MADE BY:

M WAQAS MANIAR

FAIZAN ELLAHI

HARIS MADNI
 Why Need Performance Measurement ?

Effective planning and financial management are the keys to running a financially
successful small business. Ratio analysis is critical for helping you understand financial
statements, for identifying trends over time and for measuring the overall financial state
of your business. In addition, lenders and potential investors often rely on ratio analysis
when making lending and investing decisions

Ratios are critical quantitative analysis tools. One of their most important functions lies
in their capacity to act as lagging indicators in identifying positive and negative financial
trends. The information a trend analysis provides allows to you to make and implement
ongoing financial plans and, when necessary, make course corrections to short-term
financial plans. Ratio analysis also provides ways for you to compare the financial state
of your business against other businesses within your industry or between your
business and businesses in other industries. The sheer numbers of available financial
ratios makes it important to research and choose ratios most applicable to your
business.

Cash and liquidity ratios help determine whether you can afford to invest in capital
assets or long-term business growth. A current and working capital ratio both are useful
for assessing whether your business has enough liquidity to pay for daily operating and
short-term debt expenses

Once done effectively, it provides a lot of information which helps the analyst
 To know the areas of the business which need more attention
 To know about the potential areas which can be improved with the effort in the
desired direction
 To provide a deeper analysis of the profitability, liquidity, solvency and
efficiency levels in the business
 To provide information for making cross-sectional analysis by comparing the
performance with the best industry standards
 To provide information derived from financial statements useful for making
projections and estimates for the future
This is the project about financial statement analysis of two companies of the same
industry. In this regard the companies which were chosen to be analyzed are NESTLÉ
PAKISTAN and ENGRO FOODS LIMITED. Both the companies are of food industry
and are dealing in food business for many years. The companies are well reputed in the
market and deal in a very wide range of food products.

As NESTLÉ, a very, well-known brand started its’ business life with only one product
and that was condensed milk for infants. And now it has captured everyone’s mind for
its tempting products; as chocolates, coffee, bottled water, powdered milk, flavored milk,
tea whitener and many more.

ENGRO FOODS is also a very, well-reputed company which produces a wide range of
healthy food products. Is product line contains products such as milk, tea whitener,
cream, ice cream, juices, flavored milk and many others. ENGRO FOODS is the 1st
company which is using Bactofuge technology.The company has not been in this
business for as long as NESTLÉ is, but the way it has grown up is appreciable. It has
come up with innovative features in its products.

NESTLÉ ENGRO FOODS

Total Assets 35,179,859 16,639,184
Current Assets 13,395,017 6,369,139
Current Liabilities 16,788,455 3,480,987
Inventories 7,046,126.522 3,046,859.795
Net Income 4,524,771 890,973
Average Total Assets* 10,873,970 14,549,624
Beginning Assets 8,352,923 12,460,064
Ending Assets 13,395,017 16,639,184
Average Stockholder’s 6,597,144.5 2,923,870.5
Equity**
Beginning Equity 5,581,873 5,124,047
Ending Equity 7,612,416 7,236,942
Sales 64,824,364 29,859,226
Number of Common Stock 45,350.272 370,305.7377
Cost of Goods Sold 48,099,046 23,230,445
Total Stockholder’s Equity 7,612,416 7,236,942
EBIT*** 6,586,973 1,388,430
EBT 6,502,864 1,362,660
Interest Expenses 84,109 25,770
Market Price Per Shares 4,844 25
EPS 102.94 1.22
Inventory Turnover 9.2 8.90
EAT 4,668,357 890,973
Gross Profit 16,725,318 6,628,781
Total Liabilities 2756443 9,402,242

Balance Sheet Analysis of NESTLE and ENGRO FOODS

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 nestle company is
greater than ENGRO foods which means that nestle has invested more in the fixed
assets than ENGRO foods whether by starting new project or by any other source. Due
to high investment in fixed assets long term loan and advances of nestle are also
greater than engro foods and total assets of nestle are also greater than engro foods
which shows that the size of nestle is greater than engro. Nestle has more cash and
bank balance than engro foods and has more reserves which shows that nestle hold
more than dividing whereas engro divides more than holding with it means nestle pays
less dividend as compared to engro foods.

ANALYSIS OF INCOME STATEMENT OF NESTLE AND ENGRO

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 compains so that’s 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.

RATIOS
NESTLE ENGRO

Current Ratio 0.80 1.83

Quick Ratio 0.38 0.95

Net Working Capital Ratio -0.10 0.17

(ROA) 0.42 0.06

(ROE) 0.69 0.03

(ROI) 0.13 0.05

Net Profit Margin 1% 0.03

Gross Profit Margin 26% 0.22

EPS 102.94 1.22

Asset Turnover Ratio 1.84 1.79

Inventory Turnover Ratio 6.83 7.62

Debt to Equity Ratio 3.62 1.30

Debt to Asset Ratio 8% 0.57

Price Earnings (PE) Ratio 47.06 20.49

 Financial Ratios 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 firm’s 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.

ROI
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.

NP Margin
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.

GP Margin
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.

Asset Turnover Ratio

This ratio measures the turnover of the entire firm’s asset. It is calculated by
dividing the sales by total assets of the firm. If firm shouldn’t 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

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.

Conclusion
After all the findings, it is concluded that financial ratios are the basic and
most important part of any business. It describes the firm’s 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.