MINOR PROJECT REPORT

ON
FINANCIAL STATEMENT ANALYSIS OF NESTLE INDIA LIMITED

A Summer Training Project Report

Submitted in Partial Fulfillment of the Requirements for the
Award of degree of BBA (GENERAL)

2016-2019

Submitted by Guided by
Rimpa Jana Mr. Anudeep Arora
40296701716
1
 CERTIFICATE
This is to certify that Rimpa J, 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 Minor 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 are 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. Gurmeet Singh, without
whose guidance and help this project would not have been possible.

Also I am thankful to my faculty guide Mr. Anudeep Arora 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, Rimpa Jana hereby declare that the work which is being presented in dissertation entitled
“FINANCIAL ANALYSIS OF NESTLE INDIA LIMITED” in partial fulfillment of Bachelor of Business
Administration, submitted in Kamal Institute of Higher Education and Advance Technology is an
authentic record of my work.

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

Mr. Anudeep Arora Rimpa Jana

(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.

5
 Table of Contents
CHAPTER- 1 ................................................................................................................................................... 7
Company Profile ....................................................................................................................................... 7
CHAPTER- 2 ................................................................................................................................................. 16
Introduction of Financial Analysis........................................................................................................... 16
CHAPTER- 3 ................................................................................................................................................. 39
Research Methodology........................................................................................................................... 39
CHAPTER 4 .................................................................................................................................................. 42
SWOT Analysis of the Company ............................................................................................................. 42
CHAPTER-5 .................................................................................................................................................. 45
Data Analysis and Interpretation............................................................................................................ 45
CHAPTER-6 .................................................................................................................................................. 65
Findings ................................................................................................................................................... 65
CHAPTER-7 .................................................................................................................................................. 66
Suggestions and Recommendations....................................................................................................... 66
Conclusion .................................................................................................................................................. 68
Bibliography ................................................................................................................................................ 69

6
 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.

10
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.

11
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 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

12
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/-.

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.

14
 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.
 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.

17
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
E) Structural Analysis

19
 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 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.
21
 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.

The following are the fore step involved in the ratio analysis

22
 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.

 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.

23
  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. 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
24
 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.

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.

25
  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.

 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 current previous current
year LIAILITIES year year ASSETS year

Rs. Rs. Rs. Rs.

SHARE CAPITAL FIXED ASSETS :

26
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
satisfied below, b. Land

in respect of each class)

….shares of Rs……each. c. Buildings

d. leaseholds
Subscribed :
(distinguishing
between the various e. railway sidings
classes of capital and
stating the particulars
specified below, in f. plant and machinery
respect of each
Class)…..shares of
Rs…..each….. Rs. Called g. Furniture and fittings.
up.
( of the above shares…..
shares are allotted as h. Development of
fully paid up pursuant to property
a contract without

payments being received

in cash) i. Patents, trademarks and

designs
(Of the above
shares…..shares are
27
allotted as fully paid up j. Livestock, and
by the way of bonus
shares)
k. Vehicles, etc

Specify the source from (Under each head the original

which bonus shares are cost and the additions thereto
issued e.g. , and deductions therefore
during the year, and the total
Capitalization of profits
depreciation written off or
and reserves or from
provided Up to the End of the
share premium Account.
year is to be stated.

Depreciation written off or

Less : Calls unpaid :
Provided shall be allotted
under the different asset
heads and deducted in
(1.)By Directors arriving at the value Of the
fixed assets.)

(2.)By others
In every case where the
original cost cannot be
Add : Forfeited shares : ascertained, without
unreasonable expenses or
delay, the valuation Shown by
(Amount originally paid the books is to be given.
up any capital profit or
reissue of
forfeited shares should For the purpose of paragraph,
be Transferred to capital
such valuation will be the net
reserves.)
amount at which an asset
stood in the company’s books
Notes : at the commencement of this
Act after deduction of the
amount previously provided
or written off for depreciation
28
 1. Terms of or diminution in value, and
redemption and where any such asset is sold,
conversion (if any) the amount of sale proceeds
of any redeemable
preference capital Shall be shown as deduction.
are to be stated
together with the
earliest date of Where the sum have been
redemption or written off on a reduction of
Conversion. capital or a revaluation of
assets, every balance sheet,
subsequent to the reduction
2. Particulars of any or revaluation shall show a
option on reduced figures with the date
unissued Share of reduction in place of the
Capital are to be Original cost.
specified. Each balance sheet for the
first five years subsequent to
the date of reduction shall
3. Particulars of show also the Amount of the
different classes of reduction made.
preference share
are to be given.
Similarly, where sums have
been added by writing up the
These particulars are to assets, every balance sheet
be given Along with subsequent to such writing up
share capital. shall show the increased
figure with the date of
In the case of subsidiary increase in place of the
companies, the number original Cost. Each balance
of shares held by holding sheet for the first five years
company as well as by subsequent to the date of the
the ultimate holding writing up shall also show the
company and its amount of increase Made.
subsidiaries shall be
separately stated in
respect of Subscribed
share capital.
The auditor is not INVESTMENTS :
required to certify the

