Jasmeet Project

roject report on comparative financial analysis

of Nestle and Cadbury.

IN PARTIAL FULFILLMENT OF THE REQUIREMENTS OF

THE DEGREE OF

MASTER OF BUSINESS ADMINSTRATION

Under the Supervision Submitted By

Ms.Jiwanjit kaur. Name: Jasmeet kaur

Faculty of Management Class: MBA 4th.sem

DIMT, Doraha Roll No:104442247820

DECLARATION

I, Jasmeet kaur , doing MBA from Doraha Institute of Management &

Technology , Doraha do hereby indemnify my project work to be authentic and

original in all respects of the process carried out in this project Under any

evitable circumstance.

DATE:

PLACE: SIGNATURE

PREFACE

Today’s competitive age, the person who gets the fastest information and uses it, win.

Information is very important resources just like other physical resources such as men,

material, machinery and money. The right information provided to the right time can

choose right persons for the right job. Information plays a very significant role in

decision making to as it provides alternatives from which a choice can be made. MBA is

the stone to management carrier in order to achieve practical, positive and course results

the class rooms learning needs to be effectively to the situation existing outside the class

rooms.

In the present context not only the theoretical knowledge is important, but the practical

exposure of that theoretical knowledge has an equal importance too. To tame or to

become an expert in a particular discipline a person needs practical doses of that

knowledge from time to time.

TABLE OF CONTENTS

S.NO TOPICS PAGES

1. Introduction to FMCG industry

2 Introduction to Nestle and Cadbury

3 Review of literature

4 Research Methodology

5 Data analysis & Interpretation

6 Findings and Suggestions

9 Conclusion

10 Bibliography

CHAPTER-1

INTRODUCTION

(1.1) THE FMCG INDUSTRY IN INDIA

Fast Moving Consumer Goods (FMCG), also known as Consumer Packaged Goods

(CPG) are products that have a quick turnover and relatively low cost. Consumers

generally put less thought into the purchase of FMCG than they do for other products.The

Indian FMCG industry witnessed significant changes through the 1990s. Many players

had been facing severe problems on account of increased competition from small and

regional players and from slow growth across its various product categories. As a result,

most of the companies were forced to revamp their product, marketing, distribution and

customer service strategies to strengthen their position in the market. By the turn of the

20th century, the face of the Indian FMCG industry had changed significantly. With the

liberalization and growth of the Indian economy, the Indian customer witnessed an

increasing exposure to new domestic and foreign products through different media, such

as television and the Internet. Apart from this, social changes such as increase in the

number of nuclear families and the growing number of working couples resulting in

increased spending power also contributed to the increase in the Indian consumers'

personal consumption. The realization of the customer's growing awareness and the need

to meet changing requirements and preferences on account of changing lifestyles required

the FMCG producing companies to formulate customer-centric strategies. These changes

had a positive impact, leading to the rapid growth in the FMCG industry. Increased

availability of retail space, rapid urbanization, and qualified manpower also boosted the

growth of the organized retailing sector. Though the absolute profit made on FMCG

products is relatively small, they generally sell in large numbers and so the cumulative

profit on such products can be large. Unlike some industries, such as automobiles,

computers, and airlines, FMCG does not suffer from mass layoffs every time the

economy starts to dip. A person may put off buying a car but he will not put off having

his dinner. The FMCG sector, which is growing at the rate of 9% is the fourth largest

sector in the Indian Economy and is worth Rs.93000 crores. The main contributor,

making up 32% of the sector, is the South Indian region. It is predicted that in the year

2010, the FMCG sector will be worth Rs.143000 crores. The sector being one of the

biggest sectors of the Indian Economy provides up to 4 million jobs.

(1.2)Introduction to Nestle

(HENRY NESTLE - FOUNDER OF NESTLE)

Nestle India is a multinational company with its worldwide operations in over 84

countries. Nestle is the world’s largest food company with its international headquarters

at Vevey, Switzerland. Nestle has almost 500 factories world wide out of which 220 are

located in Europe, 150 in America and 130 in Africa, Asia and Oceania. It employs

almost 2,30,000 people. Founder of Nestle was German born “Henry Nestle” who was

living in a small town of Switzerland named “Vevey”. From a modest beginning he

founded the company in 1866 at Switzerland for manufacturing milk powders for babies.

“Necessity is mother of invention” is applicable in the invention of a special food

product “Farine Lactee” made from Cereals & milk to saved the lives of many infants

because, at that time Switzerland faced one of the highest infant mortality rate & the milk

formula act as nectar that saved the lives of many infants whose mothers were un-able to

breast feed successfully. There are “unwriten guidelines” which are to be followed, based

on common senses & a strong set of moral principals emphasizing a lot of respect for

fellow beings. Nestle has always adapted to the local conditions and at the same time

integrates its Swiss heritage. It has always taken a long-term view in the countries in

which it operates.

The Nest

When Henry Nestle introduced the first commercial infant formula in 1867, he also

created a symbol of the “Bird’s Nest”, graphic translation of his name, which personifies

the company’s business. The symbol, which is universally understood, evokes security,

motherhood and affection, nature and nourishment, family and tradition.

(1.3)PRODUCT RANGE OF NESTLÉ

Its activities include manufacturing and marketing of: -

Condensed Milk

Powdered Milk

Ice Creams

Other Dairy Products

Infant Foods

Chocolates & Confectionery Items

Tea & Coffee

Culinary Products

Frozen Products

Fruit Juices

Mineral Water

Pet Foods

Pharmaceuticals And Cosmetics

(1.4)NESTLE`S ORGANIZATION

Some names seem to belong to legend and Nestlé now synonymous with a

prestigious trademark and world’s foremost food group originally consisted of two

companies Henri Nestle of Vevey Switzerland & Anglo Swiss Condensed Milk Company

in Cham. Both companies competed vigorously from 1866- 1905. These groups merged

in 1905 and become the starting point of the recent food group with development of

different products as well as acquisitions, mergers and purchasing of interests in other

companies.

