Nestle Analysis: Financial and Management Accounting Techniques, Marketing Concept and Processes

This article discusses Nestle's financial and management accounting techniques, marketing concept and processes. It explains the different financial statements used by Nestle, their costing method, and budgetary control. It also discusses the five marketing alternatives and Nestle's marketing mix and extended marketing mix.

Nestle Analysis
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Task 2
For your selected organization, use financial and management accounting techniques to explain
record and interpret financial data, financial statements and preparation of budgets. Your
response should feature
Financial statements are very important when it comes to determining the financial
positions of organizations. The statements formally represent the activities which include
financial involvement in an organization, and hence, can be used in determining the liquidity of
the organization through evaluation of its financial strength. Nestle Limited group uses fur
different types of financial statements which can be used in interpreting how their financial
transactions impacts to their status.
Balance Sheet- The balance sheets are used in displaying the periodic financial position of an
organization. The liabilities, assets and equity of an organization compose the balance statement
of financial position (balance sheet) of an organization.
- Assets are all the materials that a company owns. For the case of nestle, the company
machinery, and premises makes the basic aspect of the company assets (Saluja, 2017).
- Liabilities refer to all the value that the organizations owe. Nestle liabilities may include
the unpaid rents, unpaid supply costs as well as any possible loans that they might have
taken to use for their production processes.
- Equity: This is what is owed to the owners of the business. It is a representation of what
remains once assets are used to pay off liabilities.

In the table below, the Nestlé’s balance sheet as at December 31st, 2016 is presented. The
assets in this table are divided into two sections, the current assets and fixed assets. The money
data presented in this table is in the millions of Swiss Franc CHF. From the data, the company’s
fixed assets was 99859, having increased from 94558 in 2015. The current assets of the company
had increased from 29434 in 2015 to 32042 in 2016. The total assets, calculated from addition of
fixed assets and current assets of the company was 131901, having increased from 123992 in
2015.
Table 1-Balance Sheet Assets Nestle Group 2016
Liabilities

The table below presents an analysis of Nestlé’s Liabilities and equity. In this table, there
are two classes of liabilities, the current and fixed. The company’s total liabilities were at 65920
for fixed and 37617 for current liabilities, an increase from the 123992 of 2015. The companies’
equities in 2016 included treasury shares, translation and other reserves, retained earnings and
share capital.
Table 2-Liabilities and Equity Nestle Group 2016
Profit and loss statement
The profit and loss statement (income statement) presents the net profits and loss of an
organization over a given period of time, thereby giving the periodic performance of the

organization. The income and expenses of an organization forms the basic aspects of an income
statement.
- Income for Nestle can be defined as the total earnings for the company; this may include
the total sales and the dividend income (Ikpefan, 2014).
- Nestlé’s expenses refer to all the expenses that the company made, including the
depreciation, rents and wages/salaries paid to its workers.
In calculation of the profits or losses of a company, the total expenses are subtracted form the
profits as indicated in the table below.
Table 3-Income Statement for Nestle Group Limited

Cont… Table 3-Income Statement for Nestle Group Limited
Cash flow statement
The overtime company’s bank account balances are represented in a cash flow statement. The
statement has three major divisions, each representing an activity, the investing activities,
financing activities and operating activities.
- At nestle company, production is the primary activity and is represented as operating
activities in the company’s cash flow statement.
- Investment activity section of the company’s cash flow statement includes the assets
purchases, such as factory equipment’s and such likes (Ndubuisi, 2017).
- The financial activity section company’s expenditures such as steeling bank loans,
dividends paid as well as the income which majorly include the sales.

Table 4-Cash Flow Statement Nestle Group Limited
Statement of Changes in Equity
The statement shows the owner’s equity periodic movement. Gains and loses equity, accounting
policy changers, dividend payments, share capital, accounting errors and profit and loses forms
the statement.
In the table, Nestlé’s statement of equity is shown

