FA Project Group 5 nestle project

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FINANCIAL ANALYSIS REPORT (2018-19) for FMCG INDUSTRY

Course: FMG 28

Section: A

Subject: Financial Accounting I

Term: 1

Submitted to:

Submitted by:

Prof. Vandana Bhama

Aarushi Dureja

(281002)

Aditi Gupta

(281003)

Amol Rastogi

(281005)

Anshika Agarwal

(281011)

Karan Arora

(281026)

1

Muskan Sharma

(281031)

ACKNOWLEDGEMENT We take this opportunity to express our sincere thanks and deep gratitude to all those people who extended their wholehearted co-operation and have helped us in completing this project. We thank FORE School of Management for incorporating the course Financial Accounting into the curriculum. It provides great exposure in a PGDM course and allows one to explore areas of their interest successfully. We would like to extend our heartfelt gratitude towards Prof. Vandana Bhama who helped us in this endeavor. We are thankful for her aspiring guidance, invaluable constructive criticism and friendly advice during the project work. Without her help, cooperation and encouragement, we would not have made the required advancement in the project. We would also like to acknowledge with a deep sense of reverence, our gratitude to our batch mates who always supported us and showed us the correct path.

2

INDEX •

Acknowledgement

2



Hindustan Unilever Limited

4



About the company

5



Board of Directors

7



SWOT Analysis

8



Annual Report Analysis

9



Ratio Analysis

16



Trend Analysis

21



Nestle

24



About the company

25



Board of Directors

27



SWOT Analysis

28



Annual Report Analysis

29



Ratio Analysis

35



Trend Analysis

42



Peer to Peer Analysis

43

3

Financial Analysis Of

Hindustan Unilever Limited

4

Introduction Hindustan Unilever Limited (curtailed to HUL), once in the past Hindustan Lever Limited, is India's biggest purchaser items organization. • • •

Established in 1933 as Lever Brothers India Limited. Headquartered in Mumbai, India. Parent Organization, Unilever, holds 51.55% stake in the company.

HUL is the MARKET HEAD in Indian items, ranging from tea, cleansers, soaps, shampoos, etc., Its products have turned out to be every day commonly recognized names in India with over 700 million Indian consumers using its products.

As of 2019 Hindustan Unilever portfolio had 35 product brands in 20 categories.

Power Brands of HUL

5

Vision of the company “Our vision is to grow our business, while decoupling our environmental footprint from our growth and increasing our positive social impact.”

Work towards Advancement • •

• • •

HUL has generally been an organization, which consolidates the most recent innovation in the entirety of its tasks. The Hindustan Lever Research Center (HLRC) was set up in 1958, and now has offices in Mumbai and Bangalore. HUL is concentrating on wellbeing and cleanliness training, ladies strengthening, and water the executives. It is additionally associated with instruction and restoration of extraordinary or oppressed youngsters, care for the dejected and HIV-positive, and provincial advancement. HUL has additionally reacted if there should be an occurrence of national cataclysms or misfortunes and contributes through different welfare measures, latest being the town worked by HUL in tremor influenced Gujarat, and alleviation and recovery after the Tsunami caused destruction in South India.

6

Board of Directors

7

Swot Analysis Weakness

Strength • • • • • •

HUL is a part of the Unilever group, hence strong brand equity. It has over 18000 employees. It has a reach of 6.4 million retail outlets which includes direct reach to over 1.5 million retail outlets Two R&D centers in India in Mumbai and Bangalore Products with presence in over 20 consumer categories with over 700 million Indian consumers using its products As a part of CSR, HUL has initiatives like project Shakti, plastic recycling, women empowerment etc.



Market share is limited due to presence of other strong FMCG brands Hindustan Unilever faced controversies like skin lightening creams, pollution etc.



