RUNNING HEAD: Nestle Internal Analysis 0

Nestle Internal Analysis

Shanell Pritchett
05/15/19
Professor Mandeville
NESTLE INTERNAL ANALYSIS 1

Resources are the source of the firm’s capabilities. Some resources are tangible, and

some are intangible. The tangible assets can be seen and quantified. Intangible resources are

assets that typically are rooted deeply in the firm’s history and have accumulated over time. A

SWOT analysis can be performed once the financial status is calculated. It’s hard to determine

what areas of business (whether it be internal or external) need to be adjusted without the SWOT

analysis.

The only current data for 2019 is the first quarter sales which are at $22.1 M. Based on

the 2018 financial ratios of Nestle they are financially stable and growing in revenue. The

liquidity ratios simply attempt to measure a company’s ability to pay off its short-term debt

obligations. Nestle was financially fit to be able to pay off its short-term debt in 2017 and 2018.

In 2018 57% of Nestle’s debt-to-assets ratio, and in 2017 the debt to assets ratio was 53% of

which in both years over half of the company’s assets are financed through debt and the other

portion financed through equity. The activity ratio of the total assets turnover (which measures

how efficiently a firm uses its assets to generate sales) for 2018 was .66. In 2017 it was .67

which is a small drop. Based on Nestle’s business sector in consumer goods, at .66 and .67 they

are managing moderately well. Nestle appears to manage and use its assets to produce products

and sales at a moderately high ratio.

The profitability ratio for the gross profit margin analysis is an indicator of a company’s

financial health. Nestle is ranked number 69 of the fortune 500 companies most profitable. They

made it to the top 100 companies. These speaks volumes on the company’s financial health. The

higher the gross profit margin ratio means that a company can make a reasonable profit on sales

as long as it keeps overhead costs in control. Based on the 2017 and 2018 gross profit margin for
NESTLE INTERNAL ANALYSIS 2

Nestle, they are in a very healthy financial position. The net profit margin also known as the

bottom line of a company. It is the most important indicator of the company’s financial health.

“Nestle’s Net Margin % is ranked higher than 76% of the 1663 Companies in the Global

industry. The industry median: 3.51 vs. Nestle: 11.05” (Gurufocus, 2019).

(The detailed financial resources are given in Appendix 1)

To assess Nestle’s strengths, weaknesses, opportunities, and threats (SWOT), one first

must take note that Nestle describes itself as a food, nutrition, health and wellness company.

They believe strengthening their leadership in this market is the key element of their corporate

strategy. Their objective is to be recognized as the world leader in nutrition, health and wellness,

that is trusted by all its stakeholders. Their encapsulated phrase is “Good Food, Good Life”,

which is a phrase that sums up their corporate ambition.

The strengths of Nestle beyond the financial stability, is the fact that they are over 150

years old. They are considered the innovation leader in the global food and nutrition market

sector. Nestle continuous excellence is their approach to operational efficiency, with its objective

of eliminating waste, increase efficiency and effectiveness, and improving quality in all

operations. They also thousands of products, research and development capabilities. Nestle has a

very strong workforce and operates in all six continents and considered a truly global company.

Their financial status is also a strength they possess.

Nestle, while being number 69 of the top 100 of fortune 500 it’s a little difficult to outline

the weaknesses of the company. However; one of the noticeable weaknesses that Nestle has, is

that they do not have direct market outlets, and this can cause a difference in profits being made.

They do not have enough raw material production units; they depend on either local raw material
NESTLE INTERNAL ANALYSIS 3

producers or through other trade channels. Based on the financial ratios outlined, I don’t see any

possible warning signs of a decrease in financial stability. Based on the first quarter sales which

are $22.1M, reveals that if forecasted sales at the same rate, their sales by year end will be

around the same sales in the year 2017 which was $89.6M.