Table 5-Statement of Equity Nestle Group Limited
Costing methods at Nestle
There are two different methods used in costing, the job costing and process costing. Job
costing is used in industries which deal with customized customer order, hence its name of
specific order costing (Fisher, 2015). The quality and quantity of job done is dictated directly by
the customer. There are two categories of job costing; Contract costing, which is used when the
customer’s ordered job is big and therefore requires a long time to be completed. It is used in big
manufacturing companies. The batch costing on the other hand is used when each batch is treated

as a unit and thus charged separately. The total number of batches is subdivided into units and
the costs are calculated per unit batch.
Process costing is used for companies which produce a particular product for a
throughout their operation period, unless the production model changes. Here, each processes
have separate accounts and are used in calculation of total costs as well as costs per unit. Process
costing includes multiple costing, operation costing and unit costing. The unit costing puts into
consideration the costs for labor, materials and other overheads and hence suitable for a company
that produces similar units of products continuously. Multiple costing methods involve
calculation of costs of different parts of the entire product, such as in car assembly industries.
Companies that supplies services to the customers use operating costing method.
Nestle limited company produces various foodstuffs such as the beverages and snacks
which they supply for their customers (Carles, 2018). Their production is continuous throughout
the period under which they are operating. Additionally, Nestle production process involves use
of variable investments such as transportation as well as labor. The material costs for this
company is expected to decrease as the quantity of materials used increases. This is with
consideration to assumptions that mass purchase is always cheaper and may result free
transportation services, discounts are often offered by the supplier if the buyer makes regular and
huge amounts of purchases and related stuffs. However, Nestle has to pay for the rents every
operation year and pay their workers with the same rates regardless of the quantity produced
(Mahal, 2015). Nestlé’s costing method is therefore process costing.

In calculation of unit costs, Nestle Company does the summations f all variable costs and fixed
cost to find out the total costs incurred. A quotient f the results fund and the total units produced
are then calculated to come up with the cost per unit.
(Total fixed costs + total variable costs)/Total Units produced.
For example, if Nestle produces 100 packets of snacks and incurred $4000 fixed costs alongside
$6000 variable costs, the cost per packet will be calculated as below:
($4000 fixed cost + $6000 variable costs)/100 unit= $10 per packet.
Budgetary Control
A budget is a statement that formally set aside financial resources which are to be used in
handling particular activities in an organization company. A budget is therefore used in
coordination of activities such as marketing, production and advertisement in a company.
Budgetary control occurs when an organization compares its actual expenditures against its
budget for the particular activity. High profile companies such as Nestle have the responsibility
centers which make sure that the actual expenditure is within the budget set. Nestle has several
activities which make up their operations, and all these must be considered when making the
master budget for the company. These include;
- Sales budget-entails forecasting and each unit of product is calculated on its own. Factors
in the marketing process which are linked with pricing are also considered here.
- Production budget-all the financial costs in the production process are involved here.
- Labor budget- Nestle will consider all the wages and other expenses which goes to the
manpower in this case.

- Raw materials and purchasing budget- indicates all the purchases that the company made.
- Cash budget- Nestle cash budget will show it where any surpluses and deficits originates
as it shows all the monthly receipts and payments for the company
Example of Nestle’ cash budget
Table 6-Cash Budget Baby Formula Production Nestle
1st quarter 2nd quarter 3rd quarter 4th quarter Total $
Revenue from Formula 130,000 250,000 120,000 500,000
Less: Costs
Raw Material 37,261 48,268 42,368 55,416 183,313
Additives 7,278 15,297 18,473 11,329 52,377
Quality Assessment 4,826 12,923 15,991 7,262 41,002
Packaging - 15,825 27,775 17,875 61,475
Transportation - 14,100 24,750 15,750 54,600
49,365 106,413 129,357 107,632 392,767
Add: Opening valuation 85,800 135,165 112,240 94,260 85,800
135,165 241,578 241,597 201,892 478,567
Less: Closing valuation 135,165 112,240 94,260 90,290 90,290
Net Baby Formula cost - 129,338 147,337 111,602 388,277
Gross surplus - 66,200 102,663 8,398 111,723
Less: Overheads 5,876 7,361 7,486 5,321 26,044

