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BALOCHISTAN UNIVERSITY OF INFORMATIONTECHONOLOGY ENGINEERING AND MANAGEMENT

SCIENCES

Financial Ratios Analysis

Nestle VS Engro Foods

Rabia Iftikhar, 12285

MBA 4th

B

Dec 31, 2012

Ma'am Ayesha Javaid



ACKNOWLEDGEMENTSPraise and thanks to “ALLAH” Almighty, the one testing us all at all times and makingdecisions about what we don’t know and can’t know.

The report being submitted today is a result of collective effort. There are innumeroushelping hands behind who have guided us on our way. Writing this report appeared to be agreat experience to us. It added a lot to our knowledge. This report is one of our memorableexperiences in student life.

Though words are inadequate in offering thanks to our teacher but we owe our profound

gratitude to Ma’am Ayesha Javaid for stimulating our creative abilities by assigning this project to us and for her able guidance and useful suggestions, which helped us in completingthe project in time. Whatever we have learnt from her and this project report has put indelibleimpression on our minds and it is our conviction that this learning experience will always bea source of help in our practical life and professional career.

Finally, yet importantly, we would like to express our heartfelt thanks to our beloved parents,for cooperation, help, kindness and blessings, our family and friends for their help and wishes

for the successful completion of the work.



Table of Content

1.Executive summary…………………………………………………………... 1

2.Introduction ……………………………………………………….…………..2

3.NESTLE………………………………………………………….…………....3

3.1NESTLE Pakistan………………………………………………………..3

3.2Vision…………………………………………………………………….4

3.3Mission…………………………………………………………….……..4

3.4Goals and Objectives…………………………………………….…….…5

3.5SWOT……………………………………………………………..……...9

4.ENGRO FOODS……………………………………………………………..10

4.1Vision……………………………………………………………………10

4.2Mission…………………………………………………………….…….10

4.3Core values………………………………………………………………10

4.4SWOT……………………………………………………………………12

5.Financial Statements of NESTLE …...……………………………………....….. 14

5.1Balance Sheet……………………………………………………………14

5.2Income Statement……………………………………………………….16

6.Financial Statements of ENGRO…………………………….…………….……..17

6.1Balance sheet……………………………………………………………17

6.2Income Statement……………………………………………………….19

7.Data Table…………………………………………………………………….…..20

7.1 The calculations…………………………………………………….……21

8.Balance sheet Analysis …………………………………………………………....23

9. Income Statement Analysis ……………………………………………………….24



10. Ratios of NESTLE………………………………………………………….….….24 11. Ratios of ENGRO………………………………………………………….….…..27

12.Financial Ratio Analysis……………………………......……………………….28

12.1Liquidity Analysis………………………………………………………28

12.2Profitability Analysis……………………………………………………28

12.3Activity Analysis………………………………………………………..29

12.4Capital Structure………………………………………………………...29

12.5 Capital Market Analysis Ratio …………………………………………29

13.Cash Budget of NESTLE…………………………………...……………………30

14.Cash Budget of ENGR O………………………………………………………….31

15.Conclusion………………………………………………………………………..32

16. Recommendations……………………………………………….…….…………33

17. References………………………………………………………….…….………34



1.

Executive Summary

The report which is based on the financial analysis of NESTLE and ENGRO FOODS. Bygoing through all the financial statements it is known that overall NESTLE is working sowell if compared to ENGRO FOODS. But by going through the financial ratio analysis thefacts were that ENGRO is much more competitive than NESTLE.

As ENGRO FOODS is not in the market as long as NESTLE is. This is analyzed throughfinancial analysis that ENGRO is working so efficiently and effectively and is coming upwith new features and advanced technology that others are not using.

In the report history of both companies, SWOT analysis, financial statements, financialratios, financial ratio analysis, cash budget and finally the report is concluded andrecommendations are given at the end.



2.

Introduction This is the project about financial statement analysis of two companies of the sameindustry. In this regard the companies which were chosen to be analyzed are NESTLÉPAKISTAN and ENGRO FOODS LIMITED. Both the companies are of food industryand are dealing in food business for many years. The companies are well reputed in themarket and deal in a very wide range of food products.