29
correctness of such
share- holdings as
certified by the Showing nature of
Management. investment s and mode of
valuation, for example, cost or
market value, and
distinguishing between-
RESERVES AND SURPLUS
:

(1.)Capital Reserves (1.)Investment in

government or trust
securities.
(2.)Capital Redemption
Reserves.
(2.)Investment in shares,
Debentures or bonds.
(3.)Share premium (showing separately shares
Account
fully paid up and partly paid
up and also distinguishing the
(Showing details of different classes of shares and
its utilization in the showing also in similar details
manner provided in investments in shares,
Section 78 in the debentures or bonds of
Year of utilization). subsidiary companies)

(4.)Other reserves (3.)Immovable properties.

specifying the
nature of each
reserves and the
amount in respect (4.)Investment in capital of
Thereof. Partnership firms.

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

30
(the debit balance in (Aggregate amount of
profit and loss account company’s unquoted
shall be shown as a investments shall also be
deduction from the shown)
uncommitted reserves, if
any)

CURRENT ASSETS, LOANS

(5.)Surplus, i.e., balance AND ADVANCES:

in profit and loss
account after
providing for CURRENT ASSETS :
propose allocations,
namely:
(1) Interest accrued on
Dividend, Bonus and

Reserves
Investments.

(6.)Proposed addition
to reserves (2) Stores and spare parts.

(7.)Sinking funds (3) Loose tools

(Additions and (4) Stock in trade

deductions since last
balance sheet to be
shown, under each of
(5) Work-in-progress
the specified Heads.
The word “fund” in
relation to any
“reserve” should be [in respect of (2) and
used only where such (4), mode of valuation
reserves are specifically of stock shall be stated
represented by and the amount in
earmarked respect of raw
31
 Investments.) materials shall also be
stated separately
where Practicable.
Mode of valuation of
work-in-progress shall
SECURED LOANS : be stated]

(6) Sundry Debtors.

(1) Debentures.

a. Debts outstanding
for
(2) Loans and advances
from Banks.

b. a period exceeding
six Months.
(3) Loans and advances
from Subsidiaries.

c. Other debts.
(4) Other loans and
advances
Less Provision.

(loans from directors

and/or managers should ( The amounts to be shown
be shown separately) under sundry debtors shall
include the amounts due in
respect of the goods sold or
services rendered or in
respect of other contractual
obligations but shall not
Interest accrued and due include the amount which are
on Secured Loans should in the nature of loans or
be included under the advances)
appropriate sub-heads
Under the head “Secured
Loans.”

32
 In regard to sundry debtors
The nature of security to particulars to be given
be Specified in each case. separately of-
Where loans have been
guaranteed by managers
and/or directors, a
mention thereof shall
also be made and also (a) Debts considered good
the aggregate amount of and in respect of which
such loans under each the Company is fully
head. secured.

In case of debentures, (b) Debts considered good

terms of redemption or for which the company
conversion (if any) are to holds no security other
be stated together with than the Debtor’s
earliest date of personal security.
redemption or
conversion.
(c) Debts considered
doubtful or bad.
UNSECURED LOANS :

Debts due by directors or

(1) Fixed deposits. other officers of the company
or nay of them either severally
or jointly with Other person or
(2) Loans and advances debts due by firms or private
from subsidiaries companies respectively in
which any director is a partner
or a director or a Member to
be separately stated.
(3) Short term loans and
advances :

Debts due from other

companies under the same
(a) From bank. management within the
meaning of subsections
of Section 370 to be disclosed
33
 (b) From others. With the names of the
companies.

(Short term loans

include those which are The maximum amount due by
due for repayment not directors or other officers of
later than one year as at the company at any time
the date Of the balance during the year to be shown
sheet. by the way of note.

