Financial Analysis of Nestle: Capital Structure, M&A, Starbucks

This report provides a detailed analysis of Nestle's financial stability, capital structure, and market standing. It examines Nestle's performance, including its current assets, liabilities, and equity, using financial statements from 2015 and 2016. The report also explores Nestle's diversification and growth strategies, including mergers and acquisitions (M&A) options. It analyzes the benefits of acquiring various brands to enhance market presence and profitability. A key recommendation of the report is for Nestle to acquire Starbucks, citing the latter's strong financial performance and potential for synergy. The report includes an analysis of Starbucks' consolidated financial statements, highlighting its revenue, net profit, and balance sheet position, to support the recommendation. This report provides valuable insights into Nestle's financial strategies and potential growth opportunities in the food and beverage market, supported by financial data and strategic recommendations.

Advanced Corporate Finance

EXECUTIVE SUMMARY
Corporate finance are acquired by the business in context with making the adequate business
positions, creating the identity in the market as well as improving the operational activities of the
company. Hence, in the present era, there are many firms which are operating various product
lines and have the wide scope in the international markets. However, the present report is based
on the Financial stability of Nestle and it is of operations. Thus, the managers in the company
have been suggested various ways to make the fruitful business functions as well as expand the
trade and commerce of the industry. Thus, they will be suggested to make Acquisition of various
popular brands worldwide in different segment which in turn helps in improving the business
operations in the products such as Baby food, medical food, chocolates, food and beverages,
cosmetics etc. However, in term so analysing the business there are many firms which are
challenging the operational functioning of the business so the professionals of Nestle were
suggested acquiring Starbucks which will be fruitful in making rise in the profitability of the firm
as well as helps in attracting the large numbers of investors. Thus, this collaboration will help the
business in making the adequate lead in the market.

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
1. Capital structure, market standing position of Nestle........................................................1
2. Diversification and growth for nestle as well as analysing different M&A options..........5
3. Recommending nestles to acquire Starbucks.....................................................................6
CONCLUSION..............................................................................................................................12
REFERENCES..............................................................................................................................13

ILLUSTRATION INDEX
Illustration 1: Consolidated financial position of Nestle.................................................................3
Illustration 2: Current market share of Nestle..................................................................................4
Illustration 3: Merger and acquisition classification........................................................................5
Illustration 4: Consolidated income statement of Starbucks............................................................7
Illustration 5: Comprehensive income statement.............................................................................8
Illustration 6: Consolidated balance sheet of Starbucks..................................................................9
Illustration 7: Change in equity statement of Starbucks................................................................11

