Financial Ratios

Analysis
Nestle Vs Engro Foods
Aim

To brief you about Financial Ratios Analysis between Nestle Vs Engro

Foods
 Data Table
The other data of NESTLÉ and ENGRO FOODS used in financial ratios
analysis is as follow
NESTLÉ ENGRO FOODS
Total Assets 35,179,859 16,639,184
Current Assets 13,395,017 6,369,139
Current Liabilities 16,788,455 3,480,987
Inventories 7,046,126.522 3,046,859.795
Net Income 4,524,771 890,973
Average Total Assets* 10,873,970 14,549,624
Beginning Assets 8,352,923 12,460,064
Ending Assets 13,395,017 16,639,184
Average Stockholder’s Equity** 6,597,144.5 2,923,870.5
Beginning Equity 5,581,873 5,124,047
Ending Equity 7,612,416 7,236,942
Sales 64,824,364 29,859,226
 Data Table
The other data of NESTLÉ and ENGRO FOODS used in financial ratios
analysis is as follow
NESTLÉ ENGRO FOODS
Number of Common Stock 45,350.272 370,305.7377
Cost of Goods Sold 48,099,046 23,230,445
Total Stockholder’s Equity 7,612,416 7,236,942
EBIT*** 6,586,973 1,388,430
EBT 6,502,864 1,362,660
Interest Expenses 84,109 25,770
Market Price Per Shares 4,844 25
EPS 102.94 1.22
Inventory Turnover 9.2 8.9
EAT 4,668,357 890,973
Gross Profit 16,725,318 6,628,781
Total Liabilities 2756443 9,402,242z
 THE CALCULATIONS OF ASSETS

 * Average Total Assets = (Beginning Assets + Ending Assets)/2

 **Average Stockholder’s Equity = (Beginning Equity + Ending Equity)/2
 ***EBIT = EBT + Interest Expenses

NESTLÉ ENGRO FOODS

= (8,352,923+13,395,017) / 2 = (12,460,064+16,639,184) /2
*Average Total Assets = 21747940 / 2 = 29,099,248 / 2
= 10,873,970 = 14,549,624
= (5,124,047+7,236,942) / 2 = (5,124,047+7,236,942) / 2
**Average Stockholder’s Equity =
= 13,194,289 / 2 = 5,847,741 / 2
(5,581,873+7,612,416) / 2
= 6,597,144.5 = 2,923,870.5
***EBIT = 6,586,973 = 1,388,430
 Sequence

 Part I Ratio Analysis & its Significance Hassan Zaheer

Liquidity Ratios
 Part II
Financial Leverage Ratio Aatif Raouf
(or Debt Ratio)
 Part III
Activity Ratios Ali Haider
 Part IV
Profitability Ratio & Conclusion Saqib Mirza
 Ratio Analysis

Ratio analysis is a widely used tool of financial analysis. It is defined as

the systematic use of ratio to interpret the financial statements so that the
strength and weaknesses of a firm as well as its historical performance
and current financial condition can be determined. The term ‘ratio’ refers
to the numerical and quantitative relationship between two variables
 SIGNIFICANCE OR IMPORTANCE OF RATIO
ANALYSIS
 It helps in evaluating the firms performance
 It helps in inter-firm comparison
 It simplifies financial statement
 It helps in determining the financial position of the concern
 It is helpful in budgeting and forecasting
 It is helpful in determining Liquidity position
 It is helpful in determining Long term solvency
 It is helpful in determining Operating efficiency
 PART I - LIQUIDITY RATIO
Current Ratio: Current ratio tells us the short term solvency of the firm and tells
the ability of the firm to repay its short term obligations.
Formula: Current Ratio = Current Assets/ Current Liabilities

Nestle Engro
Current Ratio= 13,395,017 / 16,788,455 Current Ratio= 6,369,139 / 3,480,987
= 0.80 = 1.83

Analysis: In Nestle, the firm has 0.80 ability to repay against the $ 1 loan and
Engro has 1.83 so this implies that Engro food has more ability to repay its
short term obligations
 PART I - LIQUIDITY RATIO
Quick Ratio: Quick ratio measures the firm’s ability to pay off short term
obligations without relying on the sale of inventory
Formula: Quick Ratio = (Current Assets – Inventories) / Current Liabilities

Nestle Engro
Quick Ratio = (13,395,017 – 7,046,126.522) / 16,788,455 Quick Ratio
= 0.38 = = (6,369,139– 3,046,859.795) / 3,480,987
= 0.95

Analysis: Nestle has the quick ratio of 0.38 whereas Engro foods has 0.95 chances of
paying off its short term obligations without relying on the level or sales of inventory
 PART I - LIQUIDITY RATIO
Net Working Capital Ratio: Quick ratio measures the firm’s ability to pay off
short term obligations without relying on the sale of inventory

