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TAYLOR’S UNIVERSITY | SABD | FNBE | BASIC ACCOUNTING
SCHOOL OF ARCHITECTURE, BUILDING AND DESIGN
FOUNDATION IN NATURAL AND BUILT ENVIRONMENT
MODULE: Basic Accounting [ACC30205]
ASSIGNMENT: Financial Ratio Analysis
COMPANY SELECTED: Nestlé (Malaysia) Berhad
LECTURER: MR.Chang Jau Ho
SUBMISSION DATE: 4 JUNE 2015
LAU MAO HUA 0320249
FOO ZHI FUNG 0320226
NGO JIA HAUR 0320144
LAU MAO HUA | FOO ZHI FUNG | NGO JIA HAUR 1
TAYLOR’S UNIVERSITY | SABD | FNBE | BASIC ACCOUNTING
BRIEF BACKGROUND HISTORY
Nestlé Malaysia has more than 100 years of history in Malaysia. It is started in 1912 as AngloSwiss
Condensed Milk Company in Penang. In 1939, the company moved to Kuala Lumpur as the growth and
expansion during that time was fast. First factory was built in 1962 at Petaling Jaya and currently Nestlé
Malaysia manufactures its products in 7 factories and operates from the head office, Mutiara Damansara.
The company was publicly listed on Bursa Malaysia Berhad on 13 December 1989. Nestlé Malaysia employs
more than 5000 employee and manufactures more than 300 Halal products in Malaysia.Nestlé (Malaysia)
Berhad manufactures junior foods, powdered milk and drinks, breakfast and hot cereals, creamers,
beverages, coffee, seasonings, instant noodles, chilled dairy products, ice creams, confectionery and
chocolate products, meal replacements, and performance nutrition products. MILO®, NESCAFÉ®, MAGGI®,
NESPRAY® and KIT KAT® are the brand name which produced under Nestlé Malaysia which are very
wellknown in Malaysia as well as international.
LAU MAO HUA | FOO ZHI FUNG | NGO JIA HAUR 2
TAYLOR’S UNIVERSITY | SABD | FNBE | BASIC ACCOUNTING
RECENT DEVELOPMENT
During the year 2013, Nestlé Malaysia cooperated with Sime Darby Foundation to manage and
optimise funding and resources for Project RiLeaf. Project RiLeaf is an initiative to reforest critical riparian
reserves along the Kinabatangan River,Sabah to provide a natural buffer to filter the river from pollutants,
mainly soil sediments and chemical fertiliser runoffs, thereby giving it a chance to repair itself over the
course of time. The project will also engage local communities and oil palm smallholder companies to adopt
sustainable practices through awareness and knowledge sharing programmes.
The partnership between Nestlé Malaysia and WWFMalaysia have been formed in 2006. When
come to the recent year of 2014, Nestlé Malaysia and WWFMalaysia recently visited the local community in
Setiu, comprising members of PEWANIS and representatives from Kg. Pengkalan Gelap, at PEWANIS’s
activity centre in Kampung Mangkok, known as the Pink House. As a part of Nestlé’s approach to Creating
Shared Value, Dr. Zawiah Hashim, Nutrition Expert from the Nutrition Society of Malaysia, was also invited to
give a nutrition talk at the Pink House. To commemorate the renewal of the partnership, Nestlé Malaysia and
WWFMalaysia representatives exchanged the Memorandum of Understanding (MoU) document during the
visit.
Currently , Nestlé Malaysia Berhad also owned 7 factory in Malaysia . It also will contributing more 8
factory to expanse the capacity soon. In addition, it also exported about 300 halal products in food and
beverage range to more than 50 countries worldwide. Nestlé Malaysia also will invest in R&D, innovate
further and renovate existing products to emphasize the concept of Nutrition, Health and Wellness.
LAU MAO HUA | FOO ZHI FUNG | NGO JIA HAUR 3
TAYLOR’S UNIVERSITY | SABD | FNBE | BASIC ACCOUNTING
RATIO ANALYSIS AND INTERPRETATION
i) Profitability Ratio
Profitability Ratio 2013 2014 Interpretation
Return on Equity (ROE) = x 100Net ProfitAverage Owner Equitity
= x100561701(751206+816444)÷2
= x100783825
561701 = 71.7%
= x100550384(816444+777137)÷2
= x100796791
550384 = 69.1%
During the period 2013 to 2014, Return on Equity (ROE) has decreased from 71.7% to 69.1%.The owner is getting less return of his capital compare to last year.
