SUMMER TRAINING PROJECT REPORT

ON
FINANCIAL ANALYSIS OF NESTLE INDIA LIMITED

Submitted for the partial fulfillment of the degree of

MASTER OF BUSINESS ECONOMICS

GOSWAMI GANESH DUTTA SANATAN DHARMA COLLEGE

CHANDIGARH

SUBMITTED TO: SUBMITTED BY:

Mrs. Sumeet Kaur Bhawana Devi
Roll No: 5774
Year: 2011-2013

1
 CERTIFICATE
This is to certify that Bhawana Devi, a student of Post Graduate Degree in Master of
Business Economics, Goswami Ganesh Dutta Sanatan Dharma College Chandigarh, has
worked in M/s Sood, Sood & Associates, Chartered Accountants, as a trainee for a
period of 6 weeks, i.e. from 01.06.2012 to 20.07.2012.

During the course of her training she has completed a project report titled “financial
Analysis of Nestle India limited”. During this period we found her keen interest on
acquiring insight into organizational system and procedures besides being enthusiastic
in applying the concepts and theories.

We wish her all the success in her career.

For,

Sood, Sood & Associates,

Chartered Accountants
Vikas Gupta, F.C.A.
(M.No. 096996)
Partner

2
 ACKNOWLEDGEMENT
A Summer Training project is a synthesis of knowledge and experience of experts in
their related fields. However, no project is possible without the guidelines and help that
is extended by the experts to the student with the sole benevolent purpose of
intellectual development..

“THANK YOU”!!!! These two words are very less to be measured when it comes to
extend my gratitude towards all those who have made my internship tenure truly a
learning and memorable experience. I would like to extend my gratitude to my company
guide Mr. Vikas Gupta, without whose guidance and help this project would not have
been possible.

Also I am thankful to my faculty guide Mrs. Sumeet Kaur of my college for her continues
guidance and invaluable encouragement.

Lastly I would like to thanks all those officers in Association who have taken out time
from their busy schedule to provide with all the information I needed.

(BHAWANA DEVI)

3
 DECLARATION
I, BHAWANA DEVI hereby declare that the work which is being presented in dissertation
entitled “FINANCIAL ANALYSIS OF NESTLE INDIA LIMITED” in partial fulfillment of Master of
Business Economics, submitted in Goswami Ganesh Dutta Sanatan Dharma College is an
authentic record of my work.

I have not submitted this declaration to any other university for the award of any other
degree.

Sumeet Kaur Bhawana Devi

(Faculty Guide)

4
 PREFACE
Decision making is a fundamental part of research process. Decisions regarding that
what you want to do, how you want to do, what tools and techniques must be used for
the successful completion of the project. In fact it is the researcher’s efficiency as a
decision maker that makes the project fruitful for those who concern to the area of
study. The project presents the financial analysis of the Nestle India Limited. I am
presenting this hard carved effort in black and white. If anywhere something is found
not in tandem to the theme then you are welcome with your valuable suggestions.

My research project “Financial analysis of Nestle India Limited” study conducted under
the guidance of Mrs. Sumeet Kaur.

I believe that my project report will have been very helpful to the practical knowledge in
the field of financial analysis of any organization.

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 Table of Contents
CHAPTER- 1 ................................................................................................................................................... 7
Company Profile........................................................................................................................................ 7
CHAPTER- 2 ................................................................................................................................................. 16
Introduction of Financial Analysis ........................................................................................................... 16
CHAPTER- 3 ................................................................................................................................................. 37
Research Methodology ........................................................................................................................... 37
CHAPTER 4 .................................................................................................................................................. 40
SWOT Analysis of the Company .............................................................................................................. 40
CHAPTER-5 .................................................................................................................................................. 43
Data Analysis and Interpretation ............................................................................................................ 43
CHAPTER-6 .................................................................................................................................................. 60
Findings ................................................................................................................................................... 60
CHAPTER-7 .................................................................................................................................................. 62
Suggestions and Recommendations ....................................................................................................... 62
Conclusion ................................................................................................................................................... 64
Bibliography ................................................................................................................................................ 65

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 CHAPTER- 1

Company Profile

7
COMPANY PROFILE

Sood & Sood Associates is a partnership firm established in 1984 with three partners. All
the three partners are in the profession of Chartered Accountant. The firm has
conducted various types of audits for various Public Sector Banks, Multi National
Companies, Financial Institution, Government offices and Corporate offices.

The firm specializes in conducting the below mentioned activities:

 Concurrent Audits
 Statutory Audits
 Foreign Exchange Management Act
 Internal Audits ( Ranbaxy, Nestle, Cadbury)

It also provides consultancy, financial advisory services, and Tax advisory services to
various entities including individuals, high net worth individuals (professionals),
corporate, societies and foreign entities.
The firm represents its client with government regulatory authorities like Reserve Bank
of India, Income Tax officials, Sales and Service Tax officials.
Nature of Job includes:
 Practicing in company law matters
 Direct and Indirect Tax
 Foreign Exchange Management Act

In the firm, the employees directly report to the partners of the firm. From the training
perspective the objective of the firm is to provide an insight into the working culture of
financial institutions, to strengthen their mental and logical ability of the trainee and
guide them to work in a professional environment.
The main focus of the firm is to provide quality services to its clients and they never
compromise on their professional fronts under any circumstances.

8
 CASE STUDY
FOR
NESTLE INDIA LIMITED

9
COMPANY PROFILE

Nestle India Limited (Nestle India) is a subsidiary to Nestlé S.A. a global food products
company based in Switzerland. Nestle India principally is engaged in the manufacturing,
marketing, exporting and sales of food & beverage products which include milk
products, nutrition products, beverages, chocolates and confectionery. It markets its
products under international brand names which include Nescafe, Milo, Nestea Maggi,
and Milky bar, Kit Kat, Milkmaid, Nestlé Milk, Nestlé Slim Milk and Nestlé Fresh.

The report provides a comprehensive insight into the company, including business
structure and operations, executive biographies and key competitors. The hallmark of
the report is the detailed financial ratios of the company.

SCOPE

 Provides key company information for business intelligence needs.

 The report contains critical company information ' business structure and
operations, major products and services

 The report provides detailed financial ratios for the past five years as well as
interim ratios for the last four quarters.

 Financial ratios include profitability, margins and returns, liquidity and leverage,
financial position and efficiency ratios.

INDUSTRY SNAPSHOT

India is one of the fastest growing economies in the world. While we are moving
towards a services-led economy but still agriculture contributes 17 per cent of the total
GDP and employs 60 per cent of the population. India is one of the key food producers
in the world.
The Indian food industry is estimated to be worth over INR 8, 80,000 crores. The
industry employs 1.6 million workers directly.

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COMPANY OVERVIEW
Nestle India Limited, a subsidiary of Nestle S.A. of Switzerland, was incorporated in
1959. Nestle S.A. of Switzerland holds around 62 per cent stake in the company. It is a
leading branded processed food companies with a large market share.

