Taylor' University Lakeside, Basic Accounting, Ratio Analysis Report

1. 1
SCHOOL OF ARCHITECTURE, BUILDING AND DESIGN (SABD)
Foundation in Natural and Built Environment (FNBE)
Basic Accounting [FNBE0145]
Assignment : Final Ratio Analysis
Group Members :
1) Hazim bin Abdul Aziz 0315733
2) Muhammad Hasif bin Alias 0316413
Lecturer : Chang Jau Ho
Submission Date : 30th
June 2014 (Week 16)

2. 2
Contents
Company Background
Recent Development
Ratio Analysis
Investment Recommendation
Appendix
References

3. 3
Company Background
Nestlé was found in 1866 by Henri Nestlé, a German pharmacist in Switzerland. In 1867, the Nestlé
founder, Henri launched his Farine lactée, a cumulation of cow’s milk, wheat flour and sugar,
preserving the life of a neighbour’s child. Nutrition has been the cornerstone of the Nestlé company
ever since. There was a fierce competition between Nestlé and the first European condensed milk
factory, Anglo-Swiss Condensed Milk Company until 1905 which when they decided to merged
together as Nestlé and Anglo-Swiss Milk Company.
In Malaysia, Nestlé started in 1912 as the Anglo-Swiss Condensed Milk Company in Penang. After
that, growth and expansion made a peregrinate to Kuala Lumpur compulsory in 1939. In 1962, the first
Nestlé factory was opened. Later, the company was publicly listed on the Bursa Malaysia Berhad on 13
December, 1989. Today, Nestlé operate with 7 factories and markets over 300 Halal products in
Malaysia including the popular and trusted brands like MILO®, NESCAFÉ®, MAGGI®, NESPRAY®
and KIT KAT®.

4. 4
Recent Development
In terms of health science, Nestle introduced a new liquid formula range with appealing taste
which is specially designed for those who are malnourished or in jeopardy of malnutrition which are
ISOSOURCE, RESOURCE and NOVASOURCE. Their products served as a replacement that gives
support to medical conditions.
Besides that, they had also developed a new a café-style latte, the NESCAFÉ Smoovlatté which is
said to be as smooth as silk. It is a 100% pure NESCAFÉ black coffee that is later balanced with
smooth and creamy milk. With a fairly comfortable bottle shape and design, the drinks are indulgent
pick-me-up and easy-to-drink.
Furthermore, Nestle did not just focus on bringing nutrition, health and wellness to human
consumers, but also to consumer’s pets. Scientists at Nestle Research Centre in the United States are
currently determine whether dietary intervention enhances the lives of middle-aged and older cats
because the results from their studies showed that supplementing a diet with the right nutrients does
enhance cats’ cognitive abilities.
Lastly, Nestle opened a food safety research centre in Beijing in order to focus on their food
safety. This will help China with their increasing demand for safe and healthy food. The centre served
to provide the scientific foundation for food safety policies and standards along with promoting
scientific communication by making collaboration with local universities and research facilities.

5. 5
Ratio Analysis
Profitability (GROUP)
The table below show the calculations and interpretations from the period 2012 and 2013.
(in Ringgit Malaysia, RM’000)
Profitability Ratios 2012 2013 Interpretations
Return on Equity
(ROE)
%72
%100
701962.5
505352
%100
2751206)(652719
505352
=
×=
×
÷+
%7.71
%100
783825
561701
%100
2816444)(751206
561701
=
×=
×
÷+
During the period 2012
and 2013, the ROE has
decreased from 72% to
71.1%. This means that
the group is getting less
returns from their
investments.
Net Profit Margin
(NPM)
%1.11
%100
4556423
505352
=
×
%7.11
%100
4787925
561701
=
×
During the period 2012
and 2013, the NPM has
increased from 11.1% to
11.7%. This means that
the business is getting
better at controlling its
overall expenses.
Gross Profit Margin
(GPM)
%1.34
%100
4556423
1553184
=
×
%5.35
%100
4787925
1698017
=
×
During the period 2012
and 2013 period, the
GPM has increase from
34.1% to 35.5%. This
means that the business
is getting better at
controlling its Cost of
Goods Sold.
Selling Exp. Ratio
(SER)
%7.16
%100
4556423
758635
=
×
%2.17
%100
4787925
824,372
=
×
During the period 2012
and 2013 period, the
SER increased from
16.7% to 17.2%. This
means that the business
is getting worst at
controlling their selling
expenses.

