1

TABLE OF CONTENTS:

OVERVIEW OF COMPANY 2
SWOT analysis: 3
Nestlé’s Strengths 3
Nestlé’s Weaknesses 4
Nestlé’s Opportunities 4
Nestlé’s Threats 4
CHANGING SUGGESTION IN MISSION STATEMENT: 5
THE INPUT STAGE: 6
EFE Matrix (External Profile Matrix): 7
IFE Matrix (Internal Profile Matrix): 7
CPM Matrix (Competitive Profile Matrix): 8
THE MATCHING STAGE: 9
BCG Matrix of Nestle: 10
The SWOT Matrix: 11
SPACE Matix: 13
Grand Matrix: 16
THE DECISION STAGE 17
The Quantitative Strategic Planning Matrix (QSPM): 18
Nestle data needed for EPS/EBIT Analysis: 19
CSF AND DF 20
50%CSF and 50%DF 20
40%CSF and 60%DF 21
20%CSF and 80%DF 21
APPENDIX 22
 2

OVERVIEW OF COMPANY

Company: Nestle
 CEO: Ulf Mark Schneider
 Year founded: 1905
 Headquarter: Vevey, Switzerland
 Number of Employees (May 2020): 291,000
 Public or Private: Public
 Ticker Symbol: NESN | NSRGY
 Market Cap (May 2020): $304.1 Billion
 Annual Revenue (2019): $ 93.1 Billion
 Profit |Net income (2019): $ 12.7 Billion
Founded in 1905 as a result of a merger of Anglo-Swiss Milk Company, Nestle was first
formed by Henri Nestlé in 1866. Nestle became the worlds’ largest Swiss packaged food
company in a short span of time. With more than 150 years of stability in the market, Nestle has
marked its strong position as top nutrition, health, and Wellness Company. Ulf Mark
Schneider currently holds the position of CEO at Nestle.
Whether its dairy products, chocolates or juices, Nestle is always there in our everyday
purchases. It’s “Good Food, Good Life” slogan has served it right, touching millions of people
worldwide, both physically and literally. It makes more than $1.1 billion of revenues a single
day. Now you can imagine how big this company really is!
We will find out some interesting facts about the NESTLE through SWOT analysis.
 3

SWOT analysis:
 (or SWOT matrix) is a strategic planning and strategic management technique used to help a
person or organization identify strengths, weaknesses, opportunities, and threats related
to business competition or project planning. It is sometimes called situational assessment or
situational analysis. This technique is designed for use in the preliminary stages of decision-
making processes and can be used as a tool for evaluation of the strategic position of
organizations.  It is intended to identify the internal and external factors that are favorable and
unfavorable to achieving the objectives of the venture or project. Users of a SWOT analysis
often ask and answer questions to generate meaningful information for each category to make the
tool useful and identify their competitive advantage.
Nestlé’s Strengths

1. Largest Food Company – In 2020, Nestle maintained its position as the world largest food
company with the sales of its various products.
2. Reputed brand name – Nestle is the most renowned brand in the world. It has developed a
respected reputation in the food and beverages sector offering high-quality products for everyday
use across the globe.
3. Globally recognized brand – Through its effective advertising and branding strategies, it
has created significant awareness and developed a successful brand image around the world.
4. Highly diversified company – Nestle sells its products in 180+ countries. Instead of
relying on a few markets, it has captured the sizeable market in a lot of developed and
developing countries to earn most of its revenue.
5. Efficient R&D system – Nestle has the world’s largest food and nutrition research
organization with 21 R&D centers Its research and development capability is one of its key
competitive advantages.
6. Environmental sustainability practices – Nestle puts substantial efforts environmental
sustainability .It optimizes advanced solutions to reduce waste, water usage, non-renewable
energy use, and packaging material usage.
 4