Formula: Net Working Capital Ratio = (Current Assets –Current Liabilities) /

Total Assets
Nestle Engro
Net Working Capital Ratio = (13,395,017 –16,788,455) / Net Working Capital Ratio = (6,369,139 – 3,480,987) /
35,179,859 16,639,184
= – 0.10 = 0.17

Analysis: Nestle has the Net Working Capital Ratio of – 0.10 whereas Engro foods has
0.17
PART II - Financial Leverage Ratio
 PART II - Financial Leverage Ratio
Debt to Equity Ratio: Debt to equity ratio shows the comparison to equity this
ratio tells that how much firm has ability to pay its debt and if equity is more than
the total debt of the firm so firm will face low risk

Formula: Financial Leverage Analysis Ratio = Total Liabilities / Total

Stockholders' Equity
Nestle Engro
Financial Leverage Analysis Ratio = 2,756,443 / Financial Leverage Analysis Ratio = 9,402,242 /
7,612,416 7,236,942
= 3.62 = 1.30

Analysis: In nestle the firm has 3.62 against $ 1 to pay debt whereas Engro food has
1.30 to pay against $ 1 debt. Here Nestle has more ability to pay its debt
 PART II - Financial Leverage Ratio
Debt to Asset Ratio: Debt to asset ratio shows if the firms have more assets
regardless of total debt than that firm will easily pay off its debts

Formula: Financial Leverage Analysis Ratio = Total Liabilities / Total

Stockholders' Equity

Nestle Engro
Debt to Asset Ratio = 2,756,443 / 35,179,859 Debt to Asset Ratio = 9,402,242/16,639,184
= 0.08 = 0.57

Analysis: The debt to asset ratio in nestle is 0.08 whereas 0.57 in Engro foods. So Engro
foods will pay off its debt more easily than nestle
 PART II - Financial Leverage Ratio
Interest Coverage Ratio: Interest coverage ratio measures the extent to which the
operating income of the firm can decline before the firm is unable to meet its
annual interest cost
Formula: Interest Coverage Ratio = Income Before Interest and Income Tax
Expenses*** / Interest Expense
Nestle Engro
Interest Coverage Ratio = 6,586,973*** / 84,109 Interest Coverage Ratio = 1,388,430 / 25,770
= 78.31 = 53.88

Analysis: Nestle has 78.31 times interest coverage ratio whereas Engro foods has 53.88
times interest coverage ratio so Engro foods has less chances of failure and facing
bankruptcy than nestle
PART III - Activity Ratios
 PART III - Activity Ratios
 Total Assets Turnover Ratio. This ratio measures the efficiency of the firm in utilizing its Assets. A high
ratio represents efficient utilization of total Assets in generating sales.
Formula: (Sales or Cost of Goods Sold)/ Total Assets

 Fixed Assets Turnover Ratio. This ratio measures the efficiency of the firm in utilizing its Fixed Assets.
A high ratio represents efficient utilization of Fixed Assets in generating sales.
Formula: (Sales or Cost of Goods Sold)/ Fixed Assets

 Current Assets Turnover Ratio. This ratio measures the efficiency of the firm in utilizing its Current
Assets. A high ratio represents efficient utilization of Current Assets in generating sales.
Formula: (Sales or Cost of Goods Sold)/ Current Assets
 PART III - Activity Ratios
 Working Capital Turnover Ratio. This ratio measures the efficiency of the firm in
utilizing its Working Capital. A high ratio represents efficient utilization of working
Capital in generating sales.
Formula: (Sales or Cost of Goods Sold)/ Working Capital
 Stock Turnover ratio. This ratio indicates how fast inventory/ Stock is consumed/ sold. A high ratio
is good for the company
 Debtor Turnover ratio.  It measures how efficiently the management is managing its accounts
receivable. A high ratio represents better credit policy as compared to a low ratio
 Creditors Turnover ratio.  It reflects how management is managing its account payable. A high
ratio represents that in the ability of management to finance its credit purchase and vice versa
 PART III - ACTIVITY RATIOS
Asset Turnover Ratio: This ratio measures the turnover of the entire firm’s asset.
It is calculated by dividing the sales by total assets of the firm. If firm shouldn’t
increase its sales so there is a possibility that a firm will sale its some assets

Formula: Asset Turnover Ratio = Net Sales / Total Assets

Nestle Engro
Asset Turnover Ratio = = 64,824,364 / 35,179,859 Asset Turnover Ratio = = 29,859,226 / 16,639,184
= 1.84 = 1.79