(4) Other loans and The provision to be shown

advances :
under this head should not
exceed the amount of debts
stated to be considered
(a) From banks. doubtful or bad and any
surplus of such provision, if
already created, should be
(b) From Others. shown at every closing under “
Reserves and Surplus” under a
separate sub-head “Reserve
(Loans from directors for Doubtful or Bad Debts.”
and/or managers should
be shown separately
(7)
Interest accrued and due
on unsecured loans
should be included under
an appropriate sub- (7A) Cash balance on hand.
heads under the head
“Unsecured Loans” (7B) Bank balance-

Where loans have been (a) With scheduled banks.

guaranteed by manager,
and/or directors, a
mention thereof shall
also be made together (b) With others
with the aggregate
amount of such loans
under each head. This
34
does not apply to fixed ( in regard to bank balances
deposits.)
particulars to be given
separately of-

CURRENT LIABILITIES (a) The balance lying with

AND PROVISIONS: scheduled banks on
current accounts, call
accounts and Deposit
A. CURRENT accounts.
LIABILITIES:
1. Acceptance (b) The names of the
bankers other than the
Scheduled banks and the
2. Sundry Creditors balances lying with each
such banker on current
account, call account and
3. Subsidiary deposit account and the
Companies maximum amount
outstanding at any time
during the year with each
such banker.
4. Advance
Payments and
unexpired
discounts for the (c) The nature of the
portion for which interest, if any, of any
value has still to director or his relative in
be given, e.g., in each of the Bankers.
the case of the

LOANS AND ADVANCES :

following
companies :-
8

Newspapers, fire
insurance, theatres, (a.) Advances and loans to
clubs, banking, subsidiaries
Steamship
35
companies, etc.
b) Advances and loans to
partnership firms in
which the company
5. Unclaimed and any of its
dividends. Subsidiaries are a
partner.

6. Other liabilities (if (9) Bills of exchange

any)

(10) Advances recoverable

7. Interest accrued in cash or in kind or for
but not due on value to be received, e.g.,
loans Rates, taxes, Insurance,
etc

B. PROVISIONS
(11) Balances with
customs, port trust,
8. Provision for etc. (where payable on
taxation demand)

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

36
 shown]
13. Other provisions.

A foot-note to the
balance sheet
MISCELLANEOUS
may be added to show
separately
:- EXPENDITURE

(1) Claims against the

(to the extent not written off
or adjusted)
(2) company not

(1) Preliminary expenses.

Acknowledged as
debts.
(2) Expenses including

(3) Uncalled liabilities

on Shares partly commission or brokerage
paid.
or underwritten or

Subscription of shares or
(4) Arrears of fixed Debentures.

(3) Discount allowed on

(5) Cumulative the Issue of shares or
dividends. debentures.

(The period for which the

dividend is in arrear or if (4) Interest paid out of
there is more than one capital during
class of shares, the construction( also
dividend on each such stating the rate of
class that is in arrear, interest)
shall be stated. The
amount should be stated
before deduction of
income tax, except that
37
in case of tax-free (5) Development
dividends the amount expenditure not
shall be shown free of adjusted.
income tax and the fact
that it is So shown shall
be stated.) (6) Other sums (specifying
natured)
(6) Estimated amount
of Contracts
remaining to be PROFIT AND LOSS ACCOUNT
executed on
(show here the debit balance
capital account
of profit and loss account
and not provided
carried forward after
for.
deduction of the
uncommitted reserves, if any)
(7) Other company
for which the
company is
contingently
liable.

38
 CHAPTER- 3

Research Methodology

39
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

Method of Data Collection

40
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.

41
 CHAPTER 4

SWOT Analysis of the Company

42
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.

43
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.

44
 CHAPTER-5

Data Analysis and Interpretation

45
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
46
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.

TOTAL INCOME

47
 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

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

48
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

49
 Earning per share
80

70

60

50

40
Earning per share
30

20

10

0
2008 2009 2010 2011

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

50
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

51
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

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

52
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)

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

53
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

54
 Net Current Assets(liabilities) 5,658,254 3,868,296 CURREN
T RATIO
Book value 6,132,622 5,102,307
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

55
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

Quick/ liquid Assets Current liabilities

Cash in hand Outstanding or Accrued expenses
56
 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.

Manufacturing And Other Expenses

2011(rs in thousands) 2010(rs is thousands)

Employee cost

57
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

58
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

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

59
 2,712,564 2,401,420 INVENTO
RY
TURNOV
Less: Excise Duty 94,996 129,300 ER OR
STOCK
TURNOV
Net Opening stock(A) 2,617,568 2,272,120 ER RATIO

Every
firm has
Less: closing stock to
maintai
Work- in - progress 462,666 385,378
n
Finished Goods 2,312,885 2,327,186 certain
level of
2,775,551 2,712,564 invento
ry of
Less: Excise duty 71,438 94,996 finished
goods
so as to
be able
Net closing Stock(B) 2,704,113 2,617,568 to meet
the
Movement in the opening -86,545 -345,448
require
and closing stock(A-B) ments
of the
busines
s. 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

60
 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.

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

61
 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:

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

62
 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

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.
63
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

64
 CHAPTER-6

Findings

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.

65
 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

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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