The company first unit at Moga stated in 1961 for manufacturing milk products

Second factory at Choladi (Tamil Nadu) in 1967 to produce beverage

Third plant at Nanjangud (Karnataka) in 1989

The Company entered the chocolate business introducing Nestle Premium chocolate in
1990. Company's products are sold under brand names such as Milkmaid, Everyday,
Cereal, Nescafe, Maggi, Éclairs, etc. It launched the world famous Kitkat chocolates in
1995.

In 2001, it launched Nestle Pure Life bottled water. To capture the market in coastal
areas, the company launched Maggi cubes in prawn flavor to cater to consumers' tastes.
In the area of chocolate and confectionery, Nestle Munch, a crisp wafer biscuit with
chocolayer, was rolled out nationally. In the milk and cereal category, Everyday Dairy
Whitener showed satisfactory growth while Nestle Growing up Milk, launched in 1999,
was launched nationally.

The company ventured into beverage section by launching new blend of coffee powder,
vanilla and mocha. The company also made its foray into the iced tea segment. Nestle
Pure Life bottled water was launched in early 2001.

Nestle Bar- One was re-launched after renovating it to make it smoother, creamier and
better meets consumer need.

Nestle India has been continuously paying dividends to its shareholders for the last 20
years and has a marvelous track record of average dividend payout ratio which has been
over 70 per cent.

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BUSINESS SEGMENTS
The company broad product portfolio includes Milk Products & Nutrition, Beverages,
Prepared Dishes & Cooking Aids and Chocolates & Confectionary.

Milk Products & nutrition

The company milk products & nutrition portfolio encompasses a wide range of products
that includes milk, skimmed milk, value added products like condensed milk, curd, ghee,
yogurt, cheese. These products are sold under various popular brands - Nestle Every
day, Nestle Milkmaid, Nestle Milk, Nestle Fresh n Natural, etc. The company enjoys the
leadership position in infant milk foods business under the famous brand Cereal with a
market share of more than 68 percent. The Milk products and Nutrition division
contributes more than 46 per cent to the company’s revenues.

Beverages
Under the beverages segment, the company mainly sells instant coffee. It is the largest
coffee company in India, commanding market share of more than 11 per cent. Besides,
it sells a melted chocolate drink, Nestle Milo. The beverages division contributes around
17 percent to the company's revenues. Beverages contribute a major portion in the
total export market. The company exports instant coffee to various countries such as
Russia and Japan. Besides, it also exports some of its other products.

Prepared Dishes & Cooking Aids

Nestle' Maggi 2 -Minute Noodles has become an almost synonymous name for instant
noodles in India. The company later extended culinary products such as sauces, pizza
sauce, healthy soups and magic spice cubes. The company also introduced new variants
of noodles such as Vegetable Atta Noodles, Dal Atta Noodles and Rice Noodles Mania
under its Maggi Noodles umbrella in the last few years. This division contributes 23 per
cent to the company's revenues.

Chocolates & Confectionary

The company also has a strong presence in the chocolates & confectionary business.
With a more than 18 per cent market share, it is the second largest confectionary
company in India. The company sells its world famous Kit Kat brand in India along with
some other brands such as Nestle Munch (wafer chocolate), Nestle Milk bar, Polo (mint

12
confectionary) etc. The Chocolates & Confectionary division contributes 14 per cent to
the company's revenues.

Export
The total contribution by the export stands at 13 per cent of the company total revenue,
which is mainly through export of coffee to Russia. Nestle India Limited is one of the top
players in the processed food & beverages industry and the largest producer of instant
coffee in India. Under Chocolates & Confectionary, Kitkat and Polo is a successful
international as well as Indian brand. And under Milk Products & nutrition, Cereal is a
market leader.

13
ABOUT THE PRODUCTS
Nestle is acknowledged for its understanding of consumer needs. The business of
‘prepared dishes and cooking aids’ grew rapidly as it focused on delighting the
consumers and developing the products that enhance accessibility to nutrition. The
business encompasses the MAGGI which is the pioneer of ‘TASTE BHI HEALTH BHI’
concept. MAGGI philosophy is that everyday meal should be a celebration of taste

health and happiness throughout the year.

Nestle provided inputs to the Nestle Group R&D for the development of an innovative
product MAGGI Bhuna Masala.

Company is the leader in the instant coffee with NESCAFE. Though 2009 was a
challenging year for the coffee business in India primarily due to adverse climatic and
whether conditions that were experienced, the ‘Coffee and Beverages’ business further
straightened its position as a leader in instant coffees. While NESCAFE Cappuccino had a
successful start, popularly priced products supported growth in the south and limited
edition NESCAFE SUNRISE Rich Mountain blend received very good feedback and
despite the challenging environment NESCAFE performed satisfactorily, achieving
volume and market share growth in India.

During the year based on relevant consumer’s insights, NESTLE KITKAT was
relaunched with an improved taste delivery making it more chocolaty and crispy. And to
further improve penetration NESTLE KITKAT was launched in a new unique single finger
format at the price point 0f RS.5/-.

14
Further innovation in NESTLE MUNCH saw the launch of the GURU pack at the
higher price point of Rs 10/-and this coupled with the reintroduction of NESTLE CHOTU
MUNCH at the price point of Rs2/- contributed to the brand performance.

In recent years NESTLE MILKYBAR with its strong communication supported

with successful innovations has continued to lead the growth in white confectionary
segment.

During the year, your company also became the leader in the Éclairs
category with NESTLE ECLAIRS,

In the mint segment NESTLE POLO continued to grow market share. In

2009 the company continued efforts to increase the availability and visibility of the
range of the confectionary products.

The other products that the portfolio contains include

NESTLE EVERYDAY Dairy Whitener, NESTLE MILKMAID Sweetened Condensed Milk,
NESTLE SLIM Milk, NESTLE NESVITA Dahi and NESVITA yogurts which continued to do
well during the year. In a very competitive market, the EVERYDAY brand has led volume
growth in the dairy whitener category resulting in a further increase in the overall
market share and consolidating the company’s position as market leader.

15
 CHAPTER- 2

Introduction of Financial Analysis

16
MEANING OF FINANCIAL ANALYSIS
Financial statement refers to such statement which contains financial information about
an enterprise. Their report profitability and the financial position of the business at the
end of the Accounting period. The term financial statement includes at least two
statements which the accountant prepares at the end of accounting period. The two
statements are:
 The Balance Sheet

 Profit And Loss Account

They provide some extremely useful information to the extent that balance Sheet
mirrors the financial position on a particular date in terms structure of assets, liabilities
and owner equity, and so on and the Profit and Loss account shows the result of
operations during a certain period of time in terms of revenues obtained and the cost
incurred during the year. Thus the financial statement provides a summarized view of
financial position and operations of a firm.

The first task of financial analysis is to select the information relevant to the decision
under consideration to 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 the interface 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 inconvenient and
rational groups.
 To make comparison between various groups to draw various conclusions.