Nestle is now the No. 1 food company in the world. It is present on all five

continents has an annual turnover of nearly 80 Billion Swiss Francs. At present there are

around 500 factories in around 84 countries with 200 operating companies, One basic

research center & 17 technological development groups and has in excess of 200,000

employees. Currently Mr. PAUL STIENKAMP is controller the Nestlé group.

Nestlé operations worldwide are divides into 3 zones:

ZONE EUR : Europe

ZONE AOA : Asia and Oceania

ZONE AMS : Americas

India comes under zone AOA which includes South- East Asian trading giants

of the likes of Thailand, Indonesia, Malaysia, Singapore, China etc.

(1.5)NESTLE IN INDIA

Nestle set up its operations in India, as a trading company, in 1912. It began

trading as “Nestlé Anglo-Swiss Condensed Milk Company (Export) Ltd.” for

importing &selling finished products in the Indian market. After Independence in 1947,

the economic policies of the Indian Govt. emphasized the need for local production.

Nestlé responded to India’s aspirations by forming a company in India & set up its first

factory in 15th of November 1961 at Moga (Punjab) to develop Moga as milk economy.

The production started with the manufacture of Milkmaid at Moga factory in 1962 &

other products were gradually brought into the fold.

At present Nestlé has 6 manufacturing units at Choladi (Tamil Nadu),

Nanajangad (Karnataka), Samlakha (Haryana), Ponda & Bicholim (Goa) which are

successfully engaged in meeting the domestic as well as the exports demand. Nestlé

India is now putting up the 7th factory at Pant Nagar in Uttaranchal.Among them Moga

factory is the largest and the oldest producing the widest range of food products.

The corporate office is located at Gurgaon & the registered office at M-5A,

Cannaught Circus,New Delhi. Nestlé has been a partner in India's growth for over nine

decades now and has built a very special relationship of trust and commitment with the

people of India. The Company's activities provide direct & indirect employment &

livelihood to about one million people including farmers, suppliers of packaging

materials, services and other goods.

(1.6)Nestlé Has Seven Factories in India

MOGA FACTORY

Moga factory started production in 1962. It contributes almost 75% of

Nestlé’s total production volume, manufacturing 80,000 tons of food products & employs

1500 people. The entire range of milk, culinary products, cereals & vending mixes is

manufactured in Moga.

CHOLADI FACTORY

The factory in Choladi started production in 1967, situated in south India, about

275 kms. from Bangalore. The factory today has 80 employees. It processes about 500

tons of instant tea, coffee which is all exported.

NANJANGUD FACTORY

In Nanjangud factory production started in 1989 with manufacturing of Nescafe

Sunrise. Milo manufacture at Nanjangud began in 1996.It is situated 160 kms south of

Banglore, the factory has 245 employees. Coffee capacity currently is 15,000 tons and

Milo 3000 tons p.a.

SAMALKHA FACTORY

Samalkha factory started production in 1993, it is situated 70 kms from Delhi and

it has 203 employees & manufactures about 11,000 tons of food products comprising

Cerelac, Nestum & Ethnic deserts. Pure Life, treated water & Nestlé Dahi are also being

produced here.

PONDA FACTORY

Ponda Factory began production of Kit Kat in 1995.It currently employees 140

people. It is located 40kms from Panjim, capital city of Goa. It has been expanded into

other confectionery products comprising Jellies Pastilles, & Chocolate based

confectionery.

BICHOLIM FACTORY

Bicholim Factory, a satellite factory of Ponda(Goa) began production in 1997.

Noodles & Cold Sauces are manufactured here.

PANT NAGAR FACTORY

This factory is situated in Pant Nagar of Uttranchal. Noodles & other culinary

products are manufactured here.

India has the co –packing arrangement in:

Nestle Polo-Bakeman’s (Nagpur)

Chocolates-Campo (Puttur)

Tasters Choice–Williamson Major company (silliguri)

Toffee-Nutrine (Sunder Nagar)

Pickles-Choride foods Ltd. (Puna)

Cold sauce 200 gm. – Nijjer Agro Pvt.Ltd. (Amritsar)

Dosa & Samber mix – Indian foods & fermentation Ltd. (Nagpur)

(1.7)ORGANISATION STRUCTURE OF “NESTLE INDIA LTD.”

(MOGA)

Establishment

Moga is located in the Malwa region of Punjab State, about 400kms. North of

New Delhi. It is popularly known among the famous grain markets of the world. In 1959,

Nestlé took a decision to establish milk processing factory at Moga town for economic &

social development of the area.

Moga factory was established in 15th Nov.1961 & the production commenced

in early 1962. Initially it was started as a small Milk Factory manufacturing milk product

“Milkmaid”. Thereafter, with passage of time there has been a continuous & rapid

expansion in the factory.

“Nestlé India Ltd.” was formally incorporated in 1978 & prior to which the

manufacturing license was issued in the name of “Food Specialties Ltd.” After 28 Years

of the company it was realized that in order to survive in the international competition

and to keep up with the changing time a better and closer relationship was required

between Nestlé International and its Indian counterpart. So in 1990 a unified production

& marketing front, under the name of “Nestlé India Ltd.” was conceived.

Today, Moga Factory is one of the largest Nestlé Factories in the World in

terms of Area, Product range, Manpower, etc. It contributes 75-80 % of the total

production volume of Nestlé producing 80,000 tons of high quality products p.a. The

factory buildings are spread over an area of 57 acres. It employs about 1600 men &

women. It deals with over 85,000 farmers in 1025 villages for collection of milk through

Milk agencies.

