International Accounting I
Nestlé Case Study
- If there was one thing to increase yearly, as a shareholder, I would like to increase the net income, because it measures the profitability of the business and also represents the profit that is attributed to shareholders. From the financial statements of the company, it can be noticed that the net income has been decreasing over the years, which means that Nestlé has not been performing very well in terms of sales and that that their expenses increased over the year.
- The largest expense for Nestlé in 2016 was the Cost of Goods Sold. COGS represents the costs directly linked to the production of goods or services that are being sold, such as direct labor, materials, etc. and it is, normally, the largest expense of any business.
- From the financial records it is noticeable that Nestlé has an overall downwards trend for both Sales and Net Income, with a dramatic decrease in the Net Income from 2014 to 2015. One explanation is the tough economic environment, that does not allow companies to raise their prices. Moreover, the brand suffered huge losses in the Indian market due to the country`s ban on Maggi Noodles that dropped their sales significantly and had a negative impact on the Net Income ((BBC News, 2018). Lastly, the dramatic change from 2014 to 2015 can also be attributed to Nestlé`s investing activities. As it can be seen from the Statement of Cash Flow, the company recorded in 2014, net divestments of 3 958 million CHF.
*in million CHF | 2014 | 2015 | 2016 |
Sales | CHF 91'612.00 | CHF 88`785.00 | CHF 89`469.00 |
Net Income | CHF 14'904.00 | CHF 9'467.00 | CHF 8'883.00 |
- a. Total resources: 131 901 million CHF
b. Total liabilities: 65 920
c. Total equity: 65 981
Accounting equation: A = L + E 131 901= 65 920 + 65 920
- The retained earnings decreased form 88 014 million CHF in 2015, to 82 870 million CHF in 2016. The company paid out 7 369 million CHF in dividends in 2016.
- At the beginning of 2016, the company had 4 884 million CHF in cash and cash equivalent, while at the end of the year, it increased to 7 990 million CHF. It is important to have a healthy cash flow in order to be able to pay off the debt, to grow and expand the business, and to make it more appealing to lenders and investors.
References:
BBC News. (2018). KitKat maker Nestle reports profit fall. [online] Available at: https://www.bbc.com/news/business-35604252 [Accessed 14 Oct. 2018].