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INTRODUCTION

This document discusses ratio analysis and its importance for effective financial planning and management. Ratio analysis can help managers identify organizational strengths and weaknesses by comparing financial outcomes over time to internal benchmarks and other companies. Key ratios fall into four categories: profitability, operational efficiency, liquidity, and leverage. The document then states that this study will examine Nestle's financial statements to analyze its liquidity, debt, performance, efficiency, and market performance using various financial ratios calculated from Nestle's annual reports.

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Iffah Iffah
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12 views2 pages

INTRODUCTION

This document discusses ratio analysis and its importance for effective financial planning and management. Ratio analysis can help managers identify organizational strengths and weaknesses by comparing financial outcomes over time to internal benchmarks and other companies. Key ratios fall into four categories: profitability, operational efficiency, liquidity, and leverage. The document then states that this study will examine Nestle's financial statements to analyze its liquidity, debt, performance, efficiency, and market performance using various financial ratios calculated from Nestle's annual reports.

Uploaded by

Iffah Iffah
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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1.

INTRODUCTION

Effective planning and financial management are essential to a sustainable company.


Ratio analysis is a practical management technique that may help to understand
financial outcomes and trends over time better as well as give important benchmarks
for organisational success. Ratio will be used by managers to identify the area of
strengths and weaknesses from which they can develop strategy and initiatives to
overcome those.

Investors may compare your outcomes to those of other organisations or assess the
management's performance and mission impact using the ratio analysis.
In order to be helpful and significant, ratios must:

o Calculated using reliable and accurate financial information


o Calculated consistently from time to time
o Used in comparison to internal benchmarks and goals
o Used in comparison to other companies in industry
o Viewed both at a single point in time and as an indication of broad trends and
issues over time
o Carefully interpreted in the proper context, considering there are many other
important factors and indicators involved in assessing performance.

Ratios can be categorised into four major categories:

 Profitability Sustainability
 Operational Efficiency
 Liquidity
 Leverage ( Funding – Debt, Equity, Grants )

The ratios presented represent some of the standard ratios used in business practice and
are provided as guidelines. Not all of these ratios will provide the information you need to
support your particular decisions and strategies. You can also develop your own ratios and
indicators based on what you consider important and meaningful to your organization and
stakeholders.

2. RATIONALE OF THE STUDY

3. OBJECTIVES

This study will examine the financial statement of the Nestle company and analyse its
financial prospects in terms of liquidity, debt, company performance, efficiency and
the market performance of the market.
4. SOURCES OF DATA

The main data source is the published annual reports of NESTLE [ Nestle (Malaysia)
Berhad ] for the year ended 2020 and 2021.

5. METHODOLOGY

The Financial Ratios:

I. Liquidity Ratio

i. Current Ratio
ii. Quick Ratio

II. Debt Ratio

i. Debt-to-equity
ii. Debt-to-Total Asset

III. Profitability/ Performance

i. Gross Profit Margin


ii. Net Profit Margin
iii. Return on Asset (ROA)
iv. Return on Equity (ROE)

IV. Activity Ratio

i. Account Receivables Turnover


ii. Average Collection Period
iii. Inventory Turnover
iv. Payable Turnover
v. Operating Cycle

V. Market Performance

i. EPS
ii. Payout Ratio
iii. PE Ratio

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