The credit of bringing this town on the industrial map of the world goes to

“Nestlé – The World Food Company” engaged in the largest food processing

operations in the world.

(1.8)SALIENT FEATURES OF MOGA FACTORY

Nestle India Ltd. (Moga Factory) is the oldest & largest factory among 500 Nestle

Factories worldwide with a layout spread over nearly 57 acres & having three major

plants within the factory.

The plants are briefly described as follow:

MILK OPERATIONS

This plant has many sub- plants engaged in the processing of milk & all the

related activities that take place in Moga Factory includes Fresh milk reception, Ghee

plant, De - odourisation plant, Liquid plant, Egrons

POWDER FILLING PLANT

The filling & packing of milk like Everyday, Lactogens, Nestogen and Cerelac

Tin is done in this plant.

CEREALS

This plant is engaged in the production of cereal-based baby foods. The

production process consists of the addition of various Enzymes, Vitamins, Minerals &

Fruit extracts as Wheat, Apple, Orange & Vegetables to the cereal base.

INSTANT DRINKS

This plant is engaged in the filling of vending pre - mixes.

CULINARY

This plant is engaged in the production of Noodles, Tastemakers, Soups, Sauces

& the like. The plant is divided into three sections:

NOODLES

SEASONING

COLD SAUCES

NOODLES

It is one of the major plants of Nestle. Manufacturing of Noodles is semi

automatic process consists this procedure. Tipping of wheat flour in the hoppers at the

start of the line, Mixing of dough releasing on the line, Sheet formation with the help of

rollers, Strand formation, Steaming, Frying in oil, Cooling, Wrapping cakes in sachets

along with tastemaker, Palestine of cakes.

SEASONING

The seasoning section is engaged it the production of Taste marker, Soups &

spice for use in cold sauces. Main products are as follow:

Maggi Taste Makers

Sweet & Sour

Maggi soups (Chicken, Tomato, Mushroom & Vegetable)

Maggi Super Seasoning

Mango Wonder-Mix

Maggi Export Mixes.

(1.10)Introduction to Cadbury

Cadbury is one of the well known names in world of MNC’S. It is market leader of

chocolate confectionery market with a 70% share. Cadbury story shows how a small

family business developed into an international company, combining the most

sophisticated technology with highest standards of quality, technical skills & innovation

established by founders.

In 1824, a young Quaker, “John Cadbury” opened the one-man business selling

cocoa & chocolate, in Bull Street, Birmingham, which was to be the foundation of

Cadbury Limited, one of the world's largest producers of chocolate. His lifelong

involvement provide tea, coffee, cocoa & chocolate as an alternative to alcohol, which

was believed to be one of the causes of poverty & deprivation amongst working people.

Synonymous with word chocolate, “Cadbury” has a unique relationship with

consumer. This relationship is underpinned by the powerful visual icons of the Cadbury

brands - the Cadbury signature, purple colour, the 'glass and a half' trademark, & the

chocolate itself. These all come together to form the brand identity - the Cadbury Master

Brand Cadbury is the single largest brand in chocolate on international basis.

In 1969 the two great household named Schweppes & Cadbury merged to form

“Cadbury Schweppes plc”. Since then business have been expanded throughout the world

by a programme of organic and acquisition led growth.

Products of unique brands are producing & selling which give or bring pleasure to

millions of consumers around the world every day which is done successfully for over

200 years. This success has been built upon understanding the needs of our consumers,

customers and other

(1.11)Milestones of Cadbury

1824 John Cadbury, founder of Cadbury, opens his shop in Bull Street of Birmingham selling tea, coffee, cocoa & drinking chocolate, which he prepares himself using a mortar and pestle.

1831 A small factory is rented in Birmingham & John Cadbury becomes a manufacturer of drinking chocolate and cocoa.

1842 John Cadbury is selling 16 sorts of drinking chocolate and eleven cocoas. The earliest preserved price list shows drinking chocolate in cakes and powder.

1847 John Cadbury takes his brother Benjamin into partnership and the family business becomes Cadbury Brothers of Birmingham. A larger factory in Bridge Street, the centre of Birmingham is rented.

Mid 1850s

Under Prime Minister William Gladstone the British government reduces tax on imported cocoa beans, bringing cocoa and chocolate within the reach of more people.

1854 The Cadbury Brothers receive their first Royal Warrant as 'manufacturers of cocoa and chocolate to Queen Victoria'. Today Cadbury continues to hold Royal Warrants of appointment.

1866 The Cadbury brothers introduce a new process to produce a much more palatable cocoa essence - the forerunner of the cocoa we know today. The plentiful supply of cocoa butter remaining after the cocoa is pressed makes it possible to produce a wider variety of eating chocolate.

1897 Cadbury manufactures its first milk chocolate.

1905 Cadbury's Dairy Milk is introduced with a new recipe using fresh milk.

1915 Cadbury's Milk Tray is introduced.

1920 Cadbury's Flake is introduced.

mid-1920's

Cadbury's Dairy Milk gains its status as brand leader in the UK, a position that it has enjoyed ever since.

1930 Cadbury opens a factory in New Zealand.

1932 Cadbury opens factories in Canada & Ireland which compliments the manufacturing strength with other factories around the world.

1938 Cadbury's Roses are launched.

1939 Cadbury opens a factory in South Africa.

1940's During the war years, cocoa & chocolate products are regarded as essential foods for the forces & civilian population. Rationing continues until 1949.

1947 Cadbury opens a factory in India.

1960's Cadbury introduces the latest technologies and installs specialist plants for milk processing and cocoa bean processing in the UK.