7. Large distribution system – Nestle owns an extensive and diversified distribution system
that is not only penetrated in urban areas but also rural regions. It has adapted local distribution
methods and decentralized approach to run the business efficiently in respective countries. Nestle
has strong relationships with suppliers, retailers, vendors, and distributors.
Nestlé’s Weaknesses
1. Price fluctuations by retail giants – Nestlé’s grocery sales are achieved majorly through
huge retail giants. Any reduction or increase by these retailers can affect Nestlé’s sales.
2. Span of control and organizational structure – Nestlé is organized in a matrix
structure. That means a large number of brands are under the same umbrella group which makes
it somewhat challenging to manage the large Administrating such a large number of individual
brands can often result in discord and conflict of interest.
3. Water controversy – Recently, Nestle was accused of illegally pumping millions of liters of
water in 6 nations where residents are deprived of drinking water.
4. Social criticisms – Nestle has become a target of media attention many times. The claim to
privatize water, misleading labeling, and a lawsuit for chocolate making using child and slave
labor are some of the examples that have to weaken its market reputation.
Nestlé’s Opportunities

1. Venturing small food start-ups – Nestle has a fantastic opportunity to grow the number of
small food start-ups under its popular brand name. Nestle can also collaborate with the new start-
ups to promote its brand name.
2. Online shopping – Nestle has a remarkable opportunity to boost its e-commerce sites and
online shopping platform. A very few CPGs (Consumer packaged goods) are offering online
services to make the shopping experience more comfortable and pleasant. Although Nestle has
its online stores in a few countries, expanding its online services to more areas will prove a
rewarding decision for the company.
3. Market penetration for breakfast cereals – Nestlé’s cereals and oats market have
shown fast growth in recent years. Thus, penetrating this market more would be highly lucrative
for the company.
4. Expanding ready-to-drink tea and coffee market – The demand for tea and coffee is
continuously on the rise, rendering a profitable opportunity for Nestle to groom this market
more.
5. Authentic labeling – Nestle has already been criticized for giving misleading nutritional
information on its labels. So, there’s an opportunity to improve its practices by giving
trustworthy information and accurately labeling its products.
Nestlé’s Threats

1. Water scarcity – Nestlé’s production is highly dependent on water usage. Accessing the
clean water through less costly sources has become difficult for the company due to many
reasons. These include increasing population, climate change, growing demand for food and
water, increasing pollution, water wastage, and overexploitation of resources.
 5

2. Rising competition – Many CPG companies like Mondelez and Unilever offer similar food

and beverage products. It is hard for Nestle to compete in such a situation where the substitute
products are easily accessible.
3. The price of coffee beans– Coffee generates over 10% of the company’s total sales and
coffee beans are the major raw material used in its production. Therefore, Nestlé’s profit margins
are dependent, to some extent, on the price of coffee beans, which over the past several years has
been very volatile because of weather disaster.
4. Government regulations and prices – Government regulations can affect the business
operations of Nestle. Additionally, the increasing prices of commodities force the company to
increase the prices of its products. It will lead to sales reduction as consumers can switch to other
brands which are available at low costs.

CHANGING SUGGESTION IN MISSION STATEMENT:

Mission statement of Nestlé:  Our mission of "Good Food, Good Life" is to provide
consumers with the best tasting, most nutritious choices in a wide range of food and beverage
categories and eating occasions, from morning to night.
Updated mission statement: Our mission is to provide consumers with the best tasting,
most nutritious choices in wide range of foods and beverages. Nestle continues to engage in
supporting initiative water and environmental sustainability.

Our Brand: We have more than 2000 brands ranging from global icons to local favorites, and
are present in 186 countries worldwide

Our Ambitions: We have defined three overarching ambitions for 2030 which guide our
work and support the UN Sustainable Development Goals. First is to help 50M children to live
healthy. Second is to connect 30M people to connect with our business. Third is to reduce the
impact on environment to zero.
Our purpose: Unlocking the power of food to enhance quality of life for everyone, today and
for generations to come. We are the Good food, Good Life Company. We believe in the power of
food to enhance lives. Good food nourishes and delights the senses. It helps children grow
healthy, pets thrive, parents age gracefully and everyone live life to the fullest. Good food brings
us together. Good food also respects our planet and protects resources for future generations.
Our values: Guided by our values rooted in respect, we want to shape a better and healthier
world. We're continuing the legacy of our founder Henri Nestlé who created a life-saving infant
cereal more than 150 years ago
 6

