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Introduction:

The existing company that has selected is Nestl (Malaysia) Berhad. Nestl is a multinational company
and is of the worlds largest in food and beverages industry. Nestls foundation was built in 1867 on
humanitarian needs and social responsibility when Henri Nestl, a trained pharmacist, developed a
healthy and economical alternative source of infant nutrition to save the life of an infant who could not be
breastfed. Nestl Malaysia was established in the year of 1912 in Malaysia as Anglo-Swiss Condensed
Milk Company. Nestl Malaysia head office is now located in Mutiara Damansara, Petaling Jaya,
Selangor, and has 6 sales offices with more than 5000 employees nationwide. Besides, Nestl
manufactures its own products in 7 factories and markets over 300 Halal products across the nation. As
part of the journey of Nestl nutrition, health and wellness, Nestle, through its vision of nourishing
Malaysia, continuing to invest in research and development, a further innovation, updating existing
products to ensure that they are more nutritious and healthy by reducing salt, sugar and fat content to
supplement the Government's efforts by 10 national nutrition plan of action to create a more healthy,
more about Malaysia community. Nestle exert great efforts to achieve its vision to leader in nutrition,
health and health company through the production of more high quality products to customers. Nestle
also study consumer demand from time to time and satisfy more consumers as much as possible. Nestle's
advantages, such as high fiscal capacity, effective strategic marketing ability, strong research and
development, and great leaders help their obstacles, passed. Above all else, nestle is focused on the task
and ensure the consistency of making the right decisions, management, and establish its business to
provide good food, good life, all over the world.
The existing company that has selected is Dutch Lady Milk Industries Berhad. Dutch Lady Milk
Industries Berhad was incorporated in 1963. It was the first milk company in Malaysia which has been
listed on Bursa Malaysia and the local stock exchange in 1968. The companys factory is located in
Petaling Jaya with total employees around 600 people. Dutch Lady manufactures wide range of quality
dairy products and fruit juices for the home and export market such as: infant formula, growing-up
milk, powdered milk, condensed milk, UHT milk, sterilized milk, pasteurized milk, cultured milk,
yoghurt , fruit juice drinks. Since 1995, the company has continually been accredited with ISO 9001
certification. The strong emphasis is also placed on food safety with HACCP (Hazard Analysis Critical
Control Point) System covering all its plants. Furthermore, the company also has in place ISO 14001
Environment Management System and OHSAS 18001 (Occupational Health And Safety Assessment
Series). Dutch Lady Milk Industries Berhads extensive product range now spans from infant formula
and growing up milk to fruit juice and yoghurt snacks while Dutch Lady Malaysia first established itself
as a manufacturer of sweetened condensed milk.

This company believes in product innovation and also well supported by its holding company, Royal
FrieslandCampina. This company has been committed to improve the process for the customer
satisfaction to provide high quality nutritional products.

Financial performance ratio (Nestl):


Liquidity ratios
1. Current ratio =
Year 2013

current assets
current liabilities
13395017
16788455

=0.80
current assetsInventories
2. Quick Ratio =
current liabilities
Year 2013

133950177046126.522
16788455

= 0.38

current assetsc urrent liabilities


total assets

3. Net working capital ratios =


=

1339501716788455
35179859

= -0.10
Profitability analysis ratio
1. Return on assets ( ROA ) =

net income
average total asssts
4524771
65971445

= 0.42
NET INCOME
average stockholde r ' s equity

2. Return on equity ( ROE ) =


=

4524771
6597144.5

= 0.69
3. Return on investment ( ROI ) =
=

NET PROFIT AFTER TAXES


total assets
4668357
35179859

= 0.13

net profit after taxes


net sales

4. Net profit margin =

4668357
64824364

= 0.07

gross profit
sales

5. Gross profit margin =

16725318
64824364

= 0.26

earning after taxes


number of shares

6. Earnings per share (EPS) =

890973
730305.7377

= 1.22
Assets management ratios
net sales
total assets

1. Asset turnover ratio =


=

29859226
16639184

= 1.79
2. Inventory turnover ratio =
=

cost of goods sold


inventory

48099046
7046126.522

= 6.83
Debt management ratio

1. Debt to equity ratio =


=

total liabilities
'
total stockholder s equity
9402242
7236942

= 1.30
totaldebts
2. Debt asset ratio = total assets
=

9402242
16639184

= 0.57
3. Interest coverage ratio =
=

income before interest income tax expense


interest expense
6586973
84109

= 78.31

Financial performance ratio (Dutch Lady):