PURPOSE OF ANALYSIS OF FINANCIAL STATEMENTS

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

17
  To make comparative study with other firm.
 To know the trend of the business.
 To know the efficiency of the management.
 To provide useful information to the management.
PROCEDURE OF FINANCIAL STATEMENT ANALYSIS
The following procedure is adopted for the analysis and interpretation of financial
Statements:-

 The analyst should know the plans and policies of the managements that he may
be able to find out whether these plans are properly executed or not.
 The extent of analysis should determine so that the sphere of work may be
decided. If the aim is find out, Earning capacity of the enterprise then analysis of
income statement will be undertaken. On the other hand, if financial position is
to be studied then balance sheet analysis will be necessary.
 The financial data be given in statement should be recognized and rearranged. It
will involve grouping the similar data under some heads. Breaking down of
individual components of the statement according to nature. A relationship is
established among financial statements with the help of tools and techniques of
analysis such as ratios, trends, common size, and fund flow, etc.
 The information is interpreted in a simple and understandable way. The
significance and utility of financial data is explained which help in decision
making.
 The conclusion drawn from the interpretation is presented to the management in
the form of the report.

Analyzing financial statement involves evaluating three characteristics of the company:

 Its liquidity
 Its profitability
 Its insolvency.
A short-term creditor, such as a bank, is primarily interested in the liquidity. A long-term
creditor, such as a bondholder, however, looks to profitability and solvency measures
that indicate the company’s ability to survive over a long period of time

18
TOOLS OF FINANCIAL ANALYSIS
Various tools are used to evaluate the significance of financial statement data. Three
commonly used tools are these
 Ratio Analysis
 Fund Flow Analysis
 Cash Flow Analysis

RATIO ANALYSIS

Ratio analysis isn’t just comparing different numbers from the balance sheet, income
statement, and cash flow statement. It means comparing the number against previous
year of other companies, the industry, or even the economy in general. Ratios look at
the relationship between individual values and relate them to how a company has
performed in the past, and its performance in the future.

RATIO

A ratio is a simple arithmetical expression of the relationship of one number to another.

It may be defined as the indicated quotient of two mathematical expressions. In simple
language ratio is one number expressed in terms of another and can be worked out by
dividing one number into another.

For example, Current assets of the firm are 5, 00,000 and Current liabilities are 2,
50,000 then the ratio of current assets to current liabilities will work out to be 2 such
type of ratio are called simple or pure ratios.

OBJECTIVE OF RATIOS

Ratios are worked out to analyze the following aspects of business organization

A) Solvency
 Long term
 Short term
 Immediate
B) Stability
C) Profitability
D) Operational efficiency

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 E) Structural Analysis
F) Effective utilization of resources
G) Leverage or external financing
FORM OF RATIO
Since a ratio is a mathematical relationship between two or more variables, accounting
figures, such relationship can be expressed in different ways as follows:-

A) As a pure ratio
For example the equity share capital of a company is Rs. 20, 00,000 & the preference
share capital is Rs. 5,00,000 the ratio of equity share capital to preference share capital
20,00,000:5,00,000=4:1

Sales

EQUITY SHARE CAPITAL

PREFERENCE SHARE
CAPITAL

B) As a rate of times
In the above case the equity share capital may also be described as 4 times that
of preference share capital. Similarly, the cash sales of a firm are Rs. 12, 00,000 &
credit sales are Rs. 30, 00,000. So the ratio of credit sales to cash sales can be
described as
2.5[30, 00,000/12, 00,000] = 2.5 times are the credit sales.

20
 Sales

CASH SALES
CREDIT SALES

C) As a percentage
In such case, one item may be expressed as a percentage of some other items. For
example, net sale of the firm are Rs.50, 00,000 & the amount of the gross profit is Rs.
10,00,000 then the gross profit may be described as 20% of sales [10, 00,000/50, 00,000]

STEPS IN RATIO ANALYSIS

The ratio analysis requires following steps
 Calculation of ratios
 Comparing the ratio with some predetermined standards.
 The standard ratio may be the past ratio of the same firm’s industry’s average
ratio or projected ratio or the ratio of the most successful firm in the industry. In
interpreting the ratio of the particular firm the analyst cannot reach any fruitful
conclusion unless the calculated ratio is compared with the predetermined
standard.

TYPES OF COMPARISONS
The ratio can be compared in three different ways

a) Cross section analysis

One of the ways of comparing the ratios of the firm is to compare them with the
ratio or ratios of some other selected firm in the same industry at the same point

21
 of time. The cross section analysis helps the analyst to find out as to how a
particular firm has performed in relation to its competitors. The cross section
analysis is easy to be undertaken as most of the data required for this may be
available in financial statement of the firm.

b) Time series analysis

By comparing the present performance of the firm with the performance of the
same firm over the last few years, an assessment can be made about the
progress of the firm. Time series analysis helps the firm to assess whether the
firm is approaching the long-term goals or not. The time series analysis looks for
 Important trends in financial performance
 Shift in trend over the years
 Significant deviation if any from the other set of data.

c) Combined analysis
If the cross section & time analysis, both are combined together to study the
behavior & pattern of ratio, then meaningful & comprehensive evaluation of the
performance of firm can definitely be made. A trend of ratio of a firm compared
with the trend of ratio of the standard firm can give good results, for example,
the ratio of operating expenses to net sales for firm may be higher than the
industry however, over the years it has been declining for the firm, whereas the
industry average has not shown any significant changes.
The combined analysis shows that the ratio of the firm is above the industry
average, but it is decreasing over the years & approaching the industry average.

NATURE OF RATIO ANALYSIS

Ratio analysis is a technique of analysis and interpretation of financial statements. It is a

process of establishing and interpreting various ratios for helping in making certain
decisions. It is only a means of better understanding of financial strengths and
weaknesses of a firm. There are number of ratios which can be calculated from the
information given in the financial statements, but the analyst has to select the
appropriate data and calculate only few appropriate ratios from the same keeping in
mind the objective of analysis.

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The following are the fore step involved in the ratio analysis

Selection of the relevant data depending upon

the objectives of the analysis

Calculation of the ratio from the above data

comparison of the ratio with the past ratio

Interpretation of the ratio

INTERPRETATION OF THE RATIO

The interpretation of the ratios is an important factor. The limitations of ratio analysis
should also be kept in mind while implementing them. The impact of factors such as
price level changes, change in accounting policies, etc. should also be kept in mind when
attempting to interpret ratios.

The interpretation of the ratio can be made in the following ways:

 Single Absolute Ratio: Generally speaking one cannot draw any meaningful
conclusion when a single ratio is considered in isolation. But single ratios may be
studied in relation to certain rules of thumb which are based upon well proven
convention as for example 2:1 is considered to be a good ratio for current assets
to current liabilities.

 Group of Ratios: Ratios may be interpreted by calculating a group of related

ratios. A single ratios supported by another related additional ratios become
more understandable and meaningful. For example, the ratio is current assets to
current liabilities to draw more dependable conclusion.