Key products of Cadbury

Dairy Milk (largest selling chocolate in the country)

5 Star

Gems

Dairy milk Choclate

Coated wafer biscuits

Malted food

Sugar confectionery

Cadbury Roses.

Cadbury Fruits

Cadbury desserts.

Perk

Eclairs.

Dollops (1989)

Drinking chocolate

Malted foods

Cocoa powder

(1.13)CADBURY IN INDIA

In 1947 Cadbury opens a factory in India as “Cadbury India” (formerly

Hindustan Cocoa Products) which is a subsidiary of Cadbury Schweppes Overseas, UK.

The company has expanded the installed capacity of Malted Foods by 700 Tonnes

& with this expansion, total capacity has risen to 8600 Tonnes. Company is committed to

ethical business practices, fair dealing, honesty & full compliance with laws affecting

businesses. In 2004 it was the winner of Britain's most admired company award as voted

by other leading businesses.

Company has organized into four regions & six global functions. Each region is

focused on commercial operations in its geographical & product area, it also maintains

teams from each of the six functions.

THE REGION’s ARE:

Americas Beverages ;

Americas Confectionery ;

Europe, Middle East and Africa (EMEA) ;

Asia Pacific .

Australia & New Zealand are largest markets in the region having leading position

in Australian confectionery market, with a 55% market share & in New Zealand with a

43% share. Australia is 11th largest confectionery market in the world. Overall Indian

business has a leading presence in chocolate with a 71% market share, and also sells

sugar confectionery.

Cadbury opens factories in New Zealand, Canada, South Africa & Ireland which

compliments the manufacturing strength with other factories around the world in

Malaysia, Africa, Jamaica, France, Spain, South America, Germany, Australia, India,

Japan, Thailand, China & Singapore.

http://www.cadburyschweppes.com/EN/InvestorCentre/BusinessValues/StructureOrganisation/OurRegions/americas+beverages2.htm

http://www.cadburyschweppes.com/EN/InvestorCentre/BusinessValues/StructureOrganisation/OurRegions/asia+pacific2.htm

http://www.cadburyschweppes.com/EN/InvestorCentre/BusinessValues/StructureOrganisation/OurRegions/europe+middle+east+and+africa+confectionery2.htm

http://www.cadburyschweppes.com/EN/InvestorCentre/BusinessValues/StructureOrganisation/OurRegions/americas+confectionery2.htm

(1.14)Factories & Regional Offices in India

Cadbury has four factories & seven Regional offices in India as follow:

Plant Locations:

Thane (Maharashtra),

Induri (Maharashtra),

Baddi (H.P.)

Malanpur (M.P).

Out of which Induri Farm is a wholly-owned subsidiary of the company which

exports malted foods & chocolates to the Gulf & Asian countries. Cadbury employ

around 50,000 people.

Regional Offices:

Cadbury has seven ragional offices in following cities:

Delhi

Kolkatta

Mumbai

Kerala

Chennai

Banglore

Cochin

The company has received permission from the RBI for payment of royalty of 1%

on domestic and exports sales for use of Trade Marks to Cadbury Schweppes Overseas,

UK.

(1.15)MEANING OF FINANCIAL ANALYSIS

The first task of financial analysis is to select the information relevant to the decision

under consideration to the total information contained in the financial statement. The

second step is to arrange the information in a way to highlight significant relationship.

The final step is interpretation and drawing of inference and conclusions. Financial

statement is the process of selection, relation and evaluation.

Features of Financial Analysis

To present a complex data contained in the financial statement in simple and

understandable form.

To classify the items contained in the financial statement in convenient and

rational groups.

To make comparison between various groups to draw various conclusions.

Purpose of financial Analysis

To know the earning capacity or profitability.

To know the solvency.

To know the financial strengths.

To know the capability of payment of interest & dividends.

To make comparative study with other firms.

To know the trend of business.

To know the efficiency of mgt.

(1.16)RATIO ANALYSIS

A ratio is a simple arithmetical expression of the relationship of one number to

another. It is one of the most powerful techniques of financial analysis. In finance, ratio is

used as a bench mark for evaluating the financial position & performance of the concern.

It expresses quantitative relationship between figures & group of figures. It is the process

of establishing & interpreting various ratios for helping in making certain decision. With

help of ratios financial statements can be analyzed more clearly & decisions can be made

from such analysis. It is not an end in itself but a means of better understanding of

financial strengths & weaknesses of the firm. There are a number of Ratios which can be

calculated from information given in financial statements. It may be defined as relation of

one amount(a) to another(b) which can be expressed as ratio of a to b, a : b (a is to b), or

as a simple fraction, integer, decimal, fraction or percentage(%)

According to accountant’s handbook by Wixon Kell & Bedford “A ratio is an

expression of the quantitative relationship between two numbers”.

Nature of Ratio Analysis

Ratio Analysis is a technique of analysis and interpretation of financial statements. It

is a means of better understanding financial strengths and weaknesses of a firm are

company. The financial statements of business enterprises bring out the absolute figures

which will be too lengthy to remember and come to meaningful conclusions. The

institutions conduct an inter-firm comparison at the time of appraisal and also a

comparison of past with present. The ratios bring absolute figures closer to judgment as

certain benchmarks in ratio’s based on experience are set as standards. The absolute

figures as such may not indicate any thing. The ratios provide information about financial

position of a concern. These are pointers or indicators of financial strength, soundness,

position or weakness of an enterprise.

(1.17) Use & Significances of Ratio Analysis

Managerial uses of Ratio Analysis

It is helpful for managers in Financial forecasting-planning, decision

making,Communicating,Controlling Co-ordination, Analysis & interpretation.

Utility to Shareholders

Investors want to know about financial position of firm before investing for security of

his investment & return in form of dividend /interest.

