AFS Report on:

Nestle Pakistan Ltd.

Submitted By:
Hafiz Muhammad Saad Khan
BBFE-19-12
BBA (B&F)
2019-2023
Evening
Submitted To:
Dr. Haris Malik
Institute of Banking and Finance
Bahauddin Zakariya University, Multan
 Executive Summary
This report covers a thorough financial analysis of Nestle Pakistan Ltd. The 1st
chapter comprises of general introduction of the company, its mission, vision and
overall nature of business.

The 2nd chapter is financial analysis which covers the company’s 5 year Horizontal,
Vertical and Ratio analysis. Furthermore, it also indicates the factors affecting on
the environment of the company through SWOT and PESTLE analysis.

Lastly, the final section comprises of a conclusion and general discussion of the
report and all the references from where the source material and information was
collected from.

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 Acknowledgement
All the praises are for the Almighty, Allah who bestowed me with ability and
potential to complete this report. First of all, I want to express all our humble
thanks to ALLAH , who is very sensitive about each and every activity of all his
men and without whose help, we are unable to accomplish any objective in our
life.

I would like to express my deepest appreciation to all those who provided me the
possibility to complete this report. A special gratitude I give to our professor, Dr.
Haris Malik, whose contribution in stimulating suggestions and encouragement
helped me in writing this report.

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 Dedication

I would like to dedicate this accomplishment to my beloved parents and teachers

who taught me not to be afraid of any hardships and who provide me with the
opportunities for self – grooming.

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 Table of Contents

Executive Summary......................................................................................................................................i
Acknowledgement.......................................................................................................................................ii
Dedication...................................................................................................................................................iii
CHAPTER 1 – Introduction:..........................................................................................................................1
1.1 History of Nestlé:.........................................................................................................................1
1.2 Nestlé Pakistan:...........................................................................................................................2
1.3 Mission Statement:......................................................................................................................2
1.4 Vision and values:........................................................................................................................3
1.5 Products in Pakistan:...................................................................................................................3
1.6 Management Structure:..............................................................................................................5
1.7 Role of Management:..................................................................................................................5
CHAPTER 2 – Financial Analysis:..................................................................................................................8
2.1 Financial Statements....................................................................................................................8
2.2 Horizontal Analysis....................................................................................................................11
2.3 Vertical Analysis.........................................................................................................................18
2.4 Ratio Analysis:..................................................................................................................................24
2.4.1 Profitability Ratios..............................................................................................................24
2.4.2 Liquidity Ratios...................................................................................................................26
2.4.3 Activity Ratios....................................................................................................................27
2.4.4 Debt Ratios........................................................................................................................29
2.4.5 Market Ratios.....................................................................................................................30
2.5 SWOT ANALYSIS...............................................................................................................................32
Strengths:..........................................................................................................................................32
Weaknesses:......................................................................................................................................33
Opportunities:...................................................................................................................................33
Threats:..............................................................................................................................................33
2.6 PESTLE Analysis................................................................................................................................33
Political:.............................................................................................................................................33

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 Economic:..........................................................................................................................................34
Social:................................................................................................................................................34
Technological:....................................................................................................................................34
Legal:.................................................................................................................................................34
Environmental:..................................................................................................................................34
CHAPTER 3 – Conclusion:...........................................................................................................................35
Suggestions:...........................................................................................................................................35
References:............................................................................................................................................35

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 CHAPTER 1 – Introduction:
NESTLE, is one of the top class & leading products manufacturing company in worlds, which
starts its operation in 1866 by Henri Nestlé and is today the world's biggest food and beverage
company. Nestlé employs around 250,000 people from more than 86 countries and has factories
or operations in almost every country in the world. The history of Nestlé began in Switzerland in
1867. Henry Nestle, a chemist from Frankfurt who had settled in Vevey, became interested in
infant feeding. To satisfy a clear need, he developed and produced a milk-based food for babies
whose mothers could not nurse them. The new product soon became well-known worldwide
under the name of “Farine Lactee Nestle ( Nestle Milk Food )”.In order to expand into a broader
category and meet more people’s needs, the Nestle Company’s first diversification occurred in
1905 when it merged with the Anglo-Swiss Condensed Milk Company (1866). Today,
processing milk food is still the company’s chief activity together with the other products of
Nestle family such as chocolates, instant milk-based drinks culinary products, frozen foods, ice
cream, dairy products, and infant foods. Nestle is still primarily concerned with the field of
nutrition, but it has also acquired an interest in pharmaceuticals and cosmetics industries. As a
result of the company’s initiative and bold activity, it has grown into a huge organization, nearly
500 factories worldwide. Nestle products are now widely distributed on all continents and sold in
more than 100 countries.

1.1 History of Nestlé:

 1867: Henri Nestle founded the company in Vevey, Switzerland.
 1898: Nestle purchases its first factory outside of Switzerland- Viking Milk factory in
Norway.
 1905: Nestle merges with Anglo-Swiss Condensed Milk company.
 1929: Nestle merges with Peter-Cailler Kohler chocolates Suisse S.A.
 1938: Nestle launches Nescafe – the world’s first instant coffee.
 1947: Nestle merges with Alimentana S.A. with the brand Maggi.
 1962: Nestle purchases Findus.
 1974: Nestle becomes a significant shareholder in the cosmetics company L’Oreal.
 1977: Nestle purchases Alcon, manufacture of eye care products and kits.