As NESTLÉ, a very, well-known brand started its’ business life with only one product

and that was condensed milk for infants. And now it has captured everyone’s mind for its

tempting products; as chocolates, coffee, bottled water, powdered milk, flavored milk, teawhitener and many more. The company has strong marketing strategies to come up within a competitive market. It has targeted all of its customers no matter they are of whatage. The company is standing in the market with share price of 4,844. How it standing inthe market with such price? How it satisfies its shareholder’s? Why don’t investor’ sinvest in other companies?

The answer to all above question is clear after going through its financial reports. The profit that the company earns and the balance it has kept between its assets and liabilitiesis also easily understandable after going through its financial statements. The company isrunning its business so well. And that is why it never loses its value.

ENGRO FOODS is also a very, well-reputed company which produces a wide range ofhealthy food products. Is product line contains products such as milk, tea whitener,cream, ice cream, juices, flavored milk and many others. ENGRO FOODS is the 1st company which is using Bactofuge technology.

The company has not been in this business for as long as NESTLÉ is, but the way it hasgrown up is appreciable. It has come up with innovative features in its products. Throughits financial statements it is analyzed that how efficiently it has increased its share pricefrom Rs. 17 to Rs. 25. It provides many incentives to it stockholder’s is also growing itsmarket share. The company has capability to pay it liabilities on time and to keep itsassets managed.

ENGRO FOODS not only provide incentives to its stockholder’s but also to its

employees. It offers its employees much outdoor training so that they can work in ahealthy environment and don’t get tired of their hectic routine. That is why it has many

loyal employees to work with.



3.

NESTLÉGood Food, Good Life

Nestlé, theCompany which is renowned for its vast collection of foodproducts. TheCompanywas formed in 1905 by the merger of the Anglo-Swiss Milk Company, establishedin 1866 by brothers George Page and Charles Page, and Farine Lactée.Nestlé was found in1866 by Henri Nestlé. The company grew significantly during the First World War and againfollowing the Second World War, expanding its offerings beyond its early condensed milkand infant formula products. The company has made a number of corporate acquisitions,including Crosse & Blackwell in 1950, Findus in 1963, Libby's in 1971, Rowntree

Mackintosh in 1988 and Gerber in 2007.

As Nestlé started with a condensed milk and later it climbed so fast at the ladder ofsuccess that it is now a leading brand in food products with so many sub-brands.Currently

Nestlé is dealing with bottled water, breakfast cereals, coffee, confectionery, dairy products,ice cream, pet foods, other beverages, shelf stable, chilled, Ice cream, Infant nutrition,

performance nutrition, healthcare nutrition, frozen foods, refrigerated products, food servicesand professional products and snacks.29 of Nestlé's brands have annual sales of over 1 billionSwiss francs (about $ 1.1 billion). Nestlé has around 450 factories, operates in 86 countries,

and employs around 328,000 people. It is one of the main shareholders of L'Oréal, the world'slargest cosmetics company.

3.1 NESTLÉ in Pakistan

Nestlé has been serving Pakistani consumers since 1988, when parentcompany, theSwitzerland-based Nestlé SA, first acquired a share in Milk PakLtd. Today Nestlé is fullyintegrated in Pakistani life, and is recognized asthe producer of safe, nutritious and tasty food,and leaders in developing anduplifting the communities in which they operate.Nestlé Pakistan

ensures that their products are made available toconsumers wherever in the country theymight be. Convenience is at theheart of the Nestlé philosophy, and there aim is to bring products to people'sdoorsteps.

The following project is about Nestlé Pakistan and the necessary details about NestléPakistan are as follow:Ticker: NESTLÉCountry: PAKISTANExchanges: KARMajor Industry: Food & BeveragesSub Industry: Diversified Food



2011 Sales: 64,824,364,000 (Year Ending Jan 2012)

Employees: 2,422Currency: Pakistan RupeesMarket Capture: 210,875,565,600Fiscal Year Ends: DecemberShares Outstanding: 45,349,584Share Type: OrdinaryClosely Held Shares: 35,545,078

3.2 Vision

“Nestlé’s global vision is to be the recognized leading Nutrition, Health and Wellness

Company. Nestlé Pakistan subscribes fully to this vision of being the number one Nutrition,Health, and Wellness Company in Pakistan. In particular, we envision to;

Lead a dynamic, passionate and professional workforce – proud of our heritage and positive about the future.

Meet the nutrition needs of consumers of all ages – from infancy to old age, from

nutrition to pleasure, through an innovative portfolio of branded food and beverage products of the highest quality.