Utility to Creditors

Creditors/Suppliers extend short-term loan to the concern so financial position of

firm warrants their payments at time.

Utility to Employees

Profitability of firm enables employees to put forward their viewpoint for increase

of wages & other benefit.

Utility to Government

Govt. may base its future policies on basis of information of units in private sector

& to submit audit report for tax purposes.

Chapter-2

Review of literature

Ball and Brown, (1968), in his article explained that were the first to highlight

the relationship between stock prices and information disclosed in the statements.

Empirical research on the value relevance has its roots in the theoretical

framework on equity valuation models.

Smith and Nagle, (1994), analyzed that pricing decisions require a balance

between competing forces. Prices must be high enough to yield a profit yet low

enough to give buyers sufficient incentive to buy. As representatives of their

respective stakeholders, the finance-accounting and marketing-sales functions

have legitimate concerns with regard to pricing policy. The problem is that these

concerns are often addressed in functional isolation, and they are decided by

whichever functional group yields the most political control. You can also

compare your firm's ratios to industry data. You can gather data from similar

firms in the same industry, calculate their financial ratios, and see how your firm

is doing compared to the industry at large.

Ohlson,(1995), depicted in his work that the value of a firm can be expressed as a

linear function of book value, earnings and other value relevant information

Financial statement lending is rarely used for small business lending as its look

at the audited financial statement of companies that have an access to public

credit market. In contrast, relationship lending, is based on “soft” information

about the potential borrower. In other words, banks rely on the subjective

information about a borrower that they received out of the lasting relationships

rather than on financial condition of the borrowers.

Allen Berger, (1999), in his article explained that three conditions that should be

met for relationship-based finance to occur. First, information other than data

from statements, collateral and other public resources is collected. Second, the

information is collected via continuous communication between the lender and

the small business, the customers of the small business, and local community.

Cavalluzzo, Cavalluzzo, and Wolken ,(2001), in his article explained that is 84

percent of the loans received by small businesses came from lending institutions

located in the same city. The median distance between the firm and the lender

was just three miles.

Melissa bushman ,(2007), analyzes that Financial statement information is used

by both external and internal users, including investors, creditors, managers, and

executives. These users must analyze the information in order to make business

decisions, so understanding financial statements is of great importance. Several

methods of performing financial statement analysis exist. This article discusses

two of these methods: horizontal analysis and vertical analysis

Rosemary Peavler, (2010), in his article says that Financial ratio analysis is one

tool of investigating and comparing relationships between different pieces of

financial information. You use information from the income statement and

balance sheet to calculate financial ratios in order to determine information about

your small business firm. There are any number of ratios you could calculate. To

solve that problem, there are some standard ratios that most business firms use

Chapter-3

Research methodology

(3.1)Objective of study

To study the financial strengths & weaknesses of both the firms.

To understand the working & financial position of the firms..

To know about key focus areas of growth and profits

To know the Goodwill/Profitability/Liquidity & Solvency of firms.

(3.2)Limitations of study

Predicting the best performing firm by analyzing & considering just one

parameter (Data & graphs) is very difficult as different firms have different

perspectives.

Ratios may be affected by manipulation of accounts to conceal vital facts & to

show better position of firm. So, ratio may not be definite indicator of good or

bad management

Financial statement analysis does not reflect the future.

In many situations the financial statements are not free from bias.

(3.3) RESEARCH METHODOLOGY

Research is the systematic investigation to establish facts or collect information on a

pre-decided subject.

Methodology is the specification of the system of principles and techniques used in a particular discipline.

Research Problem

The first step while conducting research is careful definition of Research Problem.

Basically, a problem statement refers to some difficulty, which researcher experiences in

the context of either a theoretical or practical situation and wants to obtain the solution

for the same.

The problem statement here is: “To study comparative financial analysis of

Nestle v/s Cadbury”

Research Design Used in this Project

Research Design chosen for this study is Descriptive Research Design. Descriptive study

is based on some previous understanding of the topic. Research has got a very specific

objective and clear cut data requirements.

(3.4)DATA COLLECTION

Secondary Data

I took data comprise annual reports and past records. In this study ratio analysis,

comparative financial statements has been used for analyzing and interpreting the results.

The data is collected through the secondary sources like:

Annual Reports of the company.

Magazines, Reports in the company.

Sampling Design

Sampling is necessary because it is almost impossible to examine the entire parent

population (i.e. the entire universe) various factors such as time available cost, purpose of

study etc. make it necessary for the researchers to choose a sample. It should neither be

too small nor too big. It should be manageable. The sample size of past 5 years is taken

for present study due to time limitation.

CHAPTER-4

DATA ANALYSIS

AND

INTERPRETATIONS

(4.1)CURRENT RATIO

Current ratio is measure of firm’s short-term solvency. It is a measure of general liquidity

& widely used for analysis of financial position of a firm. It defines the relationship

between current assets & current liability.

Current Ratio = Current Assets

Current Liabilities

YEAR

COMPANY

2009 2010 2011

Nestle 0.92 0.60 0.68

Cadbury 1.73 1.24 0.91

Analysis (Nestle India Ltd v/s Cadbury)

Generally, Current ratio of 2:1 is considered satisfactory. A firm should ensure that it

does not suffer from lack of liquidity. Above table & graphical representation of Nestle

& Cadbury is showing that ratios of both the companies have a declining trend. No one

of the ratios is nearer to the rule, but financial position of Cadbury is still better than

Nestle.

(4.2)Quick Ratio

This ratio establishes a relationship between quick/liquid assets and current liabilities. An

asset is liquid if it can be converted into cash immediately or reasonably soon.