INTRODUCTION
Financial growth of the business is the prime requirement of the business which in turn
helps in making the expansion of the business scope as well as profitable for building the capital
structure of the firm. Hence, in the present report there will be discussion based on financial
position of Nestle as well as its ability to meet the financial challenges in the environment.
However, there will be ratio analysis and the recommendation to the company to acquire the
Unilever which is performing in the same segmentation as a part of nestle.
1. Capital structure, market standing position of Nestle
Nestle is being the most successful brand in the corporate environment as it has acquired
many competitive brand as well as executing the successful business in the world. Hence, this
company has segmented the market environment and works as the best seller or manufacture for
the food and beverages environment. However, the origin of the business is from the Switzerland
and was established the trade and commerce in 1866. Currently the firm is operating in
manufacturing various food and beverages products in the market as well as serving the society
with the adequate quality (Grinblatt and Titman, 2016). The product line of the business
includes, coffee and tea, pet foods, baby foods, ice cream, medical food, bottled water, dairy
products which in turn brings the annual sales revenue for more than 1.1 billion. However, due to
the successful business operations the firm has acquired many business such as Nescafe, Kit Kat,
Maggi, Stouffer's, Nesquik, Nespresso etc.
However, in accordance with the operational ability of the firm they have 44
manufacturing units and have accessed to the 194 nations and have the workforce for more than
340000 throughout the world. However, the capital structure of the firm can be analysed as per
the below listed Table which reflects the annual report of Nestle in the year 2016.
Capital structure of Nestle:
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Illustration 1: Consolidated financial position of Nestle
Source:(Financial Statements, 2016)
Interpretation: In accordance with the tables listed above which evaluate the financial
position of Nestle and the strength to meet the financial requirements. However, such techniques
will be helpful for the business in attracting the large numbers of shareholders and investors.
However, the firm has Current assets in the year 2016 as 32042m which has increased in
comparison with the previous year's such as 29434m. It can be said that the operational activities
such as manufacturing of the products or services as well as the selling and distribution which
affect the current assess are on right state as the firm is having fruitful growth (Bergh and et.al.,
2016).
However, the current liability of Nestle for the year 2016 as shown in the consolidated
balance sheet of the year 2016 such as 37515 while in 2015 it was 33321. Thus, it can be said
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that there has been increase in the financial debts, trade payables, provision and taxations in the
current year. In accordance with the equity of the firm in 2016 it is 311 and in 2015 it was 319m.
However, it can be said that in the current year there is slight variance in the current years which
denotes that there are fewer investments which were gathered in such period. Hence, as per the
increase in the reserves of the firm in current the total equity increase in the current year as
65981 while it was 63986 in the 2015. Thus, it can be said that the business will be able to make
the fruitful expansion or invest in the new business activities.
Market standing of Nestle:
Illustration 2: Current market share of Nestle
Source: (Bloomberg Markets, 2017)
Interpretation: The above listed diagram reflect the market standing of Nestle which in
turn describes that the firm is earning as well as have bull in its share value. However, it can be
said that the investors have found this firm as more profitable due to its earning and the annual
turnover rates. The main investors of the entity is the L'Oreal which is the largest brand in the
cosmetic environment. Thus, with the help of such investors the company has the strongest
capital structure as well as they become able to make adequate operational activities. There is
need to plan an effective dividend policies which in turn helps shareholders to take the profitable
advantages from such business (Alstadsæter, Jacob and Michaely, 2017)
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2. Diversification and growth for nestle as well as analysing different M&A options
The business comes into recognition when it has expanded the business objective or the
operational areas. However, the mergers and inquisition process is being known as the
combination of various companies as well as consolidation of them (Greve and Zhang, 2017).
Hence, the business make acquisition of the rivalry or the same segmented industry over which it
is currently functioning. Thus, the concept behind having the fruitful merger and acquisition is
that the two individual units come together to make more value or have the wider operational
functioning.
Illustration 3: Merger and acquisition classification
Source: (Mergers and Acquisitions, 2015)
However, it can be said that Nestle need to make acquisition of various food and
beverages industries which in turn helps in making the adequate capital gathering for the
business. Thus, such changes will help the entity in creating the different identity as well as
enhances the brand image in market. Hence, in November 2017 the business has acquired US's
top coffee brand such as Chameleon Cold- Brew which in turn helps the industry in making the
adequate profitability in its previously functioning coffee brand Nescafe (Deals of the day-
Mergers and acquisitions, 2017). Thus, acquiring the most successful brand in coffee business
will be beneficial in making the fruitful sales as well as profitable in having the adequate
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revenue. By considering the business dealing for the segmentation of by food products the
business acquired Bayer's brand in such business operations. Hence, it will help in rising the
funds for Byare's and facilitate them the adequate marketing functions.
On the other side the firm has merged or sold out its two brand such as Butterfingers and
Baby Ruth. Thus, such decision helps the firm in gaining the adequate goodwill as well as
revenue for the further business operations in the world. Thus, such acquisition helps business in
building the strength to make the adequate market strength in the cosmetic markets as well as
gain the adequate profitability. By considering the other product lines of the business on which
the firm has acquired various foods and beverages brands in context with enhancing the brand
image in such segments as well as acquiring the firm will reduce the competition in the market.
Hence, they have merged Froneri which is a top listed Ice cream brand US as well as Guthy
Renker in the cosmetic segmentation.
Growth and diversification:
However, it could be recommended that the firm need to make acquisition in the food or
beverages segmentation as these sectors has the wider scope and it will be beneficial for the firm
in making the constant growth. Thus, the firm need to focus over increasing or enchaining the
operational activities of business in the fields of cosmetics, food products which in turn helps it
to become the gain market holders in the environment (de Bodt, Cousin and Roll, 2017).
However, in context with acquiring a business it will be recommended to the managers that they
must analyse the profitability of such firm as well as the brand image in the market and then
analyse that it will be profitable for the business or not. Hence, such analysis will help the firm in
making the adequate growth as well as favourable trade practices in worldwide.
3. Recommending nestles to acquire Starbucks
In order to make the adequate acquisition in the market it will be recommended to Nestle
to plan for acquiring Starbucks. Hence, this firm is widely spread over the various nations and
have the adequate growth or product lines. This acquisition of merge will help Nestle to build
profitable empire in the food and beverages market. Thus, this firm also have the same
operational aspect as Nestle have such as it manufacture or sells the foods, beverage goods in the
market. It will also help the firm in acquiring the better position in the environment as well as
raise the market share of the firm. However, it will be easy for the business in making the
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analysis over the various financial statements of Unilever such as income statements, balance
sheet, change in equity etc.
Consolidated Financial statements of Starbucks
Illustration 4: Consolidated income statement of Starbucks
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Illustration 5: Comprehensive income statement
Interpretation: In accordance with this consolidated Income statement of Starbucks
which in turn reflects that the firm is operating of the adequate state as well as have gathered the
fruitful gains. It has adequate turnover which in turn helpful for the business operations as well
as making payments to the shareholder, dividend holder which in consideration with the
adequate returns. Hence, in the year 2016 the annual turnover of the firm was 16,844.1 which
was as compared with the previous year such as 15,1973. However, the reduction will not affect
the operational activities of the business cause the firm has wide ranges of products as well as
make dealings in the various operational activities such manufacturing, selling as distribution as
well as acquired various brands in Coffee. However, the net profit for the year 2016 is 2818.9
which is more than the previous year's net profit such as 2.759.3. Thus, it can be said that in the
current year the revenue gathering of the firm is adequate as the expenses or costs over products
were reduced.
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Consolidated balance sheet
Illustration 6: Consolidated balance sheet of Starbucks
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Interpretation: In accordance with the above listed table which presents the financial
position of Starbucks. Hence, in accordance with the current assets of the firm in the year 2015
and 2016 are 14329.5 and 12,416.3 respectively. Hence, in the current year there is growth in the
goodwill or there intangible assets which in turn reflects that the firm is having the adequate
market image as well as have the good share values. However, the business will be profitable in
making investments in context with expansion as well as operational activities in coming year.
On the other side, in terms with current liabilities of the firm in the year 2015 and 2016 it
is 4546.9 and 3648.1. Hence, there has been increase in the current liabilities of Starbucks in the
current years such as trade payables and financial liabilities. Thus, the total equity of the firms at
5890.7 which are 5819.8 in the previous year.
Change in equity:
10

