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Cross Sectional Ratios

Analysis
Nestle VS Engro Foods
Taimur Zaib

BBS/FA13/022/LHR
Nov 10, 2014

Submitted to

Mr. Umair Saeed Bhutta

Balance Sheet Analysis of ABBOTT and SANOFI AVENTIS PHARMACEUTICALS


The asset side of balance sheet shows the size of the firm so by comparing balance
sheet of both companies we analyzed that the fixed asset of the Abbott is greater than Sanofi
Aventis pharamceutical which means that Abbott has invested more in the fixed assets than
Sanofi Aventis Pharma whether by starting new project or by any other source. Due to high
investment in fixed assets long term loan and advances of Abbott are also greater than Sanofi
Aventis Pharma and total assets of Abbott are also greater than Sanofi Aventis pharma which
shows that the size of Abbott is greater than Sanofi Aventis. Abbott has more cash and bank
balance than Sanofi Aventis.

INCOME STATEMENT ANALYSIS OF


ABBOTT and SANOFI AVENTIS PHARMACEUTICALS
We have made analysis between engro and nestle companies .here we analyze that
sales of nestle (64824, 364) is more as compare to engro (29859, 226). Because their
investment in fixed asset is more as compare to Engro. Production is also increase due to
more investment. And as production increase ultimately their sales is also increase.
Nestle have more cost of goods sold that is (48099, 046) whereas engro have (23230,
445). Because engro have only dairy products whereas nestle have broad category of
products. As nestle sales is more so their gross profit is also more as compare to engro.
Nestle have more distribution and selling expense as compare to engro because engro
have their own distribution channels whereas nestle relay on others for distribution. As well
as engro products are also less and due to this their distribution expenses are less.
Nestle company employee (328000) are more as compare to engro. As well as they
uses more advertising companies so thats why their administrative expenses are more.
Nestle Finance cost is also more because their interest expense are more.

Operating expense of nestle (1064233) engro (208902) means they use more
directions to run their business. Nestle operating income is also more nestle is a well-known
brand and they generate high income.
Nestle have more tax because they have more products that is (1834, 507) whereas
engro products are limited and their tax is (471,687).
Nestle have more no of shares and more earning. so Earning per share of nestle is also
more that is 102.94 as compare to engro that is 1.22
So after analysis of income statement we see that nestle have more sales and more profit
than engro which shows that nestle company is good than engro.

Financial Ratios Analysis


Liquidity Analysis

Current Ratio
Current ratio tells us the short term solvency of the firm and tells the ability of
the firm to repay its short term obligations. In nestle the firm has 0.80 ability to repay
against the $ 1 loan and Engro has 1.83 so this implies that Engro food has more
ability to repay its short term obligations.

Quick Ratio
Quick ratio measures the firms ability to pay off short term obligations
without relying on the sale of inventory. Nestle has the quick ratio of 0.38 whereas
Engro foods has 0.95 chances of paying off its short term obligations without relying
on the level or sales of inventory.

1.2 Profitability Analysis

Return on Investment
How much a firm is returning to its stockholder only in the case if the firm is
earning profit? Nestle have return on investment ratio 0.13 or 13% whereas Engro
foods has 0.05 or 5% means nestle is returning more than Engro foods so it is better to
invest in nestle.

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 means firm is
doing its business well. Nestle is earning 0.01 or 1% against $ 1 and Engro food is
earning 0.03 or 3% it shows in the profitability ratios Nestle is earning more than
Engro foods.

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 Engro has 0.22. So in this case nestle is earning more
profit than Engro foods.

12.3Activity Analysis

Asset Turnover Ratio


This ratio measures the turnover of the entire firms asset. It is calculated by
dividing the sales by total assets of the firm. If firm shouldnt increase its sales so
there is a possibility that a firm will sale its some assets. There is 1.84 chances of
asset turnover in nestle and 1.79 in Engro foods against every $ 1.

Inventory Turnover Ratio


Inventory turnover is calculated by dividing the CGS by inventory. The
inventory turnover of nestle is 6.83 times and of Engro foods is 7.62 times. Here the
best ratio is of Engro foods that is much more than nestle.

12.4Capital Structure Analysis

Debt to Equity Ratio


Debt to equity ratio shows the comparison to equity this ratio tells that how
much firm has ability to pay its debt and if equity is more than the total debt of the
firm so firm will face low risk. In nestle the firm has 3.62 against $ 1 to pay debt
whereas Engro food has 1.30 to pay against $ 1 debt. Here Nestle has more ability to
pay its debt.

Debt to Asset Ratio


Debt to asset ratio shows if the firms have more assets regardless of total debt
than that firm will easily pay off its debts. The debt to asset ratio in nestle is 0.08
whereas 0.57 in Engro foods. So Engro foods will pay off its debt more easily than
nestle.

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 Engro foods has 53.88 times interest
coverage ratio so Engro foods has less chances of failure and facing bankruptcy than
nestle.

Conclusion
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 ENGRO food offers 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 ENGRO 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 ENGRO. On the other hand ENGRO deals with the limited products
in a limited geographical area but on the basis of financial ratios ENGRO 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.

References
1.
2.
3.
4.

NESTLE annual report 2011


ENGRO FOODS annual report 2011
www.nestle.pk
www.engrofoods.com

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