Threats

Opportunities

• • • •

HUL can tap rural markets and increase penetration in urban areas Mergers and acquisitions to strengthen the brand Increasing purchasing power of people thereby increasing demand

• •

8

Intense and increasing competition amongst other FMCG companies can affect business of HUL FDI in retail thereby allowing international brands Competition from unbranded and local products can hurt Hindustan Unilever's market

Analysis of the Annual Report 2018-2019 1 BALANCE SHEET 1.1 Liabilities 1. The equity share capital of the company is the same as that of last year i.e., Rs.216 crores. No new capital has been raised. 2. The company has accumulated reserves worth Rs.584 crores and hence other equity has increased to Rs.7443 crores. There is an increase in the retained earnings of the company. 3. The Financial liabilities of the company has been increased from Rs.115 crores to Rs.173 crores. 4. There is a significant increase in the provisions that the company has provided for by Rs.277 crores. 5. There is an overall increase in the non-current liabilities of the company 6. Considering the current financial liabilities, total outstanding dues of creditors other than micro enterprises and small enterprises have been increased by Rs.57 crores. However, the other current liabilities have decreased from Rs.769 crores to Rs. 506 crores by paying off the salaries, wages and advances from creditors.

1.2 ASSETS •





• • •

The company has made some additions in the fixed assets i.e., buildings, plant and machinery, furniture and fixtures, etc. Hence the value of Property, Plant and Equipment stands at Rs.3907 crores. The goodwill of the company stands at Rs.36 crores. Also, other intangible assets like know-how, trademarks etc., have increased because of business acquisitions undertaken (Adityaa Milk brand and Indulekha brand). The goodwill and brand (with indefinite life) acquired through business combinations has been allocated to cash generating units ‘Beauty & Personal Care’ and “Foods & Refreshment” segment of the Company. There is no such new long-term investment by the company. Also, the current investments in mutual funds and treasury bills have been reduced. The level of inventories and trade receivables have increased by Rs.63 crores and Rs.526 crores respectively. Overall the company has not made any significant investments during the year.

9

10

2 STATEMENT OF PROFIT AND LOSS • • • • • •

The revenue from operations have increased by 8.5 % i.e., Rs. 3006 crores. The total income stands at Rs.38888 crores as compared to Rs. 35787 crores in the last year. There is a significant increase in the other expenses (mainly the advertising and promotion expenses i.e., Rs.447 crores) of the company by Rs.608 crores. The profits after tax (PAT) earned during the year is Rs.6036 crores, an increase of Rs.799 Crores. The effective tax rate for the year 2018-19 was 29.2% as compared to 28.1% for the previous year. Earnings Per Share has increased from Rs. 24.19 to Rs. 27.88

Overall Financial position and performance of the company sounds good. Company’s net profit has increased which means company is growing its business lines efficiently.

11

3 CASH FLOW STATEMENT A cash flow statement provides information about the historic changes in cash and cash equivalents of an enterprise by classifying cash flows during the period from Operating, Investing and Financing Activities. Cash flow from operating activities: The amount of cash flows arising from operating activities is a key indicator of the ability of an enterprise to maintain its operating capability, pay dividends, repay loans and make new investments through internal cash generation. Analysis: 1. The company has acquired more capital assets as the depreciation and amortization expense has increased which is a good sign for it. 2. The cash generated from operations before working capital changes from ₹7237 Cr. 2017-2018 to ₹8674 Cr. in 2018-2019 3. The non-current assets have been increased by 45%.

12

4. The current liabilities have been paid off in huge amount and has dropped down to ₹307Cr. from ₹1414Cr. 5. The net income from operating expenses has gown down by ₹185Cr. Cash flow from investing activities: The cash flows from investing activities represent the extent to which the expenditure has been made for resources intended to generate future income and cash flows from operations. 1. HUL in the financial year 2018-2019 have invested a lot in the purchase of current investments nearly ₹22,679 Cr. more than the previous financial year. 2. The current investments have been sold and increased the income from this source to ₹70761Cr. 3. The investment in term deposits has raised by 52%. and redemption of term deposits has increased by ₹2862 Cr. 4. The net income used in investing activities have been reduced by ₹997Cr. Cash flow from financing activities: The cash flow from financing activities represents claims on future cash flows by providers of funds, both capital and borrowings to an enterprise. 1. The inflows from operating and investing activities have been used for servicing the shareholders and lenders, which shows a net cash outflow from financing activities in both the years. 2. The company has paid higher dividends as compared to the previous year. 3. The net cash used in financing activities has increased to ₹5462Cr. in the financial year 2018-2019. Overall: The Company maintained a cautious liquidity strategy, with a positive cash balance throughout the year ended 31st March 2019 and 31st March 2018.