Illustration 7: Change in equity statement of Starbucks
Source: (Financial Data, 2017)
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Interpretation: By considering the above listed table which describes the equity
generated by Unilever in various years such as 2013 to 2016. However, in the year 2013 the total
equity acquired by the business is for 753.2, in 20014 it was 749.5 thus in this year there has
been reduction in the numbers of shareholders or investor of the firm. On the other side in 2015
the numbers of equity was raised to the 1485.1 which describes that in such year the firm has
attracted various investors which are need to make the investment in the organisation as well as
raise the capital structure of the firm. Thus, in the year 2016 it was raised to 1460.5 which says
that investments of the firm are rising and they have the adequate growth in the current years.
Thus, it can be said that investing in this company will be fruitful for Nestle because it has the
adequate growth in the market as well as have the beneficial product lines.
CONCLUSION
To have the thorough study over the financial position of Nestle and the operating
functions of this business it can be said that there is need to make the adequate investment by this
organisation. Hence, the managers of the director of this firm must make adequate decision in
context wit expanding the business operation as well as improving the product line. Further, the
professionals were suggested to make the acquisition or merged with the Starbucks which in turn
profitable for making the adequate business operations in the long run as well as helps in
improving the segmented business operations.
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REFERENCES
Books and Journals
Alstadsæter, A., Jacob, M. and Michaely, R., 2017. Do dividend taxes affect corporate
investment?. Journal of Public Economics. 151. pp.74-83.
Bergh, D. D. and et.al., 2016. Using meta‐analytic structural equation modeling to advance
strategic management research: Guidelines and an empirical illustration via the strategic
leadership‐performance relationship. Strategic Management Journal. 37(3). pp.477-497.
de Bodt, E., Cousin, J. G. and Roll, R., 2017. Full-Stock-Payment Marginalization in Merger and
Acquisition Transactions. Management Science.
Greve, H. R. and Zhang, C. M., 2017. Institutional logics and power sources: Merger and
acquisition decisions. Academy of Management Journal. 60(2). pp.671-694.
Grinblatt, M. and Titman, S., 2016. Financial markets & corporate strategy.
Online
Bloomberg Markets. 2017. [Online]. Available through
:<https://www.bloomberg.com/quote/NSRGY:US>.
Deals of the day-Mergers and acquisitions. 2017. [Online]. Available through
:<https://www.reuters.com/article/deals-day/deals-of-the-day-mergers-and-acquisitions-
idUSL4N1N92W3>.
Mergers and Acquisitions. 2015. [Online]. Available through
:<http://www.edupristine.com/blog/mergers-acquisitions>.
PDF
Financial Statements. 2016. [PDF]. Available through
:<http://www.nestle.com/asset-library/documents/library/documents/financial_statements/
2016-financial-statements-en.pdf>.
Financial Data. 2017. [Online]. Available through :<https://investor.starbucks.com/financial-
data/annual-reports/default.aspx>.
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