Basic Financial Statement Analysis

for Nestlé Philippines, Inc.

Group Members

Cagmat, Kristine Michaella V.

Miedes, Diane L.

Pongcol, Beatrize Andrea A.

Serna, Mary Angel F.

Turno, Christle Anne L.

12 – St. Timothy

Basic Education Department

 I. Background of the Company

Nestle Philippines Incorporated is a large-scale, well-known worldwide food

manufacturing corporation engaged in the manufacture of instant coffee, milk,
and ready-to-cook noodles. Nestlé Philippines, Inc. is a sturdy and stable
organization, proud of its role in bringing the best food and beverage throughout
the stages of the Filipino consumers’ lives. The Company hires more than 3,200
men and women all over Philippines. It is now amongst the top companies in the
entire Nestlé world, ranking No. 14 in the group and No. 3 in the region
comprising of Asia, Oceania and Africa. It is No.1 among the ASEAN countries.

In the Philippines, Nestlé is among the Philippines' Top 10 Corporations. Its

products are No. 1 or strong No. 2 brands in their respective categories. Nestle
was the only foreign coffee producer in the Philippines. For the past decades, the
coffee consumption in the country has doubled causing its sales to increase. As
Nestlé’s market share increases it brought pressure to the company on how will
they maintain high performance while facing the rapid change of the environment
and competitors increase.

Driven by means of its mission to nurture generations of Filipino families,

Nestlé these days produces and markets merchandise beneath some of the
country’s regular manufacturers such as Nescafé, Nido, Milo, Nestea, Maggi,
Bear Brand, Nestlé, and Purina. Its product range has extended to consist
coffee, milk, beverages, non-dairy creamer, food, infant nutrition, ice cream,
chilled dairy, breakfast cereals, confectionery, and pet-care.
II. Financial Statements

Statement of Comprehensive Income (2016-2018)

Statement of Financial Position (2016-2018)
Statement of Cash Flows (2016-2018)
Statement of Changes in Equity (2016-2018)
III. Financial Ratios

Liquidity Ratios

1. Working Capital =𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐴𝑠𝑠𝑒𝑡𝑠 – 𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠

=41, 003 – 43, 030

=−2, 027

𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐴𝑠𝑠𝑒𝑡𝑠
2. Current Ratio =
𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠
41,003
=
43,030

=0.95

𝐶𝑎𝑠ℎ +𝐴𝑐𝑐𝑜𝑢𝑛𝑡𝑠 𝑅𝑒𝑐𝑒𝑖𝑣𝑎𝑏𝑙𝑒

3. Quick Ratio =
𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠
4,500 +11,167
=
43,030

=0. 36

𝐶𝑎𝑠ℎ 𝑎𝑛𝑑 𝐶𝑎𝑠ℎ 𝐸𝑞𝑢𝑖𝑣𝑎𝑙𝑒𝑛𝑡𝑠

4. Cash Ratio =
𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠
4,500
=
43,030

= 0.10
 Profitability Ratios

𝑁𝑒𝑡 𝐼𝑛𝑐𝑜𝑚𝑒
1. Return on Equity = × 100
𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑆ℎ𝑎𝑟𝑒ℎ𝑜𝑙𝑑𝑒𝑟 ′ 𝑠 𝐸𝑞𝑢𝑖𝑡𝑦

10,468
= × 100
60316

=17.36%

𝑁𝑒𝑡 𝐼𝑛𝑐𝑜𝑚𝑒
2. Return on Assets = × 100
𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡𝑠

10,468
= × 100
135,122.5

=7. 75%

𝐺𝑟𝑜𝑠𝑠 𝑃𝑟𝑜𝑓𝑖𝑡
3. Gross Profit Margin = × 100
𝑆𝑎𝑙𝑒𝑠
45,680
= × 100
91,439

=0.4996 × 100

=49.96%

𝑂𝑝𝑒𝑟𝑎𝑡𝑖𝑛𝑔 𝑃𝑟𝑜𝑓𝑖𝑡
4. Operating Profit Margin = × 100
𝑆𝑎𝑙𝑒𝑠
13,752
= × 100
91,439

= 0.1504 × 100

= 15.04%
 𝑁𝑒𝑡 𝑃𝑟𝑜𝑓𝑖𝑡
5. Net Profit Margin = × 100
𝑆𝑎𝑙𝑒𝑠
10,468
= × 100
91,439

= 0.1145 × 100

= 11.45%
 Leverage Ratios

𝑇𝑜𝑡𝑎𝑙 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠
1. Debt Ratio = × 100
𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡𝑠
78,612
= × 100
137,015

= 0.5737 × 100

= 57.37%

𝑇𝑜𝑡𝑎𝑙 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠
2. Debt-to-Equity Ratio =
𝑇𝑜𝑡𝑎𝑙 𝐸𝑞𝑢𝑖𝑡𝑦

78,612
=
58,403

= 1.35

𝑇𝑜𝑡𝑎𝑙 𝐸𝑞𝑢𝑖𝑡𝑦
3. Equity Ratio = × 100
𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡𝑠
58,403
= × 100
137,015

= 0.4263 × 100

= 42.63%

𝐸𝑎𝑟𝑛𝑖𝑛𝑔𝑠 𝑏𝑒𝑓𝑜𝑟𝑒 𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡 𝑎𝑛𝑑 𝑇𝑎𝑥𝑒𝑠