Quick/Liquid/Acid Test Ratio = Current assets – Inventories

Current liabilities

YEAR

COMPANY

2009 2010 2011

Nestle 0.32 0.23 0.31

Cadbury 1.00 0.49 0.40


As rule of thumb or as a convention a quick ratio of 1:1 is considered to represent

satisfactory current financial conditions. From the data & graph we analyze that the quick

ratio of Nestle is not satisfactory as compared to Cadbury. It shows that Nestle has high

inventory, which is less liquid.

(4.3)Absolute liquid ratio

Absolute liquid ratio includes cash in hand & cash at bank &marketable securities or

temporary investments. The ratio of 1:2 is acceptable.

Absolute liquid ratio = Absolute liquid assets

Current liabilities

YEAR

COMPANY

2009 2010 2011

Nestle 0.024 0.015 0.053

Cadbury 0.26 0.06 0.08

Analysis (Nestle India Ltd v/s Cadbury

Generally absolute liquid ratio of 1:2 is considered to represent satisfactory

current financial conditions. As shown in above data & graph we can analyze that

absolute liquid ratio of Nestle & Cadbury is not satisfactory according to rule.

(4.4) Solvency Ratio

This ratio indicates the relationship between total liabilities to the outsiders &

total assets of the firm. Lower the ratio, more satisfactory or stable is the long-term

solvency position of a firm.

Solvency Ratio: = Total Liabilities to outsiders

Total Assets

YEAR

COMPANY

2009 2010 2011

Nestle 65.7 66.2 66.4

Cadbury 52.73 49.48 46.86


Ratios indicate relationship between total liabilities & total assets of a firm. Normally

lower the ratio, more satisfactory or stable is the long-term solvency position of a firm &

according to this rule; ratios of Cadbury are lower than Nestle which shows that

solvency position of Cadbury is more satisfactory. Nestle should try to improve its

Long-term solvency or to decrease its liabilities.

(4.5)Proprietory Ratio

This ratio establishes the relationship between shareholders funds to total assets of firm.

Proprietory Ratio = Shareholder’s funds

Total assets

YEAR

COMPANY

2009 2010 2011

Nestle 34.3 33.8 33.6

Cadbury 47.27 50.52 53.14


This Ratio is very important for determining long term solvency of a firm. Higher

the ratio or the share of the shareholders in the total capital of the company, better will be

the long term solvency of a firm. This ratio represents the relationship of owners fund to

total assets. From Data & Table defined above ratios of Cadbury is higher than Nestle

which shows that solvency position of Cadbury is better than Nestle. So, Nestle should

try to improve its Long-term solvency.

(4.6)Debt equity ratio

Debt equity ratio also known as External-Internal Equity Ratio is calculated to

derive an Idea of claims of outsiders & Owners. The ratio is sufficient to assess the

soundness of long term financial position.

Debt equity ratio = External Equities

Internal Equities

YEAR

COMPANY

2009 2010 2011

Nestle 1.92 1.96 1.97

Cadbury 0.3 0.4 0.5


Debt equity ratio indicates the proportion between shareholders fund & the long terms

borrowed funds. Higher ratio indicates risky financial position while lower ratio indicates

safer financial position. Ratio of 1:1 is considered as satisfactory. Ratio in above data &

graph indicates that ratio of Nestle is high than Cadbury. Higher ratio of Nestle represents

risky financial position while lower ratio of Cadbury indicates safer financial position.

Nestle should try to improve its soundness of long term financial position.

(4.7)Inventory turnover ratio

Inventory turnover ratio indicates the efficiency of the firm to manage its

Inventory. Every firm has to maintain sufficient level of Inventory to meet the

requirements of business. It shows how rapidly the inventory is turning into receivable

through sales.

Inventory turnover ratio = Sales

Inventory

YEAR

COMPANY

2009 2010 2011

Nestle 8.9 9.65 10.2

Cadbury 10.27 9.17 10.03


Inventory turnover ratio indicates the efficiency of the firm in producing and selling its

product. High inventory turnover indicates efficient management of inventory & vice

versa. Above data & table is showing that inventory turnover ratio is increasing. It shows

the sales of the company are increasing. But there is close competition between the both

firms. Average position of Cadbury is better than Nestle which is now at improving stage

& doing well.

(4.8)Inventory conversion period

It represents average no. of days for which a firm has to wait before receivables

are converted into cash.

Inventory conversion period = Days in a year

Inventory turnover ratio

YEAR

COMPANY

2009 2010 2011

Nestle 41 38 36

Cadbury 36 40 36


Normally low period indicates less investment in inventory or quick movement of

inventory. Longer the period, larger will be the chances of bad debts. As shown in above

data & table inventory conversion period of both the firms is decreasing. It shows equal

inventory conversion period in 2005. But overall performance of Cadbury is better than

Nestle. Nestle is now at improving stage & doing well because of its efficient

management.

(4.9)Debtors turnover ratio

Debtors turnover ratio indicates the number of times the debtors are turned over

during a year. Generally, higher the value of Debtors turnover the more efficient is the

Mgt. of debtors/sales & vice versa as credit is most important element for sales

promotion.

Debtors turnover ratio = Net Credit Annual Sales

Average trade debtors

YEAR

COMPANY

2009 2010 2011

Nestle 73 82 84

Cadbury 32.91 36.35 57.06


Above table & graph indicates that Debtors turnover ratio of Nestle is higher than

Cadbury. Both the firms represent increasing trend in ratios, which shows efficiency of

Management of debtors/sales. But both the firms should keep in mind & precautions

should be used because, higher the ratio more are the chances of bad debts. Otherwise

shows satisfactory position.

(4.10)Average collection period ratio

It represents the average no. of days for which a firm has to wait before its

receivables are converted into cash.