13

14

15

Ratio Analysis of HUL 20142019 ROI Ratios 1.

Return on Net Worth (RONW) Return on Net Worth (RONW) is a measure of the profitability of a Company expressed in percentage. It is calculated by dividing total comprehensive income for the year by average capital employed during the year.

2.

Earnings Per Share (EPS) Earnings Per Share (EPS) is the portion of a Company’s profit allocated to each share. It serves as an indicator of a Company’s profitability. It is calculated by dividing the profit for the year by the weighted average number of shares outstanding during the year.

3.

Cash Earning Per Share

Cash earnings per share (cash EPS), or more commonly called operating cash flow, is a financial performance measure comparing cash flow to the number of shares outstanding. Cash EPS differs from the more popular net profit measure, earnings per share (EPS), which compares net income on a per-share basis.

2018-19 2017-18 2016-17 2015-16 2014-15 RONW

90.5

84.5

76.7

72.8

99.5

EPS

27.97

24.09

20.68

19.10

20.17

CEPS

30.67

26.61

22.79

20.89

21.71

16

17

Liquidity Ratios 4.

Current Ratio The Current Ratio is a liquidity ratio that measures a Company’s ability to pay short-term obligations or those due within one year. It is calculated by dividing the current assets by current liabilities.

5.

Quick Ratio The quick ratio measures a company’s ability to meet its short-term obligations with its most liquid assets. 2018-19 2017-18 2016-17 2015-16 2014-15 Ideal Current Ratio

1.4

1.3

1.3

1.027

1.054

2:1

Quick Ratio

1.02

0.85

0.97

0.75

0.75

1:1

Inference: The ideal ratio is 2:1. In the year 2019 it was found the current ratio was 1.4 which is below the standard of 2:1. It is due to decrease in the total assets from the previous year to the current year. Similarly, the current ratio for the year 2018,2017,2016 and 2015 was 1.3,1.3,1.027, and 1.054 respectively. In each year the ratios were below the standard 2:1 because of the decrease in current assets from the previous year and increase in current liabilities in the current year. This is not a good indication as the firm will not be able to meet its shortterm obligations

18

Inference: The traditional rule of thumb of this ratio has been 1:1. The quick ratio gradually increases from 0.75 in the year 2015 to 1.02 in the year 2019. The ideal ratio is met in year 2019. The ideal ratio is met once the inventories are sold and converted into debtors or cash.

Turnover Ratios 6.

Debtors Turnover Ratio The above ratio is used to quantify a Company’s effectiveness in collecting its receivables or money owed by customers. The ratio shows how well a Company uses and manages the credit it extends to customers and how quickly that short-term debt is collected or is paid. It is calculated by dividing turnover by average trade receivables.

7.

Inventory Turnover Ratio Inventory Turnover is the number of times a Company sells and replaces its inventory during a period. It is calculated by dividing turnover by average inventory.

201819

201718

201617

201516

201415

Debtors Turnover Ratio

26.7

33.4

34.0

33.64

38.52

Inventory Turnover Ratio

15.8

14.7

13.9

13.25

12.57

19

Inference: The debtor’s turnover ratio indicates the velocity of a company's debt collection; the number of times average receivables are turned over during a year. The higher the values of debtor’s turnover, the more efficient is the management of credit. But in the company the debtor turnover ratio is decreasing year to year from 38.52 in 2015 to 26.7 in 2019.This shows that company is not utilizing its debtors efficiently.

Inference: Inventory turnover measures how fast a company sells inventory and how analysts compare it to industry averages. Here Inventory turnover ratio is increasing year on year which implies strong sales.