4. Times Interest Earned =
𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡 𝐸𝑥𝑝𝑒𝑛𝑠𝑒

12991
=
1,008

= 12.89 x
 IV. VERTICAL ANALYSIS

STATEMENT OF FINANCIAL POSITION

2018

ASSETS
Total Assets 137015
Cash and Cash Equivalents 4500 3.28%
Short-term investments 5801 4.23%
Inventories 9125 6.66%
Trade and other receivables 11167 8.15%
Prepayments and accrued income 530 0.39%
Derivative Assets 183 0.13%
Current income tax assets 869 0.63%
Assets held for sale 8828 6.44%
Total Current Assets: 41003

Property, Plant, and Equipment 29956 21.86%

Goodwill 31702 23.14%
Intangible assets 18634 13.60%
Investments in associates and joint ventures 10792 7.88%
Financial assets 2567 1.87%
Employee benefits assets 487 0.36%
Current income tax assets 58 0.04%
Deferred tax assets 1816 1.33%
Total Non-current Assets 96012
100.00%
LIABILITIES
Total liabilities and owner's equity 137015
Financial Debt 14694 10.72%
Trade and other payables 17800 12.99%
Accruals and deferred income 4075 2.97%
Provisions 780 0.57%
Derivative liabilities 448 0.33%
Current income tax liabilities 2731 1.99%
Liabilities directly associated with assets held
for sale 2502 1.83%
Total Current Liabilities 43030
Financial Debt 25700 18.76%
Employee benefits liabilities 5919 4.32%
Provisions 1033 0.75%
Deferred tax liabilities 2540 1.85%
Other payables 390 0.28%
Total non-current liabilities 35582

EQUITY

Share Capital 306

Treasury shares -6948
Translation reserve -20432
Other reserves -183
Retained Earnings 84620
Total equity attribute to shareholders of the
parent 57363 41.87%
Non-controlling interests 1040 0.76%
Total equity 58403

100.00 %
 STATEMENT OF COMREHENSIVE INCOME

Sales 91439 100.00%

Other revenue 311 0.34%

Cost of Goods Sold 46070 50.38%
Gross Profit 45369 49.62% 100.00%
Distribution expenses 8469 9.26%
Marketing and Administration expenses 20003 21.88%
Research and development costs 1687 1.84%
Other trading income 37 0.04%
Other trading expenses 1769 1.93%
Trading operating profit 215154

Other operating income 2535 2.77%

Other operating expenses 2572 2.81%
Operating Profit 220261

Other revenue 0.00%

Financial income 247 0.27%
Financial expense 1008 1.10%
Profit before taxes, associates and joint ventures 12991 14.21%

Taxes 3439 3.76%

Income from associates and joint ventures 916 1.00%
Profit for the year/Net Income 10468 11.45
 V. FINANCIAL STATEMENT ANALYSIS

As of the year 2018, Nestle Company has a working capital of -2,027. The
company’s working capital resulted as negative because they cannot cover
up their short term liabilities. The company has more liabilities than its assets.
Therefore, there will be a chance that the company will have liquidity
problems in the future. The company’s current ratio is 0.95 that means that
the company is not efficient in using its current assets. The company’s quick
ratio on the other hand is 0.36 means that the company doesn’t have enough
current assets to cover its current liabilities. The company relies too much on
inventory or other assets to pay its short term liabilities. And the company has
1.10 cash ratio. That means that the company will be able to pay off its
current liabilities with cash and cash equivalents, and have funds left over.

The Nestle Company’s Return on Equity which has a ratio of 17.36%

explains how many pesos of profit can be generated from a specific level of
equity invested by shareholders. In most industries, a higher ROE makes the
company more attractive for investors. Next, the Return on Asset with 7.75%
which is higher than the standard ROA of 5% explains that the company is
profitable when it comes to generating revenue. The Gross Profit Margin on the
other hand has a high average which is 49.96% which indicates that a company
can make a reasonable profit on sales. Investors tend to pay more for a company
with higher gross profit. According to the company’s Operating Profit Margin, it
has 15.04% which is a bit high than the standard profit margin. This means that
the company’s operating margin creates value for shareholders and continuous
loan servicing for lenders. The higher the margin that a company has, the less
financial risk it has as compared to a lower ratio. Lastly, the Net Profit Margin that
the company has is 11.45% which means that it tells investors how well the
management and operations of a company are performing against its
competitors.

On the other type of ratio (Leverage Ratio), the debt ratio which has
57.37%, is considered as poor ratio. This means that there are risks that the
company cannot generate enough cash flow to its debt. The Debt Equity on the
other hand has a high average which is 134.60% that means that the company is
taking advantage with the profit. According to the company’s equity ratio, it has
42.63% which is higher than the standard good ratio of the equity. This means
that the Nestlé Company is worth investing since there are investors that can
finance the company. And times interest earned which has an average of
1,288.78% that means that there are lesser risks because the company has large
earnings.
 In evaluating the Statement of Financial Position, the largest component of
asset is the Goodwill which has an average of 14.23% and the current income
tax assets is the smallest which has an average of 0.4%. On the other hand, 85%
of assets are financed by liabilities and other hand is financed by equity. In the
Statement of Comprehensive Income, the cost of goods sold is 50.38% of sales.
The company has a gross profit rate of 49.62%. The operating expenses are
34.91% of sales. Thus, the Nestle Company earns income of 11.45 for every
peso of sales. Gross profit generated for every peso of sale is 0.50.