Net profitless) (5,876) (6,699) 95,177 3,077 85,679
Task 3
Explain the elements of the marketing concept and processes, and their relation to the costs
And benefits of its marketing orientation.
There are five marketing alternatives which can be used by a company when p[performing their
marketing activities.
The production concept
In this concept, the company avails the products to the customers in an easier and cheaply costs.
Nestle company limited can apply this with the guidance of their managers. To bring this into
effect, Nestle has always ensures high efficiency in the production activities. Additionally,
Nestle purchases the raw materials in bulk, enabling them get high supplier discounts which in
turn helps in reducing the overall production costs (Rohm, 2018). The marketing concept favors
the customers as it enables the company to be able to work with very low prices for their
products as compared to others which produce similar goods.
The product concept
The marketing concept favors the customers through ensuring high quality products which are
made out of high innovation. Nestle, for the many years of operation, has undergone a series of

innovational evolution and has been able to greatly improve on the quality of goods they supply
to their customers. This is evident with the presence of high quality Nescafe, which is not only of
high quality but also available in various types. With this, the company sells the product at high
prices and still customers are willing considering the high quality.
The selling concept
With consideration to this concept, consumers cannot buy enough of the company’s products if
they are left alone t make choices to buy the product. Nestle influences consumers to buy their
products through promotion and advertisements. Nestle uses the electronic media in advertising
their product to increase customer awareness. The company is also active in the social media
marketing and has enables them retain their customers and also increase their brand.
Additionally, the company serves their customers handsomely and has been able to maintain
them through this means.
The social concept
The social concept of marketing dictates that the company must have a more effective way of
serving the people around it, the community than all the other competitors. Nestle keeps the
environment sustainability factor in their production process and therefore has minimal pollution
effect due to their operations (Appiah-Adu, 2016). Additionally, their high quality products are
safe for consumption by the customers, a factor that makes their customers convinced that they
are having great plans for them. The companies operations also strictly follow the legal laws set,
hence are in harmony with the authority.
The marketing concept

This concept entails determination of what the customers need and delivering the desired product
and quality in the bid to achieve the company objectives. Before getting into any market in the
world, nestle conducts an extensive research to find the needs so that they deliver the products
which will leave the customers. The company’s application of this concept can be viewed
through the low prices they set, high quality products they sell and the wide variety of products
they sell in various markets they operate. Throughout their pertain, the company has always
ensured that the customers get products which they need and the right quality is delivered.
For instance, taking the Baby formula product, Nestle conducts a research to find areas with
many newborns. In such places, the company can be sure that the potential market is huge and
the number of products sold will be high. Additionally, less overhead costs will be incurred and
this means that the profitability is higher as the customers’ needs also fully satisfied. Nestle
therefore, would have satisfied the needs of their customers and also made great sales and
profits, supporting its constant growth.
Marketing Mix and Extended Marketing Mix
The marketing mix is composed of five different aspects; place, promotion, product, price and
the physical layout, whereby people and processes are considered. With regards to Nestle the
marketing mix is discussed:
Product
Foodstuffs and beverages are the products that the company sells to customers. They include
cereals, coffee, candy, packages, and baby formula. The company is therefore known for these
products and only customers in need of them will refer to the company.

Price
There exist a direct relationship between the products of the company and the price. Nestle
product prices are dictated by profit margins, competitors and the production costs. The company
is known for providing high quality products for fair prices to the customers.
Promotion
Promotion is defined as communicating the products to customers. Nestle promotes their
products through sponsoring events in the markets which they operate. Through promotion,
Nestle has built its brand globally. Additionally, they have penetrated into markets with tough
competition and survived.
People
Nestle recruits the personnel in the company using a criteria that only productive and efficient
people are absorbed (Dadzie, 2017). Also, the company trains the employees to handle the
customers in the best way so that customer’s gets it easier to communicate their issues and give
responses that encourages those customers that their needs shall be settled in the shortest time
possible.
Place
Nestle has an effective distribution channel which makes sure that the products reaches the
market in the right. This is enabled by the well-established transport and logistics system.
Physical layout

Nestle provides a welcoming surrounding t their customers. This has enables them gain more
customers as well as maintain their customers as this creates the perception of high quality
products form the company.
Process
Nestle has the customer service department which is responsible for taking the customer’s
feedback and replies to them accordingly in the bid to make sure that all their needs are
addressed and products satisfies the needs of the customers (Agarwal, 2017).
With these marketing mix aspects, nestle has gained a significant portion of the food and
beverage market of the world. The company has built its brand and enhanced customer
trustworthiness. Many customers today prefer their products over other companies’ because of
the marketing mix it incorporates.
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