(The Detailed Swot analysis chart are given in Appendix 2)

Nestle believes that their trust is earned over a long period of time by consistently

delivering on their promises. They are now investing for the future to ensure the financial and

environmental sustainability of their actions and operations are in capacity with technologies,

brands, and people. Nestle’s aim is to meet today’s need without compromising the ability of the

future generations to meet their needs. To do this, they will ensure profitable growth year after

year and a high level of returns for their shareholders and society at large over the long-term.
NESTLE INTERNAL ANALYSIS 4

Resources
Gurufocus, (2019). Nestle SA (OTCPK:NSRGY) Net Margin %. Retrieved from

https://www.gurufocus.com/term/netmargin/NSRGY/Net%252BMargin/Nestle%2BSA

Nestle (2019). Nestlé reports three-month sales for 2019. Retrieved from

https://www.nestle.com/asset-library/documents/library/events/2019-3m-sales/press-

release-en.pdf

Rothaermel, F.T. (2017). Strategic management: Concepts and cases (3rd. ed.). New York, NY:

McGraw-Hill Irwin.

Yahoo Finance (2019) Nestle S.A. Retrieved from

https://finance.yahoo.com/quote/NSRGY/financials?p=NSRGY
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Appendices
Appendix 1

Financial Ratio Analysis

NESTLE S.A.
Current Year Previous Year Previous Year
Liquidity Ratios 2019 2018 2017

Current Ratio: Current Assets/Current Liabilites - 0.953 3.474

Quick Ratios: Current assets minus inventory/current liabilities - 0.741 -0.687

$ Current Assets $ 41,003,000 $ 31,884,000
$ Current Liabilites $ 43,030,000 $ 9,177,000
$ Inventory $ 9,125,000 $ 38,189,000

Leverage Ratios

Debt-to-Total Assets Ratio: Total Debt/Total Assets - 0.574 0.533

Debt-to-Equity Ratios: Total Debt/Total Stockholders' Equity - 1.370 1.164

Times-Interest-Earned Ratio: Profits before interest & taxes/Total Interest Charges - -18.722 -24.018
$ Total Debt $ 78,612,000 $ 70,981,000
$ Total Assets $ 137,015,000 $ 133,210,000
$ Total Stockholders' Equity $ 57,363,000 $ 60,956,000
$ Profits before Interest and taxes $ 15,352,000 $ 14,699,000
$ Total Interest Expense $ (820,000) $ (612,000)

Activity Ratios

Inventory Turnover: Sales/Inventory of Finished Goods - 16.689 15.989

Fixed Assets Turnover: Sales/Fixed Assets - 3.028 2.873

Total Assets Turnover: Sales/Total Assets - 0.667 0.673

Average Collection Period: Accounts Receivable/(Total credit sales/365 days) - 36.660 40.187
$ Sales $ 22,183,000 $ 91,439,000 $ 89,590,000
$ Inventory of Finished Goods $ 5,479,038 $ 5,603,085
$ Fixed Assets $ 30,200,630 $ 31,182,370
$ Total Assets $ 137,015,000 $ 133,210,000
$ Accounts Receivable $ 9,184,000 $ 9,864,000
$ Total Credit Sales (uless othewise indicated, same as sales) $ 91,439,000 $ 89,590,000

Profitability Ratios

Gross Profit Margin: Sales minus cost of good sold/Sales 1.000 1.504 1.509

Operating Profit Margin: Earnings before interest and taxes (EBIT)/Sales 0.000 0.168 0.164

Net Profit Margin: Net Income/Sales 0.000 0.111 0.080

Return on Total Assets (ROA): Net income/Total Assets - 0.074 0.054

Return on Stockholders' Equity (ROE): Net Income/ Total Stockholders' Equity - 0.177 0.117
Sales Revenue (already entered above - no need to re-enter data) 22,183,000.00 91,439,000.00 89,590,000.00
$ Cost of goods sold or cost of sales $ (46,070,000) $ (45,571,000)
$ EBIT (Earnings Before Interest and Taxes) $ 15,352,000 $ 14,699,000
$ Net Income (Earnings After Interest and Taxes) $ 10,135,000 $ 7,156,000
Total Assets (already entered above - no need to re-enter data) - 137,015,000.00 133,210,000.00
Total Stockholders' Equity (already entered above - no need to re-enter) - 57,363,000.00 60,956,000.00
$ Other Operating Expenses $ 97,790,000 $ (50,660,000)

Revenue/Expense

Sales Revenue (percentage change) -75.74% 2.06% -

Cost of Sales (percentage change) -100.00% 1.09% -

Operating Profit (percentage change) -100.00% 4.44% -

Net Income (percentage change) -100.00% 41.63% -

NESTLE INTERNAL ANALYSIS 6

Appendix 2