Net Profit Margin (NPM) = x 100Net SalesNet Profit
= x1005617014787925
= 11.7%
= x1005503844808933
= 11.4%
During the period 2013 to 2014, Net Profit Margin(NPM) has decreased from 11.7% to 11.4%.The business’s ability to control its expenses is getting worse when compare to last year.
Gross Profit Margin (GPM) = x 100Net SalesGross Profit
= x10047879251698017
= 35.5%
= x10048089331699952
= 35.3%
During the period 2013 to 2014, Gross Profit Margin (GMP) has decreased from 35.5% to 35.3%. The business’s ability to control its Cost Of Goods Sold (COGS) expenses is worse when compare with last year.
Selling Exp. Ratio (SER) = x 100Net SalesTotal Selling Expenses
= x1008243754787925
= 17.2%
= x1008444644808933
= 17.6%
During the period 2013 to 2014, Selling Expenses Ratio (SER) has increased from 17.2% to 17.6% ). The business ability to control its selling expenses is getting worse when compare than last year.
General Expenses Ratio (GER) = x 100Net Sales Total General Expenses
= x1004787925136171+6625
= x100142796
4787925 = 3.0%
= x1004808933128337+3785
= x100132122
4808933 = 2.7%
During the period 2013 to 2014, General Expenses Ratio (GER) has decreased from 3.0% to 2.7%. The ability to control its general expenses is getting better when compare with last year.
LAU MAO HUA | FOO ZHI FUNG | NGO JIA HAUR 4
TAYLOR’S UNIVERSITY | SABD | FNBE | BASIC ACCOUNTING
Financial Expenses Ratio (FER) = x 100Net Sales Total Financial Expenses
= x100219374787925
= 0.46%
= x100257224808933
= 0.53%
During the period 2013 to 2014, Financial Expenses Ratio (FER) has increased from 0.46% to 0.53%. The ability to control its financial expenses is getting worse when compare with last year.
*All figures are shown in RM’000 .
ii) Financial Stability Ratio
Financial Stability Ratio 2013 2014 Interpretation
Working Capital = x 100Total Current AssetsTotal Current Liabilities
= 9299871071862
= 0.87:1
= 8933501306084
= 0.68:1
During the period 2013 to 2014, the business’s working capital has decreased from 0.87:1 to 0.68:1. The business ability to pay current liabilities is getting worse than last year. In addition, it does not satisfied the minimum 2:1 ratio.
Total Debt = x 100Total Assets Total Liabilities
= x10020887341272290
= 60.9%
= x10023032961526159
=66.3%
During the period 2013 to 2014, the business’s total debt has increased from 60.9% to 66.3%. The business total debt has increased. However, it still exceed the maximum 50% limit.
LAU MAO HUA | FOO ZHI FUNG | NGO JIA HAUR 5
TAYLOR’S UNIVERSITY | SABD | FNBE | BASIC ACCOUNTING
Stock Turnover =365 ÷ Average Inventory
Cost Of Goods Sold
=365÷ 3089908(411170+408614)÷2
=365÷ 409892 3089908
= 48.4 days
=365÷ 3108981(408614+370291)÷2
=365÷ 389453 3108981
= 45.7 days
During the period 2013 to 2014, the business’s stock turnover has decreased from 48.4 days to 45.7 days. The business sell its goods faster when compared to last year.
Debtor Turnover =365 ÷ Credit Sales
Average Debtor
=365÷2393963
[(22001+394144)+(21866+502207)]÷2
=365÷ 470109
2393963
=71.7 days
=365÷2404467
[(21866+502207)+(23576+504540)]÷2
=365÷ 526095
2404467
=79.9 days
During the period 2013 to 2014, the business’s debtor turnover has increased from 71.7 days to 79.9 days. The business is taking more time to collect this debt.
Interest Coverage = Interest Expenses Interest Expenses + Net Profit
= (610+765)(610+765) + 561701
= 1375
563076
= 409.5 times
= (427+422)(427+422) + 550384
= 849
551233
=649.3 times
During the period 2013 to 2014, the business’s interest coverage is increased from 409.5 times to 649.3 times. The business ability to pay its interest expense better. In addition, it satisfied the minimum 5 times.
