nestle india analysis

Managerial Econmics - Calculation of Nestle India Financial Ratios 1

Managerial Economics

Calculating Ratios of Nestle India


What we will Calculate

Concentration RatioLeverage

RatioProfit Ratio

Sales turnover

Calculated PAT, PBT

Mc and Ac of product

AR and MR of product

Types of Prices (on basis of

market pricing practices)

Current Ratio

D/E

A/E

GPM NPM

EP

ROA


S.W.O.T – Nestle India

Strengths Highly Diversified Company Caters Wide segment of market Strong R&D Facilities Strong relationship with retailers

Weakness Sales depend on few well organised brands Dependent on advertising to shape consumer

opinion High Cost of launching new Product Grocery sales dependent in the hands of few

retail giants

Opportunities Growth in online retail Increasing Disposable income Change in lifestyle and work hours of

employees Increasing interest in health and nutrition

Threats Giant retails promoting In-house brands Large retails ask for deep cut price Growing suspicion on packaged foods Increasing government oversight and

regulations


Current ratio


Current Ratio (2014)

Current ratio = Current assets / Current liabilities The current ratio is mainly used to give

an idea of the company's ability to pay back its liabilities with its assets.

The higher the current ratio, the more capable the company is of paying its obligations, as it has a larger proportion of asset value relative to the value of its liabilities.

Current Assets 19636.7Current Liabilities 13554.5 ------------------------ ---------------

Current ratio 1.448722

Current assets Current l iabi l i ties

1963

6.7

1355

4.5

Current assets and liabilities


Concentration ratio


Concentration Ratio (2014)

The concentration ratio is the measure of the percentage market share in an industry held by the largest firms within that industry.

a ratio that indicates the relative size of firms in relation to their industry as a whole

Market of FMCG 220 Billion

Market of Nestle India 9.855 Billion

---------------------- ------------------

Market share 4.48%

96%

4%

Market penetration of Nestle India

Market of FMCGMarket of Nestle India


Leverage ratio


Leverage ratios (2014)

Debt to equity ratio

Asset to equity ratio


Debt : Equity RatioThe debt-to-equity ratio is a financial ratio indicating the relative proportion of shareholders' equity and debt used to finance a company's assets

*Source: Nestle India Annual Report 2014

Long term borrowings 1514000000Short term borrowings 411000000

Total borrowings 1925000000Total share holders

fund 283721000000

Debt : Equity ~ 1 %to ta l borrowings Tota l share

ho lders fund

1925

0000

00

2837

2100

000

0

Debt : Equity


Asset : Equity Ratioo The asset/equity ratio

indicates the relationship of the total assets of the firm to the part owned by shareholders

o A relatively high asset/equity ratio may indicate the company has taken on substantial debt merely to remain in business. But a high asset/equity ratio can also point to a company that is wisely "trading on the equity.“

Total assets 581950000000

Total share holders fund 283721000000

----------------------------- --------------------Asset : Equity Ratio 2.051134742

tota l assets tota l share ho lders fund

5819

5000

0000

2837

2100

0000

Asset : equity


Profitability ratios


Profitability Ratios (2009-14)

Gross profit margin = (gross profit / net sales) x 100 Net profit margin = (PAT / net sales) x 100 Return on assets = PAT / Average total assets Earning power = PBIT / Average total assets


Gross Profit and Net Profit Margin

2009 2010 2011 2012 2013 20140.00

5.00

10.00

15.00

20.00

25.00

Gross Profit margin (2009-14)Gross profit Margin Net profit Margin This shows the average amount of

profit considering only sales and the cost of the items sold. This tells how much profit the product or service is making without overhead considerations.

Gross profit margin = gross profit x100

net sales

15

Return on Assets and Earning Power

2009 2010 2011 2012 2013 20140.000.200.400.600.801.00

Return on Assets and Earning Power

Return on assets Earning Power An indicator of how profitable a

company is relative to its total assets. ROA gives an idea as to how efficient management is at using its assets to generate earnings.

