of Nestle is showing an increasing trend. So,

shareholders will be very much attracted towards this company & will have confidence in this company. The debt equity ratio of cadbury is lower as compared to nestle.Thus cadbury has a good financial postion . Cadbury has more solvent financial position than Nestle.

SUGGESTIONS

Bibliography

WEB SITES REFERRED

www.nestle.com www.cadbury.com www.investsmartindia.com www.moneyoutlook.com www.in.finance.yahoo.com

 www.investsments.com www.indiainfoline.com www.bseindia.com www.cadburyindia.com www.cadburyschweppes.com

BOOKS REFFERED
Management Accounting & Business Finance (Shashi K. Gupta) Analysis of Financial Statements(T.S. Grewal) Financial Management(I.M. Pandey) Statistical Methods(S.P. Gupta)

Balance Sheet of Nestl Ltd.

As Per Year ended 31st Dec. 2009, 2010 & 2011 (in Millions) Particulars SOURES OF FUNDS: Capital Reserves & surplus LOAN FUNDS Secured 2009 964.2 2385.8 51.0 2010 964.2 2229.9 79.0 2011 964.2 2577.2 143.0

Unsecured TOTAL APPLICATION OF FUNDS: FIXED ASSETS Gross Block Less: Depreciation Net Block Capital W.I.P. INVESTMENT CURRENT ASSETS: Inventories Sundry Debtors Cash & bank Balance Loans & advances Less: Current Liabilities & Provisions Current Liabilities+ Provisions Net Current Assets (-) Miscellaneous Expenses not w/o+ Total Assets Contingent Liabilities+

0.00 3401.0

0.00 3273.1

0.00 3684.4

7894.5 3980.8 3913.7 139.4 736.4 2194.2 317.0 62.9 1549.8 2978.8 2533.6 1388.5 00.00 3401.0 0.00

8381.6 4409.5 3972.1 340.9 1548.6 2166.7 261.7 94.5 1689.1 3311.8 3488.7 2588.5 00.00 3273.1 0.00

9494.4 4756.7 4737.7 228.2 1044.3 2531.0 1068.0 366.5 1943.3 3816.8 3655.0 2325.8 0.00 3684.4 0.00

Profit & Loss Account of Nestl Ltd.

As Per Year ended 31st Dec. 2009, 2010 & 2011 (In Millions.) Particulars INCOMES: Sales Turnover Other Income 2009 22798.2 278.3 2010 23728.2 144.5 2011 26438.9 263.8

Stock Adjustments Total EXPENDITURES: Raw Material Excise Duty Power & Fuel Cost Other Manufacturing Expenses+ Employee Cost Selling & Administration Expenses Miscellaneous Expenses Less: Preoperative Expenditure Capitalised Profit before Int. Dep. & Tax Depreciation Profit before Tax Tax Profit after Tax Adjustment below Net Profit + P&L Balance B/F Appropriations P&L Balance C/F Equity Dividend Preference Dividend Equity Dividend (%) Earning Per Share(Rs.) Book Value

(-)78.7 22997.8 7386.9 1392.6 766.9 2734.2 1541.5 4185.7 516.5 4473.5 462.7 3991.5 1360.7 2630.8 250.0 2438.5 442.3 1928.3 0.00 200 24.72 34.74

65.5 23938.2 8447.0 1437.5 850.7 2637.3 1600.1 4057.1 544.4 4364.1 491.4 3864.9 1345.7 2519.2 442.3 2927.0 34.5 2362.2 0.00 245 22.88 33.13

140.9 26843.6 9102.2 1688.8 1039.1 2962.9 1789.3 4564.0 436.2 5261.1 568.4 4690.6 1594.9 3095.7 34.5 3058.0 72.2 2410.4 0.00 250 28.60 36.73

Balance Sheet of Cadbury Ltd.

As Per Year ended 31st Dec. 2009, 2010 & 2011 (in Millions Rs.) Particulars: SOURES OF FUNDS: 2009 2010 2011

Capital Reserves & surplus LOAN FUNDS Secured Unsecured TOTAL APPLICATION OF FUNDS: FIXED ASSETS Gross Block Less: Depreciation Net Block Capital W.I.P. INVESTMENT CURRENT ASSETS: Inventories Sundry Debtors Cash & bank Balance Loans & advances Less: Current Liabilities & Provisions Current Liabilities+ Provisions Net Current Assets Miscellaneous Expenses not w/o+ Total Assets Contingent Liabilities+

357.1 3222.2 74.6 48.8 3702.7

357.1 3602.8 10.8 62.7 4033.4

357.1 3981.0 37.1 45.1 4420.3

3287.4 1750.1 1537.3 68.5 1273.4 947.6 241.3 348.9 638.1 2067.2 1224.6 127.8 823.5 00.00 3702.7 571.3

3497.0 2037.6 1459.4 214.0 2323.0 982.8 245.8 101.32 433.7 2519.8 1592.6 133.9 37.0 00.00 4033.4 588.3

3955.0 2348.8 1606.2 295.5 2582.1 1023.3 106.8 184.0 533.9 2621.2 2050.9 134.1 337.0 273.5 4420.3 665.4

Profit & Loss Account of Cadbury Ltd.

As Per Year ended 31st Dec. 2009, 2010 & 2011 (In Millions.) Particulars INCOMES: Sales Turnover Other Income 2009 8272.5 189.8 2010 8852.8 183.6 2011 10060.2 178.7

Stock Adjustments Total EXPENDITURES: Raw Material Excise Duty Power & Fuel Cost Other Manufacturing Expenses+ Employee Cost Selling & Administration Expenses Miscellaneous Expenses Less: Preoperative Expenditure Capitalised Profit before Int. Dep. & Tax Depreciation Profit before Tax Tax Profit after Tax Adjustment below Net Profit + P&L Balance B/F Appropriations P&L Balance C/F Equity Dividend Preference Dividend Equity Dividend (%) Earning Per Share(Rs.) Book Value

50.0 8512.3 1931.7 1133.3 168.0 1133.3 818.7 2027.6 254.3 1029.8 308.9 720.9 264.4 456.5 874.1 125.6 1205.0 71.4 0.00 200.00 12.53 100.23

134.8 9171.2 2224.9 1212.3 161.7 1245.2 764.9 2320.0 243.0 974.8 339.5 635.3 173.2 462.1 1205.0 116.4 1550.7 71.4 0.00 200.00 12.66 110.89

104.4 10343.3 2462.2 1262.4 196.2 1388.5 943.8 2583.1 338.0 1152.1 340.7 811.4 351.9 459.5 1550.7 116.4 1893.8 71.4 0.00 200.00 12.59 121.48