Financial Management 1
Financial Management 1
Financial Management 1
BBPW3103
FINANCIAL MANAGEMENT 1
MATRICULATION NO : 791016145081001
E-MAIL : arman_saad@yahoo.com
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TABLE OF CONTENTS PAGE
INTRODUCTION OF NESTLE MALAYSIA BERHAD 3–8
MALAYSIA BERHAD 58 – 63
CONCLUSION 64
REFERENCE 65
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INTRODUCTION OF NESTLE MALAYSIA BERHAD
Nestle (Malaysia), a part of Nestle Group, is engaged in the manufacturing, marketing and sale
of food, confectionery and dairy products in Malaysia. Nestlé's commitment to providing quality
products to Malaysians dates back almost 100 years ago. Since 1962, with its first factory in
Petaling Jaya, Nestlé Malaysia now manufactures its products in 7 factories and operates from its
head office in Mutiara Damansara. Today, the Company employs more than 5000 people and
manufactures as well as markets more than 300 Halal products in Malaysia (permissible to use
as per Muslim religion) products, reflecting Malaysia’s Muslim religious beliefs, and its
exports are certified Halal by JAKIM (Jabatan Kemajuan Islam Malaysia) or the Department
of Islamic Development of Malaysia. The company’s products are categorized into coffee and
beverages; culinary aids/prepared foods, milks, liquid drinks, junior foods, breakfast cereals,
chilled dairy, ice cream, chocolate and confectionery, healthcare nutrition, performance nutrition,
and Nestle professional. Its major food products brands include MILO, NESCAFE, MAGGI, NESPRAY,
LACTOGEN and KIT KAT
HISTORY
Nestle (Malaysia) was established by Nestle Group (Nestle) in 1912 as the Anglo-Swiss
Condensed Milk Company, based in Penang. By 1939, growth and expansion made a move to Kuala Lumpur
necessary. The Company was publicly listed on the KLSE now known as Bursa Malaysia Berhad
on 13 December, 1989. Nestle (Malaysia) disposed of its equity stake in Food Ingredients
Specialties (Malaysia), Beverage Partners Worldwide (Malaysia), Purina Pet Care (Malaysia),
and Cereal Partners (Malaysia), for a total of MYR37 million (approximately $11.1 million) in
2002. The Nestle group consolidated all of its manufacturing activities into Nestle (Malaysia),
with the exception of the confectionery operations, which remain under Nestle Asean (Malaysia),
in 2005.The company’s brand MILO FUZE introduced two new variants: MILO FUZE 3in1
Light and MILOFUZE 3in1 Mocha in 2006. MILO FUZE 3in1 Light was the first light
chocolate malt drink launched in Malaysia. In 2007, Nestle (Malaysia) announced its intention to
acquire Henniez, is a mineral water bottling and distributor company. In late 2007, the company
entered into a partnership with Maybank and American Express to adopt innovative B2B
expense management solution. Also, Nestle entered into a strategic partnership with Brussels-
based luxury chocolate maker Pierre Marcolini.In 2008, Nestle sold 24.85% of Alcon's issued
and outstanding capital to Novartis, after which the company retained close to 52% of Alcon’s
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issued capital and continue to fully consolidate Alcon. In the same year, the company opened its
new RM75 million (approximately $22.5 million) regional plant for non-dairy creamer at
its Shah Alam Complex in Selangor, Malaysia. In April 2009, Mr. Syed Anwar Jamalullail was
appointed as the Chairman at Nestle (Malaysia) Berhad. The company appointed Mr. Detlef
Krost as its Executive Director of Technical and Production in August 2009.In October 2009,
the company moved its headquarters to Surian Tower in Mutiara Damansara.
CORPORATE PHILOSOPHY
Deliver shareholder value through the achievement of sustainable and profitable long-
term growth.
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MAJOR PRODUCTS & SERVICES
Products:
2. Prepared Foods
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4. Junior Foods
5. Breakfast Cereals
6. Chilled Dairy
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7. Ice Cream
9. Healthcare Nutrition
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Brands:
MILO
- Nutritious Chocolate Malt Drink combines the nutritious goodness of MILO powder
and milk. In addition to ACTIGEN-E and PROTOMALT, it also contains CALCI-N
that contains the extra dose of calcium from milk which aids the development of
strong bones and teeth.
NESCAFE
- New NESCAFÉ CLASSIC Instant Coffee is improved using advanced coffee
technology that captures the aroma of freshly roasted coffee beans. Enjoy the new
fresh aroma and taste for a great start to the day every morning.
MAGGI
- The new MAGGI BIG KARI. It's the taste all Malaysians love, now bigger and more
satisfying. Try it today! Bigger Pack! Bigger Satisfaction!