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  1985: Nestle purchases the food company carnation.
 1988: Nestle purchases the confectionary company Rowntree Mackintosh and pasta
company Buitoni –Perugina.
 1992: Nestle purchases the mineral water company, Perrier.
 1998: Nestle purchases Spillers pet foods business.
 2000: Nestle sells the find us brand in all countries except for Switzerland.
 2001: Nestle merges with Ralston Purina, the premier pet food company in North
America, and with unique expertise in the dry dog food area.

1.2 Nestlé Pakistan:

Nestlé in Pakistan is operating since 1988 under a joint venture with Milk Pak ltd and took over
management in 1992.

The company’s strategy is guided by Nestlé’s Corporate Business Principles which are in line
with internationally accepted best practices and ethical performance culture. Nestlé’s existing
products grow through innovation and renovation while maintaining a balance in geographic
activities and product lines. Long-term potential is never sacrificed for short-term performance.
The Company’s priority is to bring the best and most relevant products to people, wherever they
are, whatever their needs are, and for all age groups.

Nestlé Pakistan today is the leading Food & Beverages Company in Pakistan with key focus on
Nutrition, Health and Wellness and reaching the remotest of locations throughout Pakistan to
serve the consumers. Nestlé Pakistan also prides itself in being the leaders in Nutrition, Health &
Wellness. Ever since 1867, when Henri Nestlé invented the first infant food, nutrition has been in
our DNA. Today more and more consumers mirror our emphasis on nutrition, as they realize that
food choices affect their health and quality of life.

1.3 Mission Statement:

Nestlé is the world's leading nutrition, health and wellness company. 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.

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 1.4 Vision and values:
To be a leading, competitive, Nutrition, Health and Wellness Company delivering improved
shareholder value by being a preferred corporate citizen, preferred employer, preferred supplier
selling preferred.

1.5 Products in Pakistan:

Nestle product line is divided into following major categories:

1. Ambient Dairy

 Nestlé Milkpak
 Nestlé Milkpak cream
 Nestlé Bunyad
 Nestlé Milo
 Nestlé Everyday
 Nestlé Nesvita calcium plus
 Nestlé Nido Fortigrow

2. Chilled Dairy

 Nestlé Yogurt Sweet ‘n’ Tasty

 Nestlé Riwayati Mazaa Yogurt
 Nestlé Actiplus Yogurt
 Nestlé Milkpak Yogurt
 Nestlé Zeera Raita
 Nestlé Podina Raita

3. Juices

 Nestlé Fruita Vitala

 Nestlé Nesfruta

4. Bottled Water

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  Nestlé Pure Life

5. Culinary & Food

 Nestlé Maggi Noodles

 Maggi Chotoo

6. Baby Food

 Nestlé Cerelac

7. Breakfast Cereals

 Nestlé Koko Krunch

 Nestlé Milo Cereal
 Nestlé Corn Flakes

8. Coffee

 Nescafé Classic
 Nescafé Gold

9. Confectionery

 Kitkat

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 1.6 Management Structure:

CEO

Company
CFO
Secretary

Head of Internal
Audit

HR and
Audit Committee Remuneration Business Unit
Committee

Managing
Director

Supply Chain Finance and

Factory Manager
Manager Admin Manager

1.7 Role of Management:

Top Level of Management

It contains of board of directors, chief executive or managing director. The top management is
the final source of authority and it manages aims and policies for an initiative. It dedicates more
time on planning and coordinating functions.

 The role of the top management can be summarized as follows:

 Top management broad policies of the enterprise and lays down the objectives.

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  It issues necessary instructions for preparation of subdivision procedures, schedules,
budgets, etc.
 It prepares strategic policies & plans for the initiative.
 It appoints the executive for middle level for instance departmental managers.
 It coordinates & controls the activities of all the departments.
 It is also responsible for maintaining a contact with the outside world.
 It provides direction and guidance.

 The top management is also responsible towards the stockholders for the performance of
the initiative.

Middle Level of Management

The branch managers and departmental managers constitute middle level. They are responsible
to the top management for the operative of their department. They devote more time to
directional and organizational functions. Their role can be highlighted as:

 They execute the plans of the organization in accordance with the policies and directives
of the top management.
 They make plans for the sub-units of the organization.
 They participate in training & employment of lower level management.
 They understand and explain policies from top-level management to lower level.

 They are also responsible for inspiring lower level managers towards better performance.

Lower Level of Management

Lower level is also known as operative/supervisory level of management. It contains of

supervisors, superintendent section, officers etc. Their activities include:

 Assigning of jobs and tasks to various workers.

 They instruct and guide workers for day-to-day activities.
 They are responsible for the quality as well as quantity of production.
 They are also entrusted with the responsibility of maintaining good relation in the
organization.

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 They communicate workers problems, suggestions, and recommendatory appeals etc to
the higher level and higher-level goals and objectives to the workers.
 They help to solve the complaints of the workers.