THE INPUT STAGE:

EFE Matrix (External Profile Matrix): An External Factor Evaluation (EFE) Matrix is
a strategic tool used by businesses to evaluate their current strategies. It does this by considering
the key external factors in a company´s environment that may affect its performance.
 7

Key External Factors Weight Rating Score

Opportunity:
1. Venturing small food start-ups .1 3 .3
2. Online shopping .15 4 .6
3. Market penetration for breakfast cereals .2 2 .4
4. Expanding ready-to-drink tea and coffee market .05 3 .15
5. Authentic labeling .05 2 .1
Threats:
1. Water scarcity .2 3 .6
2. Rising competition .2 4 .8
3. The price of coffee beans .025 2 .05
4. Government regulations and prices .025 1 .025
Total =1 =3.025

We have assigned the weight total (0.0-1.0) for opportunity and threats on the basis of how much
they are important for the company higher the weight higher the importance, lower the weight,
lower importance as well. For the rating 1,2,3,4 for the factors that how effectively company
response to them. For 4(high response), 3(above average response), 2(below average response),
1(poor response)

In the evaluation we have evaluated on the base which we have found and attached in the
appendix section that company is very concerned about some facts which are important for the
company as you can see in the matrix. We come on this conclusion that company is doing
ventures with the small companies to increase the sale and also business is trying to be online to
generate more sales. As we have seen E-commerce business is growing day by day. And also
business is very concerned about the rising competition in the market which can affect the
overall sales and the lowest important is the government regulation on the prices because it will
not only effect on nestle.

IFE Matrix (Internal Profile Matrix): Internal Factor Evaluation (IFE) matrix is a
strategic management tool for auditing or evaluating major strengths and weaknesses in
functional areas of a business. IFE matrix also provides a basis for identifying and evaluating
relationships among those areas

Key Internal Factors Weight Rating Score

Strengths:
1. Largest Food Company .15 4 .6
2. Reputed brand name .09 4 .36
3. Globally recognized brand .05 4 .2
 8

4. Highly diversified company – .05 4 .2

5. Efficient R&D system .15 4 .6
6. Environmental sustainability practices .05 4 .2
7. Large distribution system .05 4 .2
Weaknesses:
1. Price fluctuations by retail giants .2 2 .4
2. Span of control and organizational structure .05 1 .05
3. Water controversy .06 2 .12
4. Social criticisms 0.1 2 .2
Total =1 =3.13

We have assigned the weight total (0.0-1.0) for opportunity and threats on the basis of how much
they are important for the company higher the weight higher the importance, lower the weight,
lower importance as well. And the rating from 1-4 indicate whether that is major strength or
major weakness.1-2 for weakness and 3-4 for the strength.

As below in the matrix which is internal factor evaluation matrix based on strength and weakness
of the company we can see that the company is very strong in all the factors because all are very
important for the company and that’s why they all got the 4 score and weakness is price
fluctuation by the retail giants and the water and social criticism is the major weakness in all
over the world, prices can be controlled by the big giants because nestle sell their products
through them not they have their own outlet and the controversy media all ways says that the
nestle use the child labor to produce the products.

CPM Matrix (Competitive Profile Matrix): The CPM matrix is a grid that matches
each competitor with the primary business strength, or competitive profile, which each
competitor brings to the industry. When the products and strengths are matched into a two-by-
two matrix, they reveal the industry structure.

NESTLE MONDELEZ UNILIVER

Critical success factor Weight Rating Score Rating Score Rating Score
1. Market Share .15 4 .6 3 .45 3 .15
2. Advertising .1 4 .4 3 .3 2 .2
3. Financial Position .1 4 .4 4 .4 4 .4
4. Product Quality .09 3 .27 3 .27 3 .27
5. Consumer Loyalty .1 4 .4 4 .4 4 .4
6. Global Expansion .07 4 .28 3 .21 4 .28
7. Organization .05 2 .1 3 .15 4 .2
Structure
 9

8. Production Capacity .09 3 .27 3 .27 3 .27

9. E-commerce .08 2 .16 4 .32 4 .32
10.Price Competitive .12 3 .36 3 .36 3 .36
11.Management .05 3 .15 4 .2 4 .2
Total =3.39 =3.33 =3.05

We have the 11 critical success factor each related to 3 companies and we have given them
rating on the behalf of how much company is strong in that. 1 = major weakness, 2 = minor
weakness, 3 = minor strength, 4 = major strength. So the result shows that the Nestlé is strong
from its competitors.