20

Solvency ratio: Solvency Ratio is the ratio that shows the ability of the company to meet its long-term liabilities. Important Solvency Ratios are: 2018-19 2017-18 2016-17 2015-16 2014-15 Debt Equity Interest cover

8.

0

0

0

0

0

289.9

340.9

256.9

399.47

329.37

Debt-equity ratio The debt to equity ratio is computed to assess long- term financial soundness of the company. The ratio expresses the relationship between external equities i.e. external debts and internal equities of the enterprise. Debt-equity ratio = Debt/ Shareholders’ funds

9.

Interest Coverage Ratio The Interest Coverage Ratio measures how many times a company can cover its current interest payment with its available earnings. It is calculated by dividing PBIT by finance cost.

21

Trend Analysis

1. The gross sales of the firm are increasing with an increasing rate from Rs. 32,086Cr. In 2014-2015 to Rs. 37,660Cr. In 2018-2019. 2. The other incomes first decreased at first but has started to increase again from Rs.1168 Cr. in 2017-2018 to Rs.1228 Cr. in 2018-2019. 3. The profits before tax of the firm are increasing at a high rate as gross sales and other income are increasing. 4. With the increasing income the taxes that are to be paid by the firm are increasing. 5. The dividend per share are increasing and reflects the growth of the company.

22

1.The fixed assets acquired by the firm have increased to about 60%. 2. The investment of the firm are fluctuating and have remained between Rs.2780 Cr. to Rs. 3779 Cr. 3. The cash with the firm has increased by 45%. 4. The reserves and surplus are raising as rise in the profit.

23

Financial Analysis of Nestle

24

Introduction •





Nestle India Ltd one the greatest players in FMCG portion has a nearness in milk and nourishment drinks arranged dishes and cooking helps and chocolate and candy parlor sections. The organization is occupied with the sustenance business. The sustenance business consolidates item gatherings, for example, milk items and nourishment drinks arranged dishes and cooking helps chocolates and ice cream parlor. Nestle India fabricates items under brand names, for example, Nescafe Maggi Milky bar Milo Kit Kat Bar-One Milkmaid and Nestea.

Settle India is a backup of Nestle S.A. of Switzerland. The organization has nearness crosswise over India with 8 assembling offices and four branch workplaces spread over the area. The four branch workplaces in the nation help encourage the deals and promoting of its items. They are in Delhi Mumbai Chennai and Kolkata. The organization's head office is situated in Gurgaon Haryana. Nestle India Ltd was fused in the year 1956.

In May 2015 Food Safety Regulators from the Uttar Pradesh India found that examples of Nestle driving noodles Maggi had up to multiple times past admissible safe cutoff points of lead notwithstanding monosodium glutamate. On 3 June 2015 New Delhi Government restricted the clearance of Maggi in New Delhi stores for 15 days since it discovered lead and monosodium glutamate in the consumable past reasonable point of confinement. The Gujarat FDA on 4 June 2015 prohibited the noodles for 30 days after 27 out of 39 examples were identified with offensive degrees of metallic lead in addition to other things. A portion of India's greatest retailers like Future Group Big Bazaar Easy day and Nilgiris have forced an across the nation restriction on Maggi. From that point, numerous state experts in India discovered the unsuitable measure of lead and it has been restricted in excess of 5 different states in India. On 5 June 2015 Food Safety and Standards Authority of India (FSSAI) orders prohibited each of the nine affirmed variations of Maggi moment noodles from India naming them 'perilous and dangerous' for human utilization. In June 2015, Nepal inconclusively prohibited Maggi over worries about lead levels in the item. Around the same time Food Safety Agency United Kingdom has propelled an examination to discover levels of lead in Maggi. Maggi noodles have been pulled back in five African countries Kenya Uganda Tanzania Rwanda and South Sudan by a grocery store chain after a grumbling by the Consumer Federation of Kenya as a response to the boycott in India. On August 2015 Govt of India made open that it was looking for harms of almost $100 million from Nestle India for 'uncalled for exchange works no’s following the June restriction on Maggi noodles. The 6400million-rupee suit was documented with the National Consumer Disputes Redressal Commission (NCDRC) viewed as the nation's top customer court however was chosen 13 August 2015. The court decided that the administration prohibition on the Nestle item was both 'subjective' and had

25

disregarded the 'standards of normal equity.' Although Nestle was not requested to pay the fine mentioned in the administration's suit the court decided that the Maggi noodle makers must 'send five examples from each group of Maggi [noodles] for testing to three labs and just if the lead is observed to be lower than allowed will they start assembling and deal once more.