Deliver shareholder value through profitable long-term growth, while continuing to play a significant and responsible role in the Social, Economic, and Environmentalsectors of Pakistan.”

3.3 Mission

“Nestlé is dedicated to providing the best foods to people throughout their day,throughout their lives, throughout the world. With our uniqueexperience of anticipatingconsumers’ needs and creating solutions, Nestlécontributes to your well-being and enhancesyour quality of life.”

3.4 Goals and Objectives

The goals and objectives of Nestlé Pakistan are simple and well designed with the corestrategies to meet the demand of the consumers and to fulfill the needs of the customers.

Following are the main goals and;1. To be, the best and quality providing brand among other brands in Pakistan.



2. Tofulfillcustomers’needs and requirements.

3. To capture it’s desired market share.4. To dwellinto the life of people and consumers.5. To boost upits sales.6. To create value for customer.7. To keep the loyalty of customer with Nestlé.8. To be the top nutrition company ofPakistan.9. To be the leading FMCG company around the world as well as inPakistan.10. It aims to be the socially responsible and helping company in bad times.11. Nestlé aims to be proactive innovation and renovation culture, which is the key to

Nestlé’s success in the marketplace. 12. Nestlé aims to have fully integrated systems with suppliers & retailers so that everysingle market can be tapped & focused.

3.5 SWOT Analysis

3.5.1 Strengths

Strength of Nestlé is the presence of its factories or operations in almost every countryin the world employing around 283000 people. The sales values have touched CHF 109.9

billion, with a net profit of CHF 18.0 billion. Nestle has recorded a financial growth even intimes of recession by promoting the sales of smaller and cheaper versions of products indeveloping economies.

3.5.2 Weaknesses

Nestlé do not have direct market outlets and this can be one of the weaknesses as itcan cause difference in profit made. There another weakness is not having enough rawmaterial production units; they depend on either local raw material producers or throughother trade channels.

3.5.3 Opportunities

Nestlé’s weakness of not having a direct outlet can be converted as an opportunity byintroduction of new direct outlets. The acquisition of Cadburys for an example is anopportunity since they are one of the main competitors for Nestlé. Setting up theirpersonalfarms and raw material production units is an opportunity as it would reduce the cost for

Nestlé.By acquisitions Nestlé can enter the new market, which is easy through alreadyexisting companies. Nestlé has great opportunities in a society which is becoming more andmore health conscious.



3.5.4 ThreatsTheir weakness of not having enough raw material production units (which cause

them to depend on other producers) and their dependency on other producers can threaten toreduce thequality of products they offer. The contamination of food products is a major threatto Nestlé in the market. Intense competition in its market segments also possesses a majorchallenge to Nestlé as its competitors are also trying to increasing their product ranges whichmight make inroads into Nestlé's profit.

Another threat to Nestle can be the maturity of the markets which they are entering n.

For example, in France, DANONE has already established itself as a market leader in case ofyogurt before Nestle launched its LC-1 division in France and could not compete against thewell-establishedDANONE. The consumers frequently tend to change their preference of

brands, so change in consumer trends is a threat to Nestlé.



4. ENGRO FOODSThe Local Flavor with a global Vision

Engro Foods (Pvt.) Limited (EFL) has been established in 2005 as part of adiversification process at the Engro Group. The plant located at Sukkhur on 23 acre land, hasthe raw milk reception capability of 300,000 liters per day and UHT milk capacity of 200,000liters per day. The plant has been established at a cost of Rs. 1 billion which provides directemployment to 750 people.

Engro Foods has entered the Food business through milk processing and sale with the

company’s vision to pursue growth opportunities based on country fundamentals and own strength. It also positions the company to leverage its corporate social responsibilityinitiatives and work closely with rural communities to promote integrated farming andlivestock development. This effort is expected to play a pivotal role in poverty alleviation andimproving livelihoods of the poor in the milk collection areas.

4.1 Vision

“To be the Premier Pakistani Enterprise with a global reach, passionately pursuing

value creation for all stake holders”.

4.2 Mission

“To help farmers maximize their farm produce by providing quality plantnutrients andtechnical services upon which they can depend. To create wealth by building new businesses

based on company and country strengths inPetrochemicals, Information Technology,Infrastructure and other Agriculturalsectors. In pursuing the mission we shall at all-time beguided in our conductand decision making by our Core Values.”

