Athika Ali

1211

Maldives Business School

Cover Page
ASSIGNMENT BRIEF

BTEC HND/Associate Degree in Business (Management/HR/Marketing)

The student must fill the relevant parts of the following table.
Student
First Student
Last Student
Task No.
Name
Name
ID

Date
submitted

Date issued

Athika

31/12/2015

28th October 2015

Ali

1211

Statement of authenticity
I, the above named student, hereby confirm that this assignment is my own work and not copied or
plagiarized. It has not previously been submitted as part of any assessment. All the sources, from which
information has been obtained for this assignment, have been referenced in the Harvard format. I
further confirm that I have read and understood the Maldives Business School rules and regulations
about plagiarism and copying and agree to be bound by them.
Assignment summary information
Unit 10 Financial Accounting & Reporting
Unit
Assignment type This is an individual assignment.

Task

Assignment reference

Submit on

Do on
Task 1: Report: LO1, LO3, LO4, M1, M2, D1, D2, D3
NA
December 2015
Task 2: Statements: LO2,LO3, M3
17th December 2015
NA
An extension must be applied for in writing by individual students and will only be
Extensions
granted for valid reasons.
Late submissions Late submissions will be marked for all grades but will incur a fine of MVR 500.
Assessor(s):
Mohamed Anas
Internal verifier:
Adam Umar
24th

Assessor(s) please fill the table below AFTER the evaluation.

Assessment Feedback
criteria

Assessors
Decision

Internal
Verifiers
Comments

P1.1
P1.2
P1.3
P1.4
P2.1
P2.2
P2.3
P3.1
P3.2
P4.1
P4.2
M1
M2
M3
D1
D2
D3

Athika Ali

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Athika Ali

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EXECUTIVE SUMMARY
This report is based on the financial analysis of Nestl for the past two years on the basis of certain terms
and conditions. In this report different user of financial statements and their needs, how laws/regulations
are dealt with by accounting and reporting standards are explored and accounting ratios are calculated to
assess the performance and financial position of the business.

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TABLE OF CONTENTS
Executive Summary .............3
Introduction ............5
Describe the different users of financial statements and their needs. (P1.1)....6
Explain the legal and regulatory influences on financial statements. (P1.2).8
Assess the implications for users. (P1.3)9
Explain how different laws/regulations are dealt with by accounting and reporting standards. (P1.4).10
Explain how the information needs of different user groups vary. (P3.1)...10
Calculate accounting ratios to assess the performance and position of a business. (P4.1)11
Prepare a report incorporating and interpreting accounting ratios, including suitable comparisons.
(P4.2)...15
10. Conclusion .....17
11. Reference....18

1.
2.
3.
4.
5.
6.
7.
8.
9.

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INTRODUCTION
Nestl is a major Swiss multinational food & beverage company all around the world. It is the largest Food
Company in the world measured in revenue and ranked as #72 on the Fortune Global 500 in 2014.
Products of Nestl include baby food, ice cream, bottled water, breakfast cereals etc. Nestl has 447
factories and they operate in 194 countries and employ around 339,000 people. Nestls main shareholder
is the worlds largest cosmetic company LOreal. Nestl embarked developing an instant coffee brand in
1930. They launched their first flagship powdered coffee brand in Switzerland on April 1, 1938.
However, this report is based after analysis on this companys annual report of the year 2013 and 2014.
Looking into some more detailed account of the investigations, it is analyzed on how the information needs
of different user groups vary and accounting ratios are calculated to assess the performance and financial
position of the business. Also, a report is prepared incorporating and interpreting accounting ratios
comparing it with another company.
As this report is based on financial analysis of Nestl, financial analysis can be defined as analyzing the
different financial ratios, to know about the performance and the position of the company in the market.

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DIFFERENT USERS OF FINANCIAL STATEMENTS AND THEIR NEEDS (P1.1)

Accounting Standards Board Principles & International Accounting Standards Board Framework
Financial Accounting plays a fundamental role in reporting financial information to the users. The
Accounting Standard Board (ASB) is a body concerned with setting rules and regulations designed at
helping to develop financial reporting standards of entities and thereby guarantee compliance with
corporate governance principles (UKessays, n.d).
Generally Accepted Accounting Principles (GAAP) determine the parameter in the preparation and
publishing of financial statements of companies in the UK using collective, precise and extensive
guidelines. Also, GAAP ensures that it is consistent and transparent from organization to organization.
International Financial Reporting Standards (IFRS) a global framework for companies on how to
prepare and present their financial statements. The International Accounting Standards Board (IASB)
combined all existing International Accounting Standards and brought forth the IFRS in the scope of
conforming to a singular set of internationally accepted accounting standard to ensure uniformity when
comparing financial reports. It has been mandated by EU from 2005 to all participants to use IFRS
(Deloitte2015).
Different Users of the Financial Statements and their Needs
USERS