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  Historical Comparison: One of the easiest and most popular ways of evaluating
the performance of the firm is to compare its present ratios with the past ratios
called comparison overtime. When financial ratios are compared over a period of
time, it gives an indication of the directions of the change and reflects whether
the firm’s performance and financial position has improved, deteriorated or
remained constant over a period of time.

 Projected ratio: Ratios can also be calculated for further standard based upon
the projected or Performa financial statements. These future ratios may be taken
as standard for comparison and the ratios calculated on actual financial
statements can be compared with the standard ratios to find out variances, if
any. Such variances help in interpreting and taking corrective action for
improvement in future.

 Inter-firm comparison: Ratios of one firm can also be compared with the ratios of
some other selected firms in the same industry at the same point of time. This
kind of comparison helps in evaluating relative financial position and
performance of the firm.

USE AND SIGNIFICANCE OF RATIO ANALYSIS

The ratio analysis is one of the most important tools of financial analysis. It is used as a
device to analyse and interpret the financial health of the enterprise.

A. Managerial use of Ratio Analysis

1. Helps in decision making: Financial statements are prepared primarily for
decision making. But the information provided in the financial statement is
not an end in itself and no meaningful conclusion can be drawn from these
statements alone. Ratio Analysis helps in making decision from the
information provided in these financial statements.

2. Helps in financial forecasting and planning: Ratio analysis is of much help in

the financial forecasting and planning. Planning is looking ahead and the
ratios calculated for a number of years work as a guide for the future.

24
 Meaningful conclusions can be drawn for future from these ratios. Thus, ratio
analysis helps in forecasting and planning.

3. Helps in communicating: The financial strength and weakness of the firm are
communicated in the more easy and understandable manner by the use of
ratios.

4. Helps in co-ordination: Ratios even help in co-ordination which is of utmost

importance in effective business management.

5. Helps in control: Ratios analysis even helps in making effective control of the
business.

B. Utility to share holders/ investors

An investor in the company will help to assess the financial position of the
concern where he is going to invest. His first interest will be the security of his
investment and then a return in the form of dividend or interest. For the first
purpose he will try to assess the value of fixed assets and loan raised against
them. The investors feel sufficient if the investors have sufficient amount of
assets.

C. Utility to creditors
The creditors or the suppliers extend short term credit to the concern. They are
interested to know whether financial position of the concern warrants their
payments at the specified time or not. The concern pays short term creditors out
of its current assets. If current assets are quite sufficient to meet current
liabilities then the creditors will not hesitate in extending credit facility.

D. Utility to employees
The employees are also interested in the financial position of the firm especially
profitability. Their wage increases and the amount of fringe benefits are related
to the volume of profits earned by the concern. The employees make use of
information available in financial statement.

25
 E. Utility to government-
Government is interested to know the overall strength of the industry. Various
financial statements published by industrial units are used to calculate ratios for
determining short term, long term and overall financial position of the concerns.
Profitability index can also be prepared with the help of ratios.

LIMITATION OF THE RATIO ANALYSIS

The ratio analysis is one of the most powerful tools of financial management. Though
ratios are simple to calculate and easy to understand, but there are number of
limitations:

 Limited use of a Single ratio: A single ratio, usually, does not convey much of a
sense. To make a better interpretation a number of ratios have to be calculated
which is likely to confuse the analyst then help him in making any meaningful
conclusion.

 Lack of Adequate Standards: There are no well adopted standards for all ratios
which can be accepted as norms. It renders interpretation of ratios is difficult.

 Limitation of Accounting: Like financial statements, ratios also suffer from the
inherent weakness of accounting records such as their historical nature. Ratios of
the past are not necessarily true indicator of the future.

 Change of Accounting Procedures: Change in the Accounting Procedures by a

firm often makes ratio analysis misleading.

 Personal Bias: Ratios are only means of financial analysis and not an end in itself.
Ratios have to be interpreted and different people interpret the same ratio in
different ways.

 Incomparable: Not only industries differ in their nature but also the firms of a
similar business widely differ in their size and accounting procedures, etc. it
makes comparison of ratios difficult and misleading.

 Price Level Change: While making ratio analysis, no consideration is made to the
change in price levels and this makes the interpretation of ratios invalid.

26
  Ratios no substitute: Ratio analysis is merely a tool of financial statement.
Hence, ratios become useless if separated from the statements from which they
are compounded.

FORM OF BALANCE SHEET

Section 210 0f the companies act requires preparation of balance sheet at the end of
each trading period.

SECEDULE VI PART I

FORM OF BALLACE SHEET

Balance sheet of…………….as on …………………..

Figures Figures Figures Figures
for the for the for the for the
previous LIAILITIES current previous ASSETS current
year year year year
Rs. Rs. Rs. Rs.
SHARE CAPITAL FIXED ASSETS :

Authorized…shares of Distinguishing as far as

Rs…. Each possible Between expenditure
upon.
Issued: (Distinguishing
between the various a. Goodwill
classes of capital and
stating particulars b. Land
satisfied below,
in respect of each class) c. Buildings
….shares of Rs……each.
d. leaseholds

Subscribed : e. railway sidings

(distinguishing
between the various f. plant and machinery
classes of capital and

27
stating the particulars g. Furniture and fittings.
specified below, in
respect of each h. Development of
Class)…..shares of property
Rs…..each….. Rs. Called
up. i. Patents, trademarks and
( of the above shares…..
shares are allotted as designs
fully paid up pursuant to
a contract without j. Livestock, and
payments being received
in cash) k. Vehicles, etc

(Under each head the original

(Of the above cost and the additions thereto
shares…..shares are and deductions therefore
allotted as fully paid up during the year, and the total
by the way of bonus depreciation written off or
shares) provided Up to the End of the
year is to be stated.

Specify the source from Depreciation written off or

which bonus shares are Provided shall be allotted
issued e.g. , under the different asset
Capitalization of profits heads and deducted in
and reserves or from arriving at the value Of the
share premium Account. fixed assets.)

In every case where the

Less : Calls unpaid : original cost cannot be
ascertained, without
(1.)By Directors unreasonable expenses or
delay, the valuation Shown by
(2.)By others the books is to be given.

Add : Forfeited shares : For the purpose of paragraph,

such valuation will be the net
(Amount originally paid amount at which an asset
up any capital profit or stood in the company’s books
reissue of at the commencement of this

28
forfeited shares should Act after deduction of the
be Transferred to capital amount previously provided
reserves.) or written off for depreciation
or diminution in value, and
Notes : where any such asset is sold,
the amount of sale proceeds
1. Terms of Shall be shown as deduction.
redemption and
conversion (if any) Where the sum have been
of any redeemable written off on a reduction of
preference capital capital or a revaluation of
are to be stated assets, every balance sheet,
together with the subsequent to the reduction
earliest date of or revaluation shall show a
redemption or reduced figures with the date
Conversion. of reduction in place of the
Original cost.
2. Particulars of any Each balance sheet for the
option on first five years subsequent to
unissued Share the date of reduction shall
Capital are to be show also the Amount of the
specified. reduction made.