Average collection period ratio = No.of working days

Debtors turnover ratio

YEAR

COMPANY

2009 2010 2011

Nestle 5 4 4

Cadbury 11 10 6


It measures quality of debtors. Generally, shorter the period, better is the quality

of debtors as collection period implies quick payment by debtors. Moreover, longer the

period larger are chances of bad debts. Above data & table indicates that the average

collection period of Nestle is very short as compared to Cadbury which is now at

improving stage as longer period indicates larger chances of bad debts. Now both the

companies are trying to improve their position.

(4.11) Gross profit Ratio

The G/P ratio reflects the efficiency with which management produces its products.

Higher the G/P ratio better will be the results & vice versa.

Gross profit Margin Ratio = Sales –COGS

Sales

YEAR

COMPANY

2009 2010 2011

Nestle 16.2 20.2 21

Cadbury 47.25 45.27 47.26


Gross profit is a reliable guide to the adequacy of selling prices and efficiency of trading

activities. It is seen from the data that G.P ratio of Cadbury is high as compared to Nestle.

It maintains a cost G.P. ratio, which is a good sign. Moreover there is an increasing trend,

which shows that COGS has decreased & there are less wastage of resources. It is

advised that Nestle should try to do its best to improve the G.P ratio

(4.12)Net Profit Ratio

Net profit ratio establishes a relationship between N.P. & sales. It indicates

management’s efficiency in manufacturing, administrative & other activities of the firm.

This ratio is the overall measure of the firm’s profitability.

Net profit ratio = Profit After Tax

Net Sales

YEAR

COMPANY

2009 2010 2011

Nestle 9.5 11.3 12.5

Cadbury 5.52 5.22 4.57


Objective of Net Profit ratio is to determine overall efficiency of the business.

Higher the Net profit ratio better is the profitability of business. Nestle shows an

increasing trend as compared to Cadbury in N.P. Ratio which is a positive sign, & it

indicates that the company is operationally efficient.

(4.13)Dividend Pay out ratio

The dividend pay out ratio is calculated to find the extent to which EPS have

been retained in the business. It is important because ploughing back of profits enables a

company to grow & pay more dividends in future.

Dividend Pay out ratio = Dividend Per Share

Earning Per Share

YEAR

COMPANY

2009 2010 2011

Nestle 0.77 0.95 0.78Cadbury 0.57 0.56 0.57


Dividend pay out ratio means how much out of earning per share have dividend per

share been paid out. In other words pay out ratio helps in assessing the amount of

earnings, which is not distributed to shareholders retained in the business. The data shows

a decreasing trend in dividend pay out ratio of Nestle as compared to Cadbury. i.e. the

company is retaining the amount in cash.

(4.14)Earning per Share

EPS is a good measure of profitability of the firm on a per share basis. It does not reflect

how much is paid as dividend & how much is retained in the business. But as a

profitability index it is a Valuable and widely used ratio.

EPS = Net Profit After Tax - Preference Dividends

Number of Equity shares

YEAR

COMPANY

2009 2010 2011

Nestle 24.72 22.88 28.60

Cadbury 12.53 12.66 12.59


This ratio is calculated to judge the overall profitability of the enterprise. This ratio

helps in evaluating the prevailing market price of share. The trend from the chart shows

that Nestle has an increasing profitability as compared to Cadbury. This ratio shows

strong position of the company in the market.

(4.15)Dividend per share ratio

Shareholders are the real owners of a company & they are interested in the earnings

distributed & paid to them as dividend. DPS is calculated to evaluate the relationship

between per share paid & market value of the share.

DPS = Dividend paid to shareholders

No of shares outstanding

YEAR

COMPANY

2009 2010 2011

Nestle 14 27 29

Cadbury 20 20 20

Analysis (Nestle India Ltd v/s Cadbury) DPS ratio is calculated to evaluate the

relationship between per share paid & market value of the share. Higher the D.P.S, higher

is the confidence of shareholders in the company provided, there is an increase in

EPS.We see that D.P.Share ratio of Nestle is showing an increasing trend. So, there is an

increase in D.P.Share ratio also. Shareholders will be very much attracted towards this

company & will have confidence in

CHAPTER-5

FINDINGS

AND

SUGGESTIONS

FINDINGS

Both the Companies have cut-throat competition.

Liquidity & Solvency position of Cadbury is better than Nestle.

Profitability ratio indicates that both the firms have strong market. .

Cadbury shows better & safer financial position of the company than Nestle.

The Dividend per share ratio of Nestle is showing an increasing trend. So,

shareholders will be very much attracted towards this company & will have

confidence in this company.

The debt equity ratio of cadbury is lower as compared to nestle.Thus cadbury has

a good financial postion .

Cadbury has more solvent financial position than Nestle.

SUGGESTIONS

Bibliography

WEB SITES REFERRED

www.nestle.com

www.cadbury.com

www.investsmartindia.com

www.moneyoutlook.com

www.in.finance.yahoo.com

www.investsments.com

www.indiainfoline.com

www.bseindia.com

www.cadburyindia.com

www.cadburyschweppes.com

BOOKS REFFERED

Management Accounting & Business Finance (Shashi K. Gupta)

Analysis of Financial Statements(T.S. Grewal)

Financial Management(I.M. Pandey)

Statistical Methods(S.P. Gupta)

Balance Sheet of “Nestlé Ltd.”

http://www.cadburyschweppes.com/

http://www.cadburyindia.com/

http://www.bseindia.com/

http://www.indiainfoline.com/

http://www.investsments.com/

http://www.in.finance.yahoo.com/

http://www.moneyoutlook.com/

http://www.investsmartindia.com/

http://www.cadbury.com/

http://www.nestle.com/

As Per Year ended 31st Dec. 2009, 2010 & 2011 (in Millions)

