Comprehensive Financial Analysis Report: Nestle (2016-2019)

This report presents a financial analysis of Nestle's performance from 2016 to 2019. The analysis utilizes common size, trend, and ratio analysis techniques to evaluate the company's financial position. The common size analysis reveals fluctuations in operating profit, improvements in managing costs, and an increase in overall profit, but also highlights weaknesses in liquidity due to fluctuating cash flow and declining cash balances. Trend analysis indicates improvements in other trading income and operational profit, alongside a reduced tax burden, but also points to increasing dependence on short-term investments and unproductive assets. Ratio analysis indicates a poor liquidity position, with current and quick ratios below 1, and a doubling of debt levels relative to equity, alongside a significant increase in income tax liabilities. The report concludes by emphasizing the need for Nestle to improve its liquidity and debt situation.

Running head: ACCOUNTING AND FINANCIAL MANAGEMENT
Accounting and Financial Management
Name of the Student
Name of the University
Author Note

1ACCOUNTING AND FINANCIAL MANAGEMENT
Table of Contents
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 analysis of the business suggests that the entity has 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 suggest that 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.

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.". in European 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.". in Journal of
Multinational Financial Management, 52-53, 2019, 100606.