3. Particulars of Similarly, where sums have

different classes of been added by writing up the
preference share assets, every balance sheet
are to be given. subsequent to such writing up
shall show the increased
These particulars are to figure with the date of
be given Along with increase in place of the
share capital. original Cost. Each balance
In the case of subsidiary sheet for the first five years
companies, the number subsequent to the date of the
of shares held by holding writing up shall also show the
company as well as by amount of increase Made.
the ultimate holding
company and its
subsidiaries shall be INVESTMENTS :
separately stated in
respect of Subscribed Showing nature of

29
share capital. investment s and mode of
The auditor is not valuation, for example, cost or
required to certify the market value, and
correctness of such distinguishing between-
share- holdings as
certified by the (1.)Investment in
Management. government or trust
securities.
RESERVES AND SURPLUS
: (2.)Investment in shares,
(1.)Capital Reserves Debentures or bonds.
(showing separately shares
(2.)Capital Redemption fully paid up and partly paid
Reserves. up and also distinguishing the
different classes of shares and
(3.)Share premium showing also in similar details
Account investments in shares,
debentures or bonds of
(Showing details of subsidiary companies)
its utilization in the
manner provided in (3.)Immovable properties.
Section 78 in the
Year of utilization). (4.)Investment in capital of
Partnership firms.
(4.)Other reserves
specifying the (Aggregate amount of
nature of each company’s quoted
reserves and the investments and also the
amount in respect market value thereof
Thereof. shall be shown)

(Aggregate amount of
Less : Debit balance in company’s unquoted
profit and loss account (if investments shall also be
any) shown)

(the debit balance in

profit and loss account CURRENT ASSETS, LOANS
shall be shown as a AND ADVANCES:
deduction from the

30
uncommitted reserves, if CURRENT ASSETS :
any)
(1) Interest accrued on

(5.)Surplus, i.e., balance Investments.

in profit and loss
account after (2) Stores and spare parts.
providing for
propose allocations, (3) Loose tools
namely:
Dividend, Bonus and (4) Stock in trade
Reserves
(5) Work-in-progress
(6.)Proposed addition
to reserves [in respect of (2) and
(4), mode of valuation
(7.)Sinking funds of stock shall be stated
and the amount in
(Additions and respect of raw
deductions since last materials shall also be
balance sheet to be stated separately
shown, under each of where Practicable.
the specified Heads. Mode of valuation of
The word “fund” in work-in-progress shall
relation to any be stated]
“reserve” should be
used only where such (6) Sundry Debtors.
reserves are specifically
represented by a. Debts outstanding
earmarked for
Investments.)
b. a period exceeding
six Months.
SECURED LOANS :
c. Other debts.

(1) Debentures. Less Provision.

(2) Loans and advances ( The amounts to be shown

from Banks. under sundry debtors shall

31
 include the amounts due in
(3) Loans and advances respect of the goods sold or
from Subsidiaries. services rendered or in
respect of other contractual
(4) Other loans and obligations but shall not
advances include the amount which are
in the nature of loans or
(loans from directors advances)
and/or managers should
be shown separately)

In regard to sundry debtors

particulars to be given
Interest accrued and due separately of-
on Secured Loans should
be included under the
appropriate sub-heads (a) Debts considered good
Under the head “Secured and in respect of which
Loans.” the Company is fully
secured.
The nature of security to
be Specified in each case. (b) Debts considered good
Where loans have been for which the company
guaranteed by managers holds no security other
and/or directors, a than the Debtor’s
mention thereof shall personal security.
also be made and also
the aggregate amount of (c) Debts considered
such loans under each doubtful or bad.
head.
Debts due by directors or
In case of debentures, other officers of the company
terms of redemption or or nay of them either severally
conversion (if any) are to or jointly with Other person or
be stated together with debts due by firms or private
earliest date of companies respectively in
redemption or which any director is a partner
conversion. or a director or a Member to
be separately stated.
UNSECURED LOANS :

32
 Debts due from other
(1) Fixed deposits. companies under the same
management within the
(2) Loans and advances meaning of subsections
from subsidiaries of Section 370 to be disclosed
With the names of the
(3) Short term loans and companies.
advances :
The maximum amount due by
(a) From bank. directors or other officers of
the company at any time
(b) From others. during the year to be shown
by the way of note.
(Short term loans
include those which are The provision to be shown
due for repayment not under this head should not
later than one year as at exceed the amount of debts
the date Of the balance stated to be considered
sheet. doubtful or bad and any
surplus of such provision, if
(4) Other loans and already created, should be
advances : shown at every closing under “
Reserves and Surplus” under a
(a) From banks. separate sub-head “Reserve
for Doubtful or Bad Debts.”
(b) From Others.
(7)
(Loans from directors
and/or managers should (7A) Cash balance on hand.
be shown separately
Interest accrued and due (7B) Bank balance-
on unsecured loans
should be included under (a) With scheduled banks.
an appropriate sub-
heads under the head (b) With others
“Unsecured Loans”
( in regard to bank balances
Where loans have been particulars to be given
guaranteed by manager, separately of-
and/or directors, a

33
mention thereof shall (a) The balance lying with
also be made together scheduled banks on
with the aggregate current accounts, call
amount of such loans accounts and Deposit
under each head. This accounts.
does not apply to fixed
deposits.) (b) The names of the
bankers other than the
Scheduled banks and the
CURRENT LIABILITIES balances lying with each
AND PROVISIONS: such banker on current
account, call account and
A. CURRENT deposit account and the
LIABILITIES: maximum amount
1. Acceptance outstanding at any time
during the year with each
2. Sundry Creditors such banker.

3. Subsidiary (c) The nature of the

Companies interest, if any, of any
director or his relative in
4. Advance each of the Bankers.
Payments and
unexpired LOANS AND ADVANCES :
discounts for the
portion for which 8
value has still to
be given, e.g., in (a.) Advances and loans to
the case of the subsidiaries

following b) Advances and loans to

companies :- partnership firms in
which the company
Newspapers, fire and any of its
insurance, theatres, Subsidiaries are a
clubs, banking, partner.
Steamship
companies, etc. (9) Bills of exchange

(10) Advances recoverable

34
 5. Unclaimed in cash or in kind or for
dividends. value to be received, e.g.,
Rates, taxes, Insurance,
6. Other liabilities (if etc
any)
(11) Balances with
7. Interest accrued customs, port trust,
but not due on etc. (where payable on
loans demand)

B. PROVISIONS
[The instructions regarding
8. Provision for sundry debtors apply to
taxation “Loans and Advances” also.
The amounts due from other
9. Proposed companies under the same
dividends. management within the
meaning of sub-section (1B) of
10. For contingencies. section 370 should also be
given with the names of the
11. For provident fund companies;
the maximum amount due
Scheme. from every one of these at any
time during the year must be
12. For insurance. shown]

13. Other provisions.

A foot-note to the MISCELLANEOUS
balance sheet
may be added to show EXPENDITURE
separately
:- (to the extent not written off
(1) Claims against the or adjusted)

(2) company not (1) Preliminary expenses.

