Nestle Sdn.Bhd is the Malaysian district of the Nestle Corporation, originally set up in Switzerland, as a multinational nutrition and beverage company with its headquarters in Vevey. It truly possesses the leading points at the world food production and distribution market, as its market capitalization exceeds the number of 200 million USD. The 29 brands of the company gained their popularity through all over the world, varying from casual food and drink products, to even medical nutrition.
Nestle corporation represented its production on the Malaysian borders more than a hundred years ago, as the first company in Malaysia appeared in 1912 in Penang under the name of Anglo-Swiss Condensed Milk Company, developing its production powers and increasing sales, it expanded on the territory of the country and appeared at Kuala Lumpur in 1939. The modern development of the Nestle Corporation on the borders of Malaysia dated the year of 1962, when its first factory in Petaling Jaya was set up. It hires more than 5000 employees that take part in the production of more than 300 products in the country. Here, it owns the famous brands like NESCAFÉ®, KIT KAT®, NESPRAY®, MAGGI® and others that have achieved their popularity among the consumers from the first day of their appearance on the Malaysian market. The Corporation was registered and listed on 13 December 1989 on the Kuala Lumpur Stock Exchange (KLSE), which is nowadays know under the name of Bursa Malaysia Berhad.
Nowadays, the company produces its merchandise in seven factories, controlling and regulating its operations from Mutiara Damansara, where the head office of the company is located. The production facilities are located in Shah Alam of Selangor, Petaling Jaya, Kuching in Sarawak and Chembong of Negeri Sembilan.
With the basic description of the corporation, that truly confirms its status of one of the top producers and distributors of nutrition and beverage products, let us describe the financial status of the company, as it appears to be the first reason for the investors to buy the shares of the corporation after the name of the brand itself. Therefore, in the next few sections, the detailed financial analysis of the Nestle Sdn.Bhd Corporation will be conducted, describing different indexes and their meanings for the investors. In addition, there should be noted that all the ratios have been calculated by the author on basis of the data from official reports of the Corporation. The period for the research has been chosen as 2009-2013, which provides the bright picture of the company`s financial development with the dynamics of its main financial indexes. It also should be mentioned that the detailed overview of the financial statements showed that the same indexes for the same years in the different reports appeared to be slightly varying; therefore, the indexes for the research and calculations have been chosen from the latest records, as they showed the most updated data on this subject. Despite this loss of exact figures the calculations are able to show the company`s financial statuses for each year, nevertheless.
The first group of the financial indexes to be analyzed is the indexes of liquidity, which are also well known under the name of Liquidity Ratios. This group of indexes shows and gives an explanation whether the company is able to pay off both the long-term liabilities once they appear to be current and the current liabilities when the due date approaches. Furthermore, the ratios also analyze the company`s cash levels and turn all other assets into cash in order to fulfill all the obligations, including both long- and short-term ones. In addition, these ratios show how fast the company can obtain the cash from assets, converting them, as they are ones of the easiest for the company to convert, especially in the short period. Therefore, the liquidity of the company depends on the liquidity of the assets drastically. Table 1.1 shows the summarized liquidity ratios calculated on the basis of company`s official reports` data; the next paragraphs will give the description for each ratio calculated in this section. It should also be noted that the author will use the same template for the analysis for the other groups of the ratios.
The quick ratio (acid test ratio) simply shows the company`s ability to use its short-term assets to pay off its current liabilities once the due date comes. Therefore, the index shows how fast the company is able to convert its short-term assets to provide the payment for the short-term liabilities. Higher figures for this index show that the company can pay off its current liabilities faster, which is obviously a good sign for the investors, just like the Malaysian District of the Corporation shows. The index kept growing continuously on at least 2%, showing the positive dynamics for the company.