NESPRAY
- NESPRAY CERGAS Powdered Milk is a valuable source of protein, calcium, iron
and 4 essential vitamins. This great-tasting milk is easy on the pocket too – so helping
to meet your child’s daily nutritional needs has never been easier.
KITKAT
- KIT KAT RUBIES are cut out for those who want a break to savour the finest life
has to offer. KIT KAT RUBIES are crafted with the finest ingredients. Each precious
gem is layered with rich chocolate truffle, a crispy wafer center and pieces of
hazelnut encased in smooth milk chocolate.
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FINANCIAL RATIO ANALYSIS
1. Liquidity Ratio
= RM 58,892
= RM – 148,575
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For Year 2007 (Group)
= RM 69,592
= RM 154,017
= RM 106,957
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- Current Ratio = Current Asset
- Current Liabilities
= 0.86
= 1.08
= 1.23
= 1.17
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Quick Ratio = Current Asset – (Inventory + Prepayments)
- Current Liabilities
= 0.58 times
= 0.41 times
= 0.57 times
= 0.74 times
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Quick Ratio = RM 742,258 – RM 262,456
RM 635,301
= 0.76 times
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2. Asset Management Ratio
= 11.62 times
= 11.24 times
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For Year 2007 (Group)
= 7.72 times
= 7.95 times
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For Year 2005 (Group)
= 8.44 times
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- Average Collection Period = _________360___________
- Account Receivable Turnover
= 30.98 days
= 32.03 days
= 46.63 days
= 45.28 days
= 42.65 days
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- Inventory Turnover = Cost of Goods Sold
- Inventory
= 6.95 times
= 5.82 times
= 5.13 times
= 6.57 times
= 8.12 times
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- Average Inventory Sales Period = _____360________
- Inventory Turnover
= 51.80 days
= 61.86 days
= 70.18 days
= 54.79 days
= 44.33 days
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- Fixed Asset Turnover = _____Sales________
- Net Fixed Assets
= 4.35 times
= 5.65 times
= 6.57 times
= 6.66 times
= 5.88 times
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- Total Asset Turnover = _____Sales________
- Total Assets
= 2.19 times
= 2.34 times
= 2.13 times
= 2.25 times
= 2.31 times
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3. Leverage Ratio
= 66.88%
= 68.94%
= 60.25%
= 61.67%
= 60.43%
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- Debt Equity Ratio = _Long Term Liabilities X 100
Shareholders Equity
= 78.77%
= 22.14%
= 15.08%
= 38.82%
= 34.28%
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- Equity Multiplier = _Total Asset
Total Equity
= 3.02 times
= 3.22 times
= 2.52 times
= 2.61 times
= 2.53 times
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- Interest Coverage Ratio = Profit before Interest and Tax (Operating Profit)
Interest Expenses
= 42.24 times
= 63.48 times
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For Year 2007 (Group)
= 247.02 times
= 519.24 times
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4. Profitability Ratio
= 34.23%
= 31.05%
= 32.94%
= 33.72%
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= 31.82%
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- Net Profit Margin = _Profit after Tax X 100
Sales
= 9.40%
= 8.79%
= 8.55%
= 8.07%
= 8.53%
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- Operating Profit Margin = _Operating Profit X 100
Sales
= 11.75%
= 11.39%
= 11.56%
= 11.08%
= 11.01%
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- Return On Assets = Profit After Tax X 100
Total Assets
= 20.54%
= 20.53%
= 18.22%
= 18.11%
= 19.68%
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- Return On Equity = Profit After Tax X 100
Shareholders’ Equity
= 62.03%
= 66.09%
= 45.83%
= 47.26%
= 49.74%
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- Earnings Per Share = Profit Available to Ordinary Shareholders
Number of Ordinary Shares Issued
= RM 1.50
= RM 1.45
= RM 1.24
= RM 1.12
= RM 1.14
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5. Market Value Ratio
= 22.06
= 18.62
= 21.17
= 22.14
= 21.32
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- Dividend Yield Ratio = _ Dividend per Share
Market Price Per Share
= 4.5%
= 7.1%
= 4.3%
= 4.0%
= 3.5%
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ANALYSIS OF THE ASSET MANAGEMENT & PROFITABILITY RATIO OF NESTLE
MALAYSIA BERHAD
Based on the calculation as above for Asset Management Ratio, it can summary that:
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4. Average Inventory Sales Period
- It is a way to measure the average amount of time that it takes for Nestle to convert
its inventory into sales. In year 2005, it show the small number of days sales in
inventory indicates that a Nestle is more efficient at selling off its inventory, while in
year 2007, show a large number indicates that a Nestle may have invested too much
in inventory, and may even have obsolete inventory on hand. However, a large
number may also mean that Nestle has decided to maintain high inventory levels in
order to achieve high order fulfillment rates.