Acknowledged as (2) Expenses including

debts.
commission or brokerage
(3) Uncalled liabilities or underwritten or

35
 on Shares partly Subscription of shares or
paid. Debentures.
(3) Discount allowed on
(4) Arrears of fixed the Issue of shares or
debentures.
(5) Cumulative
dividends. (4) Interest paid out of
(The period for which the capital during
dividend is in arrear or if construction( also
there is more than one stating the rate of
class of shares, the interest)
dividend on each such
class that is in arrear,
shall be stated. The (5) Development
amount should be stated expenditure not
before deduction of adjusted.
income tax, except that
in case of tax-free (6) Other sums (specifying
dividends the amount natured)
shall be shown free of
income tax and the fact PROFIT AND LOSS ACCOUNT
that it is So shown shall (show here the debit balance
be stated.) of profit and loss account
carried forward after
(6) Estimated amount deduction of the
of Contracts uncommitted reserves, if any)
remaining to be
executed on
capital account
and not provided
for.

(7) Other company

for which the
company is
contingently
liable.

36
 CHAPTER- 3

Research Methodology

37
Research is defined as a systematic, gathering recording and analysis of data about
problem relating to any particular field.

The following sections determine the strength, reliability and accuracy of project:

Research Design

Research Design pertains to the great research approach or strategy adopted for
particular project. A research project has to be conducted significantly making sure that
the data is collector accurately and economically. The study used a descriptive research
design for the purpose of getting insight over the issue. It is to provide an accurate
picture of some aspects of market environment.

Collection of data

Oraganisation of data

Presentation of data

Analysis of data

Interpretation of data

38
Method of Data Collection

Secondary Data has been gathered through the internet and published data.
Internal audit report of the company
Annual report of the company
Journals and magazines

OBJECTIVE OF THE STUDY

 To understand the strong hold of nestle India.
 To find out the competitive advantages of Nestle India
 To know the earning capacity or profitability.

TOOLS USED FOR ANALYSIS

In this present study ratio analysis is used as a tool for doing financial analysis of Nestle
India limited. Bar graph, charts are used to depict the financial information.
Limitations of the study

 The time period provide for the project was not sufficient enough to gather data
for a big organization.

 Complexity to gaining information.

 Non-availability of the most recent statistical data.
 Because of the limitation of information, some assumptions were made. So there
may be some personal mistake in the report.
 Besides this, it was very difficult to carry out the whole analysis on the basis of
limited scope of study.

39
 CHAPTER 4

SWOT Analysis of the Company

40
Strengths:
 High quality and safe food products at affordable prices, endorsed by the NESTLE
Seal of Guarantee.

 Recognized Nutrition, health and Wellness Company.

 Strong and well differentiated brands with market share leadership.

 Product innovation and renovation based on consumers insights.

 Well diversified product portfolio across categories and income strata.

 Efficient supply chain.

 Responsive organizations structure and strong management team.

 Distribution structure that allows wide reach and coverage in the target markets.

 Capable and committed human resources.

 Participation in Global Business Excellence (GLOBE).

 Strong financial position.

Weakness:
 Complex supply chain configuration.

 Cascading indirect taxes.

 Price point portfolio.

 There is not much margins for retailers to prefer its sales.

 The distribution cost is high as compared to the competition in the local market.

41
Threat:
 Price of raw material and fuels.

 Availability of agro based commodities.

 Food inflation.

 White collar talent.

Opportunities:
 Potential for expansion in smaller towns and other geographies.

 Recovery of out of home segment.

 Leverage Nestle Technology to develop more products that provide Nutrition,

health and wellness at affordable price.

 Company can open separate stores to eliminate retailers.

 They have an opportunity to expand or capture the market by adding its product
line.

42
 CHAPTER-5

Data Analysis and Interpretation

43
FINANCIAL RESULTS AND OPERATIONS (Rs in Millions)

2011 2010
Gross Revenue 51,672 43,581
Profit Before interest and taxation 9,610 8,052
Interest 14 16
Impairment loss and fixed assets(Net) 103 3
Provision for contingences(Net) 323 305
Provision For tax 2620 2387

Net Profit 6550 5341

Profit Brought Forward 1001 125
Amount Transferred from share Premium - 432
account
Amount Transferred from general Reserves - 431
Balance available for appropriation 7551 6329
Interim Dividends 3471 2281
Special dividend - 732
Final Dividend Proposed 1205 1157
Corporate Dividend Tax 795 696
Transfer to general reserves 655 534

Surplus carried in profit and loss account 1425 1001

Key Ratio
Earnings per Share (Rs.) 67.94 55.39
Dividend per Share (Rs.) 48.50 42.50

Pursuant to scheme arrangement

Include special dividend of Rs. 7.50 per share, paid under the Scheme of
arrangement.

44
 TOTAL INCOME

EBIT %
18.5

18

17.5

EBIT %
17

16.5

16
2007 2008 2009 2010 2011

Net Income
60000

50000

40000

30000
Net Income
20000

10000

0
2007 2008 2009 2010 2011

45
Dividends

Final dividend of Rs 12.50 per equity share of the face value of Rs.10/- year 2011,
amounting to Rs. 1,205 Million.

This is in addition to the two Interim Dividends for 2011, aggregating to Rs. 36.00 per
equity share, paid in May 2011 and 2011 (amounting to Rs. 3,471 Million).

The total payout for 2011 would be Rs. 5,470 Million (including the corporate
dividend tax). Further dividends will continue to be based on the need of the
company to deploy internal accruals for business expansion and an appropriate debt
equity ratio.