NEEDS
- manage daily operations

Managers
- evaluate performance and position by taking important decisions
- company, person owning at least a share from the companys stock
Shareholders
- monitor risk and return of investments and take decisions based on analysis
- allocates capital
Investors

- helps to make decisions on their investments, whether to continue, invest more or sell
the business
- who work for the company for wages and salaries

Employees

- assess employers profitability and stability

- evaluate ability of the employer to provide employment opportunities and other benefits
- other companies engaged in same type of business

Competitors
- learn and expand strategies on how to develop by comparing performance with rivalries
- authoritative figures elected to govern a city/state
- manage taxes and allocation of resources
Government
- assist in regulating activities by providing a basis for national statistics
- keep records of economic progress

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LEGAL AND REGULATORY INFLUENCES ON FINANCIAL STATEMENTS (P1.2)

Companies Act 2006 UK public traded companies in UK are required to publish their
consolidated financial statements in the IAS format (Companies Act 2006, Section 403)
According to this Act, Nestl has to prepare their annual reports and financial statements and also says that
Nestl has to give true and fair information. At the end of each financial year the following accounts and
reports has to be done with the standards stated in this Act.

A Balance Sheet (s396 CA2006)

A profit and loss account (s396 CA2006)

Directors Report (s415 CA2006)

The directors report must include a narrative business review (s417 CA2006)

Auditors report (s495 to 497 CA2006)

In the case of a quoted company, a directors remuneration report (s420 CA2006)

Partnership Act 1890 relation which subsists among persons carrying on a business in common
with a view of profit but the relation between members of any company or association is not a
partnership within the meaning of this Act.
Hence, in accord to this Act, it has no effect on Nestl as the Partnership Act 1890 does not involve
companies governed under Companies Act 2006.
European Directives - The European Union issued the 4th, 7th and 8th Directives which enforce
the use of a uniform accounting standard with the purpose of attracting investors.
In accordance to these three directives
1. The 4th Directive influences the occurrence of disclosing financial accounts, the contents and
structure of financial statements of companys individual accounts.
2. The 7th directive requires international public companies to practice consolidated financial
statements and to utilize uniform standards i.e. the same standard by all subsidiary companies for
easy comparability.
3. The 8th directive guarantees that financial statements conform to quality and accountability.
International Accounting Standards (IAS) & International Financing Reporting Standards
(IFRS) act as a benchmark to prepare and present financial statements globally as users need
reliable information.
As, Nestl is an international company, these standards are important as it helps for easy consolidation of
financial statements and ensure transparency and accountability of operations in different countries,
presenting the financial situation of the company.

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IMPLICATIONS FOR USERS (P1.3)

INTERNAL USERS

USERS
Owners

Managers

Employees

EXTERNAL USERS

Customers

Suppliers

Lenders

Government

Potential Investors

IMPLICATIONS
A precise analysis of the past and present performance of the organization
Shareholders/Investors have to follow the Companies Act 2006, so cannot
follow their own standards of accounting
Steady monitor of changes and decision making regarding companys
growth
Avoid conflicts of interest and should not accept benefits from third parties
Should follow all the laws and regulations whilst handling accounts of the
company
Remuneration benefits and job security at the company makes more devoted
employees
Reliability of the company reflects upon the sales made and quality services
provided for consumers
Stability is maintained by the profit made in the past and present years
Information regarding suppliers stated in the annual report
Ability to pay back in accordance to profit generated by company
Ability to cover debts confirmed by long term liabilities and profit earned
History of debts paid is an added advantage
Monitor the company according to laws and regulations
Tax amount identified by Income Statements
Profit and dividend compared to predict the best spot for investments
Evaluation of the ability to utilize investments in the most money-spinning
manner

CONCLUSION
Investors and others benefit from financial statements provided by reduction of cost of investments
boosting the quality of the information provided, when IFRS is espoused internationally. Also, with greater
transparency amid financial statements of various companies attract investors who are more willing to
provide financing. In addition, major benefits are offered to the needs of users. Hence, Nestl has a higher
demand in the challenging market among potential competitors.