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 CHAPTER 2 – Financial Analysis:
2.1 Financial Statements

Income Statement
  2021 2020 2019 2018 2017
Revenue from contracts with customers 133,295,472 118,781,274 115,962,473 120,701,038 122,214,698
Cost of Goods Sold (92,803,347) (84,016,549) (82,613,501) (81,887,248) (77,458,749)
Gross Profit 40,492,125 34,764,725 33,348,972 38,813,790 44,755,949
Distribution and Selling Expenses (14,897,747) (14,256,719) (14,656,501) (15,625,633) (18,406,725)
Administration Expenses (4,016,767) (4,447,506) (3,667,718) (3,108,623) (2,741,743)
Operating Profits 21,577,611 16,060,500 15,024,753 20,079,534 23,607,481
Finance Costs (1,840,228) (2,805,015) (3,187,695) (1,855,789) (1,095,630)
Other Expenses (2,079,361) (1,019,221) (1,390,138) (1,512,112) (1,837,203)
Other Income 295,578 354,830 268,790 255,308 313,857
Profit before Taxation 17,953,600 12,591,094 10,715,710 16,966,941 20,988,505
Taxation (5,185,499) (3,706,499) (3,361,243) (5,355,382) (6,346,723)
Profit after Taxation 12,768,101 8,884,595 7,354,467 11,611,559 14,641,782
Earnings per Share Basic and Diluted 281.55 195.91 162.17 256.05 322.86
Other Comprehensive Income(Loss) 54,222 (13,939) (273,246) (240,680) (244,614)
           
Net Profit 12,822,323 8,870,656 7,081,221 11,362,522 14,415,617

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 Balance Sheet

Assets
  2021 2020 2019 2018 2017
Non-Current Assets          
Property plant and equipment 29,274,553 28,679,851 30,333,121 30,363,333 28,734,507
Capital Work-in-progress 2,026,307 4,097,316 3,441,066 3,679,302 4,059,585
Intangible assets 0 0 7,396 15,464 23,532
Long-Term Loans 159,848 179,191 239,499 305,333 367,359
Long -Term Deposits and Prepayments 0 0 0 0 36,147
Total Non-Current Assets 31,460,708 32,956,358 34,021,082 34,363,432 33,221,130
Current Assets          
Stores and Spares 3,045,805 2,670,279 2,376,057 1,951,900 1,769,987
Stock-In-Trade 18,600,718 16,252,021 18,876,441 19,711,784 15,385,288
Trade Debts 923,484 1,930,333 2,164,888 3,116,948 781,116
Current Portion of Long-Term Loan 116,810 134,078 132,045 132,729 135,248
Sales tax refundable - net 7,059,231 4,324,260 4,599,004 4,552,598 4,477,768
Advance, Deposits, Prepayments and other Receivables 3,453,222 1,849,981 2,785,138 2,584,926 1,268,098
Cash and Bank Balances 743,920 789,055 318,753 745,694 1,333,984
Total Current Assets 33,943,190 27,950,007 31,252,326 32,796,579 25,124,489
Total Assets 65,403,898 60,906,365 65,273,408 67,160,011 58,345,619

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 Liabilities & Shareholders' Equity
  2021 2020 2019 2018 2017
Share Capital and Reserves          
Authorized Capital (75,000,000)/PKR 10 each 750,000 750,000 750,000 750,000 750,000
Issued, Subscribed and Paid-up-Capital 453,496 453,496 453,496 453,496 453,496
Share Premium 249,527 249,527 249,527 249,527 249,527
General Reserves 280,000 280,000 280,000 280,000 280,000
Cash Flow Hedge Reserves (2,537) 0 0 0 8,357
Accumulated Profits 4,422,786 3,207,419 2,272,943 3,037,201 3,642,960
Total Equity 5,403,272 4,190,442 3,255,966 4,020,224 4,634,340
Non-Current Liabilities          
Long Term Finances-Secured 12,000,000 12,081,975 3,780,294 9,064,730 9,291,755
Lease Liabilities 115,479 34,682 303,729 217,530 0
Deferred Taxation 1,241,580 1,332,919 1,960,850 2,443,197 2,493,067
Retirement Benefits 3,376,097 3,117,661 2,777,502 2,098,020 1,660,762
Total Non-Current Liabilities 16,733,156 16,567,237 8,822,375 13,823,477 13,445,584
Current Liabilities          
Current Portion of Long-Term Liabilities 130,869 3,734,310 3,395,084 420,285 116,343
Short-Term Borrowings - Secured 6,000,000 6,417,473 17,217,473 15,242,800 11,845,986
Running Finance under Mark-up Arrangements - Secured 4,226,529 830,245 6,141,325 1,418,301 513,908
Customer Security Deposits - Interest Free 195,890 222,166 192,724 195,431 260,369
Unclaimed Dividend 71,894 72,121 20,608 20,608 0
Unpaid Dividend 2,011,404 0 0 0 0
Trade and other Payables 28,023,293 26,563,482 25,782,895 31,745,031 26,231,936
Contract Liablities 682,065 562,263 0 0 0
Income Tax Payable 1,444,883 1,443,443 0 0 0
Interest and Mark-up Accured 480,643 303,183 444,958 273,854 146,856
Total Current Liabilities 43,267,470 40,148,686 53,195,067 49,316,310 40,265,695
Total Liabilites 60,000,626 56,715,923 62,017,442 63,139,787 53,711,279
Total Liabilites and Equity 65,403,898 60,906,365 65,273,408 67,160,011 58,345,619

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 2.2 Horizontal Analysis

Income Statement
  2021 2020 2019 2018 2017
Revenue from contracts with customers 12.22% 2.43% -3.93% -1.24% 100%
Cost of Goods Sold 10.46% 1.70% 0.89% 5.72% 100%
Gross Profit 16.47% 4.25% -14.08% -13.28% 100%
           
Distribution and Selling Expenses 4.50% -2.73% -6.20% -15.11% 100%
Administration Expenses -9.68% 21.26% 17.99% 13.38% 100%
Operating Profits 34.35% 6.89% -25.17% -14.94% 100%
           