Dividend Rates

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

46
 Earning per share
80

70

60

50

40
Earning per share
30

20

10

0
2008 2009 2010 2011

47
 Profit and loss Account of Nestle India limited as on December 2011

Income 2011 (in thousands) 2010 (in

thousands)
Sale
Domestic 48,938,164 41,326,718
Exports 3,286,050 3,383,907

Gross 52,224,214 44,710,625

Less : Excise duty 930,447 1,468,175

Net sales 51,293,767 43,242,450

Other income 377,976 338,852

51,671,743 43,581,302

Expenditure
Material consumed and purchase 24,570,317 21,386,673
of goods
Manufacturing and other 16,465,167 13,563,778
Expenses
Interest 13,985 16,430
Depreciation 1,112,692 923,601

Adjustment due to dec. inclusive -86,545 -345,448

of stock of finished goods
42,075,616 35,545,034

Profit Before impairment, 9,596,127 8,036,268

contingencies and Tax
Impairment loss/gain on fixed 103,168 3,084
assets
Provisions for contingencies 323,201 304,916

Profit Before Taxation 9,169,758 7,728,268

Income Tax Expenses

Current Tax 2,653,355 2,223,114

48
Deferred Tax -48,838 81,836
Fringe benefit Tax 15,213 82,496
2,619,730 2,387,446

Profit after Taxation 6,550,028 5,340,822

Balance Brought Forward 1,001,053 125,159
Add: Transferred from share - 432,363
premium account
Add: Transferred from general - 430,857
reserve
Balance Available For 7,551,081 6,329,201
Appropriation

Dividends
Interim 3,470,966 2,217,561
Final proposed 1,205,196 1,156,989
Special - 723,118
Corporate Dividend Tax 794,713 696,398
General Reserve 655,003 534,082
Surplus carried to the balance 1,425,203 1,001,053
sheet
Basic and diluted Earnings per 67 .94 55 .39
share(in Rupee)

49
 Balance Sheet Of Nestle India Limited as on December 2011

2011 2010
Shareholders’ funds
Share capital 964,157 964,157
Reserves and surplus 4,848,493 3,769,340
Net worth 5,812,650 4,733,497

Deferred Tax liabilities 319,972 368,810

6,132,622 5,102,307
Applications of funds
Fixed assets
Gross Block 16,407,942 14,048,460
Less: Depreciation 7,445,894 6,518,538
Net Block 8,962,048 7,529,922

Capital work in progress 796,273 1,091,689

9,758,321 8,621,611

Investments
Current assets Loan and advances
Inventories 4,987,379 4,349,117
Sundry debtors 641,863 455,933
Cash and Bank balance 1,555,863 1,936,893
Loans and advances 1,380,487 1,237,589

Total Current Assets 8,565,592 7,979,532

Less: current liabilities and

provisions
Liabilities 5,875,906 5,074,671
Provisions 8,347,940 6,773,157

14,223,846 11,847,828

Net Current Assets(liabilities) 5,658,254 3,868,296

Book value 6,132,622 5,102,307

50
CURRENT RATIO

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

Current Assets
Current Ratio =
Current liabilities

CURRENT ASSETS CURRENT LIABILITIES

1 Cash in hand 1 Outstanding Expenses/Accrued expenses

2 Cash at bank 2 Bills Payable

3 Marketable securities 3 Sundry Creditors

4 Short-term investments 4 Short-term advances

5 Bills Receivables 5 Income-tax payable

6 Sundry Debtors 6 Dividends Payable

7 Inventories (stock) 7 Bank Overdraft

8 Work- in-progress

9 Prepaid Expenses

51
INTERPRETATION OF CURRENT RATIO

A relatively high current ratio is an indication that the firm is liquid and has the ability to
pay its current obligations in time as and when they become due. On the other hand, a
relatively low current ratio represents that the liquidity position of the firm is not good
and the firm shall not be able to pay its current liabilities in time without facing
difficulties. An increase in the current ratio represents the improvement in the liquidity
position of a firm while a decrease in the current ratio indicates that there has been
deterioration in the liquidity position of the firm.

CURRENT RATIO FOR NESTLE INDIA LIMITED FOR LAST TWO YEARS

Year 2011 2010

Current Assets 8,565,592 7,979,532

Current Liabilities 14,223,846 11,847,828

Current Ratio 0.60 0.67

The current ratio for the company in the year 2010 was 0.67 and for the year 2011 was
0.60. So the current ratio for the firm has decreased by 0.07 which indicates that the
company’s liquidity position is decreasing. The main reason for this is the rise in the
current liabilities of the company from 11,847,828 in 2010 to 14,223,846 in 2011.There
may not be sufficient funds to pay liabilities.
QUICK RATIO

Quick Ratio, also known as Acid Test or liquidity ratio, is the most precise test of liquidity
than the current ratio. The term ‘liquidity’ refers to the ability of the firm to pay its short
term obligations as and when they become due. The two determinant of current ratio,
as a measure of liquidity, are current assets and current liabilities.

Quick assets
Quick ratio =
Current liabilities

52
 Quick/ liquid Assets Current liabilities
Cash in hand Outstanding or Accrued expenses

Cash at Bank Bills Payable

Bills Receivable Sundry Creditors

Sundry Debtors Short term advances

Marketable Securities Income tax payable

Temporary investment Dividends Payable

INTERPRETATION OF QUICK RATIO

Usually, a high acid test ratio is an indication that a company is liquid and has the ability
to meet its current or liquid liabilities in time and on the other hand a low quick ratio
represents that the company’s liquidity position is not good.

QUICK RATIO OF NESTLE INDIA LIMITED FOR LAST TWO YEARS

YEAR 2011 2010

QUICK ASSETS 3,578,213 3,630,415

CURRENT LIABILITIES 14,223,846 11,847,828

QUICK RATIO .251 .306

Hence the quick ratio of the company in 2011 was .251 and 2010 was .306 shows that
the quick ratio of the company has decreased by .55 because the company has
purchased assets by the bank balance as the company has not taken any loan during the
year so the quick ratio of the company decreased.

53
 Manufacturing And Other Expenses
2011(rs in thousands) 2010(rs is thousands)
Employee cost
Salaries, wages, bonus, 3,982,657 2,853,949
pension, gratuity etc.
Contribution to provident 126,811 102,088
and other fund
Staff welfare expenses 214,360 189,771
4,323,828 3,145,808

Advertising and sales 2,675,119 1,943,555

promotion
Freight, transport, and 2,403,721 2,035,530
distribution
General license fees(net 1,759,874 1,459,570
of taxes)
Power and fuel 1,588,703 1,597,565
Contract manufacturing 461,752 456,500
charges
Travelling 460,582 418,069
I.T and management 436,538 400,391
information system

Maintenance and repairs

Plant and machinery 327,536 278,069
Buildings 36,333 33,716
Others 71,109 59,948
434,978 371,733
Taxes and general license 272,998 226,233
fees
Consumption of stores 219,104 151,846
and spare parts
Rent 209,875 176,972
Rates and Taxes 205,946 201,483
Training Expenses 165,154 175,239
Laboratory(quality testing 151,169 137,557
) expenses
Milk collection and district

54
 development 143,122 114,490
expanses
Market Research 86,636 96,591
Deficit on fixed assets
sold/ written off 30,548 27,260
Insurance 13,281 16,563
Miscellaneous expenses 422,239 410,823
16,465,167 13,563,778

INCREASE/ DECREASES IN STOCK OF FINISHED GOODS AND WORK – IN - PROGRESS

2011 (Rs in thousands) 2010 (Rs in thousands)

Opening Stock
Work- in - progress 385,378 424,279
Finished Goods 2,327,186 1,977,141
2,712,564 2,401,420

Less: Excise Duty 94,996 129,300

Net Opening stock(A) 2,617,568 2,272,120

Less: closing stock

Work- in - progress 462,666 385,378
Finished Goods 2,312,885 2,327,186
2,775,551 2,712,564
Less: Excise duty 71,438 94,996

Net closing Stock(B) 2,704,113 2,617,568

Movement in the opening -86,545 -345,448
and closing stock(A-B)

55
INVENTORY TURNOVER OR STOCK TURNOVER RATIO

Every firm has to maintain certain level of inventory of finished goods so as to be able to
meet the requirements of the business. But the level of inventory should neither be too
high nor too low.
Inventory turnover ratio will indicate whether the inventory has been efficiently used or
not. The purpose is to see whether only the required minimum funds have been locked
up in the inventory. Inventory turnover ratio indicates the number of times the stock
has been turned over during the period and evaluates the efficiency with which a firm is
able to manage its inventory.