In the competitive profile matrix mondelez and the uniliver are the rivalry competitors for the
nestle in the market all are multinational companies operating in many countries so if we see the
matrix nestle have majority of market share in all the countries because it operate in
180+countries and the other main thing nestle products as the market leader in many categories.
And the organizational structure of nestle is not very good as because of it is very large
company. And the E-commerce on which nestle is still working so that’s why they got the low
scoring in that overall company is very efficient and competitive in all other factors
 10

THE MATCHING STAGE:

 11

BCG Matrix of Nestle: Nestle is one of the world leading FMCG company .It has its
presence in about 187 countries. Think how many market-segments and strategies it would be
catering to! In order to understand their strategies, we have to get to know how BCG matrix of
Nestle works. Boston Consulting group’s product portfolio matrix is designed to help with long
term strategic planning, to help a business consider growth opportunities. This is done by
reviewing its portfolio of products to decide where to invest, to discontinue or develop products.

RELATIVE MARKET SHARE POSITION

High Low
Stars Question Mark?
High
Products: Products:
Industry Sale
Growth rate Mineral water Nestlé slim
Nescafe coffee Nestlé Milk

Cash cows Dogs

Products: Products:
Low
Kit Kat, Munch Nestle Milo
Maggi Noddle’s Koko Crunch
Low Growth, High
Share:
 Firms should milk these “cash cows” for cash to reinvest.
High Growth, High Share:
 Firms must invest in these “stars” as they have high future potential.
High Growth, Low Share:
 Firms should invest in or discard these “question marks,” depending on their chances of
becoming stars.
Low Share, Low Growth:
 Firms should liquidate, divest, or reposition these “Dogs.”

To see this further in detail.

 12

Cash cows: For Nestle, there are some products those have been undoubtedly the Cash Cows.
They are- Nestlé’s Maggi Noodles, Nescafe and its popular chocolates like Kit Kat, Munch.
With a market share of 80-85 %, Maggi Noodles holds a monopoly in the market and have a
high customer loyalty .These products need very less investment. In fact, they are already
available at every nook and cranny. And loved my most of us!

Stars: In the case of Nestle, Nestlé’s Mineral Water and Nestlé’s Nescafe Coffee (like
Nescafe Latte) fall in the Star quadrant of the BCG Matrix of Nestle. With the growing number
of health-conscious customers, these products have the potential to produce great revenue but not
for the long time may be it will be turn into cash cows very soon.

Question Mark: Nestle Everyday Nestlé slim and Nestlé Milk maid are some of the milk
and milk-based products from the house of Nestlé. And they come under Question Mark
category. This category needs a higher investment, because it is in the phase of development.
And it is a high-risk decision to invest in. Like for example, É by Nescafe Nestle aims to
revolutionize coffee-making with this new smart coffee make.

Dogs: Products under this category are not expected to bring in any significant capital. So
future investment is seen as wastage by firms, it could be invested in a Question mark or Star
category instead. I believe Nestle Milo and Koko Crunch can be put in this category. They did
not have any significant grasp in the market.

The SWOT Matrix: The Strengths-Weaknesses-Opportunities-Threats (SWOT) Matrix is

an important matching tool that helps managers develop four types of strategies: SO (strengths-
opportunities) strategies, WO (weaknesses-opportunities) strategies, ST (strengths-threats)
strategies, and WT (weaknesses-threats) strategies. Matching key external and internal factors is
the most difficult part of developing a SWOT Matrix and requires good judgment and there is no
one best set of matches.
 13

Strength: Weakness:
1. Largest Food Company. 1. Price fluctuations by retail giants.
2. Reputed brand name. 2. Span of control and organizational
3. Globally recognized brand. structure.
4. Financially strong, diversified portfolio. 3. Water controversy.
5. Efficient R&D system. 4. Social criticisms.
6. Environmental sustainability practices.
7. Large distribution system.

