International Financial Management: A Case Study of Nestle Plc

This report discusses the value of global financial management with the UK-based public limited company 'Nestle' as a case study. It covers topics such as international financial market, obstacles faced by Nestle in foreign markets, theories of international financial management, dividend distribution policy, and appraising methods adopted by Nestle for its projects.

INTERNATIONAL
FINANCIAL
MANAGEMENT

Table of Contents
INTRODUCTION...........................................................................................................................3
TASK...............................................................................................................................................3
International Financial Management:..........................................................................................3
How International financial market is useful in Nestle Plc.........................................................3
There are a few major obstacles that Nestle Plc must overcome in various foreign markets.....4
Theories of International Financial Management........................................................................5
Dividend Distribution Policy of the Company Nestle:................................................................6
Analyses of the Efficient Market Hypothesis Theory with consideration of Nestle Plc.............7
Methods which are taken into consideration by the Nestle for appraising its projects...............7
CONCLUSION................................................................................................................................7
REFERENCES................................................................................................................................9

INTRODUCTION
The place where people exchange financial assets is known as the international financial
market (and between countries). It may be viewed as a complex system of institutions and rules
where assets are exchanged between agents with surpluses and deficits, and where institutions
define the rules. The following factors, which are connected to investment, capital structure,
dividend policy, and working capital management, should be taken into account while making
financial management decisions in order to fulfil company goals. International trade is intimately
tied to it. International trade benefits greatly from international financial management. This
research discusses the value of global financial management with the UK-based public limited
company "Nestle" as a case study. This report also highlights information about financial
management theories and dividend distribution policy and analyses of various methods of
appraising projects.
TASK
International Financial Management:
Due to its support to an organization's funding activities, international financial
management is often known as international finance. It supports the establishment of
effectiveness and efficiency inside the organization. Through the capital market, it offers the
money at a lesser cost. The norm for international tax planning is being created with the aid of
international financial management. It organizes the money through leasing, foreign currency,
and venture capital. Both government agencies and organizations with a business motive employ
it. It concentrates on currency rates and foreign direct investment (Reboredo and Ugolini, 2020).
Making decisions in global company is made easier due to international financial management.
How International financial market is useful in Nestle Plc
Nestle is the world’s largest food and beverage company headquartered at Vevey,
Switzerland. It deals in everything like baby food and bottled water to cereal and healthcare
nutrition products etc. The biggest brands of Nestle includes Maggi, Toll house, Milo, KitKat,
Nespresso, Nescafe, etc. They operate in 191 nations and have more than 2000 brands, ranging
from well-known household names to iconic worldwide companies. Nestlé's mission is to
improve quality of life and promote a healthy future. They wish to encourage people to lead

healthier lifestyles and contribute to the creation of a better, healthier planet. They do this to
support their business's long-term development while also giving back to society (Raj and
Marcus, 2019).
The following list outlines the significance of global financial management:
 It encourages the corporation to introduce capital into international markets in order to
generate greater profits, acquire raw materials for manufacturing, and make goods for
international markets.
 Employees may make effective financial plans with the aid of international financial
management.
 Global financial management pushes businesses to make better use of their resources.
 It concentrates on product manufacturing to achieve efficiency or effectiveness.
 To promote global commerce development.
 It helps in calculating various countries' currency rates.
 It makes a comparison between investing in different debt instruments and inflation rates.
 It assesses the overseas market to determine the various nations' economic activity.
 Compares the financial positions of various nations using the International Financial
Reporting System.
 International financial organizations like the World Bank and IMF offer assistance in
financial dispute resolution.
There are a few major obstacles that Nestle Plc must overcome in various foreign markets.
Nestle has endured several difficulties throughout the course of its 155-year existence, but
with effective management, it has managed to run its commercial operations successfully and
expanded it around the globe. Nestle, as a multinational and large-scale corporation, is likewise
experiencing several challenges. There are several significant issues that affect Nestle Plc.
Company should develop new technologies to meet client demands in a changing environment.
Management of performance
Performance management is a phrase that is closely related to performance evaluation. The
process by which management of the business assesses how well individuals are carrying out
their responsibilities in the workplace is known as performance measurement or performance
evaluation. Performance review is crucial since it allows management to determine if

business operations are on the correct track and whether additional workers should be hired
(Spulbar and Birau, R. eds., 2019). Nestle faces a problem in assessing the performance of a
sizable workforce spread across several nations given its size and scope.
Issue of child labor
The primary raw material utilized in the making of Nestle's chocolates, coffee, and several
other goods are cocoa. When an impartial auditor from the Fair Labor Association (FLA)
reported that Nestle was exploiting child labor in the cocoa supply chain, a complaint was raised.
The controversy had a negative impact on the company's reputation, and the management
responded quickly to the situation.
Retirements and an aging workforce
It is a truth that the majority of those in higher managerial positions who are employed are senior
citizens. Senior level management is often the most seasoned and senior level staff, and every
year some of these high-level role holders retire. When an experienced employee leaves a
business, it is viewed as a loss because, in the event that a succession plan cannot be
implemented, the organization must pick and hire a new employee for the vacant position.
Finding the perfect candidate for the position can be quite difficult.
Theories of International Financial Management
Purchasing Power Parity Theory - The Purchasing Power Parity (PPP) hypothesis states that
changes in the relative price levels of two nations' goods and services, which are influenced by
inflation, dictate changes in the exchange rates between their currencies. Although economists
have discovered that this theory can suffer from distortions over the short term due to trade and
investment restrictions, local taxes, and other variables, it is generally accepted that this theory
mostly remains true over the long run. Due to this link, one might anticipate that over time
relative to their peers, the currencies of nations with greater inflation rates would weaken, and
those of nations with lower inflation rates will often appreciate (Yang and Okada, 2019).
Expectation Theory - Based on current long-term interest rates, expectations theory aims to
anticipate what short-term interest rates will be in the future. With the use of a projection of
future interest rates, the expectations theory tries to assist investors in making decisions. The
theory predicts the rate for short-term bonds using long-term rates, often from government
bonds. Long-term rates can theoretically be used to predict where short-term bond rates will
trade in the future.