The current ratio also shows how fast and easy can the company covert its assets into cash for its liabilities to be paid off. However, this index also divides the current assets by current liabilities; therefore, the index shows the investors, how well the short-term assets are able to cover the short-term liabilities. As it can be seen on the table, index develops relatively positively, with an only exception on the last year, when the index has fallen down by almost 4% due to the fact that the company has achieved a next credit or is in debt for the inventories purchased. This index can also be described from the positive side, as the company is able to take more debts because it’s trusted by the banks, investors and the suppliers; therefore, the financial position of the company on the financial market is still strong.
Working Capital Index is the difference between the current assets and current liabilities, which shows the same dynamic, as the previous index does, as the input data stayed the same. In addition, it should be mentioned that despite the fact that the working capital index did change negatively comparatively to the same of the previous year, it`s still much bigger than the same of the 2011-2009 years, which also confirms the financial strength of the company.
Times Interest Earned Ratio shows how many times the income of the company can cover the future interest expenditures. The dynamics of the indexes from year to year remains positive, as the index keeps on growing higher; however, this also might tell that the company simply doesn`t have that much interest expenditures. Nevertheless, the index shows the company from the positive side for the investors.
The next section of the ratios shows the Profitability Ratios that compare how effectively the income and the profit of the company is being used from year to year. The main indexes for this group are gathered in the Table 1.2.
First, the Profit Margin Ratio, which shows what is the percentage of net income within the amount of net sales; therefore, it describes how much of net income was earned by the net sales of the company within the given period. The latest figure of the index shows almost 18.5%, which is more than 1% more, comparing to the same figure of the previous period; moreover, the indexes were much lower within the earlier periods.
Gross Margin Ratio shows how effectively the company can sell its products, including goods, services and inventory, as it subtracts the goods` costs from the net sales. This means that the corporation sells its products at the higher percentage of the profit. As the result, it shows the effectiveness of the operational activity of the company, as well. With the description of these indexes for Nestle Sdn.Bhd, it should be mentioned that the positive dynamics for this group of ratios, increasing the figures for 1% continuously per year at least confirms that the company sells its inventories more effectively from year to year.
Return on Assets Ratio compares the net income with the average total assets of the company; therefore, it shows how much income was produced by the total assets within the given period. It`s important for the investors to know how fast and effectively can the assets of the company return the investments with the profit; therefore, this index is also of the high importance. Nestle Sdn.Bhd shows the same positive dynamics from year to year, increasing the percentage by at least 2% annually, which makes the company for the future investments.
Return on Capital Employed compares the net operating profit and the employed capital; therefore, it describes the company`s ability to produce the profits per employed capital`s each dollar. The highest figure for this index can be noted in 2011, as the company could return 90 cents per each dollar of employed capital. The latest result for the company is drastically lower; however, it`s still higher than the same of the previous year; therefore, the company is able to earn 72 cents per each dollar of employed capital, which is on 7 cents higher than it was in the previous year.
Return on Equity describes the possibility of the company to earn the profits from shareholder`s equity, as it`s usually calculated as the division of income sales and the amount of shareholder`s equity. It`s one of the most important indexes for every investor, as it describes the investor`s income from every dollar invested into the company. Of course, the positive dynamics of this index for the company is great, as it allows the investor return almost 70% of each dollar invested into the company. However, the index should also be compared to the same of the other companies to make sure whether it`s a preferable company for investments or not. Nevertheless, the data from Table 1.2 shows the well-established development of the company; therefore, it might be potentially considered as the attractive one for the investments.
Efficiency Ratios mentioned in the Table 1.3 will show how effectively the company uses its assets to produce the company`s income.
Asset Turnover Ratio shows the efficiency, with which a company can generate the net sales from its assets by dividing the net sales of the company on the total average assets within the given period. It shows, how much money can the company generate per each dollar invested in the company`s assets. As it was with the return on capital employed, the highest value for this index is achieved in 2011, as the company was able to receive $2,47 for each dollar invested in the company`s assets. The same dynamics stayed for the 2012 and 2013 years, as in 2012, this index has fallen down by 14 cents per each dollar; however, the latest data confirms the development of the company and it`s able to generate $2,40, according to the latest data.