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HOW DIFFERENT LAWS/REGULATIONS ARE DEALT WITH BY ACCOUNTING AND REPORTING

STANDARDS (P1.4)
As accounting standards maybe rules-based or principles-based, Company Law consists of more detailed
rules where as IASs and IFRSs are generally principle-based, although in practice it can be argued as a
mixture of rules and principles. Most of the countries have a regulatory system where company law deals
only with the minority detailed matters. A detailed financial reporting practice is developed by the commonly
principle based, letting reporting practice to develop over time in response to the needs and wants of the
users and environment changes. This generally allows in developing policies that are appropriate to the
circumstances of a particular entity.
The International Accounting Standards Board (IASB) an independent, private-sector body that
develops and approves International Financial Reporting Standards. The IASB functions under the
oversight of the International Financial Reporting Standards Foundation. The IASB was formed in 2001 to
replace the International Accounting Standards Committee. Accounting standards subjected by the IASB
are known as International Accounting Standards (IAS). The objective of IASB is
To promote the use and rigorous application of those values.
To bring about convergence of national accounting standards and International. (BPP learning
media 2010)
International Financial Reporting Standards (IFRS) a set of accounting standards developed by the
International Accounting Standards Board. There are many objectives of financial reporting as some are to
provide information that is useful to present and potential investors and creditors and others in making
investment, credit, and similar resource allocation decisions.
HOW INFORMATION NEEDS OF DIFFERENT USER GROUPS VARY (P3.1)
Internal Users

Managers supervise day to day expenses and tries to keep the company in track, in order to do this
they need information about the current financial condition and likelihood of the companys future so
that decisions can be made easily.
People who run the company or owners are mostly concerned about the profit or high return for
investments. They require financial statements to compare it with other potential competitors.
Individuals or employees are interested in this information because it enables them to see the
companys ability to increase employment benefits and opportunities. Also, employees understand
profitability and dividend better.

External Users

Investors study the financial strength of the company as it would help them to make logical
decisions regarding investments.
Creditors determine the worthiness of credit and terms of credit are set by them to analyze the
financial health of the customers.
Customers use information for assessing financial position of suppliers as it is necessary for them to
maintain a suitable source of supply in the long run.
Tax authorities or government determine the credibility of the tax returns filed on behalf ot he
company.

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ACCOUNTING RATIOS TO ASSES THE PERFORMANCE AND POSITION OF A BUSINESS (P4.1)

2013

2014

Net profit ratio

10.8%

15.7%

Gross profit ratio

11.3%

15.3%

Return on capital
employed

14.9%

10.8%

Return on assets

0.08

0.11

Current ratio

0.913:1

1.032:1

Acid-test ratio

0.659:1

0.754:1

0.74

0.72

Debt to equity ratio

0.87

0.85

Debt ratio

0.4

0.4

Equity ratio

0.5

0.5

Earnings per share

Price earnings ratio

3.13
20.8

4.52
16.1

Dividend payout

0.6

0.4

LIQUIDITY RATIO

ASSETS TRUNOVER
RATIO

Assets turnover ratio

SOLVENCY RATIO

MARKETABILITY
RATIO

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NET PROFIT RATIO

Net profit/sales100
2013
10015/92158100
=10.8%

2014
14456/91612100
=15.7%

GROSS PROFIT RATIO

Gross profit/sales100
2013
105445/92158100
=11.3%

2014
14019/91612100
=15.3%

RETURN ON CAPITAL EMPLOYED

Capital employed= (current assets-current liabilities + non-current assets)

Capital Employed2013
(30066-32917+90376)
=87525
2013
13068/87525100
=14.9

Capital Employed2014
(33961-32895+99489)
=100555
2014
10905/100555100
=10.

RETURN ON ASSETS
Net profit/average total assets
Avr.total assets 2013
(125877+120442)/2
=123159
2013
10015/123159
=0.08

Avr.total assets 2014

(133450+120442)/2
=126946
2014
14456/126946
=0.11

B) LIQUIDITY RATIOS
Current Ratios
Current assets/liabilities
2013
30066/32917
=0.913:1

2014
33961/32895
=1.032:1

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Acid-test ratio

2013
30066-8382/32917
=0.659:1

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2014
33961-9172/32895
=0.754:1

C) ASSET TURNOVER RATIO

Assets turnover ratio
Net sales/average total assets
Avr.total assets 2013
(125877+120442)/2
=123159
2013
92158/123159
=0.74

Avr.total assets 2014

(133450+120442)/2
=126946
2014
91612/126946
=0.72

D) SOLVENCY RATIOS
Debt to equity ratio
Total liabilities/total equity
2013
56303/64139
=0.87

2014
61566/71884
=0.85

Debt ratio
Total liabilities/total assets
2013
56303/120442
=0.4

2014
61566/133450
=0.4

Equity ratio
Total equity/total assets
2013
64139/120442
=0.5

2014
71884/133450
=0.5

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E) MARKETABILITY RATIO
Earnings per share
Net profit/weighted average no: of shares outstanding
2013
2014
10015/3200
14456/3196
=3.13
=4.52
Price earnings ratio
Market per share/earning per share
2013
65.4/3.13
=20.8

2014
72.95/4.52
=16.1

Dividend payout ratio

Total dividend/net income
2013
6552/10015
=0.6

2014
6863/14456
0.4

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REPORT INCORPORATING AND INTERPRETING ACCOUNTING RATIOS (P4.2)

Year on year analysis (within the company for the last two years) have been made.
Ratios

