Comprehensive Financial and Strategic Analysis: Almarai & Nestle

This report offers a comprehensive financial and strategic analysis of Almarai and Nestle, two major players in the food and beverage industry. It begins with an overview of each company's history, business model, and product offerings. The report then delves into internal and external environmental analyses, utilizing SWOT, PESTEL, and Porter's Five Forces frameworks to assess their strengths, weaknesses, opportunities, threats, and competitive positions. Furthermore, the report includes a detailed financial performance evaluation, employing ratio analysis and cross-sectional comparisons to assess their liquidity, profitability, and solvency over a three-year period. The analysis highlights key financial metrics and provides insights into the companies' strategic decisions and market performance, culminating in a comparative conclusion.

Running head: ACCOUNTING AND FINANCIAL REPORTING
Accounting and financial reporting
Name of the Student
Name of the University
Author Note

ACCOUNTING AND FINANCIAL REPORTING
Table of Contents
Introduction:...............................................................................................................................2
Discussion:.................................................................................................................................2
History, strategy, product and business model of Almarai:.......................................................2
SWOT, PESTEL and Porter’s analysis of Almarai:..................................................................3
History, strategy, product and business model of Nestle:..........................................................7
SWOT, PESTEL and Porter’s analysis of Nestle:.....................................................................7
Ratio analysis of Almarai and Nestle for the time period of three years:................................11
Cross sectional analysis of Almarai and Nestle:......................................................................13
Conclusion:..............................................................................................................................13
References list:.........................................................................................................................14
Appendix:.................................................................................................................................16

ACCOUNTING AND FINANCIAL REPORTING
Introduction:
The paper discusses about the external and internal environmental analysis of two
multinational companies operating in the food and beverages sector. History, business model
and the products of the companies are discussed elaborately for gaining an understanding of
the overall business. Internal analysis is conducted by the application of SWOT analysis that
assist in the identification of the strength and weakness of the company along with the
opportunities and threats faced by them (Kabiret al. 2017). External analysis on the other
hand is done using Porters five forces and Pestle analysis. In addition to the environmental
analysis, financial performance of the companies have also been evaluated by analysing the
financial figures using ratio and cross sectional analysis. Such assessment is done for
evaluating the liquidity, profitability and solvency position of the companies.
Discussion:
History, strategy, product and business model of Almarai:
AlmaraiCompany was established in year 1977 and is the largest food and beverage
distribution and manufacturing company of Saudi Arabia and is the largest vertically
integrated dairy company of the world. The brand is ranked number one in the region of
North Africa and Middle East and in Gulf cooperation council, it is ranked as number one in
most of the categories. Organization grew sustainably for the past forty years and its bedrock
principle “Quality you can trust” forms the basis of the success and it continues to provide
customers of all ages with the healthy products to the consumers. The portfolio of the
products of Almarai is diversified which ranges from bakery products, juices to infant
formula and poultry. Company also enjoys successful joint venture with PepsiCo and Chipita
(almarai.com 2020).

ACCOUNTING AND FINANCIAL REPORTING
The business model of Amlarai is structured for delivering the quality products and is tailored
for maintaining the commitment of ongoing improving and guides the team members across
the organization. Such model incorporates the operating framework that is defined clearly so
that the staffs and management work accordingly. The working culture having effective and
efficient process of management is facilitated by the practical application with the help of
business model. The business model resilience of the company has been proven from the
marketplace development (almarai.com 2020).
SWOT, PESTEL and Porter’s analysis of Almarai:
SWOT analysis:
Strength:
 The principle of Almarai demonstrates the ability and strength of the business to
overcome challenges.
 Strategic growth path is maintained by the group by its fundamental commitment to
quality.
 The poultry supply chain of the company is strengthen, integrated and streamlined by
the acquisition of Pure Breed Company.
 Strong market share is another strength of Almarai along with the craeful cost
management of the ingredients and strategic sourcing.
 Product line diversity, quality and the ability of organization to deal with market
adversity are the core strengths of Almarai Company.
Weakness:
 Organization often fails to implement the system of internal control and this impacts
the financial performance.