Profitability analysis ratio
NET INCOME
average stockholde r ' s equity

1. Return on equity ( ROE ) =

108082
228313

= 0.47
net profit after taxes
net sales

2. Net profit margin =

108082
= 810647
= 0.13

gross profit
sales

3. Gross profit margin =

304472
= 810647
= 0.38
Assets management ratios
cost of goods sold
inventory

1. Inventory turnover ratio =


=

506175
83085

= 6.09
Debt management ratio
1. Interest coverage ratio =
=

income before interest income tax expense


interest expense
111186
3104

= 35.82

Comparison of the companies financial performance:


Profitability analysis
-

Net Profit Margin Ratio


Net profit margin is calculated by dividing the net profit after taxes by the sales means after
paying the taxes you are earning some of the profit it mean firm is doing its business well. Nestle is
earning 0.07 or 7% against $1 and Dutch Lady Milk is earning 0.13 or 13% it shows in the

profitability ratios Nestle earning more than Dutch Lady Milk.


Gross profit margin ratio
It tells that how much a firm will receive against $1 sales. Nestle has 0.26 gross profit margin ratio
and Dutch Lady Milk has 0.38. So in this case Dutch Lady is earning more profit than Dutch Lady
Milk.

Assets management ratios


-

Inventory turnover ratio


Inventory turnover is calculated by dividing the CGS by inventory. The inventory turnover of
nestle is 6.09 times. Here the best ratio is Nestle that is much more than Dutch Lady Milk.

Debt management ratio


-

Interest coverage ratio


Interest coverage ratio measures the extent to which the operating income of the firm can decline
before the firm is unable to meet its annual interest cost. Nestle has 78.31 times interest coverage
ratio whereas Dutch Lady Milk has 35.82 times interest coverage ratio so Dutch Lady Milk has
less chances of failure and facing bankruptcy than nestle.

Empirical literature examines how financial and non-financial factors, such as leverage, liquidity, size,
age, and Management competence index have an influence on the firms financial performance and
growth. The researcher has chosen these factors because they are the most appropriate ones for the Nestle
and Dutch Lady Milk among many factors affecting the financial performance. On the other hand, these
factors can be easily measured by using the data that is afford by Nestle and Dutch Lady Milk
companies.
a. Leverage
Debt leverage is a measure of total liabilities and shareholders' equity ratio (debt / equity ratio).
Its show extent of a business is the use of borrowed money. Risks of highly leveraged companies
could go under if they are unable to pay their debts, they may not be able to find a new Bank in

the future. Leverage is not always bad, however, it can increase the return on shareholders'
investment, making full use of credit-related tax benefits.
b. Liquidity
Liquidity refers to the extent to which debt coming due in the next 12 months from cash or assets
into cash payments. It is usually measured by current assets current liabilities (current ratio). It
shows an ability to convert assets to cash quickly, when reflected the company's ability to manage
working capital, remained at a normal level. Enterprise liquid assets that can be used to finance its
activities and investments outside the finance is not available or it is too expensive. The other
hand, higher liquidity will allow a company to respond to sudden-onset emergencies, and periods
of low revenue to meet its obligations.
c.