*All figures are shown in RM’000 . Price/ Earning (P/E) Ratio = Current Share Price Earning Per Share
= RM72.50 RM2.35
= 30.9 times
*As at 3 June 2015
Interpretation: The P/E ratio for this business is 30.9 times. Investor will need to wait for 30.9 years to claim back his original principal which he had invested in this company. The higher the P/E ratio, the more expensive a share is. A conservative investor will normally pay no more than P/E of 15 for a share that he invested.
LAU MAO HUA | FOO ZHI FUNG | NGO JIA HAUR 6
TAYLOR’S UNIVERSITY | SABD | FNBE | BASIC ACCOUNTING
INVESTMENT RECOMMENDATION
Based on the analysis we had done, we decided not to invest in this company because the share price is
too high although it’s good in profitability and strong financial stability.
The share price of this company is too high as it has the P/E ratio of 30.9 times. This mean that the
investors need to wait for 30.9 years to claim back their money that they had invested in the company. In
addition, a conservative investor will not invest in the company which had a P/E ratio of more than 15 times.
Although this company’s profitability ratio and financial stability ratio showed that the company’s overall
performance is getting worse in 2014 when compare with 2013, but the company still making enough profit in
order to survive in the market. Besides that, Nestlé company is a wellknown and big company in Malaysia
which give the company a benefit of having lots of loyalty customers in the market. The company is existing
since 1912 hence the company has its strategy to stand strong in financial stability and survive in this
market.
This company is demonstrating getting poor result in controlling its overall expenses which result in getting
less profit. The business’s ability to control its general expenses in 2014 is better than 2013 which didn’t
cover the overall poor result in other expenses. Besides that, this company also getting poor result in
financial stability. The company’s liabilities figures is exceeding the assets figures which mean this company
is owing other company debts. Besides that, the company’s total debts was increased in 2014 when
compare with 2013 which is still exceeding 50% maximum limit. This company is taking more times in
collecting its debts from debtors. This company sell its goods is faster in 2014 than in 2013. The business’s
ability to pay its interest expenses is getting better in 2014. In the nutshell, although the company is getting
an overall poor result, but this company is good in profitability and strong in financial stability in the market.
LAU MAO HUA | FOO ZHI FUNG | NGO JIA HAUR 7
TAYLOR’S UNIVERSITY | SABD | FNBE | BASIC ACCOUNTING
APPENDICES Balance Sheet 2013
LAU MAO HUA | FOO ZHI FUNG | NGO JIA HAUR 8
TAYLOR’S UNIVERSITY | SABD | FNBE | BASIC ACCOUNTING
Income Statement 2013
LAU MAO HUA | FOO ZHI FUNG | NGO JIA HAUR 9
TAYLOR’S UNIVERSITY | SABD | FNBE | BASIC ACCOUNTING
Balance Sheet 2014
LAU MAO HUA | FOO ZHI FUNG | NGO JIA HAUR 10
TAYLOR’S UNIVERSITY | SABD | FNBE | BASIC ACCOUNTING
Income Statement 2014
LAU MAO HUA | FOO ZHI FUNG | NGO JIA HAUR
11
TAYLOR’S UNIVERSITY | SABD | FNBE | BASIC ACCOUNTING
REFERENCES LIST NESTLE (MALAYSIA) BERHAD [S] (4707). (n.d.). Retrieved May 28, 2015, from http://www.bursamalaysia.com/market/listedcompanies/listofcompanies/plcprofile.html?stock_code=4707 Nestle Corporate Governance & Financial Report 2013. (n.d.). Retrieved May 28, 2015, from http://www.nestle.com.my/assetlibrary/documents/pdf/aboutus/nestle_corporategovernance_financialreport_2013.pdf Nestle Corporate Governance & Financial Report 2014. (n.d.). Retrieved May 28, 2015, from http://www.nestle.com.my/assetlibrary/documents/pdf/nestle_ar2014_financial.pdf Nestle in Malaysia. (n.d.). Retrieved May 31, 2015, from http://www.nestle.com.my/aboutus/nestle_in_malaysia/index
LAU MAO HUA | FOO ZHI FUNG | NGO JIA HAUR 12