Finance Costs -34.40% -12.00% 71.77% 69.38% 100%
Other Expenses 104.01% -26.68% -8.07% -17.69% 100%
           
Other Income -14.28% 28.29% 5.28% -18.65% 100%
Profit before Taxation 42.59% 17.50% -36.84% -19.16% 100%
           
Taxation 39.90% 10.27% -37.24% -15.62% 100%
           
Profit after Taxation 43.71% 20.81% -36.66% -20.70% 100%
           
Earnings per Share Basic and Diluted 43.71% 20.81% -36.66% -20.69% 100%
Other Comprehensive Income(Loss) 288.99% -94.90% 13.53% -1.61% 100%
           
Net Profit 44.55% 25.27% -37.68% -21.18% 100%

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 Income Statement(Horizontal Analysis)
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2021 2020 2019 2018 2017

Interpretation
Comparing the income statement performance of Nestle, its revenue from customers during FY21 has increased drastically after the
recovery from COVID period. An increase in revenue is generally followed by an increase in its Cost of Goods Sold reaching almost
an increase of 10 percent compared to its last working year FY20. But it can easily be overlooked by the fact that its Gross Profit
margins show a continuous increasing trend in the horizontal analysis reaching a 16.47% percent increase in FY21. This is important
as if we take a look at previous years its GP margin was in negative comparison to previous years. Nestle has worked on decreasing its
expenses resulting in an increase in Operating Profits by 34.35% in FY21. Neslte’s other expenses and interest paid has increased
significantly which suggests that Nestle is working to pay off its term loans which can also be seen through its ratios that its portion of

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debt is decreasing. Its profit after taxation is still profitable at an increase of 43.71% compared to FY20. Nestle reported a profit in
other income which led to an increase in 288.99% since previous balances were negative. Followed by an increase in Net Profit by
44.55% which suggests an overall trend and signifies that the company is growing.

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 Balance Sheet
Assets 2021 2020 2019 2018 2017
Non-Current Assets          
Property plant and equipment 2.07% -5.45% -0.10% 5.67% 100%
Capital Work-in-progress -50.55% 19.07% -6.48% -9.37% 100%
Intangible assets 0.00% -100.00% -52.17% -34.29% 100%
Long-Term Loans -10.79% -25.18% -21.56% -16.88% 100%
Long -Term Deposits and Prepayments 0.00% 0.00% 0.00% -100.00% 100%
Total Non-Current Assets -4.54% -3.13% -1.00% 3.44% 100%
Current Assets          
Stores and Spares 14.06% 12.38% 21.73% 10.28% 100%
Stock-In-Trade 14.45% -13.90% -4.24% 28.12% 100%
Trade Debts -52.16% -10.83% -30.54% 299.04% 100%
Current Portion of Long-Term Loan -12.88% 1.54% -0.52% -1.86% 100%
Sales tax refundable – net 63.25% -5.97% 1.02% 1.67% 100%
Advance, Deposits, Prepayments and other Receivables 86.66% -33.58% 7.75% 103.84% 100%
Cash and Bank Balances -5.72% 147.54% -57.25% -44.10% 100%
Total Current Assets 21.44% -10.57% -4.71% 30.54% 100%
Total Assets 7.38% -6.69% -2.81% 15.11% 100%

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 Liabilities & Shareholders' Equity
  2021 2020 2019 2018 2017
Share Capital and Reserves
Authorized Capital (75,000,000)/PKR 10 each 0.00% 0.00% 0.00% 0.00% 100.00%
Issued, Subscribed and Paid-up-Capital 0.00% 0.00% 0.00% 0.00% 100.00%
Share Premium 0.00% 0.00% 0.00% 0.00% 100.00%
General Reserves 0.00% 0.00% 0.00% 0.00% 100.00%
Cash Flow Hedge Reserves 0.00% 0.00% 0.00% -100.00% 100.00%
Accumulated Profits 37.89% 41.11% -25.16% -16.63% 100.00%
Total Equity 28.94% 28.70% -19.01% -13.25% 100.00%
Non-Current Liabilities          
Long Term Finances-Secured -0.68% 219.60% -58.30% -2.44% 100.00%
Lease Liabilities 232.97% -88.58% 39.63% 100.00% 0.00%
Deferred Taxation -6.85% -32.02% -19.74% -2.00% 100.00%
Retirement Benefits 8.29% 12.25% 32.39% 26.33% 100.00%
Total Non-Current Liabilities 1.00% 87.79% -36.18% 2.81% 100.00%
Current Liabilities          
Current Portion of Long-Term Liabilities -96.50% 9.99% 707.81% 261.25% 100.00%
Short-Term Borrowings - Secured -6.51% -62.73% 12.95% 28.67% 100.00%
Running Finance under Mark-up Arrangements - Secured 409.07% -86.48% 333.01% 175.98% 100.00%

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Customer Security Deposits - Interest Free -11.83% 15.28% -1.39% -24.94% 100.00%
Unclaimed Dividend -0.31% 249.97% 0.00% 100.00% 0.00%
Unpaid Dividend 100.00% 0.00% 0.00% 0.00% 0.00%
Trade and other Payables 5.50% 3.03% -18.78% 21.02% 100.00%
Contract Liablities 21.31% 100.00% 0.00% 0.00% 0.00%
Income Tax Payable 0.10% 100.00% 0.00% 0.00% 0.00%
Interest and Mark-up Accured 58.53% -31.86% 62.48% 86.48% 100.00%
Total Current Liabilities 7.77% -24.53% 7.87% 22.48% 100.00%
Total Liabilites 5.79% -8.55% -1.78% 17.55% 100.00%
Total Liabilites and Equity 7.38% -6.69% -2.81% 15.11% 100.00%

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 Interpretation:
Nestle’s non-current assets saw a major decline in the horizontal trend specifically the capital work in progress and long term loans by
-50.55% and -10.79% respectively. Overall contributing to a decreasing trend of non-current assets historically. This is also due to the
fact that Nestle is trying to pay off its loan and including more equity in its capital structure.