6. 6
General Exp. Ratio
(GER)
%1.3
%100
4556423
139663
=
×
%8.2
%100
4787925
136171
=
×
During the period 2012
and 2013 period, the
GER decreased from
3.1% to 2.8%. This
means that the business
is getting better at
controlling their selling
expenses.
Financial Exp. Ratio
(FER)
%4.0
%100
4556423
20131
=
×
%5.0
%100
4787925
21937
=
×
During the period 2012
and 2013 period, the
FER increased from
0.4% to 0.5%. This
means that the business
is getting worst at
controlling their
financial expenses.

7. 7
Stability (GROUP)
The table below show the calculations and interpretations from the period 2012 and 2013.
(in Ringgit Malaysia, RM’000)
Stability Ratios 2012 2013 Interpretations
Working Capital
(WCR)
1:9.0
929392
840703
= 1:87.0
1071862
929987
=
During the period 2012
and 2013 period, the
WCR decreased from
0.9:1 to 0.85:1. This
means that the
businesses ability to pay
current liability with
current asset is getting
worse.
Total Debt
(TBR)
%6.60
%100
1905169
1163963
=
×
%9.60
%100
2088734
1272290
=
×
During the period 2012
and 2013 period, the
TBR increased from
60.6% to 60.9%. this
means the business total
debt have increased by
0.3%. however it is still
over max limit of 50%
Stock Turnover
(STR)
days
days
days
57
4.56
5.464371
3003239
365
=
=






÷
days
days
days
49
4.48
409892
3089908
365
=
=






÷
During the period 2012
and 2013 period, the
STR decreased from
56.4days to 48.4days.
this means that the
business is selling its
inventory faster.
Debtor Turnover
(DTR)
days
days
days
61
9.60
211587168555
5.2278211
365
=
=






+
÷
days
days
days
54
4.53
181480168555
5.2393962
365
=
=






+
÷
During the period 2012
and 2013 period, the
DTR decreased from 61
days to 54 days. This
means that the business
is collecting its debt
faster.

8. 8
2.39
67.52
Interest Coverage
(ICR)
times1.6
99390
50535299390
=
+
times2.4
178169
561701178169
=
+ During the period 2012
and 2013 period, the
ICR decreased from 6.1
times to 4.2 times. This
means that the business’s
ability to pay its interests
are getting worse.
Furthermore, it did not
satisfies the minimum
requirement of 5 times.
Price (GROUP)
Price/Earning or P/E Ratio
= Current share price
Earnings per share (in number of times)
=
= 28.25

9. 9
Investment Recommendation
The Nestle (Malaysia) Bhd. are not worthy of investment. This is due to the high P/E Ratio of 28.25
which a conservative investor will customarily pay no more than P/E of 15 for a share that he relishes.
The higher the P/E ratio, the more expensive a share is and the investor have to wait even longer to
claim back his initial principal. In term of profitability, it is stated that the group obtained less returns
from their investment as the ROE decreased by 1% and the business are getting worse at controlling
two of their expenses which are selling and financial expenses. For stability, the business is getting
worse because their debts are increasing and their ability to their current liability and interest are
declining. That is why, I suggest that investor should not invest in Nestle Bhd. .

10. 10
Appendices

11. 11

12. 12

13. 13

14. 14

15. 15

16. 16

17. 17

18. 18
References

19. 19
1) http://www.nestle.com.my/ (part history)
2) http://www.malaysiastock.biz/Corporate-Infomation.aspx?type=A&value=N&securityCode=4707
3) Atrill, Peter. Accounting: An Introduction. 3rd ed. Frenchs Forest, N.S.W.: Pearson Education
Australia, 2008. Print.
4) http://www.nestle.com.my/asset-library/documents/pdf/about
%20us/nestle_financial_report_2012.pdf
5) http://www.nestle.com.my/asset-library/documents/pdf/about
%20us/nestle_corporategovernance_financialreport_2013.pdf