Particulars 2009 2010 2011SOURES OF FUNDS: Capital 964.2 964.2 964.2Reserves & surplus 2385.8 2229.9 2577.2LOAN FUNDS Secured 51.0 79.0 143.0Unsecured 0.00 0.00 0.00 TOTAL 3401.0 3273.1 3684.4 APPLICATION OF FUNDS: FIXED ASSETS Gross Block 7894.5 8381.6 9494.4Less: Depreciation 3980.8 4409.5 4756.7Net Block 3913.7 3972.1 4737.7Capital W.I.P. 139.4 340.9 228.2 INVESTMENT 736.4 1548.6 1044.3 CURRENT ASSETS: Inventories 2194.2 2166.7 2531.0Sundry Debtors 317.0 261.7 1068.0Cash & bank Balance 62.9 94.5 366.5Loans & advances 1549.8 1689.1 1943.3 Less: Current Liabilities & Provisions Current Liabilities+ 2978.8 3311.8 3816.8Provisions 2533.6 3488.7 3655.0Net Current Assets (-) 1388.5 2588.5 2325.8Miscellaneous Expenses not w/o+ 00.00 00.00 0.00 Total Assets 3401.0 3273.1 3684.4Contingent Liabilities+ 0.00 0.00 0.00

Profit & Loss Account of “Nestlé Ltd.”

As Per Year ended 31st Dec. 2009, 2010 & 2011 (In Millions.)

Particulars 2009 2010 2011

INCOMES: Sales Turnover 22798.2 23728.2 26438.9Other Income 278.3 144.5 263.8Stock Adjustments (-)78.7 65.5 140.9 Total 22997.8 23938.2 26843.6EXPENDITURES: Raw Material 7386.9 8447.0 9102.2Excise Duty 1392.6 1437.5 1688.8Power & Fuel Cost 766.9 850.7 1039.1Other Manufacturing Expenses+ 2734.2 2637.3 2962.9Employee Cost 1541.5 1600.1 1789.3Selling & Administration Expenses 4185.7 4057.1 4564.0Miscellaneous Expenses 516.5 544.4 436.2Less: Preoperative Expenditure Capitalised Profit before Int. Dep. & Tax 4473.5 4364.1 5261.1Depreciation 462.7 491.4 568.4Profit before Tax 3991.5 3864.9 4690.6Tax 1360.7 1345.7 1594.9Profit after Tax 2630.8 2519.2 3095.7 Adjustment below Net Profit + P&L Balance B/F 250.0 442.3 34.5Appropriations 2438.5 2927.0 3058.0P&L Balance C/F 442.3 34.5 72.2 Equity Dividend 1928.3 2362.2 2410.4Preference Dividend 0.00 0.00 0.00Equity Dividend (%) 200 245 250 Earning Per Share(Rs.) 24.72 22.88 28.60Book Value 34.74 33.13 36.73

Balance Sheet of “Cadbury Ltd.”

As Per Year ended 31st Dec. 2009, 2010 & 2011 (in Millions Rs.)

Particulars: 2009 2010 2011SOURES OF FUNDS: Capital 357.1 357.1 357.1Reserves & surplus 3222.2 3602.8 3981.0LOAN FUNDS Secured 74.6 10.8 37.1Unsecured 48.8 62.7 45.1 TOTAL 3702.7 4033.4 4420.3 APPLICATION OF FUNDS: FIXED ASSETS Gross Block 3287.4 3497.0 3955.0Less: Depreciation 1750.1 2037.6 2348.8Net Block 1537.3 1459.4 1606.2Capital W.I.P. 68.5 214.0 295.5 INVESTMENT 1273.4 2323.0 2582.1 CURRENT ASSETS: Inventories 947.6 982.8 1023.3Sundry Debtors 241.3 245.8 106.8Cash & bank Balance 348.9 101.32 184.0Loans & advances 638.1 433.7 533.9 2067.2 2519.8 2621.2Less: Current Liabilities & Provisions Current Liabilities+ 1224.6 1592.6 2050.9Provisions 127.8 133.9 134.1Net Current Assets 823.5 37.0 337.0Miscellaneous Expenses not w/o+ 00.00 00.00 273.5 Total Assets 3702.7 4033.4 4420.3Contingent Liabilities+ 571.3 588.3 665.4

Profit & Loss Account of “Cadbury Ltd.”

As Per Year ended 31st Dec. 2009, 2010 & 2011 (In Millions.)

Particulars 2009 2010 2011INCOMES: Sales Turnover 8272.5 8852.8 10060.2Other Income 189.8 183.6 178.7Stock Adjustments 50.0 134.8 104.4 Total 8512.3 9171.2 10343.3EXPENDITURES: Raw Material 1931.7 2224.9 2462.2Excise Duty 1133.3 1212.3 1262.4Power & Fuel Cost 168.0 161.7 196.2Other Manufacturing Expenses+ 1133.3 1245.2 1388.5Employee Cost 818.7 764.9 943.8Selling & Administration Expenses 2027.6 2320.0 2583.1Miscellaneous Expenses 254.3 243.0 338.0Less: Preoperative Expenditure Capitalised Profit before Int. Dep. & Tax 1029.8 974.8 1152.1Depreciation 308.9 339.5 340.7Profit before Tax 720.9 635.3 811.4Tax 264.4 173.2 351.9Profit after Tax 456.5 462.1 459.5 Adjustment below Net Profit + P&L Balance B/F 874.1 1205.0 1550.7Appropriations 125.6 116.4 116.4P&L Balance C/F 1205.0 1550.7 1893.8 Equity Dividend 71.4 71.4 71.4Preference Dividend 0.00 0.00 0.00Equity Dividend (%) 200.00 200.00 200.00 Earning Per Share(Rs.) 12.53 12.66 12.59Book Value 100.23 110.89 121.48

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