The test results from all research centers commanded by the Bombay High Court have approved Nestle India's position that MAGGI Noodles are ok for utilization. The organization continued assembling at Pantnagar (Uttarakhand) Factory and furthermore continues assembling of MAGGI at Tahliwal HP unit. On 9 November 2015 Nestle India reported reintroduction of MAGGI Noodles in the market.

26

Board of Directors

27

Swot Analysis Weakness

Strength •

• • • • •



Nestle has an experience of more than 140 years in the industry Nestle is one the world's biggest brand and is consistently in the Fortune 500 list The company has a global reach with presence in over 86 countries Nestle offers a wide product range including baby food, pet food, dairy products, confectioneries, pharmaceuticals, beverages, etc. Largest R&D network facilitating continuous innovation strong supply chain network and products are available through groceries, supermarkets and even online worldwide C.S.R. activities for rural development, environment protection, water conservation etc.



Being a big global brand, numerous controversies in different countries of operation cause issues Strong competition by other brands means limited market share growth for Nestle



Threats

Opportunities • •

• • •

Introduce more health-based food products to tap the health consciousness amongst consumers Expanding focus on developing economies can boost business for Nestle Continue with acquisitions and joint ventures to increase its market share Try to capture the rural markets Tie-ups with leading hotel chains, restaurants, schools, government institutes etc. can help Nestle maintain its market dominance

28

• • • • •

Failure of the complex supply chain at low levels can affect the business Economic instability and recession in countries can adversely affect Nestle because it is a global player Events like Eurozone crisis, as most of its revenue comes from Europe Increase in cost of raw materials can affect profit margins Stiff competition in all product segments

Analysis of financial statement of Nestle for the year ended December 2018 1 BALANCE SHEET 1.1 LIABILITIES • • • • • •

No Change in the equity share capital. It is same as that of the last year i.e., Rs. 964.2 million. No significant change in the non-current liabilities. Long term borrowings stand at Rs. 351.4 million same as that of last year. However, there is a significant increase of Rs.2557.3 million in trade payables as part of current liabilities. Company has made additions to the existing provisions amounting to Rs.698 million. Other current liabilities including advance from customers and statutory liabilities have also increased. Overall the equity and liabilities have increased by Rs.7254.9 million.

1.2 ASSETS • • •

• •

Fixed assets after a decrease in their value now stands at Rs. 24006.2 million. There is a non-current investment in the tax-free bonds worth of Rs. 1580.8 million. Nestle has received some of the advances made to other parties back and the total amount now stands at Rs.401.4 million as compared to Rs. 463.5 million last year. The value of inventories has increased by Rs. 630.8 million and trade receivables by Rs.356.2 million. Short term investments and other current financial assets have increased by Rs.5315.4 million and Rs.97 million respectively.

29

30

2 STATEMENT OF PROFIT AND LOSS • • • • •

Revenue from operations has increased by Rs.11000.9 million. Other income has also seen a significant increase of Rs.820 million. The other expenses have increased from Rs. 24170.2 million to Rs. 28181.1 million. Profit after tax (PAT) has increased by Rs.3817.4 million 31.15.%. Earnings Per Share has increased from Rs. 166.67 to Rs. 127.07.