ACCOUNTING AND FINANCIAL REPORTING
 The accounting and the financial system lacks fundamental integrity.
 Growth of the company has slowed down due to the maturity of the traditional
categories.
 The pricing strategies of the companies is pressurised due to the higher operating
expenses, labour cost and higher taxes.
Opportunities:
 Almarai has the opportunity to prosper and grow because of the growing importance
of the business to business for the beverage and regional food manufacturers. The
sales channel of business to business and foodservice is driven by the HORECA
market development.
 Major shifts in the channels of the company brought by the regulatory and societal
changes is providing the opportunity in the growing modern trade.
Threats:
 Almarai is threatened by the rising energy and transportation cost due to the structural
economic changes resulting from the macroeconomic challenges.
 A slowdown in the dairy, bakery and juices segments is threatening the business of
Almarai due to the challenging market environment.
PESTEL analysis:
Political factors-
 The functioning of the company is impacted by the influence of the infrastructure of
the country by the government.
 Some political factors impacting the business of Almarai is the policies of taxation,
employment laws, environmental regulations, trade restriction and political stability.

ACCOUNTING AND FINANCIAL REPORTING
Economic factors-
 The macroeconomic environment poses a great challenge to the business of Almarai
and the introduction of new regulation along with the introduction of value added tax
has put great pressure of the manufacturers and retailers.
 Income sources of the company is diversified by the structural reforms and tangible
boost received by the economies of GCC resulting from oil price improvement.
Social factors-
 The buying habits and consumer spending impacts the performance of Almarai in one
way or the other.
 Social media platform is used by Almarai for developing the communication and
transmitting the information for sharing the experience.
Technological factors-
 One factor that contributes to make Almarai a regional leader in the beverage and
food market is sophisticated sets of technology assets.
 The excellence objective in the cost management is supported by the proprietary
backend software.
 It is also ensured that the market and segments generate the maximum profitability
driven by the efficiencies due to the innovation and technology and therefore
technology acts as the driver for competitiveness and growth.
Environmental factors-
 The value delivered to the stakeholders is maximized by the framework of
sustainability and it is important for the company to address all the material issues
associated with the operations of business.

ACCOUNTING AND FINANCIAL REPORTING
 For minimizing the environmental footprints, Almarai ensures that the sourcing of
materials is done sustainably and ethically.
Legal factors-
 Legal factors impact any business and hence it is important for Almarai to adhere with
all the legal actions and changing regulations.
 The introduction of tax legislation has impacted the business of Almarai to a varied
extent.
Porter’s five forces analysis:
 Suppliers bargaining power-Bargaining power of suppliers of Almarai company is
low as the company enjoys competitive advantage. It might increase their cost for
switching the suppliers.
 Buyers bargaining power-Bargaining power of customer is low as the consumers
have the opportunity of switching towards the other products being sold either at the
same or low price.
 Threat of substitutes-There exist several players in the market which might threatens
the performance of Almarai by producing the substitutes product. This would impact
the total volume of sales and ultimately the revenue generated by the business.
 New entry threat-Continuous competitive advantage enjoyed by Almarai makes the
threat of new entrant in the market a bit difficult (Al-Saidi and Saliba 2019). Hence,
new entrant threat exist but it is not likely to impact the market share of Almarai. .
 Competition from rivalry-The market place where Almarai operates is increasingly
competitive and the company ensures to have continuous competitive advantage
because of cots optimization and efficiency. Amongst the top ten brands of food and

ACCOUNTING AND FINANCIAL REPORTING
beverages, Alamarai is increasingly competitive player and this implies that the
company faces high competition (Mahjoub 2018).
History, strategy, product and business model of Nestle:
Nestle is 150 year old food and beverage company and forms the largest company of
the world. The company operate at global level by combining the local engagement with the
global strategies. Success of the company is dependent upon innovation, trust and relevance.
The model of business for creating value helps in driving the performance using the wellness,
health and nutrition strategy and this helps in creation of sustained value for society and
shareholders. The model of value creation is based on balancing bottom line performance and
top line growth along with improving the efficiency of capital. In order to become more
responsive to the trend of the consumers, Nestle has increased the pace of innovation.
Business of Nestle is strengthened by discussing and engaging on the important issues with
others seeking solution. People are offered with the healthier, tastier and better life using the
portfolio of the products and services. In year 2018, new products were launched that
addressed the gaps and particular nutritional needs of children, babies, new born and
mother(Nestle.com 2020).
The digital transformation has resulted in the company embracing digital
opportunities and adopting digital centric business model and this has resulted in modernizing
the business operations and existing brands. Nestle is also executing the several initiatives of
saving cost so that the structural cost faced by the non-consumer is reduced(Nestle.com
2020).
SWOT, PESTEL and Porter’s analysis of Nestle:
Strength:

ACCOUNTING AND FINANCIAL REPORTING
 Nestle is the brand that is recognized globally and is the largest corporation of the
world. Significant awareness has been created about the brand using effective
branding and advertising strategies.
 The product portfolio of Nestle is extensive that helps in addressing and becoming
responsive to the changing demand pattern of the consumers.
 The company is highly diversified as it carries out its operation in various countries
offering wide range of products.
Weakness:
 Consumer and legal issues is one of the weakness as Nestle has been involved in
various controversies over the years such as boycott of baby formula.
 Controversy about Maggi hampered the business of Nestle as the company was
accused of adding some harmful additives.
Opportunities:
 The expanding market provides vast opportunities for the growth of business of
Nestle and the company can penetrate in different market and thereby capturing
market shares.
 Formation of strategic alliance provides Nestle with the opportunities as it helps in
gaining the access to several untapped markets.
Threats:
 Competitive market is one of the threats faced by the business of Nestle and in such
situation, it becomes difficult to gain competitive advantage.
 Increasing price pressure is also expected to threaten the business of Nestle as this
would impact the total sales generated by the business.

ACCOUNTING AND FINANCIAL REPORTING
PESTEL analysis:
Political factors-
 Business of Nestle is impacted by wide range of political factors such as geopolitical
uncertainty and instability brought by the politics of different countries where
company operates.
 An incredible natural hedge is represented by the group wide category of products and
geographical categories (Gabric 2018). The ability of group to operate is impacted by
the political hazards.
Economic factors-
 The organization operate in the volatile economic environment and the
macroeconomic and the fiscal condition of country impacts the operations of Nestle.
 Other factors impacting the overall performance of Nestle is the fluctuation of foreign
exchange rate, pricing pressure, development of regulations and competitive products
(Thomason 2018).
Social factors-
 E commerce platform and social media transforms the business of Nestle which helps
in embracing the opportunities.
 Social media and excitement of consumers helps in driving the demand for the Nestle
products.
Technological factors-

ACCOUNTING AND FINANCIAL REPORTING
 Nestle strives to address the expectation of consumers by making investment in the
cutting edge technology. That is the business of Nestle is considerably influenced by
technology.
Environmental factors-
 Nestle might experience constraints in their capacity because of change in the pattern
of weather along with economic and social inequality in their supply chains (Gong et
al. 2018). This would also resulting in creating reputational damage to the business of
Nestle.
 The gender inequality of deforestation causes issues in the supply chain of Nestle and
the shortage of water resources impacts the operation.
Legal factors-
 Legal factors such as taxation and regulation has some identified effect on the
business operations of Nestle.
 The ability of Nestle to carry out business in any country is governed by the
regulation and legal system of particular country.
Porter’s five forces analysis:
 Suppliers bargaining power- The bargaining power of suppliers of Nestle is low as
the cost to switch the suppliers by the company is moderate.
 Buyers bargaining power- The bargaining power of buyers of Nestle is high as the
market where Nestle operates is a diversified market for consumer goods. Sticking to
one such brand becomes difficult for the consumer in such scenario.

ACCOUNTING AND FINANCIAL REPORTING
 Threat of substitutes- Threat faced by Nestle regarding the substitutes is high which
might results in decrease in the sales of products (Bunker et al. 2019).
 New entry threat- New entrant threat faced by Nestle is low due to the existence of
large number of barriers to entry in the market.
 Competition from rivalry- Rivalry from competition for Nestle is high as the
marketplace of the company is highly competitive.
Ratio analysis of Almarai and Nestle for the time period of three years:
Financial performance of the companies is assessed by making an evaluation of the
profitability, liquidity and the solvency position. The trend of financial performance is
identified using ratio analysis.
Current ratio of Nestle is higher than Almarai over the period of analysis implying
that the former is more capable of paying off their obligations in short term using their
current assets (Alhumoudi 2016). On other hand, for Nestle, quick ratio is also recorded at
considerably higher values than Almarai. Current ratio is recorded at 2.55 in year 2018 as
against 1.31for Almarai.
estle N l araiA m
i uidit L q y
ratio
2018 2017 2016 2018 2017 2016
Current ratio 2.55 2.64 2.40 Current
ratio
1.31 1.18 1.79
ui ratio Q ck 2.03 2.03 1.71 ui Q ck
ratio
0.60 0.64 0.16
Table 1:
Liquidity ratio