4.3 Core Values

1. To possess leadership among other companies.2. To introduce innovative products.3. To capture diversified marked and international focus.4. To maintain quality and work for continuous improvement.5. Candid and open communications.6. External & Community Involvement7. To focus on individual growth and development.

8. Enthusiastic pursuit of profit.



9. To keep satisfied ethics and integrity.

10. To promote safety, health and pure environment.11. To create opportunities of enjoyment and fun.12. To promote teamwork and partnership.

4.4 SWOT Analysis

4.4.1 Strengths

Engro Foods is a well-established brand name; customers automatically have a brand

association. They can easily afford research and development costs in order to introduce new

products.

They have strong supply chain (good PR with farmers provides world class supplychain management).

The increasing sale figures form years to years showing customer satisfaction uponEngro Foods Limited products.

Engro Foods involve in consumer and product research before and after launching a product.

Engro Foods is having strong relationship with global research partners like AC Nielsen, JWT Asiatic.

Company is not relying on third parties for sale and distribution and has its own saleand distributing network.

Engro Foods Limited only has the third-generation UHT milk plant in the country.

Engro Foods Limited plant is the only plant in Pakistan that uses Bactofugetechnology to virtually eliminate bacteria and ensure premium quality and hygiene.

4.4.2 Weaknesses

One major weakness of Engro Foods in dairy products, which is that 85% of its milkcollection centers are in Punjab, while processing unit is in Sindh.

Higher transportation cost.

Dependency on TETRA PAK for the entire packing of its dairy products.

Paying higher cost of packing of products results in higher overall products cost.

The product range of Engro Foods narrows as compared to its competitors.



4.4.3 Opportunities

Pakistan is the fourth largest milk producing country. So, it’s an opportunity for company to grow in this sector.

Engro Foods can increase awareness though different media, by showing ads thoseareaccording to cultural requirements of Pakistan.

By increasing the milk related products company can go globally.

Engro can launch products like dry milk, cereal and Yogurts etc.

Growing dissatisfaction with milkmen’s milk and increasing awareness abouthealthand hygiene issues have led to increased processed milk consumption.

4.4.4 Threats

Engro Foods competitors Nestle and Haleeb are biggest threat.

There are opportunities and doors for new players are open who can be the futurecompetitors.

Consumer is aware now, there is need to maintain the quality of products. IfEngroFoods will not do so it loses its business in foods. There is threat from thecustomer side.

Consumer’s perceptions and price differentials can cause a threat for the company. Consumer’s preferences change with time and prices might create certain barriers

interms of the profit margins for ENGRO FOODS.



5. Financial Statements of NESTLÉ Pakistan

5.1 Balance Sheet

NESTLÉ PAKISTAN LIMITEDBalance sheet

As at December 31st2011

Assets: 2011(Rs)Tangible fixed assets

Property, plant and equipment 16,230,528Capital work in progress 5,370,561Total tangible assets 21,601,089

Intangible assets 11,954Long term loan and advances 161,982Long term security deposits 9,817Total intangible assets 183,753

Current assetsStores and spares 1,278,416Stock in trade 7,064,170Trade debts 276,858Current portion of long term loans and advances 30,914Advances, deposits, prepayments and other receivables 4,042,634Cash and bank balances 702,025Total current assets 13,395,017Total assets 35,179,859

Equity and Liabilities: 2011(RS)

Owner’s Equity Share capital and reservesAuthorized capital 75,000,000(2010:75,000,000)ordinary Shares of Rs 10 each 750,000

Issued, subscribed and paid up capital 453,496

Share premium 249,527General reserve 280,000



Accumulated profit 6,629,393

Total Owner’s Equity 7,612,416

Non-current liabilitiesLong term finances 7,848,050Deferred taxation 2,476,871Retirement benefits 440,377Liabilities against assets Subject to finance lease 13,690Total non-current liabilities 10,778,988

Current liabilitiesCurrent portion of non-current liabilities 41,587Short term borrowings from associated company - unsecured ---Short term borrowings – secured 4,950,000Short term running finance under markup arrangements-secured 4,175,236Customer security deposit Interest free 149,791Trade and other payables 7,343,507Interest and markup accrued 128,334Total current liabilities 16,788,455Total Equity and Liabilities 35,179,859