Nestl ( 2014)

Nestl (2013)

Ratios Interpretation

Gross profit Ratio

Net profit Ratio
Return on Capital
employeed

15.3
15.7

11.3
10.8

10.8

14.9

Return on Asset

0.11

0.8

Current Ratio
Acid Test
Asset turnover Ratio

1032.1
0.754:1
0.72

0.913.
0.659:1
0.74

Debt to equity Share

0.85

0.87

Debt Ratio

0.46

0.46

Equity Ratio

0.53

0.53

Earnings per share

4.52

3.13

Price earning share

16.13

20.89

Dividend payout
Ratio

0.47

0.65

Gross profit has increase in 2014

Net profit has increased in 2014
Capital investment is lower
compared to 2013
Return on asset has increased in
2014
Current ratio has increased
Acid test has a slight fall
Asset turnover ratio has a slight fall
A slight decrease in debt to equity
share
Debt Ratio Remained same both the
years
Equity Ratio Remained same both
the years
Earnings per share has improved in
2014
Price earning share has drastically
decreased compared to 2013
A slight fall in the dividend payout in
2014

A peer review of the selected company (Nestl) comparing it with Super Coffeemix

Nestl ( 2014)

Nestl (2013)

Super
Coffeemix
(2014)

Super
Coffeemix
(2013)

Gross profit Ratio

15.3

11.3

38.59

37.62

Net profit Ratio

15.7

10.8

21.61

21.67

ReturnonCapital
employed

10.8

14.9

108.4

104.50

Return on Asset

0.11

0.8

17.04

17.89

Current Ratio

1032.1

0.913.

1.08

1.68

Acid Test

0.754:1

0.659:1

2.12

2.93

0.72

0.74

0.79

0.83

Ratios
PROFITABILITY RATIO

LIQUIDITY RATIO

ASSET TURN OVER

RATIO
Asset turnover Ratio
SOLVENCY RATIO

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Debt to equity Share

0.85

0.87

0.32

0.14

Debt Ratio

0.46

0.46

0.51

0.40

Equity Ratio

0.53

0.53

0.48

0.59

Earnings per share

4.52

3.13

0.20

0.0319

Price earning share

16.13

20.89

16.13

11.43

Dividend payout Ratio

0.47

0.65

0.48

0.28

MARKETABILITY RATIO

Compared to Nestl, Super Coffeemix net profit is higher. Nestl need to work on the profit maximizing
strategies. Other ratio figures are slightly in the same range.
Strategy Recommendation

Strategy One
They could implement strategies to improve the financial health of the companies by
Assessing the financial status quarterly as it will be easier when an updated record is kept.
Increase the financial stability of the company by decreasing the expenses of the company.
Strategy Two
Innovation of new products to increase productivity.
Increase the range of customers which being reached by the company.
Implement ways to increase the growth of the company.

Strategy Three
Increase the current asset
Try to reduce the overall costs of the company.
Pay off the debts sooner to reduce the payable. As it would be easier to carry forward the business
with fewer debts.

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CONCLUSION
Over all if the Companies are following the financial standards it would easier for reference in all business
related work. When the identical standards are sustained it would be easier for problem solving as well.
There are discrepancies in both Nestl and Super Coffeemix. Based on the performance analysis Super
Coffeemix is financially tougher. Nestl needs to implement more tactical plans to boost their Profits.

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REFERENCES
1. BPP Learning Media. 2010. Business essentials finance: management accounting and financial
reporting. London: BPP Learning Media.
2. Owen, A.S. 2003. Accounting for business studies. Burlington: Butterworth-Heinemann.
3. Elliot, B. & Elliot, J. 2011. Financial accounting and reporting. London: Pearson Education Limited.
4. KPMG.
2012.
IFRS
illustrative
financial
statement.
Available
at:
<http://www.kpmg.com/global/en/issuesandinsights/articlespublications/ifrs-guide-to-financialstatements/documents/ifrs-illustrative-financial-statements-2012.pdf> [Accessed: 7 July 2014].
5. PwC.
2014.
IFRS
pocket
guide
2013.
Available
at:
<
https://www.google.mv/url?sa=t&rct=j&q=&esrc=s&source=web&cd=2&cad=rja&uact=8&ved=0CCQ
QFjAB&url=https%3A%2F%2Fwww.pwc.com%2Fjm%2Fen%2Fassets%2Fdocument%2Fifrs_pock
et_guide_2013.pdf&ei=9yEAVY39L4zU8gXt4oKICw&usg=AFQjCNGdrktI1JlNgjHOldhnkmJnDVnpK
Q&sig2=GqiU_cYPJ8BLeeobnkDWmw&bvm=bv.87611401,d.dGc> [Accessed: 11 March 2015].
6. Class Resources
7. http://www.nestle.com/

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