Company Size
The size will affect the financial performance of the company in many ways. Big companies can
take advantage of economies of scale and economies of scope, thus more efficient compared with
the small company. In addition, smaller companies than large companies, so that they may find it
difficult to compete with large enterprises, especially in a highly competitive market. The other
hand, the increasing scale of the company, they may suffer from inefficient, leading to poor
financial performance. Theory, therefore, is equivocal on the precise relationship between size and
performance.

d. Management Competence Index


Is a multidimensional concept and a number of well documented attempts have been made in the
literature to define it. More specifically, the popularity of the term competence can be attributed
to (Boyatzi, 1982). In The Competent Manager(Boyatzi ,1982) defines competence as an
underlying characteristic of a person, stating it could be, motive, trait, skill, aspect of ones selfimage or social role, or a body of knowledge which he or she uses(Woodruffe, 1993) points out,
that this definition leaves the term open to a multitude of interpretations and argues that the term
competence can be used to refer to a set of behaviors, skills, knowledge and understanding
which are crucial to the effective performance of a position. (Nordhaug and Gronhaug ,1994)
interpret competence as work-related knowledge, skills and abilities while(Rees ,2003) argues
that there has been an enormous diversity of interpretation of the term, competence, and no
agreed definition.(Hamel and Prahalad ,1994) define competence as a bundle of skills and
technologies that enable company to provide benefits for customers rather than a single skill or
technology.

Summary:
After all the findings, it is concluded that financial ratios are the basic and most important part of any
business. It describes the firms financial position. As the data indicates that NESTLE is an international
brand and has expanded its business on the large geographical area and also offers the large range of
products, but on the other side DUTCH LADY MILK offer the limited range of the products and most of
them are dairy products.
From the financial statements it is clear that the financial position of the NESTLE is far better than
DUTCH LADY MILK as it is more preferred by the customers and also an internationally distributed. It
also has less risk.it gives more return because it gains more profit than DUTCH LADY MILK. On the
other hand DUTCH LADY MILK deals with the limited products in a limited geographical area but on
the basis of financial ratios DUTCH LADY MILK has a better financial position and also has an
opportunity to expand its business. Both the companies have some opportunities and threads and they
need to work on it.
There are three important financial statements balance sheet, income statement and cash flow statement
Information from each financial statement and information can be used to calculate certain financial
ratios measure liquidity, asset management, debt management, profit, and the company's market value.
The results of this study indicate a strong correlation between corporate performance management and
available resources. Performance indicators return on assets identified a number of factors, through their
concerted action helped to increase or decrease the company's profitability analysis. From numerous
combinations can be represented by these factors, using multiple regression analysis, choose some more
meaningful economic and statistical features of the model. The profitability factor has a good stock of
action is found in the efficiency of debt levels, financial leverage and capital efficiency. They also show the
positive impact, some method of operation to improve performance. Appropriate organization and
business activities should be aimed at efficient use of current assets, usually in the highest share of total
assets. Using the rotating component elements of efficiency increase of current assets (inventories and
receivables) faster, so that the overall result will be a higher level of income. Using a combination of
sources and debt increase in the activities of the Fund to a certain extent, does not affect the company's
financial autonomy is another aims to improve the ability of assets to generate profits. In the analyzed
situation, action of the financial leverage was favourble and it acted in the sense of increasing the ROA,
this aspect justifying the companys financing strategy through increasing debts. Have a significant
impact on profitability, put on reducing the operating costs. Due to the cost income ratio, return on assets
increased significantly. Model case, the influence of fixed assets ratio was negative, result in lower
returns, this suggests that the investment firm's technology and production infrastructure, has not

generated a sufficient number of positive effects. These may happen this year. To be sure, better
management of a company's profitability means adopting appropriate policies can be analyzed to
determine how its specific micro-economic environment. The elements on which it can intervene for
improving the performance are those with a high impact, and factors that influenced negative the
profitability constitute some reserves of economic increasing in the future activity.

Reference
http://www.ukessays.com/essays/management/brief-history-of-nestle-malaysia-management-essay.php
http://studentsrepo.um.edu.my/2190/3/BAB_1.pdf
http://www.papercamp.com/group/history-of-dutch-lady-milk-industries-malaysia-berhad/page-0
http://www.reuters.com/finance/stocks/companyProfile?symbol=DBMS.KL
http://www.slideshare.net/AmyWong13/accounting-assignment-24929173
http://profit.ndtv.com/stock/nestle-india-ltd_nestleind/financials-historical-ratio
http://www.nestle.com.my/aboutus/investors/annual_report