5.2 Income Statement

NESTLÉ PAKISTAN LIMITEDIncome statement

For the year ended December 31st 2011

2011(Rs) Net sales 64,824,364Cost of goods sold (48,099,046)Gross profit 16,725,318

Distribution and selling expenses (6,862,113)Administration expenses (1,405,298)Operating profit 8,457,907Finance cost (1,050,355)Other operating expenses (1,064,233)

(2,114,588)Other operating income 159,545Profit before taxation 6,502,864Taxation (1,834,507)Profit after taxation 4,668,357Earnings per share (Basic and dilute) 102.94



6 Financial Statements of ENGRO FOODS Limited6.1

Balance Sheet

ENGRO FOODS LIMITEDBalance Sheet

As at December 31st2011

Assets 2011(Rs)Non-Current AssetsProperty,plant and equipment 9,615,426

Biological Assets 496,809Intangible Assets 133,598Long term advances, deposits and payments 24,212Total non-current assets 10,270,045

Current AssetsStores,spares and loose tools 571,812Stock in trade 2,637,816Trade debts 87,121

Advances, deposits and prepayments 266,093Other receivables 1,160,126Taxes recoverable 1,443Derivative financial instrument ---Short term investments 1,294,000Cash and bank balance 350,728Total current assets 6,369,139Total Assets 16,639,184

Equity and Liabilities 2011(Rs)

Owner’s equityShare capital 7517,889Share premium 722,182Hedging reserve (18,178)Accumulated loss (984,951)Total Owner ’s Equity 7,236,942



Non- Current Liabilities

Long term finances 5,610,000Obligation under finance lease 1,295Deferred taxation 308,090Deferred liabilities 1,870Total non-current liabilities 5,921,255

Current LiabilitiesCurrent portion of

-long term finance 465,000

-obligations under finance lease 3,884Trade and other payables 2,343,506Derivative financials instruments 27,966Accruedinterest/ markup on

-long term finance 368,152-short term finance 20,229

Short term finance 252,250Total current liabilities 3,480,987Total Equity and Liabilities 16,639,184



6.2 Income Statement

ENGRO FOODSIncome Statement

As at December 31st 2011

2011(Rs) Net sales 29,859,226Cost of goods sold (23,230,445)Gross profit 6,628,781

Less operating expensesDistribution and marketing expenses (3,716,489)Administrative expenses (504,722)Other operating expenses (208,902)Other operating income 213,133Operating profit 2,411,801Finance costs (1,049,141)Profit before taxation 1,362,660Taxation (471,687)Profit for the year 890,973Earnings per share (Basic and dilute) 1.22



7. Data Table

The other data of NESTLÉ and ENGRO FOODS used in financial ratios analysis is asfollow:

NESTLÉ ENGRO FOODSTotal Assets 35,179,859 16,639,184Current Assets 13,395,017 6,369,139Current Liabilities 16,788,455 3,480,987Inventories 7,046,126.522 3,046,859.795

Net Income 4,524,771 890,973Average Total Assets* 10,873,970 14,549,624

Beginning Assets 8,352,923 12,460,064Ending Assets 13,395,017 16,639,184Average Stockholder’s

Equity**6,597,144.5 2,923,870.5

Beginning Equity 5,581,873 5,124,047Ending Equity 7,612,416 7,236,942Sales 64,824,364 29,859,226

Number of Common Stock 45,350.272 370,305.7377Cost of Goods Sold 48,099,046 23,230,445Total Stockholder’s Equity 7,612,416 7,236,942

EBIT*** 6,586,973 1,388,430EBT 6,502,864 1,362,660Interest Expenses 84,109 25,770Market Price Per Shares 4,844 25EPS 102.94 1.22Inventory Turnover 9.2 8.9EAT 4,668,357 890,973Gross Profit 16,725,318 6,628,781Total Liabilities 2756443 9,402,242



7.1 The calculations of:

* Average Total Assets = (BeginningAssets + EndingAssets)/2**Average Stockholder’s Equity = (Beginning Equity + Ending Equity)/2***EBIT = EBT + Interest Expenses

NESTLÉ ENGRO FOODS*Average Total Assets = (8,352,923+13,395,017) / 2 = (12,460,064+16,639,184) /

2= 21747940 / 2 = 29,099,248 / 2= 10,873,970 = 14,549,624

**Average Stockholder’s

Equity

= (5,581,873+7,612,416) / 2 = (5,124,047+7,236,942) / 2

= 13,194,289 / 2 = 5,847,741 / 2= 6,597,144.5 = 2,923,870.5

***EBIT = 6,502,864+84,109 = 1,362,660+25,770= 6,586,973 = 1,388,430



8.