31

32

3 CASH FLOW STATEMENT

33

A cash flow statement is the financial statement that measures the cash generated or used by a company in a given period. Cash flow from operating activities: Cash flow from operating activities is a section of the cash flow statement that provides information regarding the cash-generating abilities of a company's core activities. 1.The other incomes have risen from ₹1679.2 million to ₹2589.2million in the year 2018. 2.There is a significant increase in the inventories. 3.The primary source of cash for Nestle is operating activities. This typically indicates a strong cash position. Cash flow from investing activities: Cash flow from investing activities is an item on the cash flow statement that reports the aggregate change in a company's cash position resulting from investment gains or losses and changes resulting from amounts spent on investments in capital assets, such as plant and equipment. 1. For property, plant and equipment nestle had a net cash outflow. This indicates Nestle is selling fixed assets. 2. The loans to employees have gone up by 100%. Cash flows from financing activities: Cash Flow from Financing Activities accounts for inflows and outflows of cash resulting from debt issuance and financing, the issuance of any new stock, dividend payments, and any repurchase of existing stock. Nestle dividend pay-out has been increasing. This typically shows the management’s ability to serve a smaller capital and its confidence in generating enough cash flows in future to be able to pay to higher dividend year after year. Nestle’s financing activities reflect a favorable cash flow position. Overall: The information provided by the cash flow statements of Nestle appears to indicate a high quality of cash position.

34

RATIO ANALYSIS OF NESTLE 2014-2019 ROI Ratios 1. Return on Net Worth (RONW) Return on Net Worth (RONW) is a measure of the profitability of a Company expressed in percentage. It is calculated by dividing total comprehensive income for the year by average capital employed during the year.

2. Earnings Per Share (EPS) Earnings Per Share (EPS) is the portion of a Company’s profit allocated to each share. It serves as an indicator of a Company’s profitability. It is calculated by dividing the profit for the year by the weighted average number of shares outstanding during the year.

3. Cash Earning Per Share Cash earnings per share (cash EPS) is a financial performance measure comparing cash flow to the number of shares outstanding. Cash EPS differs from the more popular net profit measure, earnings per share (EPS), which compares net income on a per-share basis.

2018-19 2017-18 2016-17 2015-16 2014-15 RONW

43.74

35.81

30.74

19.98

41.75

EPS

166.7

127.1

103.9

58.4

122.9

CEPS

201.48

162.57

139.22

146.38

157.88

35

Inference: Return on net worth is a measure of how well the company is utilizing the money invested by investors. Here return on net worth increasing gradually from 2016-2019 which means utilization of investors’ money is good.

Inference: High EPS indicates higher profits. Here EPS is increasing gradually from 20162019 which indicates profits are increasing year on year.

Inference: CEPS shows investors on a per share basis how much profit each share generates. This also helps identify incremental value in profits.

36

Liquidity Ratios 4. Current Ratio The Current Ratio is a liquidity ratio that measures a Company’s ability to pay short-term obligations or those due within one year. It is calculated by dividing the current assets by current liabilities.

5. Quick Ratio 2018-19 2017-18 2016-17 2015-16 2014-15 Ideal Current Ratio

2.55

2.64

2.40

1.97

1.45

1.34

Quick Ratio

2.03

2.03

1.71

1.31

0.83

0.93

Inference: The ideal ratio is 1.34. In the year 2019 it was found the current ratio was 2.55 which is above the standard of 2:1. It is due to increase in the total assets from the previous year to the current year. Similarly, the current ratio for the year 2018,2017,2016 and 2015 was 2.64,2.4,1.97, and 1.45 respectively. In each year the ratios were above the standard 1.34 because of the increase in current assets from the previous year and decrease in current liabilities in the current year. This is a good indication as the firm will be able to meet its short-term obligations

37

Inference: The traditional rule of thumb of this ratio has been 0.93. The quick ratio gradually increases from 0.83 in the year 2015 to 2.03 in the year 2019. The ideal ratio is met in year 2016,2017,2018,2019. The ideal ratio is met once the inventories are sold and converted into debtors or cash.

Turnover Ratios 6. Debtors Turnover Ratio The above ratio is used to quantify a Company’s effectiveness in collecting its receivables or money owed by customers. The ratio shows how well a Company uses and manages the credit it extends to customers and how quickly that short-term debt is collected or is paid. It is calculated by dividing turnover by average trade receivables.

