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Financial statement of the Nestle group

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  1. Company presentation
  2. The strategy of the firm
    1. A wide variety of products
    2. An international firm
    3. A predominance for innovation
    4. A strategy based on acquisitions
    5. The Group's main competitors
  3. Global analysis of Nestle
    1. The wealth and the financial security of the company
    2. Funding Policy
    3. Investment Policy
  4. Performance and the financial channels
    1. Analysis of the activity
    2. Performance analysis
    3. Risk analysis
  5. Market Analysis
    1. Study the advisability of investing
    2. Outlook for the stock price
    3. A study of the shareholder returns
    4. PER and PER related
  6. Conclusion and recommendations

A financial analysis aims to make an assessment of the financial position, market position and performance of a company in order to analyze the possible problems, make recommendations and to inform both the internal (staff, manager) and external stakeholders (investors, general public) of the business.

The main objective is to analyze the financial documents and records as well as the economic environment of the Nestle Group.

The Nestle Group was founded in 1866 by a Swiss chemist Henri Nestle. He mixed cow's milk with wheat, sugar and flour to produce an alternative for mother's milk for infants whose mothers were unable to breastfeed. This large food company is headquartered in Vevey, Switzerland. Today, the Nestle S.A. "empire" is a multinational company operating in 86 countries around the world and whose shares are traded on the Swiss Exchange in Switzerland. It became the number one international food company with a turnover of 74.4 million Euros in 2008 and Nestle is currently divided into 9 branches: milk products, nutrition and ice creams (27.2% of sales), beverages (25.1%), chocolates, confectioneries and biscuits (11.8%), prepared dishes and cooking products (18.3%), animal products (11.5%), frozen and refrigerated foods and pharmaceuticals (6.1%). In 2009, the company was headed by Paul Bulcke, CEO. Nestle is qualified as a leading innovator in Europe (Nescafe instant coffee, Bolinofreezedried meals, frozen foods etc.).

The following two graphs represent the capital structure of Nestle: first by country and then by the type of investors such as institutions, private shareholders, etc. The registered shares represent 64.1% of the total capital shares.

It is relevant to indicate that among the private shareholders, the Betencourt family holds 3% of the capital shares in the network, which makes it the biggest shareholder of Nestle.
To prepare its consolidated accounts, Nestle depended on the International Financial Reporting Standards (IFRS). The significant items of the financial statements are the tangible fixed assets, the goodwill and the inventory.

The stocks, raw materials and the finished goods are valued at the cost of purchase. The FIFO method is applied for accounting of the stock turnovers of these two elements. The manufactured products and finished goods are valued at the cost price. From 2004 to 2007, stocks had risen by 31.9%. Concerning the goodwill, the difference between the costs of acquisition and the fair value of identifiable net assets acquired is recorded with the help of the balance sheet. It also includes intangible assets such as the trademark rights and the industrial property that are not separately identifiable and measurable.

The goodwill has no longer been amortized since 2003; this decision was taken so that it could be subjected to the international standards.

Tags: Marketing analysis of Nestle, Strategy of Nestle, Performance of Nestle

[...] Conclusion and recommendations This analysis allows us to highlight all the strengths and weaknesses of the major food group Nestle. Firstly, we note that the Nestlé brand is known worldwide, and is a symbol of quality and reliability. This image is beneficial to many other brands that comprise the group, with acquired brands following an intense external growth leading to numerous acquisition activities and is rated AAA by the rating agencies for its financial strength. The stock price is still very low, which may eventually result in a token of purchase for the investor. [...]

[...] In 1974, Nestle acquired a share of 29% in the L'Oreal group and now it is currently the number one in the global cosmetics market. A pact was signed in 2004 with the two major shareholders: the Betancourt family on one side, the Swiss Nestlé on the other which is soon going to expire. In the future, both parties would be free to transfer their securities. In other words, if the Betancourt family decides to sell or buy Nestle, L'Oreal will come under the Swiss company Nestle. [...]

[...] In general, the PER of Nestle is cheap, and the risk is measured ( 1.25 in 2007), especially when compared to that of DANONE, which may indicate that the share is expensive and that the risk is significant. Nestle therefore earned 1.25 times its estimated earnings for 2007 on the stock market, which means that the market does not anticipate strong growth in profits. (Especially as the PEX 2007 is the highest of the 4 years studied). This betrays a certain amount of distrust. [...]

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