Balance Sheet Analysis of NESTLE and ENGRO FOODSThe asset side of balance sheet shows the size of the firm so by comparing balance

sheet of both companies we analyzed that the fixed asset of the nestle company is greater thanENGRO foods which means that nestle has invested more in the fixed assets than ENGROfoods whether by starting new project or by any other source. Due to high investment in fixedassets long term loan and advances of nestle are also greater than engro foods and total assetsof nestle are also greater than engro foods which shows that the size of nestle is greater thanengro. Nestle has more cash and bank balance than engro foods and has more reserves whichshows that nestle hold more than dividing whereas engro divides more than holding with it

means nestle pays less dividend as compared to engro foods.



9.

ANALYSIS OF INCOME STATEMENT OF NESTLE AND ENGROWe have made analysis between engro and nestle companies .here we analyze that

sales of nestle (64824, 364) is more as compare to engro(29859,226). Because theirinvestment in fixed asset is more as compare to angro.Production is also increase due to moreinvestment. And as production increase ultimately their sales is also increase.

Nestle have more cost of goods sold that is (48099, 046) whereas engro have (23230,445). Because engro have only dairy products whereas nestle have broad category of

products. As nestle sales is more so their gross profit is also more as compare to engro.

Nestle have more distribution and selling expense as compare to engro because engrohave their own distribution channels whereas nestle relay on others for distribution. As wellas engro products are also less and due to this their distribution expenses are less.

Nestle company employee (328000) are more as compare to engro. As well as theyuses more advertising compains so that’s why their administrative expenses are more.

Nestle Finance cost is also more because their interest expense are more.

Operating expense of nestle (1064233) engro (208902) means they use more

directions to run their business. Nestle operating income is also more nestle is a well-known brand and they generate high income.

Nestle have more tax because they have more products that is (1834,507) whereasengro products are limited and their tax is (471,687).

Nestle have more no of shares and more earning.so Earning per share of nestle is alsomore that is 102.94 as compare to engro that is 1.22

So after analysis of income statement we see that nestle have more sales and more profitthan engro which shows that nestle company is good than engro.



10.

Ratios of NESTLÉ for Financial Statement Analysisa. Liquidity Ratios

Current RatioCurrent Ratio = Current Assets / Current Liabilities

= 13,395,017 / 16,788,455= 0.80

Quick Ratio

Quick Ratio = (Current Assets – Inventories) / Current Liabilities= (13,395,017 – 7,046,126.522) / 16,788,455= 0.38

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

= (13,395,017 – 16,788,455) / 35,179,859= – 0.10

b. Profitability Analysis Ratios

Return on Assets (ROA)Return on Assets (ROA) = Net Income / Average Total Assets*

= 4,524,771 / 10,873,970*= 0.42

Return on Equity (ROE)Return on Equity (ROE) = Net Income / Average Stockholders' Equity**

= 4,524,771 / 6,597,144.5

= 0.69

Return on Investment (ROI)Return on Investment (ROI) = Net Profit After Taxes / Total Assets

= 4,668,357 / 35,179,859= 0.13

Net Profit Margin Net Profit Margin = Net Profit After Taxes / Net Sales

= 4,668,357 / 64,824,364= 0.01



Gross Profit Margin

Gross Profit Margin = Gross Profit / Sales= 16,725,318 / 64,824,364= 0.26

Earnings Per Share (EPS)Earnings Per Share (EPS) = Earnings After Taxes / Number of Shares

= 4,668,357 / 45,350.272= 102.94

c.

Activity Analysis Ratios

Asset Turnover Ratio Asset Turnover Ratio = Net Sales / Total Assets

= 64,824,364 / 35,179,859= 1.84

Inventory Turnover RatioInventory Turnover Ratio = Cost of Goods Sold / inventory

= 48,099,046 / 7,046,126.522=6.83

d. Capital Structure Analysis Ratios

Debt to Equity RatioDebt to Equity Ratio = Total Liabilities / Total Stockholders' Equity

= 2,756,443 / 7,612,416= 3.62

Debt to Asset RatioDebt to Asset Ratio =Total Debt/ Total Assets

= 2,756,443 / 35,179,859= 0.08

Interest Coverage RatioInterest Coverage Ratio = Income Before Interest and Income Tax Expenses*** /

Interest Expense= 6,586,973*** / 84,109

= 78.31



e. Capital Market Analysis Ratios

Price Earnings (PE) RatioPrice Earnings (PE) Ratio = Market Priceper Share / Earnings per Share

= 4,844 / 102.94= 47.06



11.