Opportunities: Threats
1. Venturing small food start-ups. 1. Water scarcity.
2. Online shopping. 2. Rising competition.
3. Market penetration for breakfast cereals. 3. The price of coffee beans.
4. Expanding ready-to-drink tea and coffee 4. Government regulations and prices.
market.
5. Authentic labeling.

SO Strategies: WO Strategies:
1. launch food startups because of reputed 1. Sell directly to consumers.(W1,O2)
name.(S2,O1) 2. Joint venture to reduce management
2. open E-commerce because of recognized conflicts.(W2,O1)
brand.(S3,O2) 3. convert weakness into opportunity by
3. penetration in breakfast cereals.(S4,O3) authentic labeling.(W4,O5)
 14

ST Strategies. WT Strategies:
1. Research on easy available and low 1. Social responsibility can reduce the water
consumption of water.(S5,T1) controversy and scarcity.(W3,W4,T1)
2. Purchase your competitor to reduce the 2. Open your own outlet.(W1,T2)
competition.(S4,T2)
3. Diversified portfolio can reduce the
regulations and prices.(S4,T4)

SPACE Matrix: The Strategic Position and Action Evaluation (SPACE) Matrix, another
important Stage 2 Matching tool. Its four-quadrant framework indicates whether Aggressive,
conservative, defensive, or competitive strategies are most appropriate for a given
Organization .The axes of the SPACE Matrix represent two internal dimensions financial
Position (FP) and competitive position (CP) and two external dimensions stability position (SP)
and industry position (IP). These four factors are perhaps the most important determinants of an
organization’s overall strategic position.

SPACE Matrix of NESTLE:

Putting the values:

Financial Position Ratings

1. Net sales of nestle is comparative high than its competitors during covid-19. 5
2. Net income increased in 2020 by 7.9%%. 6
3. Debt to equity ratio changes 87.42% to 98.43%. 2
4. Earnings per share 204.2 to 216 in 2020. 4

Average Financial Position 4.25

Industry Position Ratings

 15

1. Most diversified food and Beverages Company. 6

2. Nestle financial, liquidity and profitability position is very strong. 4
3. Nestle starting capturing food business specially breakfast items. 4
4. Nestle growth is increasing day by day also market share. 3

Average Industry position 4.25

Stability Position Ratings

1. There is very low risk involved because of diversification and high financial -1
position and also the supply chain of 180+countries.
2. Less-developed countries are experiencing high inflation and political instability. -4
3. Economic slowdown in demand because of covid-19. -5
4. Price of competing products is not very significant. -1

Average Stability Position -2.75

Competitive Position Ratings

1. Nestle enjoys strong customer loyalty. -2

2. Nestle products are market leader in many products categories. -2
3. Quality product distribution in the country. -1
4. Market share of nestle is quite high than its competitors. -1

Average Competitive Position -1.5

Directional Vector Coordinates: X-axis: -1.5+ (+4.25) = 2.75

Y-axis: -2.75+ (+4.25) = 1.5
 16

FP

6
5
CONSERVA- AGGRESSIVE
TIVE 4
3
X,Y(2.75,1.5)
2
1

CP 0 IP
-6 -5 -4 -3 -2 -1 0 1 2 3 4 5 6
-1
-2
DEFENSIVE COMPETITIVE
-3
-4
-5
-6

SP

FP
6
X,Y(- X,Y(4.25,4.2
1.5,4.25) 5
CONSERVA- AGGRESSIVE 5)
TIVE 4
3
2
1
0
CP -6 -5 -4 -3 -2 -1
-1
0 1 2 3 4 5 6 IP
-2
DEFENSIVE COMPETITIVE
-3
X,Y(-1.5,- X,Y(-2.75,4.25)
-4
2.75)
-5
-6

SP

The company relies in the aggressive section because it has the major share in all over the worlds
market, company has not very major competitor itself company products are market leader in
 17

many categories with the data and graphs shows that the company is very aggressive in market
because they only need the idea to be launched if it has potential. Company use the strategy of
integration, market and product development, market penetration and he major one
diversification because company is much diversified in its portfolio as they have many different
categories products. And is we see the overall position of the company the major company is
very aggressive little bit of conservative and defensive and little bit more competitive but the
major is aggressive.