Cost of goods sold

Inventory turnover ratio =
Average inventory at stock

Opening stock + Closing Stock

Average inventory at cost=
2

INTERPRETATION OF INVENTORY TURNOVER RATIO

Inventory turnover ratio measures the velocity of conversion of stock into sales.
Usually, a high inventory turnover indicates efficient management of inventory because
more frequently stocks are sold; the lesser amount of money is required to finance the
inventory. A low inventory turnover ratio indicates an inefficient management of
inventory. A low inventory turnover implies over-investment in inventories, dull
business, poor quality of goods, stock accumulation, accumulation of obsolete and slow
moving goods and low profit are compared to total investments.

56
INVENTORY TURNOVER RATIO OF NESTLE INDIA LIMITED FOR LAST TWO YEARS

YEAR 2011 2010

Cost of goods sold 16465167 13563778

Average Inventory at cost 2660840.5 2444844

Inventory turnover ratio 6.18 times 5.54 times

365
Inventory conversion Period =

Inventory turnover ratio

Inventory conversion 59 days 66 days

period

The Inventory conversion period has shifted from 66 days in 2010 and 59 days in 2011
which shows that the company is efficiently managing their stock and its inventory
turnover has also increased which shows that there is rise in sale.

NET PROFIT RATIO

Net profit ratio establishes a relationship between net profit (after tax) and sales, and
indicates the efficiency of the management in the manufacturing, selling, administrative
and other activities of the firm. This ratio is the overall measure of firm’s profitability
and is calculated as:

57
 Net profit
Net Profit Ratio = X 100
Sales

The two basic elements of the ratio are net profit and sales. The net profits are obtained
after deducting income-tax and, generally, non-operating income and expenses are
excluded from the net profit for calculating this ratio. Thus, incomes such as interest on
investment outside the business, profit on sale of fixed assets, etc. are excluded

NET PROFIT RATIO OF NESTLE INDIA LIMITED FOR LAST TWO YEARS

Years 2011 2010

Net profit 6550 5341

Sales 51293767 43242450

Net profit ratio .0127 .0123

There is no much difference in the net profit ratio of year 2010 and year 2011 as the net
profit and the sale has increased in the same proportion so there is not much difference
in the net profit ratio of the company.

DEBT EQUITY RATIO

Debt equity ratio also known as External-Internal Equity Ratio is calculated to measure
the relative claims of outsiders and the owners (i.e. shareholders) against the firm’s
assets. This ratio indicates the relationship between the external equities or outsiders
funds and the internal equities or the shareholders’ funds, thus

58
 Outsiders funds
Debt-Equity Ratio =
Shareholders’ funds

The two basic components of the ratio are outsiders’ funds i.e., external equities and
shareholders’ funds, i.e. internal equities.

INTERPRETATION OF DEBT EQUITY RATIO

The debt equity ratio is calculated to measure the extent to which debt financing has
been used in the business. The ratio indicates the proportionate claims of owners and
the outsiders against the firm’s assets.

Generally speaking, a low ratio is considered as favorable from the long- term creditors’
point of view because a high proportion of owners fund provides a larger margin of
safety for them. A high debt equity ratio which indicates that the claims of outsider are
greater than those of owners, may not be considered by the creditors because it gives a
lesser margin of safety for them at the time of liquidation of the firm.

DEBT EQUITY RATIO FOR NESTLE INDIA LIMITED FOR LAST TWO YEARS

Years 2011 2010

Outsiders funds 5,875,90 5,074,671

Shareholders’ Funds 5,812,650 4,733,497

Debt equity ratio 1.01 1.07

59
CHAPTER-6

Findings

60
Findings:

 Final dividend of Rs 12.50 per equity share of the face value of Rs.10/- year 2011,
amounting to Rs. 1,205 Million.

 The current ratio for the company in the year 2010 was 0.67 and for the year
2011 was 0.60. So the current ratio for the firm has decreased by 0.07 which
indicates that the company’s liquidity position is decreasing.

 The quick ratio of the company in 2011 was .251 and 2010 was .306 shows that
the quick ratio of the company has decreased by .55 because the company has
purchased assets by the bank balance as the company has not taken any loan
during the year so the quick ratio of the company decreased.

 The Inventory conversion period has shifted from 66 days in 2010 and 59 days in
2011 which shows that the company is efficiently managing their stock and its
inventory turnover has also increased which shows that there is rise in sale.

 There is no much difference in the net profit ratio of year 2010 and year 2011 as
the net profit and the sale has increased in the same proportion so there is not
much difference in the net profit ratio of the company.

 The Indian food industry is estimated to be worth over INR 8, 80,000 crores.

 Dividend payout ratio by nestle is over 70 % in last 20 year

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 CHAPTER-7
Suggestions and Recommendations

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Suggestions and Recommendations:

 Employee should be trained according to the changing standards of the

organization.
 Company should conduct survey from time to time, according to which
changes can be introduced in the organization to stay updated in the
market.
 They should introduce creativity into the work, so that the employees can
do their work active mindedly.
 Employee should be given compensation in order to keep them loyal.
 Employee should be more involved in decision making to become more
differentiated.
 Company should provide incentives to shop keepers.

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 Conclusion
NESTLE good food, good life captures the very essence of Nestle and the promises they
commit to themselves every day, everywhere as the leading nutrition, health and
wellness company.
The company’s overall is at a very good position. The company achieves sufficient profit
in past two years. The company maintains low liquidity to achieve the high profitability.
The company distributes dividend every year to its shareholders.
The company grew significantly during these years. There were many new products and
services that were launched during this time. The company enjoys monopoly in various
products, i.e. significant is the name of Maggi noodles in this section. Increased demand
of products helps the company remain strong. The changing lifestyle and concepts of
Indians have contributing much to the growth of the company.

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 Bibliography
 Annual Report of Nestle India Limited.
 Internal Audit report of Nestle India Limited.
 Rustagi R.P.-Financial Management (Galgotia, 2000, 2nd revised ed.)
 Jain S.P. , Narang K.L.-Accounting and financial analysis (Kalyani,
2008 edition.)
 Gupta Shashi K, Sharma R.K.-Financial Management
 Shukla M.C. , Grewal T.S.-Advanced Accounts
 www.nestle.in
 www.google.com

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