Nestle’s current assets on the other hand, are completely opposite. Its current assets albeit affected heavily by COVID-19, recovered
greatly in FY21 with an increase of 21.44% from -10.57% in FY20. Major contributors in this are Refundable sales tax and advances
to other 3rd parties and receivables.

Nestle’s Shareholder’s Equity saw changes only in accumulated profits with positive balances in FY20 and FY21 with 28.70% and
28.94% respectively.

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Nestle’s non-current liabilities did not see a major change in their balance due to the fact that its lease liabilities were increased and
long term finances decreased with around the same amount.

Nestle’s current liabilities are not stable but still witness an increasing trend in FY21 with 5.79% provided its operations run smoothly.
Nestle did not pay all of its dividend to shareholders in FY21 and its interests accrued have increased.

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 2.3 Vertical Analysis

Income Statement
  2021 2020 2019 2018 2017
Revenue from contracts with customers 100.00% 100.00% 100.00% 100.00% 100.00%
Cost of Goods Sold -69.62% -70.73% -71.24% -67.84% -63.38%
Gross Profit 30.38% 29.27% 28.76% 32.16% 36.62%
           
Distribution and Selling Expenses -11.18% -12.00% -12.64% -12.95% -15.06%
Administration Expenses -3.01% -3.74% -3.16% -2.58% -2.24%
Operating Profits 16.19% 13.52% 12.96% 16.64% 19.32%
           
Finance Costs -1.38% -2.36% -2.75% -1.54% -0.90%
Other Expenses -1.56% -0.86% -1.20% -1.25% -1.50%
           
Other Income 0.22% 0.29% 0.23% 0.21% 0.26%
Profit before Taxation 13.47% 10.60% 9.24% 14.06% 17.17%
           
Taxation -3.89% -3.12% -2.90% -4.44% -5.19%
           
Profit after Taxation 9.58% 7.48% 6.34% 9.62% 11.98%
           
Earnings per Share Basic and Diluted 0.00% 0.00% 0.00% 0.00% 0.00%
Other Comprehensive Income(Loss) 0.04% -0.01% -0.24% -0.20% -0.20%
           
Net Profit 9.62% 7.47% 6.11% 9.41% 11.80%

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 Interpretation:
From the vertical analysis of income statement it can be seen that from the total revenues, Nestle spends almost 60%-70% on average
on its costs since it is in the production industry. The remaining 30% is divided into the company’s internal expenses such as admin
and selling and external expenses such as interest and taxes leaving the company with a 9.58% profit after all of its expenses. Nestle
then calculates the EPS for its common stock holders and any other accrued income or loss with a profit reported in FY21. The final
Net Profit of the company that is generated on its revenue is 9.62% of it.

Overall the company had a decreasing trend till FY20 but in FY21 the company has started to increase its profits.

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 Assets
  2021 2020 2019 2018 2017
Non-Current Assets          
Property plant and equipment 44.76% 47.09% 46.47% 45.21% 49.25%
Capital Work-in-progress 3.10% 6.73% 5.27% 5.48% 6.96%
Intangible assets 0.00% 0.00% 0.01% 0.02% 0.04%
Long-Term Loans 0.24% 0.00% 0.37% 0.45% 0.63%
Long -Term Deposits and Prepayments 0.00% 0.00% 0.00% 0.00% 0.06%
Total Non-Current Assets 48.10% 54.11% 52.12% 51.17% 56.94%
Current Assets          
Stores and Spares 4.66% 4.38% 3.64% 2.91% 3.03%
Stock-In-Trade 28.44% 26.68% 28.92% 29.35% 26.37%
Trade Debts 0.49% 3.17% 3.32% 4.64% 1.34%
Current Portion of Long-Term Loan 0.18% 0.22% 0.20% 0.20% 0.23%
Sales tax refundable - net 10.79% 7.10% 7.05% 6.78% 7.67%
Advance, Deposits, Prepayments and other Receivables 5.28% 3.04% 4.27% 3.85% 2.17%
Cash and Bank Balances 1.14% 1.30% 0.49% 1.11% 2.29%
Total Current Assets 51.90% 45.89% 47.88% 48.83% 43.06%
Total Assets 100.00% 100.00% 100.00% 100.00% 100.00%

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Liabilities & Shareholders' Equity