Analysis: There is 1.84 chances of asset turnover in nestle and 1.79 in Engro foods
against every $ 1
 PART III - ACTIVITY RATIOS
Inventory Turnover Ratio: Inventory turnover is calculated by dividing the CGS
by inventory

Formula: Inventory Turnover Ratio = Cost of Goods Sold / Inventory

Nestle Engro
Inventory Turnover Ratio = 48,099,046 / 7,046,126.522 Inventory Turnover Ratio = 23,230,445 / 3,046,859.795
=6.83 = 7.62

Analysis: The inventory turnover of nestle is 6.83 times and of Engro foods is 7.62
times. Here the best ratio is of Engro foods that is much more than Nestle
 PART IV

PROFITABILITY
ANALYSIS RATIOS
 PART IV - PROFITABILITY RATIOS
• Profitability ratios are financial metrics used by analysts and investors to
measure and evaluate the ability of a company to generate income (profit)
relative to revenue, balance sheet assets, operating costs, and 
shareholders’ equity during a specific period of time.
• Show how well a company utilizes its assets to produce profit and value to
shareholders.
• A higher ratio or value is commonly sought-after by most companies, as
this usually means the business is performing well by generating
revenues, profits, and cash flow.
• Ratios are most useful when they are analyzed in comparison to similar
companies or compared to previous periods.
Margin ratios represent the
Return ratios represent the
company’s ability to convert
company’s ability to generate
sales into profits at various
returns to its shareholders.
degrees of measurement.
 PART IV - PROFITABILITY ANALYSIS RATIOS
Gross Profit Margin Ratio: Gross profit margin is a metric analysts use to assess a
company's financial health by calculating the amount of money left over from product sales
after subtracting the cost of goods sold (COGS). It tells that how much a firm will receive
against $ 1 sales (Indicates the efficiency of operations and firm pricing policies)

Gross Profit = Net Sales − COGS

Formula:

Nestle Engro
Gross Profit Margin = 16,725,318 / 64,824,364 Gross Profit Margin = 6,628,781 / 29,859, 226
= 0.26 = 0.22

Analysis: . Nestle has 0.26 gross profit margin ratio and Engro has 0.22. So in this
case nestle is earning more profit than Engro foods
 PART IV - PROFITABILITY ANALYSIS RATIOS

Net Profit Margin: Indicates the firm’s profitability after taking

account of all expenses and income taxes.

Formula: Net Profit Margin = Net Profit After Taxes

Net Sales
Nestle Engro
Net Profit Margin = 4,668,357 / 64,824,364 Net Profit Margin = 890,973 / 29,859,226
= 0.01 = 0.03

Analysis: . Nestle is earning 0.01 or 1% against $ 1 and Engro food is

earning 0.03 or 3% it shows in the profitability ratios Nestle is earning more than
Engro foods.
 PART IV - PROFITABILITY ANALYSIS RATIOS
Formula
Return on Assets:  It is an indicator of how
profitable a company is relative to its total assets.
ROA gives a manager,  investor, or analyst an idea as
to how efficient a company's management is at 
using its assets to generate earnings. 

Nestle Engro
Return on Assets (ROA) = 4,524,771 / 10,873,970* Return on Assets (ROA) = 890,973 / 14,549,624
= 0.42 = 0.06

Analysis: Nestle have return on assets ratio 0.42 or 42% whereas Engro foods has 0.06
or 6% means nestle is returning more than Engro foods so it is better to invest in nestle
 PART IV - PROFITABILITY ANALYSIS RATIOS
Return on Investment:  Return on Investment (ROI) is a performance measure used to
evaluate the efficiency of an investment or compare the efficiency of a number of different
investments. ROI tries to directly measure the amount of return on a particular investment,
relative to the investment’s cost.

Formula: Return on Investment (ROI) = Net Profit after Taxes

Total Assets
Nestle Engro
Return on Investment (ROI) = 4,668,357/10,873,970* Return on Investment (ROI) = 890,973 / 14,549,624
= 0.42 = 0.06

Analysis: Nestle have return on investment ratio 0.42 or 42% whereas Engro foods has
0.06 or 6% means nestle is returning more than Engro foods so it is better to invest in
nestle
 PART IV - PROFITABILITY ANALYSIS RATIOS

Return on Equity (ROE): Indicates the

profitability to the shareholders of the firm
(after all expenses and taxes).

Nestle Engro
Return on Equity (ROE) = 4,524,771 / 6,597,144.5 Return on Equity (ROE) = 890,973 / 2,923,870.5
= 0.69 = 0.304

Analysis: Nestle is earning 0.69 or 69% against $ 1 and Engro food is

earning 0.30 or 30% it shows in the profitability ratios Nestle is earning more than Engro
foods
Conclusion
Thanks