Choose a public company in the food industry. Analyze the financial statements and assess whether the financial performance has improved or declined year-over-year.
Analysis techniques include the following:
Comparative financial statements
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Within the food industry, Nestle's packaged foods is one of the leader companies. At the end of 2012, it made more than 14 billion USD in operating profit, supported by the +100 billion USD it made in sales alone. Its wide range of product offering- from chocolate milk to frozen pizzas- demonstrates how versatile and relevant this company is with respect to consumer preferences worldwide.
The following are a few key ratios taken from Nestle's 2012 financials, which will outlines the company's financial situation, year ending 2012. The formulas and Excel calculations are attached and within the subfolder labeled "2012 Financial Ratios."
[These numbers are in millions of CHF]
-Balance Sheet Ratios-
Working Capital = -3,548
Current Ratio = 0.91
Quick Ratio = 0.59
Debt to Equity = 1.04
-Income Statement Ratios-
Gross Margin = 0.47
Profit Margin (after tax) = 0.12
Earnings Per Share (EPS) = 3.33
Return on Shareholders' Equity (after tax) = 0.19
The Working Capital ratio shows the difference between current liabilities and current assets. In the case of immediate payments to be made, current assets will be used to pay off those current liabilities. A high working capital is an indicator of capacity to pay current liabilities on time. Nestle, in this case, has a negative working capital of -3,548,000,000 CHF (Swiss Francs), as current liabilities are more costly than the value of current assets, demonstrating that Nestle would not be in a good position at all if it were to pay its current liabilities now.
The Current Ratio highlights the relation between current assets and current liabilities. Ideally, this should be a positive number, with current assets outweighing current liabilities in the company; nevertheless, Nestle has a ratio smaller than one. This implies that the value of current liabilities owed is higher than current assets owned. This reinforces the earlier working capital figure, which showed Nestle to be in a negative situation if it were forced to pay out its current obligations right away.
The Quick Ratio strips down the Current Ratio to strictly only looking at current assets that could easily be converted to cash. This would include cash equivalents, temporary investments, and accounts receivable as the ...
This solution looks at Nestle's financials from 2011 and 2011, comparing key figures in both the balance sheet and the income statement. Trend analysis, percentage analysis, and ratios are applied to Nestle's financials, which outlines the financial situation the company is currently in. With a detailed look into Nestle's financial standing, a few conclusions are made into the company's future, alongside improvements that could be made.