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  2021 2020 2019 2018 2017
Share Capital and Reserves          
Authorized Capital (75,000,000)/PKR 10 each 13.88% 17.90% 23.03% 18.66% 16.18%
Issued, Subscribed and Paid-up-Capital 8.39% 10.82% 13.93% 11.28% 9.79%
Share Premium 4.62% 5.95% 7.66% 6.21% 5.38%
General Reserves 5.18% 6.68% 8.60% 6.96% 6.04%
Cash Flow Hedge Reserves -0.05% 0.00% 0.00% 0.00% 0.18%
Accumulated Profits 81.85% 76.54% 69.81% 75.55% 78.61%
Total Equity 100.00% 100.00% 100.00% 100.00% 100.00%
Non-Current Liabilities          
Long Term Finances-Secured 20.00% 21.30% 6.10% 14.36% 17.30%
Lease Liabilities 0.19% 0.06% 0.49% 0.34% 0.00%
Deferred Taxation 2.07% 2.35% 3.16% 3.87% 4.64%
Retirement Benefits 5.63% 5.50% 4.48% 3.32% 3.09%
Total Non-Current Liabilities 27.89% 29.21% 14.23% 21.89% 25.03%
Current Liabilities          
Current Portion of Long-Term Liabilities 0.22% 6.58% 5.47% 0.67% 0.22%
Short-Term Borrowings - Secured 10.00% 11.32% 27.76% 24.14% 22.05%
Running Finance under Mark-up Arrangements - Secured 7.04% 1.46% 9.90% 2.25% 0.96%
Customer Security Deposits - Interest Free 0.33% 0.39% 0.31% 0.31% 0.48%
Unclaimed Dividend 0.12% 0.13% 0.03% 0.03% 0.00%
Unpaid Dividend 3.35% 0.00% 0.00% 0.00% 0.00%
Trade and other Payables 46.71% 46.84% 41.57% 50.28% 48.84%
Contract Liablities 1.14% 0.99% 0.00% 0.00% 0.00%
Income Tax Payable 2.41% 2.55% 0.00% 0.00% 0.00%
Interest and Mark-up Accured 0.80% 0.53% 0.72% 0.43% 0.27%
Total Current Liabilities 72.11% 70.79% 85.77% 78.11% 74.97%
Total Liabilites 100.00% 100.00% 100.00% 100.00% 100.00%
Total Liabilites and Equity 100.00% 100.00% 100.00% 100.00% 100.00%

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Page | 24
 Interpretation:
Nestle’s totals assets are divided mostly into:

 Property, plant and equipment 44.76%

 Stock in Trade 28.44%

This is due to the fact that Nestle is a production company most of its assets comprise of factors of production and buildings etc.
Rest major portion of its assets is divided mostly into Refundable sales tax and receivables. It is also notable that it has little to no
intangible assets. Intangible assets are a major part of services sectors and not production and manufacturing companies.

Nestle’s liabilities are majorly divided into:

 Long Term Finances 20%

 Short Term Finance 10%
 Trade and Other Payables 46.71%
 Running Finance 7.04%

This suggests that the capital structure of the company comprises mostly of debt and not equity.

Nestle’s equity changes every year only on the basis of its accumulated profits which comprise of 70%-80% of its total equity
followed by the authorized capital and general reserves which remain same throughout the year.

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 2.4 Ratio Analysis:

2.4.1 Profitability Ratios

Ratios 2021 2020 2019 2018 2017
Gross Profit Margin 30.4% 29.3% 28.8% 32.2% 34.7%
Operating Profit 16.2% 13.5% 13.0% 16.6% 19.9%
Margin
Net Profit Margin 9.6% 7.5% 6.1% 9.4% 11.8%
ROA 20.3% 14.1% 10.7% 18.1% 26.8%
ROE 267% 238% 194% 262% 217%
Financial Leverage 13.6 Times 16.4 Times 17.9 Times 15.5 Times 25.1 Times
Return on Capital 97.5% 77.45% 124.4% 112.5% 130.6%
Employed

Graphical Representation:

Gross Profit
Gross Profit Margin= Sales

Nestle’s Gross Profit Margin ratio has saw decline in 2019 which can be due to the impact of
COVID but has started to recover in the recent years. Its current GP margin is 30.4% which

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indicates that it is managing its sales costs effectively and it is generating a high amount of gross
profit.

Operating Profit
Operating Profit Margin= Sales

Nestle’s 16.2% Operating Profit margin indicates that almost half of its earning earned after
deduction of sales costs is used to pay off other expenses and variable costs such as wages,
factors of production etc. But Nestle has managed to utilize its resources effectively since its OP
margin has increased significantly compared to previous years.

Net Profit
Net Profit Margin= Sales

Net profit is the actual profit for the company and its investors. Nestle’s 9.6% NP margin is a
good sign for investors and the company as well since the trend indicates further long term
growth.

Net Profit
Return on Assets= Average Assets

ROA indicates how well a company is able to generate its profits utilizing its assets. An ROA of
20.3% indicates that Nestle is extremely efficient in generating its income which is a good
indicator to attract investors since an efficient company will only grow from more investment.

Net Profit
Return on Equity= Average Equity

Since ROE is comprised of shareholder’s equity, this is the most important ratio from investment
point of view. ROE depends on Net Profit Margin, Asset Turnover and leverage. An ROE of
267% means that is generating high amount of return on its investors’ capital which may seem
very high at first but this is also due to the fact that it is highly leveraged.

Total Assets
Financial Leverage= Average Equity

Financial Leverage ratio indicates how many assets a company generates to its equity. Generally
a lower answer is preferred as it indicates that a company is less leveraged and more solvent.

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Nestle however, was a highly leveraged company compared to its current 13.6 times. This is a
good sign that it is becoming more solvent as the trend of financial leverage is decreasing.