Ratios of ENGRO FOODS for Financial Statement Analysisa. Liquidity Ratios

Current Ratio Current Ratio = Current Assets/ Current Liabilities

= 6,369,139 / 3,480,987= 1.83

Quick Ratio

Quick Ratio = (Current Assets – Inventories)/Current Liabilities= (6,369,139 – 3,046,859.795) / 3,480,987= 0.95

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

= (6,369,139 – 3,480,987) / 16,639,184= 0.17

b. Profitability Analysis Ratios

Return on Assets (ROA)Return on Assets (ROA) = Net Income/Average Total Assets*

= 890,973 / 14,549,624= 0.06

Return on Equity (ROE) Return on Equity (ROE) = Net Income/Average Stockholders' Equity**

= 890,973 / 2,923,870.5

= 0.03

Return on Investment (ROI)Return on Investment (ROI) = Net Profit After Taxes/ Total Assets

= 890,973 / 16,639,184= 0.05

Net Profit Margin Net Profit Margin = Net Profit After Taxes / Net Sales

= 890,973 / 29,859,226 = 0.03



Gross Profit Margin

Gross Profit Margin = Gross Profit/ Sales= 6,628,781 / 29,859, 226

= 0.22

Earnings Per Share (EPS) Earnings Per Share (EPS) =Earnings After Taxes / Number of Shares

= 890,973 / 730,305.7377= 1.22

c.

Activity Analysis Ratios

Asset Turnover RatioAsset Turnover Ratio =Net Sales/Total Assets

= 29,859,226 / 16,639,184= 1.79

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

= 23,230,445 / 3,046,859.795= 7.62

d. Capital Structure Analysis Ratios

Debt to Equity Ratio Debt to Equity Ratio = Total Liabilities / Total Stockholders' Equity

= 9,402,242 / 7,236,942= 1.30

Debt to Asset RatioDebt to Asset Ratio = Total Debt/ Total Assets= 9,402,242/16,639,184

= 0.57

Interest Coverage Ratio Interest Coverage Ratio = Income Before Interest and Income Tax Expenses*** /Interest Expense

= 1,388,430 / 25,770

= 53.88



e. Capital Market Analysis Ratios

Price Earnings (PE) RatioPrice Earnings (PE) Ratio = Market Price of Common Stock per Share / Earnings perShare

= 25 / 1.22= 20.49



12. Financial Ratios Analysis

12.1 Liquidity Analysis

Current RatioCurrent ratio tells us the short term solvency of the firm and tells the ability of

the firm to repay its short term obligations. In nestle the firm has 0.80 ability to repayagainst the $ 1 loan and Engro has 1.83 so this implies that Engro food has moreability to repay its short term obligations.

Quick RatioQuick ratio measures the firm’s ability to pay off short term obligations

without relying on the sale of inventory. Nestle has the quick ratio of 0.38 whereasEngro foods has 0.95 chances of paying off its short term obligations without relyingon the level or sales of inventory.

12.2Profitability Analysis

Return on Investment

How much a firm is returning to its stockholder only in the case if the firm isearning profit? Nestle have return on investment ratio 0.13 or 13% whereas Engrofoods has 0.05 or 5% means nestle is returning more than Engro foods so it is better toinvest in nestle.

Net Profit Margin Ratio Net profit margin is calculated by dividing the net profit after taxes by the

sales means after paying the taxes you are earning some of the profit it means firm isdoing its business well. Nestle is earning 0.01 or 1% against $ 1 and Engro food isearning 0.03 or 3% it shows in the profitability ratios Nestle is earning more thanEngro foods.

Gross Profit Margin RatioIt tells that how much a firm will receive against $ 1 sales. Nestle has 0.26

gross profit margin ratio and Engro has 0.22. So in this case nestle is earning more profit than Engro foods.



