Name: Usman Aftab
Roll no: 180759
Class: BSAF 4A
Submitted To: Sir Abdul Khalid
Financial Reporting 2
5 Year Ratio Analysis of Nestle Pakistan
Liquidity Ratios
The current ratio is a liquidity ratio that measures whether a
firm has enough resources to meet its short-term obligations. It
compares a
firm's current assets to its current liabilities, and is expressed as
follows: The current ratio is an indication of a firm's liquidity.
Current ratio= Current Assets/ Current Liabilities
2014 2015 2016 2017 2018
0.72 0.59 0.62 0.95 0.65
Analysis:
Failing to meet its short-term liabilities. Try to increase assets or
decrease the liabilities. No much difference but it should be greater
than 1.
The acid-test (quick) ratio is a type of liquidity ratio, which
measures the ability of a company to use its near cash or quick assets
to extinguish or retire its current liabilities immediately.
Quick assets= current assets- inventory- prepaid expense
Quick ratio= quick assets/ current liabilities
2015 2016 2017 2018 2019
0.30 0.23 0.21 0.73 0.62
Analysis:
Quick ratio should be above 1, this company is facing problems in
paying back its liabilities.
Net Working Capital measures a business ability to meet its
short-term obligations with its current assets.
Net working capital= current assets-current liabilities/ total
liabilities
2015 2016 2017 2018 2019
-0.14 -0.265 -0.25 -0.015 -0.032
Analysis:
Its negative throughout which means company's current liabilities are
exceeding its current assets.
The cash ratio is a measurement of a company's liquidity,
specifically the ratio of a company's total cash and cash equivalents to
its current liabilities.
Cash ratio= cash & cash equivalents/ current liabilities
2015 2016 2017 2018 2019
0.01 0.10 0.03 0.10 0.19
Analysis:
A cash ratio lower than 1, indicates that a company is at risk of having a
financial difficulty.
Management efficiency ratio/activity ratios
Inventory turnover ratio Indicates salability of inventory- the
number of times a company sells its average level of inventory during a
year.
Inventory turnover ratio= cost of goods sold/ average inventory
2015 2016 2017 2018 2019
7.15 7.02 5.83 4.75 7.8
Analysis:
High inventory turnover ratio which means that the company's product is
in demand.
Days in inventory Measures the average number of day’s
inventory is held by the company
No. of days of inventory= no. of days in a period/ inventory turnover
2015 2016 2017 2018 2019
51.0 51.9 62.5 76.8 46.15
Analysis:
Few days to hold inventory and it is being sold very soon which means
its healthy.
Account receivable turnover ratio Measure ability to
collect cash from customers
Receivables turnover ratio= net credit sales/ average receivables
2015 2016 2017 2018 2019
129.7 75.43 63.34 67.09 32.12
Analysis:
Highly efficient credit and collection.
No. of days of sales outstanding Shows how many days’
sales remain in account receivable- how many days’ it takes to collect
the average level of receivables.
No. of days of sales = no. of days in a period/ receivable’s turnover
2014 2015 2016 2017 2018
6 2 1.42 1.04 1.1
Payables turnover ratio Measures how many times per year
the company theoretically pays off all its creditors
Payables turnover ratio= net credit purchases / average payables
2014 2015 2016 2017 2018
0.22 0.26 0.16 0.06 0.08
Analysis:
The company is not paying of its debts on time and is liable to other
companies.
No. of days of purchases: the number of days of payables
reflects the average number of days the company takes to pay its
suppliers
No. of days of sales = no. of days in a period/ payables turnover
2014 2015 2016 2017 2018
1659 1407 2281 6083 4562.5
Analysis:
Company is very efficient as most of its account receivables are not
pending.
Asset turnover ratio Asset turnover or asset turns is a financial
ratio that measures the efficiency of a company's use of its assets in
generating sales revenue or sales income to the company.
Asset turnover ratio= net sales/ average total assets
2014 2015 2016 2017 2018
321.2 350.7 255.6 181.6 63.9
Analysis:
The company is efficiently utilizing its assets to generate the revenues.
Fixed asset turnover ratio Fixed-asset turnover is the ratio of
sales to the value of fixed assets. It indicates how well the business is
using its fixed assets to generate sales.
Asset turnover ratio= net sales/ average total fixed assets
2014 2015 2016 2017 2018
3.11 3.40 3.87 4.30 4.24
Earning per Share Earnings per share (EPS) are a figure
describing a public company's profit per outstanding share of stock,
calculated on a quarterly or annual basis.
Earning per share= profit after interest and tax/no. of common shares
outstanding
2014 2015 2016 2017 2018
174.85 193.18 261.23 322.86 254.56
Analysis:
The high price earnings ratio means that the company has very high
profitability.
Dividend per Share Dividend per share (DPS) is the sum of
declared dividends issued by a company for every ordinary share
outstanding.
Dividend per share= total dividend declared/ no. of outstanding
common shares
2014 2015 2016 2017 2018
89.99 49.9 184.9 79.9 75
Analysis:
high dividend per share proves to be good for the company and its
shareholders.
Dividend payout ratio the dividend payout ratio is the fraction
of net income a firm pays to its stockholders in dividends: The part of
earnings not paid to investors is left for investment to provide for
future earnings growth.
Dividend payout ratio= dividend per share/ profit after interest and tax
2014 2015 2016 2017 2018
0.00001 0.000006 0.000015 0.000054 0.0000064
Analysis:
Not healthy for the company.
Price earnings ratio the price-earnings ratio, also known as P/E
ratio, P/E, or PER, is the ratio of a company's share price to the
company's earnings per share. The ratio is used for valuing companies
and to find out whether they are overvalued or undervalued
Price earnings ratio= market price per share/ earning per share
2014 2015 2016 2017 2018
600 294 804 320 441
Analysis:
A company with high price earnings ratio usually indicates positive
future performance and investors are willing to pay more for this
company.
Market to book ratio the book-to-market ratio is used to find a
company's value by comparing its book value to its market value
Market to book ratio= market price per share/ book value per share
2014 2015 2016 2017 2018
9 5 18.5 8 7.5
Analysis:
Any value under 1.0 is considered good market to book ratio
Retention ratio The retention ratio refers to the percentage of
net income that is retained to grow the business, rather than being paid
out as dividends. It is the opposite of the payout ratio, which measures
the percentage of profit paid out to shareholders as dividends.
Retention ratio= 1- dividend payout ratio
2014 2015 2016 2017 2018
0.99999 0.9999944 0.999985 0.9999946 0.9999936
Analysis:
This company has same retention ratio
The End