Inventory Turnover tells the investors how effectively the inventories of the company are managed, as the calculations of this index are conducted by dividing the cost of goods sold and average inventory of the company within a certain period. The inventory of the company is being sold well enough, and the index kept on increasing continuously from year to year, increasing not only the efficiency of the inventories` management, but their liquidity, as well.
Days’ sales in Inventory simply states how many days it will take for a company to sell its inventories. Obviously, the lower figure is better, as the faster turnover of the inventories grants the faster income on them. Nestle Sdn.Bhd shows the positive development in this index, as the number of days drastically decreases from 2009, despite the fact that the year of 2011 showed the maximum turnover time of 60 days. According to the latest date, it takes 48 days for the company to sell its inventories, which is the best result for the last 5 years.
The last ratio for the analysis is shown on the Table 1.4. It`s called the Gearing Ratio and it shows the percentage of company`s debt to the company`s equity. Therefore, the lower result will obviously be more preferable for every company and its inside and outside investors, as it shows the company that is able to pay off their debts in the case of need. As for our corporation, the index remains unstable, still it`s lowered from the 2009, but increased comparing to the same of 2012. This figure is a great concern for the company and the management of it will surely do their best to continuously decrease the index`s value.
Summarizing everything that was mentioned above, it should be stated that Nestle Sdn.Bhd has the strong position on the financial market, the ratios of efficiency, profitability and liquidity make the company one of the most perspective for the future investments; moreover, the company`s continuous development from year to year shows the increasing potential availabilities of the company to operate on the Malaysian borders as the manufacturer and distributor of the nutrition and beverage products and the object for the outside investments. However, it should also be mentioned that the Debt Capital of the company also keeps increasing, leaving the company vulnerable to the possible risks of being not able to pay for its debts; moreover, the large part of Debt Capital in the company`s resources can make the investors suspicious and uncertain about the future investments.
Nevertheless, as it was mentioned above, the indexes, calculated on the basis of Debt Capital of the company should also be compared to the same of the other companies, as the investors should choose the most perspective one. On the contrary, the company`s liquidity, especially its assets could be the main advantage for the future investments once the investors start checking every detail of the company`s operations, including the indexes calculated and analyzed above. Moreover, the periods of the turnovers for different indexes keeps decreasing and the turnover itself keeps increasing; therefore, the investors might expect the fair incomes on their financial expenditures on the company.
Therefore, the company should consider decreasing its debts to the suppliers, banks and investors in order to improve its investment attractiveness in simply reinvesting its profits in the further development of the company and increasing its operating activity. Moreover, it could use the subsidies and loans from the mother-company despite the fact that they will also be registered on the financial reports in the Debt Capital section. Nevertheless, at the current point of the company`s development within the Malaysian borders, it shows the great results of its activity. Furthermore, it might also be expected for the company`s activity to expand due to its high rates of development and high liquidity of its assets, which will allow the company achieve this. In addition, it is always up to the financial management of the company to regulate its activity and these are their efforts and decision that will develop the company on Malaysian territory. It can be also assumed that the success of the Nestle Corporation through all over the World is conducted by its great management and the high quality of the company`s products. Therefore, if these two key points remain on the high levels, the company`s further success in Malaysia will not keep the company`s management wait for too long.
References
DuBois, S., 2011. Nestlé's Brabeck: We have a "huge advantage" over big pharma in creating medical foods. [Online] Available at: http://money.cnn.com/2011/04/01/news/companies/nestle_brabeck_medical_foods.fortune/index.htm [Accessed 16 06 2014].
Nestlé Corporation, 2014. Head Office and Factories. [Online] Available at: http://www.nestle.com.my/aboutus/nestle_in_malaysia/head_office_and_factories [Accessed 16 06 2014].
Nestlé Corporation, 2014. Nestlé in Malaysia. [Online] Available at: http://www.nestle.com.my/aboutus/nestle_in_malaysia/index [Accessed 16 06 2014].