Higher values of return on assets show that business is more profitable.

ROA = Annual Net Income Average Total Assets

Managerial Econmics - Calculation of Nestle India Financial Ratios


Sales Turnover & %STO Since Inception of Maggi in 2000


Sales Quantity and % sales turnover of 14 years

Year Sales Quantity % of STO2014 2,54,553.00 29.092013 2,45,443.00 28.652012 236554 28.212011 2,19,041.00 27.992010 1,93,494.00 27.052009 1,55,555.00 25.562008 1,27,835.00 23.532007 98,259.00 21.422006 78,706.00 20.312005 65,603.00 18.982004 60,463.00 17.732003 58,275.00 17.962002 50,117.00 17.112001 39,933.00 14.392000 34,087.00 13.771999 0.00 0


Sales Quantity (1999-2014)

1998 2000 2002 2004 2006 2008 2010 2012 2014 20160

5

10

15

20

25

30

35

% of STO

1998 2000 2002 2004 2006 2008 2010 2012 2014 20160.00

50,000.00

100,000.00

150,000.00

200,000.00

250,000.00

300,000.00

Sales Quantity


Total revenue – Total Cost Chart

Yeartotal revenue

(millions)maggi revenue (20%) (Millions)

Profit Before Tax

Quantity of maggi (millions)

Total cost incurred

2009 5,129.38 1025.876 916.98 0.000102588 4,146.18

2010 6,254.74 1250.948 1,145.11 0.000125095 5,106.39

2011 7,514.55 1502.91 1,387.92 0.000150291 6,043.63

2012 8,334.53 1666.906 1,552.62 0.000166691 6,601.21

2013 9,101.05 1820.21 1,678.02 0.000182021 7,048.15

2014 9,854.84 1970.968 1,774.35 0.000197097 7,890.47


Increase in Total Revenue & Total Cost

0 1 2 3 4 5 6 70.002,000.004,000.006,000.008,000.00

10,000.0012,000.00

Linear Cost-Volume-Profit for Maggi (2009-2014)total revenue (millions) Total cost incurred


Profit before tax & Profit after tax (2009-2014)


Profit After Tax and Profit Before Tax

2009 2010 2011 2012 2013 20140200400600800

100012001400160018002000

PAT and PBT (In millions)Profit After Tax Profit Before tax


AC-MC-AR-MR Curves


AC-MC since 2010

YearAverage

CostMarginal

Cost2010 26390.43 25309.312011 27591.32 36686.92012 27905.72 31838.062013 28716.04 50280.122014 30997.36 92461.03


AC-MC Curves (2010-14)

155555 193494 219041 236554 245443 2545530

0.02

0.04

0.06

0.08

0.1AC MC

Managerial Econmics - Calculation of Nestle India Financial Ratios

AR-MR since 2010

YearAverage Revenue

Marginal Revenue

2010 8914.306852 10280.037382011 9835.953401 16816.541242012 10272.71454 15735.433452013 10994.60661 30205.592872014 11631.37171 28787.19352

26


AR & MR Curves (2010-14)

155555 193494 219041 236554 245443 2545530

5000

10000

15000

20000

25000

30000

35000AVERAGE REVENUE MARGINAL REVENUE


Pricing Strategies


Pricing Strategies

General StrategiesProfit maximizationSales maximizationGaining market share


Pricing strategies

To increase profit Premium pricing Loss leader Price discrimination Reference pricing Price matching Retail price mechanism

Psychological pricing Premium decoy pricing Pay what you want Bundle pricing Price skimming Penetration pricing Optional pricing Dynamic pricing


Pricing Strategies

To cement market shareLimit pricingPredatory pricing


Pricing Strategies

To help determine the priceAverage cost pricingMarket based pricingMark-up pricing


conclusion


Thank You!Any Questions?

nestle india analysis

Economy & Finance