1ACCOUNTING AND FINANCIAL MANAGEMENT TableofContents Analysis........................................................................................................................................2 Common size analysis..................................................................................................................2 Trend Analysis.............................................................................................................................2 Ratio Analysis..............................................................................................................................3 Bibliography.................................................................................................................................4
2ACCOUNTING AND FINANCIAL MANAGEMENT Analysis In the given situation, the analysis has been conducted in relation to the financial statements of Nestle for the period 2016-19. The tools utilised include the common size and trend analysis of the balance sheet of the company. Similarly, a ratio analysis has also been conducted of the business of the entity. Common size analysis The common size statement analysis of the entity suggests that the operating profit of the entity has been fluctuating over the years. However, it has continued to increase since 2017 as the entity has been able to better manage the available funds and reduce the other costs like the distribution, marketing and administration expenses as a result. The overall profit of the entity has significantly increased due to the marginal improvement in the profits earned by the associates and joint ventures. The balance sheet results suggests that the entity has been struggling in maintaining a fixed cash flow in the business. As a result, the cash balances available have also come down. This signifies a weakness in the liquidity position of the entity and the increased risk of default of non-payment of the loans. The investments of the entity in the non-current assets had declined in 2018 but has improved in 2019. The goodwill of the entity has declined as a percentage of its total assets. This means that the entity should focus on improving the performance of the new businesses acquired by it. Trend Analysis The trend analysisof thebusinesssuggeststhat the entityhas shown significant improvement in the other trading income earned by it during the year. The profit generated from operations has also improved considerably. It has also been able to reduce the tax burden as a percentage of the revenue generated by it. However, the dependence on short term investments
3ACCOUNTING AND FINANCIAL MANAGEMENT has considerably increased with the entity not being able to maintain sufficient cash balances. The assets available for sale have gone up by a huge amount. These aspects result in an increasing inefficiency in the business. Hence, the focus should be laid at decreasing these unproductive assets. Ratio Analysis The ratio analysis points at a poor liquidity position. The business has been unable to maintain a current ratio or quick ratio of more than 1. This suggests that it is unable to repay its short term obligations immediately. However, the effect of this has not been shown on the profitability of the entity which has continued to improve. The debt levels of the entity have more than doubled when measured against the equity of the business. Hence, the entity has been increasing its dependence to finance its growth in the short run. The income tax liabilities have also gone up by more than 100% since 2016. These suggestthat the entity’s risk has gone up by a significant margin while it is also using increased short term debt funds to finance its operations. It also needs to improve its liquidity and debt situation.
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4ACCOUNTING AND FINANCIAL MANAGEMENT Bibliography Liang, D, C Lu, C Tsai, & G Shih, "Financial ratios and corporate governance indicators in bankruptcy prediction: A comprehensive study.". inEuropean Journal of Operational Research, 252, 2016, 561-572. Nestle.com,,2020,<https://www.nestle.com/sites/default/files/2020-02/2019-financial- statements-en.pdf> [accessed 6 March 2020]. Osina, N, "Global liquidity, market sentiment, and financial stability indices.". inJournal of Multinational Financial Management, 52-53, 2019, 100606.