5. Fixed Asset Turnover
- The fixed asset turnover ratio is the ratio of net sales to net fixed assets. The concept
of the fixed asset turnover ratio is most useful to an outside observer, who wants to
know how well a business is employing its assets to generate sales. In year 2006 and
2007 shows the high ratio and it indicates that Nestle doing an effective job of
generating sales with a relatively small amount of fixed assets, outsourcing work to
avoid investing in fixed assets and selling off excess fixed asset capacity. While in
year 2009, it shows that low ratio. It can summary that Nestle is overinvested in fixed
asset, needs to issue new product to revive its sales, has made a large investment in
fixed assets, with a time delay before the new assets start generating revenues and
has invested in areas that do not increase the capacity of the bottleneck operation,
resulting in no additional throughput.
6. Total Asset Turnover
- The total asset turnover ratio measures the ability of an organization to efficiently
produce sales. The ratio does so by comparing the sales of a company to its asset
base. It found that in year 2008, the ratio show 2.34 times compare from other years.
Nestle can operate with fewer assets than a less efficient competitor, and so requires
less debt and equity to operate. The result should be a comparatively greater return
to its shareholders. The measurement is typically used by third parties to evaluate the
operations of Nestle.
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Based on the calculation as above for Profitability Ratio, it can summary that:
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ROA of companies which are low asset-insensitive. An increasing trend of ROA
indicates that the profitability of the company is improving. Conversely, a decreasing
trend means that profitability is deteriorating.
5. Return On Equity
- The return on equity ratio or ROE is a profitability ratio that measures the ability of
Nestle to generate profits from its shareholders investments in the company. In other
words, the return on equity ratio shows how much profit each RM of common
stockholders' equity generates. ROE is a profitability ratio from the investor's point
of view not the company. In other words, this ratio calculates how much money is
made based on the investors' investment in the company, not the company's
investment in assets or something else. That being said, investors want to see a high
return on equity ratio because this indicates that the Nestle is using its investors'
funds effectively. Means in year 2008 & 2009 shows the high ratio compare from
others year.
6. Earnings Per Share
- The earnings per share ratio (EPS ratio) measures the amount of a Nestle's net income
that is theoretically available for payment to the holders of its common stock. A
company with a high earnings per share ratio is capable of generating a significant
dividend for investors, or it may plow the funds back into its business for more
growth; in either case, a high ratio indicates a potentially worthwhile investment,
depending on the market price of the stock. The EPS ratio for Nestle more consistent
starting from year 2005 to 2009 increase around 10% every year.
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EVALUATION OF THE RELATIONSHIP BETWEEN ASSET MANAGEMENT AND
FINANCIAL PERFORMANCE OF NESTLE MALAYSIA BERHAD
There are several methods in analyzing and interpreting the so called financial statement, one of
the well-known methods applied by many users of financial statement is ratio analysis. Ratio is
relation between two figures in the form of mathematical fraction and percentage. The ratio
analysis is the analysis of the financial statement by using the so called ratio.
1. Liquidity Ratio
- Liquidity ratio measure the power of the N to fill Nestle up the short term obligation.
If the Nestle is failed to do so, it will drive to failure and bankruptcy. The Nestle will
end into liquidation to return all outstanding debt. The liquidation converts all the
Nestle’s asset into liquid or cash to return to the creditors and shareholders in case of
bankruptcy. There are three ratios in measuring the liquidity, Net Working Capital,
Current Ratio and Quick Ratio.
Net Working Capital
- From the Net Working Capital, Nestle had a negative figure RM -148,57. It means
that Nestle had a very low liquidity. Nestle is risky in bankruptcy and liquidation,
because with the current assets of the company cannot cover up the short term debt.
This will happen if Nestlé’s present project is unsuccessful. Nestle must lower their
short term debt in order to put the company in a safety position. At least, Nestle must
lower their current liability for the number of RM 148,575 and maintain the working
capital on positive figure to make sure that Nestle always on the safe position.
Current Ratio
- By looking the current ratio Nestle for 0.86, Nestle has borderline liquidity. It means
that each RM of the current debt, Nestle only has RM0.86 for returning the debt.
Since the ratio is below 1, Nestle is highly risk in bankruptcy because they will not
able to meet their short term obligation.
Quick Ratio
- Nestle has a portion of 50-50 on their current asset with the stock which made the
position of Nestle is worsen. Nestle will not be able to pay even half of the current
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debt. Nestle is in a very dangerous situation. If Nestlé did not do anything to the
current liability, Nestlé will be easily come into bankruptcy.
2. Leverage Ratio
- The measurement of gearing ratio is about the level of debt financing that the
company used in the capital. Companies must utilize well the debt financing as it
gives so many advantages, like tax deductible for the company and supplement the
shareholders as well in financing the company. Tax deductible by the debt means as
the interest of the debt are paid before the tax payment, the income decrease and the
tax charge will be lower in the end. However, if the company is too much in using the
debt, the company is risky in bankruptcy since it has less equity and assets than the
level of liability. Leverage ratio consist of four ratios, they are Debt ratio, Long-term
debt ratio, Interest Coverage, and Debt to Equity ratio.