Net Profit
Return on Capital Employed= Capital Employed

ROCE is a good ratio to evaluate companies that rely heavily on capital of investors. This ratio
also takes into consideration debt obligations to give a proper view of income generated on
shareholder’s wealth. Nestle’s ROCE of 97.5% indicates a strong profitability but it is not stable
as compared to previous years. So Nestle has to work on its ROCE.

2.4.2 Liquidity Ratios

Ratios 2021 2020 2019 2018 2017
Current Ratio 0.78 0.70 0.58 0.67 0.62
Quick Ratio 0.28 0.22 0.18 0.23 0.20
Cash Ratio 0.02 0.02 0.01 0.02 0.03
Graphical Representation:

Current Assets
Current Ratio= Current Liabilities

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Current ratio indicates a company’s ability to pay its short-term obligations. A current ratio of
0.78 means that Nestle may not be able to meet its liabilities but since it has good long term
indicators it may be able to borrow to meet its obligations.

Current Assets−Inventory
Quick Ratio= Current Liabilities

Nestle is not able to meet its short-term obligations based on its liquid assets. A quick ratio of
0.28 is relatively low compared to the industry.

Cash+ Cash Equivalents

Cash Ratio= Current Liabilities

This ratio measures whether a company is able to pay off its current liabilities using only its near
cash resources. A cash ratio of 0.02 indicates that Nestle does not have enough cash and near
resources rather it may have other types of current assets.

2.4.3 Activity Ratios

Ratios 2021 2020 2019 2018 2017
Asset Turnover Ratio 2.11 Times 1.89 Times 1.75 Times 1.92 Times 2.24 Times
Inventory Turnover 4.58 Times 4.18 Times 3.85 Times 4.18 Times 4.58 Times
Ratio
Days Sale in ≅ 80 Days ≅ 87 Days ≅ 95 Days ≅ 87 Days ≅ 80 Days
Inventory
Cash Flow from 9.61% 15.91% 8.69% 11.22% 13.09%
Operating Activities

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Graphical Representation:

Sales
Asset Turnover Ratio= Average Assets

This ratio shows how quickly a company uses its asset to generate sales. Nestle’s asset turnover
ratio is 2.11 times indicates that it is effectively generating almost 2 times the revenue from its
available assets.

Cost of Goods Sold

Inventory Turnover Ratio= Average Inventory

Like the previous ratio, this ratio indicates how quickly a company turns over its inventory. A
4.58 times inventory turnover ratio indicates that Nestle converts its inventory in less than 3
months meaning it has to pay less amount in warehousing and other inventory related costs.

365
Days Sale in Inventory= Inventory Turnover Ratio

Linked to inventory turnover, this indicates that after how after how many days a company sells
its inventory. Days sale inventory of approximately 80 days indicates that Nestle’s sales are
effective and its inventory is considerably liquid.

¿
Cash Flow from Operating Activities= Net Flow ¿ Operating Activities Sales

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This ratio indicates the ability of a company to generate cash from its sales. It refers to the cash
generated only through a company’s normal operations without counting in investment and
financing. Nestle’s cash flow indicates a decreasing trend which is not good for the company and
gives an overall bad signal to the investors. But it can be clearly seen that it was affected by
COVID. Still, it is not consistent.

2.4.4 Debt Ratios

Ratios 2021 2020 2019 2018 2017
Debt to Asset Ratio 0.91 Times 0.93 Times 0.95 Times 0.94 Times 0.92 Times
Solvency Ratio 0.08 Times 0.06 Times 0.04 Times 0.05 Times 0.07 Times
Debt to Equity Ratio 4.16 Times 5.51 Times 9.42 Times 6.56 Times 4.70 Times
Interest Coverage 11.72 5.72 Times 4.71 Times 10.81 Times 21.54 Times
Ratio Times
Graphical Representation:

Total Debt
Debt to Asset Ratio= Total Assets

This ratio shows that how much of the business is divided between shareholder’s wealth and
creditors. Nestle’s Debt-to-Asset ratio has been consistently below 1.0 times which indicates that
most of the company’s assets are generated through debt rather than shareholder’s equity which
can be clearly seen through its debt portion of balance sheet.

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 Equity
Solvency Ratio= Total Assets

As clearly indicated by Nestle’s financial structure and previous ratios, its capital structure
comprises more of debt financing rather than equity financing. However slightly, but Nestle is
trying to generate assets through equity also as can be seen throughout the historical data.

Debt
Debt to Equity Ratio= Equity

From the historical data, it can be seen that during the COVID era, Nestle relied heavily on
leverage which affected its capital structure a lot but recently it is trying to reduce the amount of
debt and increasing the equity as its current Debt-to-Equity of 4.16 although very high but has
seen improvement from previous years.

EBIT
Interest Coverage Ratio= Interest Expense

This ratio indicates that Nestle has the ability to pay its interest 11 times over during FY21. Even
after relying heavily on debt from creditors, Nestle has managed to remain profitable consistently
and even more so in 2021.

2.4.5 Market Ratios

Ratios 2021 2020 2019 2018 2017
Earnings per Share 281.55 195.91 162.17 256.05 322.86
Dividend per Share 256 175 173 265 410
Dividend Payout Ratio 91% 89% 107% 104% 127%
Book Value per Share 119.15 92.40 71.80 88.65 102.19
Price to Earnings Ratio 20.34 34.02 49.64 35.15 35.62

Graphical Representation:

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 Net Profit
Earnings per Share= No . of Common Shares Outstanding

EPS indicates a company’s profitability in the stock market. Nestle’s EPS was heavily affected
due to it being a consumer product and the wave of COVID. Its outstanding shares have been
constant throughout the calculation period which are 45.3M and the company has recently
showed that it is recovering from it and showing signs of being profitable in FY2021.