Interest rate parity - This term describes how the interest rates in two nations compare.
According to this idea, the gap between the interest rates in two nations is equivalent to that
between the forward and spot exchange rates (Lazarus, 2020). Foreign traders utilize it to look
for possibilities. The major objective is to make investing in various currencies more profitable
than using interest rates as a measure of return.
Fisher Effect Theory - The Fisher effect is a hypothesis established by economists that
describes the link between nominal and real interest rates. Real interest rates should be equal to
nominal interest rates after subtracting the budgeted inflation rate. Real interest rates have a role
in the lender's choice. Lenders can beat inflation if interest rates are positive, while inflation is
unaffected by loan payments if interest rates are negative.
Dividend Distribution Policy of the Company Nestle:
It outlines the corporate organization. Dividends are given to shareholders from any
remaining profits. Since investors may buy and sell securities on the market when they need
money, this argument is irrelevant. There are many reasons for a firm to pay its shareholders a
dividend, thus it is an important component of that plan (Calice and Leonida, 2018). The timing,
laws, rules, and regulations, as well as the business plan, all influence the dividend payment
amount. There are four different division policies that businesses use, and they are as follows:
 Regular dividend policy: Under this policy, the corporation pays the dividend each year.
When a firm has abnormally high profits, those profits are not allocated to shareholders;
nevertheless, when a corporation experiences losses in any given year, it also distributes
dividends to its stockholders.
 Unusual dividend policy: Under this policy, the corporation is not required to provide
dividends to its shareholders. The dividend amount is decided by the board of directors.
They make decisions based on the money they have made. The business may implement
this approach to boost expansion by utilizing retained earnings.
 Stable dividend plans are something that businesses frequently adopt. Company
distributes dividends according to this policy on a regular basis. Investors in this
insurance are guaranteed to receive a specific number of dividends.
 No dividend policy – In this policy, organisation doesn’t distribute any dividends to the
shareholders despite earning profits.

Nestle plc applies the regular dividend policy in which a particular amount of dividend is fixed
for the shareholders. A company needs to become a brand before adopting the regular dividend
policy.
Analyses of the Efficient Market Hypothesis Theory with consideration of Nestle Plc
According to the economic market hypothesis theory, the prices of financial instruments
take into account all of the market data that is currently accessible. As a result, investors cannot
surpass one another by evaluating equities and using various market timing techniques. This idea
contends that large returns for investors can only be obtained through greater market risk.
According to this view, share prices reveal all the facts. At fair market value, the shares are
traded. The hypothesis theory promises bigger returns to its investors if they choose riskier
investments. The value of Nestle's stock reflects the company's financial situation. According to
the Efficiency Market Hypothesis theory, it is improbable for shareholders to have consistently
outperformed the market over the long run.
Methods which are taken into consideration by the Nestle for appraising its projects
Nestle is a great firm that use various efficient performance assessment techniques to
motivate employees to meet strategic objectives. Self-rating, employee evaluations,
rating committees (Nestle Academy), and 360-degree feedback are all common in
Nestle HR management (Bui and Bui, 2019).
1. Self-rating: Nestle uses this assessment to measure an employee's ethical maturity by
comparing it to other appraisal systems, despite HR being aware of the #baseness of this
technique.
2. Subordinate evaluation: The questioner's feedback is used to evaluate an employee's
performance. HR takes the effort to improve the employee's effectiveness or terminate
them in accordance with standards based on feedback.
CONCLUSION
In the above-mentioned report, it is concluded that the international financial management is
the basic need for running an organisation. It helps in understanding the exchanges rates, trends
of the share market and interest rates related to them as well. The Nestle Company uses different
dividend policy for distributing profits among their shareholders with consideration of the

condition of the company. In this report, we evaluated and analysed the various appraising
methods adopted by the Nestle for its projects and also different theories of international
financial market are discussed here.

REFERENCES
Books and Journals
Bui, D.T. and Bui, T.M.H., 2019. How does institutional development shape bank risk-taking
incentives in the context of financial openness?. Pacific-Basin Finance Journal. 58.
p.101209.
Calice, P. and Leonida, L., 2018. Concentration in the banking sector and financial stability: new
evidence. World Bank Policy Research Working Paper. (8615).
Lazarus, J., 2020. Financial literacy education: A questionable answer to the financialization of
everyday life. In The Routledge international handbook of financialization (pp. 390-
399). Routledge.
Raj, G.R. and Marcus, A., 2019. Market Linkage of Indian Stock Market with Select Stock
Markets. Economic Affairs. 64(1). pp.185-190.
Reboredo, J.C. and Ugolini, A., 2020. Price spillovers between rare earth stocks and financial
markets. Resources Policy. 66. p.101647.
Spulbar, C. and Birau, R. eds., 2019. Emerging research on monetary policy, banking, and
financial markets.
Yang, A.S. and Okada, H., 2019. Corporate innovations as institutional anomie: Patent activities
and financial performance of the international aerospace industry. Finance Research
Letters. 28. pp.328-336.