12.3Activity Analysis

Asset Turnover RatioThis ratio measures the turnover of the entire firm’s asset. It is calculated by

dividing the sales by total assets of the firm. If firm shouldn’t increase its sales so

there is a possibility that a firm will sale its some assets. There is 1.84 chances ofasset turnover in nestle and 1.79 in Engro foods against every $ 1.

Inventory Turnover Ratio

Inventory turnover is calculated by dividing the CGS by inventory. Theinventory turnover of nestle is 6.83 times and of Engro foods is 7.62 times. Here the best ratio is of Engro foods that is much more than nestle.

12.4Capital Structure Analysis

Debt to Equity RatioDebt to equity ratio shows the comparison to equity this ratio tells that how

much firm has ability to pay its debt and if equity is more than the total debt of thefirm so firm will face low risk. In nestle the firm has 3.62 against $ 1 to pay debtwhereas Engro food has 1.30 to pay against $ 1 debt. Here Nestle has more ability to

pay its debt.

Debt to Asset RatioDebt to asset ratio shows if the firms have more assets regardless of total debt

than that firm will easily pay off its debts. The debt to asset ratio in nestle is 0.08whereas 0.57 in Engro foods. So Engro foods will pay off its debt more easily thannestle.

Interest Coverage RatioInterest coverage ratio measures the extent to which the operating income of

the firm can decline before the firm is unable to meet its annual interest cost. Nestlehas 78.31 times interest coverage ratio whereas Engro foods has 53.88 times interestcoverage ratio so Engro foods has less chances of failure and facing bankruptcy thannestle.



13. Cash Budget of NESTLE

2011(Rs)Collection:Cash Sales 63,493,494Credit Sales 1,330,870Total Sales 64,824,364

Disbursement:Purchases 10,949,999

Other Payment:Taxes 1,834,507Rent 241,502Wages and Salaries 4,277,554Interest 364,375Depreciation 1,618,271Other Expenses 405,262Total of Other payment and Purchases 19,691,470

Net Cash Flow:Beginning Balance 67,365Collections 64,824,364Disbursement (19,691,470)Ending Balance 45,200,259



14. Cash budget of ENGRO FOODS

2011(Rs)Collections:Cash Sales 29,419,835Credit Sales 439,391Total Sales 29,859,226

Disbursement:

Purchases 3,334,977

Other payments:Taxes 603,853Rent 217,821Wages and Salaries 1,271,114Interest 51,537Depreciation 1,023,597Other expenses 208,902Total of Other Payments and Purchases 6,711,801

Net Cash flow:Beginning balance 5,124,407Collections 29,859,226Disbursement (6,711,801)Ending Balance 28,271,832



15. Conclusion

After all the findings, it is concluded that financial ratios are the basic andmost important part of any business. It describes the firm’s financial position. As the

data indicates that NESTLE is an international brand and has expanded its business onthe large geographical area and also offers the large range of products, but on theother side ENGRO food offers the limited range of the products and most of them aredairy products.

From the financial statements it is clear that the financial position of the

NESTLE is far better than ENGRO as it is more preferred by the customers and alsoan internationally distributed. It also has less risk. It gives more return because it gainsmore profit than ENGRO.On the other hand ENGRO deals with the limited productsin a limited geographical area but on the basis of financial ratios ENGRO has a betterfinancial position and also has an opportunity to expand its business. Both thecompanies have some opportunities and threads and they need to work on it.



16. Recommendations

NESTLE doesn’t have any direct market and outlets so it can be a disadvantage sothey should facilitate their customers through pricing strategies and if they start directmarket or open the outlets so the prices will fall automatically and customers need notto pay any extra money to the suppliers.

NESTLE Pakistan mostly depends on the local raw material and sometimes thequality of the raw material is not as good as in the other countries so they should notrely on the local raw material if they want to provide the quality products.

ENGRO foods should introduce other product lines and expand the business.

ENGRO foods should distribute their products to more geographical areas.

As NESTLE is a well-known product and ENGRO food is not as knowninternationally as NESTLE is, so they need to spend more money on the marketingactivities.

ENGRO food is better than NESTLE in the financial analysis so if they expand their product line and cover the same geographical area as NESTLE has covered soENGRO can appear as a strong competitor of NESTLE and HALEEB.



17. References

1. NESTLE annual report 20112. ENGRO FOODS annual report 20113. www.nestle.pk 4. www.engrofoods.com

http://www.nestle.pk/


http://www.engrofoods.com/




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