7. Inventory Turnover Ratio Inventory Turnover is the number of times a Company sells and replaces its inventory during a period. It is calculated by dividing turnover by average inventory.

2018-19 2017-18 2016-17 2015-16 2014-15 Debtors Turnover Ratio

105.75

107.11

104.61

92.11

107.49

Inventory Turnover Ratio

5.5

5.4

5.2

4.6

5.7

38

Inference: The debtor’s turnover ratio indicates the velocity of a company's debt collection; the number of times average receivables are turned over during a year. The higher the values of debtor’s turnover, the more efficient is the management of credit. But in the company the debtor turnover ratio is fluctuating. In 2019 debtor turnover decreased and this shows that company is not utilizing its debtors efficiently as compared to last year.

Inference: Inventory turnover measures how fast a company sells inventory and how analysts compare it to industry averages. Here Inventory turnover ratio is decreased as compared to 2015 on year which implies weaker sales.

Solvency ratio: Solvency Ratio is the ratio that shows the ability of the company to meet its long-term liabilities. Important Solvency Ratios are:

39

2018-19 2017-18 2016-17 2015-16 2014-15 Debt Equity

0.01

0.01

0.01

0.01

0.01

Interest coverage

22.7

15.33

17.58

18.88

19.14

8. Debt-equity ratio The debt to equity ratio is computed to assess the long- term financial soundness of the company. The ratio expresses the relationship between external equities i.e. external debts and internal equities of the enterprise. Debt-equity ratio = Debt/ Shareholders’ funds

9. Interest Coverage Ratio The Interest Coverage Ratio measures how many times a company can cover its current interest payment with its available earnings. It is calculated by dividing PBIT by finance cost.

Inference: Higher interest coverage ratio implies company is more capable to meeting its obligation from operating earnings. But as compared from 19.14 in 2015 to 22.7 in 2019 interest cover is increased which indicates capability to meet interest from operating earnings is increased.

40

Trend Analysis

41

1. The Gross Sales of the company declined drastically in 2015 due to the Maggi Instant noodles fiasco. That Incident damages the company’s image significantly as well. After that the company started recovering. 2. Profits also took a dive due to the instant noodle case and once the company had its name cleared from this it started recovering and has increased its profit by 35% since 2014 3. Earnings Per Share dropped significantly for 2015 but then the company started recovering and it increased by 36% since 2014.

42

Peer to Peer Comparison BALANCE SHEET COMPARISON OF NESTLE INDIA AND HINDUSTAN UNILEVER

43

COMPARISON 1. Equity share capital and Reserves and Surplus are much higher of HUL than Nestle 2. HUL doesn’t have long-term debt, but the current liabilities are much higher than Nestle, whereas nestle has a secured debt obligation of 35.14cr making it a levered firm 3. The depreciation rate for Nestle is 26%, whereas for HUL is 31% 4. Net current assets have been decreasing for Nestle, which means the company is raising more current liabilities year by year 5. Net current assets have been increasing for HUL, which means the company is paying off its debt 6. Contingent Liabilities for HUL is 2009cr which the company might have to pay in its near future, making it a risky company. For Nestle, the contingent Liabilities is 47.91cr which is very much less than HUL

44

PROFIT & LOSS COMPARISON OF NESTLE INDIA AND HINDUSTAN UNILEVER

45

COMPARISON • •

Growth in total income for NESTLE is 1.13%, which is higher than HUL’s growth of 1.09% Other income for NESTLE comprises of 2% of the total income, whereas for HUL the figure is 1.13% NESTLE HUL Gross profit margin 49.9% 19.69% Net profit margin 9.31% 15.16% Operating profit margin 13.75% 21.07%

• • •

As per the above calculations, the Gross profit margin is much higher for NESTLE Operating profit is higher of HUL, which means that the company’s operations are in good health and the quality of earning is higher for HUL Earnings per share is higher for NESTLE which states that, the amount earned for every purchase of share. Higher EPS will give high value to the investors.

46

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