Grand Matrix: The Grand Strategy Matrix was created in the late twentieth century by the
American business theorist Joseph DiMaggio, who called it a “Matrix of Strategic Options for
Managers.” The matrix later became popular amongst the growing number of business strategists
who called it the Industry Life Cycle Matrix because it was viewed as particularly useful for
businesses in industries in the later phases of the industry’s life cycle.
A grand strategy matrix consists of a four-quadrant graph, similar to a SWOT matrix that lists
strategic options for companies in either strong or weak competitive positions in industries
experiencing either rapid or slow growth. Unlike a SWOT matrix, a grand strategy matrix reveals
strategic options for virtually any business in a given industry within any stage of the industry’s
life cycle.

GRAND MATRIX OF NESTLE

 18

The grand matrix tells the position of the company based on the two things one is market growth
and the other is competitive position in the market who ever have the growth and the strong
competitive position will rely in the first quadrant.

Quadrant II need to evaluate their present approach to the marketplace seriously. Although their
industry is growing, they are unable to compete effectively, and they need to determine why the
firm’s current approach is ineffective and how the company can best change to improve its
competitiveness. Because Quadrant II firms are in a rapid-market-growth industry, an intensive
strategy (as opposed to integrative or diversification) is usually the first option that should be
considered. However, if the firm is lacking a distinctive competence or competitive advantage,
then horizontal integration is often a desirable alternative. As a last resort, divestiture or
liquidation should be considered. Divestiture can provide funds needed to acquire other
businesses or buy back shares of stock.

Quadrant III organizations compete in slow-growth industries and have weak competitive
positions. These firms must make some drastic changes quickly to avoid further decline and
possible liquidation. Extensive cost and asset reduction (retrenchment) should be pursued first.
An alternative strategy is to shift resources away from the current business into different areas
(diversify). If all else fails, the final options for Quadrant III businesses are divestiture or
liquidation.

Finally, Quadrant IV businesses have a strong competitive position but are in a slow-growth
industry. These firms have the strength to launch diversified programs into more promising
Growth areas: Quadrant IV firms have characteristically high cash-flow levels and limited
internal growth needs and often can pursue related or unrelated diversification successfully.
Quadrant IV firms also may pursue joint ventures.

Nestle maintains the position in the first quadrant of the matrix which means it has very high
level of competition and high growth in the market also very strong financial position. Because
Nestle is using the strategies of market penetration, market development product development,
integration and diversification strategies to maintain the position in the industry.
 19

THE DECISION STAGE

 20

The Quantitative Strategic Planning Matrix (QSPM): The Quantitative Strategic

Planning Matrix or a QSPM approach attempts to objectively select the best strategy using input
from other management techniques and some easy computations. In other words, the QSPM
method uses inputs from stage 1 analyses, matches them with results from stage 2 analyses, and
then decides objectively among alternative strategies.

Strategic Alternatives
Launch food startups Convert business
by brand name Into online to
Increase sale
Key Factors Weight AS TAS AS TAS
Opportunities

1. Venturing small food start-ups .1 4 .4 2 .2

2. Online shopping .15 3 .45 3 .45
3. Market penetration for breakfast cereals .2 3 .6 3 .6
4. Expanding ready-to-drink tea and coffee market .05 2 .1 1 .05
5. Authentic labeling .05 -- -- -- --
Threats

1. Water scarcity .2 -- -- -- --
2. Rising competition .2 1 .2 2 .4
3. The price of coffee beans .025 -- -- -- --
4. Government regulations and prices .025 -- -- -- --
Total =1
Strength

1. Largest Food Company .15 4 .6 4 .6

2. Reputed brand name .09 2 .18 4 .36
3. Globally recognized brand .05 3 .15 3 .15
4. Highly diversified company – .05 2 .1 3 .15
5. Efficient R&D system .15 -- -- -- --
6. Environmental sustainability practices .05 -- -- -- --
 21

