Calculate the following ratios for both 2014 and 2015 for Nestles. Using these r

Question

Calculate the following ratios for both 2014 and 2015 for Nestles.

Using these ratios (and any other data from the financials that you consider pertinent), discuss what has happened to the financial condition of Nestles from 2014 to 2015.   When calculating your ratios, please show your work.

Net profit margin

Operating Profit Margin (using “trading operating profit”)

Acid Test

Inventory Turnover

Debt ratio

Return on assets

Consolidated statement of comprehensive income for the year ended 31 December 2015

Consolidated cash flow Statement

In millions of CHF

Income Statement as 31 December 2015 In millions of CHF Notes 2015 2014 Sales 3 88785 91612 Other revenue 298 253 Cost of goods sold (44730) (47553) Distribution expenses (7899) (8217) Marketing and administration expenses (20744) (19651) Research and development costs (1678) (1628) Other trading income 4 78 110 Other trading expenses 4 (728) (907) Trading operating profit 3 13382 14019 Other operating income 4 126 154 Other operating expenses 4 (1100) (3268) Operating profit 12408 10905 Financial income 5 101 135 Financial expense 5 (725) (772) Profit before taxes, associates and joint ventures 11784 10268 Taxes 14 (3305) (3367) Income from associates and joint ventures 15 988 8003 Profit for the year 9467 14904 of which attributable to non-controlling interests 401 448 of which attributable to shareholders of the parent (Net profit) 9066 14456 As percentages of sales Trading operating profit 15.1% 15.3% Profit for the year attributable to shareholders of the parent (Net profi t) 10.2% 15.8% Earnings per share (in CHF) Basic earnings per share 16 2.90 4.54 Diluted earnings per share 16 2.89 4.52

Explanation / Answer

Ratio Analysis 2015 2014 Net profit margin = Net Profit/ Sales Net income(a) $9,066 $14,456 Sales (b) $88,785 $91,612 Net profit margin = a / b 10.21% 15.78% Operating Profit Margin (using “trading operating profit”) Trading Operating Profit (a) $13,382 $14,019 Sales (b) $88,785 $91,612 Operating Profit Margin a /b 15.07% 15.30% Acid Test = ATR = (Cash + Accounts Receivable + Short-term Investments) / Current Liabilities. Cash and cash equivalents $4,884 $7,448 Short-term investments $921 $1,433 Trade and other receivables $12,252 $13,459 Total Current Assets(Acid) (a) $18,057 $22,340 Current liabilities Financial debt $9,629 $8,810 Trade and other payables $17,038 $17,437 Accruals and deferred income $3,673 $3,759 Provisions $564 $695 Derivative liabilities $1,021 $757 Current income tax liabilities $1,124 $1,264 Total current liabilities (b) $33,049 $32,722 Acid Test = a/b 0.55 0.68 times Inventory Turnover = Cost of Good Sold / Inventory Trade and other receivables (a) $12,252 $13,459 Inventories (b) 8153 9172 Inventory Turnover = a/ b 1.50 1.47 Times Debt ratio = Total Liabilities / Total liabilities and equity Total liabilities $60,006 $61,556 Total liabilities and equity $123,992 $133,450 Debt ratio = a/b 48.40% 46.13% Return on assets Net income(a) $9,066 $14,456 Total assets (b) 123992 133450 Return on assets = a / b 7.31% 10.83%

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