Earnings Available for Common Stock HOlders

Dividend per Share= No. of Common Shares Outstanding

This is the most important ratio for shareholder as this actually indicates what percentage they
will be getting on their investments back as return. Nestle has been historically paying very high
dividends on its shares. This can be due to getting the attention of investors. In the past it even
paid dividend higher than it EPS which means it may have used its idle cash for this purpose.

Dividend per Share

Dividend Payout Ratio= Net Profit

This ratio shows that how much of a company’s profit is distributed among its shareholders after
interests and taxes. Linked with the previous ratio, this can also tell the comparison between EPS
and DPS. Nestle’s dividend payout ratio is extremely high which can be a bad sign for the

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investors. If the dividend payout ratio is too high, the dividend may not be sustainable. Nestle’s
dividend falls under the warning category as it is constantly near 100%.

Total Equity
Book Value per Share= No . of Shares Outstanding

Book value per share is the ratio of equity divided by the number of outstanding shares. This
figure represents the minimum value of a company's equity and measures the book value of a
firm on a per-share basis. It does not reflect the true value of a company as it can be undervalued
or overvalued e.g. Depreciation. Nestle’s book value has in increasing trend with the latest BVPS
beings 119.15 which shows that its stock is undervalued.

Market Value
Price to Earnings Ratio= Earning per Share

The Price to Earnings Ratio is the relationship between a company’s stock price and earnings per
share (EPS). It is a popular ratio that gives investors a better sense of the value of the company.
A high PE ratio can be an indicator that a company will have good growth in the future. Nestle’s
PE ratio shows a decreasing trend which is not a good indicator. A PE ratio of 20.34 is not good
for the company.

2.5 SWOT ANALYSIS

This section presents a SWOT analysis to review the micro environment of the frim reflecting
specifically upon the strengths and weaknesses of Nestle Pakistan and the opportunities and
threats the firm must respond to through an alignment of firm strengths to such forces

Strengths:
 Strong brand image
 Loyalty from customers
 Decentralized culture
 Strong financial position
 Strong core competencies

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  Modern operation facilities
 Own distribution network
 Parent company support

Weaknesses:
 Dependent on the outside Milkmen
 Packaging dependence
 Complex supply chain
 Advertisement
 Highly Leveraged

Opportunities:
 Can establish its own diary forms
 Potential to expand to smaller towns
 Open stores

Threats:
 High Price
 Fierce competition
 Instability of Government

2.6 PESTLE Analysis

A PESTLE analysis is used as a strategic tool to measure industry dynamics through recognition
of the core political, economic, social, technological, legal and environmental forces/changes
having influence on the industry. The PESTLE analysis below identifies a number of forces,
which have an influence on industry dynamics. Of these forces, perhaps the most prominent are
social forces, which relate to differences in consumer behavior. Nestlé have to be able to ensure a
level of adaptation, which is appropriate to different markets driven by different cultures and
consumer preferences.

Political:
 Tax Policy
 Labor Laws

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  Foreign Trade Regulations
 Political Instability

Economic:
 Inflation Rate
 Interest Rates
 Economic Growth Rate

Social:
 Changing Consumer Attitudes
 Health Consciousness
 Generalized Products

Technological:
 New Products
 Innovations
 Spending on R&D

Legal:
 Changing Nature of Regulation.
 Need to adhere to global regulations and changes across different international markets
 Government Regulations
 Development Risks

Environmental:
 Work Life Quality
 Recycling
 Environmental Concerns

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 CHAPTER 3 – Conclusion:
Nestle is a low-cost leader with its efficient operations hence it provides its customers with high
quality products and sells them at a premium price. Therefore, it is earning good profits. . It has
been serving this world for over one hundred and thirty years. It has differentiated itself through
its high-quality product mix and positioned itself as health and Nutrition Company while
targeting the health-conscious people throughout the world.

However judging from its financial analysis:

 Its profitability is sound and showcases an increasing trend

 Its returns generated are satisfactory for the investors
 It does not keep idle cash for its operations. The cash and cash equivalents are even
distributed among shareholders which we can see where its DPS is higher than its EPS
 It is very efficient in its Asset and Inventory turnover and cashflow operations being 2.11
times, 4.58 times and 9.61% respectively.
 Its debt in the capital structure is way too high as compared to the other players in the
market and as well the company itself. But it can sustain such high leverage because its
operations are effective and it can pay interest 11 times over due to it.
 Over time, Nestle is trying to reduce the portion of debt gradually.
 Nestle pays out its dividend very high and it is not stable suggesting that it is not a good
investment. Extremely high risk stock and not sustainable.

Suggestions:
Nestle is overall a profitable company as is evident from its vertical, horizontal and ratio
analysis. However it should:

 Reduce the amount of leverage even further

 Make the dividend for shareholders stable rather than high
 Improve its liquidity position as sudden obligations and disaster can occur at any time.

References:
https://dps.psx.com.pk/company/NESTLE

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https://www.morningstar.com/stocks/xkar/nestle/dividends

http://scstrade.com/stockscreening/SS_CompanySnapShot.aspx?symbol=NESTLE

https://www.nestle.pk/

https://www.slideshare.net/samyakjain60/nestle-organisational-structure

https://www.wsj.com/market-data/quotes/PK/NESTLE/financials/annual/income-statement

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