Debt Ratio
- Nestle had a quite high debt ratio of 68.94% for the year 2008.The high level of debt
indicates high risk that the investor will take. Therefore, the investors will ask for
higher return/dividend for each share invested in Nestle. Nestle have debt ratio lower
than 100%, so Nestle is still using the equity in financing the company. Investors
might find lower risk in the investment in the company since the company still in low-
leverage firm.
Debt Equity Ratio
- From the debt to equity ratio, Nestlé has very high ratio for 78.77%. It means that
Nestlé has higher debt financing rather than equity financing. The return of dividend
for Nestlé’s shareholder will be lower, since the operating profit is deducted to pay
off the interest. Nestlé is highly risk of bankruptcy, if it is unable in paying off the
large number of debt interest.
Equity Multiplier
- Equity multiplier shows the asset ownership for each RM of equity. Debt ratio and
equity multiplier provides the same information but in different approach. In year
2009 and 2008, it indicates high ratio compares with other year and shows that the
funding of the Nestlé’s assets via equity is higher compared to the others companies
in the same industry.
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Interest Coverage Ratio
- From the interest coverage, Nestle has good interest coverage. It means that Nestlé
has power to pay off 20 times of interest over their operating profit. So, Nestle can
manage well the payment of long-term debt like debenture, bond, etc.
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3. Market Value Ratio
- Market value ratio is the ability of the company to generate market values in excess
of its investment costs. It is very important as these market value ratios are directly
related to the objective of the company that is to maximize shareholders’ wealth and
value of the company. The market value ratio influences the market’s reaction and
investors’ confidence towards the ability of the company’s management in generating
profit efficiently and effectively.
Price Earnings Ratio
- The P/E Ratio indicates how much investors are willing to pay per RM of current
earnings. As such, high P/E Ratios are associated with growth stocks.
Dividend Yield Ratio
- The dividend yield ratio shows the amount of dividends that a company pays to its
investors in comparison to the market price of its stock. Thus, the dividend yield ratio
is the return on investment to an investor if the investor were to have bought the stock
at the market price on the measurement date.
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TREND ANALYSIS OF NESTLE IN 5 YEARS
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Revenue
Revenue trends index show that Nestlé has a gradual increase in 5 years but decrease in
year 2009 around 3%. Revenue of Nestlé increases for average of 8% every year starting from
year 2008 to year 2005. Nestlé has invested for the development of Nestlé’s manufacturing and
technology facility in 2007. One of the developments is the air-dried noodle for the so called
Maggi noodle. Since the turnover of Maggi noodle 1.3 million per day, it was believed that the
technology will boost the revenue in the future (Nestlé, 2007).
Operating activities trend indicates that, Nestle is having fluctuation in the cash
inflow from the operating activity. Nestle has fluctuate cash flow from 2005 to 2008 and increase
significantly in 2008 for 148%. The fluctuation happened to Nestle can be treated as market
effects to the company. In 2009, there will highly probable that Nestle will enter the grave
performance and enter good performance in 2010.
Dividend Payout
Dividend payout measures the amount that company give to the shareholder compared
with the earnings that they get per share. Outstanding amount of earnings that taken by the
company is called retained earnings. Usually, retained earnings use for investing a project or
other development for a better performance in the future. Trend analysis of dividend payout
indicates that Nestlé give almost same dividends payout to shareholders in 2004 to 2007. But in
2008, Nestlé retained 23% more than the base year to develop a new factory in Shah Alam. The
factory produces non-dairy creamer ‘Coffeemate’, Coffee and cereals. Coffeemate is the best
product in the market, occupy 88% of share market. Nestlé has invested for the total of
RM100million in renovating and developing their factories since year 2007 (Nestlé, 2008). The
trend forecasted that Nestlé’s dividend payout will increase as the development of the company.
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CONCLUSION
As ratio analysis indicates that Nestle is having better profitability and efficiency, but
with low level of liquidity and highly-leveraged. Nestle is on stabile position in revenues. From
the operating cash flow of Nestle, it can manage to perform well, even in bad economy situation
in 2005 and 2007. This indicates that Nestle is stable and strong. Even though Nestle is strong
enough, it must use the long-term debt for investment, so that shareholders did not get burden
from those activity. Nestle was very strong and stabilized, even with low liquidity and high
leverage. From all analysis above, Nestle has better and stronger position in the market. Nestle
has been a stabilized multi-national company since long time ago. Therefore, Investors might
consider investing in Nestle with the consideration of new investment and strong position in the
market.
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REFERENCE
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