7. Large distribution system .05 -- -- 3 .15

Weakness

1. Price fluctuations by retail giants .2 -- -- 3 .6

2. Span of control and organizational structure .05 -- -- -- --
3. Water controversy .06 -- -- 2 .12
4. Social criticisms 0.1 -- -- -- --
Total =1 2.78 3.83

According to the total attractiveness scores they indicate that the company should start to convert
the business into online by time to time to increase for sale and also remove the retail giants to
remove the fluctuation in the price. After converting the online it also need to start the physical
store by the brand name because of reputed name.

Nestle data needed for EPS/EBIT Analysis: Let’s take the example of previous made
matrix (QSPM) in which we decided to adopt the one strategies on the basis of total
attractiveness scores so we decided to adopt the strategy of to start the online business, so in
starting the online business company need huge amount of capital to convert that so let’s take the
data and analyze it on our personal assumptions .For the online company need to develop the
software, warehouse for storing purpose and riding services for the delivery. But this analysis
will only for the Pakistan.

Amount of capital needed for the online: 2 Billion Rupees

EBIT range: 10billion to 15billion
Interest rate 15%
Tax rate: 23%
Stock price: 5,689.99
Share outstanding: 45,349,551

Find out:
CSF and DF
50%CSF and 50%DF
40CSF and 60%DF
20%CSF and 50%DF

The tax rate is according to the FBR tax regime and interest rate is according to the
business loan offered by the banking sector. The loan amount is high and for
company it is not so big to arrange but just to do this analysis we are taking the
interest rate for many banks and merged into a double digit number.
 22

SOLUTION (Amount in billion)

CSF AND DF

Common Stock Financing Debt Financing

Pessimistic Realistic Optimistic Pessimistic Realistic Optimistic

EBIT 10 12 15 10 12 15

Interest 0 0 0 300m 300m 300m

EBT 10 12 15 9.7 11.7 14.7

Tax 2.3 2.76 3.45 2.231 2.691 3.381

EAT 7.7 9.24 11.55 7.469 9.009 11.319

#Share 45,701,046 45,701,046 45,701,046 45,349,551 45,349,551 45,349,551

EPS 168.49 202.18 252.73 164.698 198.66 249.59

50%CSF and 50%DF

Stock 50% Debt 50%
Pessimistic Realistic Optimistic

EBIT 10 12 15

Interest 150m 150m 150m

EBT 9.85 11.85 14.85

Tax 2.2655 2.7255 3.4155

EAT 7.5845 9.1245 11.4345

#Share 45,525,298 45,525,298 45,525,298

 23

EPS 166.60 200.43 251.16

40%CSF and 60%DF

Stock 40% Debt 60%

Pessimistic Realistic Optimistic

EBIT 10 12 15

Interest 180m 180m 180m

EBT 9.82 11.82 14.82

Tax 2.2586 2.7186 3.4086

EAT 7.5614 9.1014 11.4114

#Share 45,490,149 45,490,149 45,490,149

EPS 166.22 200.07 250.85

20%CSF and 80%DF

Stock 20% Debt 80%

Pessimistic Realistic Optimistic

EBIT 10 12 15

Interest 240m 240m 240m

EBT 9.76 11.76 14.76

Tax 2.2448 2.7048 3.3948

EAT 7.5152 9.0552 11.3652

#Share 45,419,850 45,419,850 45,419,850

EPS 165.461 199.37 250.22

 24

With this question or the analysis of EBIT/EPS we have done some measurement on common
stock financing and debt financing for the company between which is better way of financing for
this investment in which we need 2 billion rupees so we came up on this recommendation that
50% common stock financing and 50% debt financing is better option in this investment so
we will chose that because in which we are getting the higher EPS in that which is 251.16 so, we
will chose this option for the financing .

APPENDIX

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3- 4-
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5- 6-

7- 8-

9- 10-
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11- 12-

13- 14-
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15- 16-

17- 18-
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19-

20- 21-
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22- 23-

24- 25-
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26- 27-

28-
31
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29- 30-

31-
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32-