This research work was motivated by
the need to unveil the task encountered by most uninformed and literate indigene
and other African investors in various firm’s of their choices.
The research work listed 30
respondents from the Nestle Food Nigeria Plc coupled with its
stakeholders. The annual accounts and
reports of five years, which span from 2000-2004 was used.
The research instrument employed in
eliciting response from respondents is the personal inter view method.
This research work was able to make
the following findings.
The capital structure of Nestle Food
Nigeria Plc is devoid of preference share, which attract a fixed rate of
The firm continuously reviews its
performance and set improved target that will ensure survival of the business
in the interest f all the stakeholders.
It also recommend that Nestle Food
Nigeria Plc should Endeavour to disclose certain vital investors financial
statistics such as the market price per share of its highly sought after shares
in the Nigerian Stock Exchange floor.
of contents vi
1.1BACKGROUND OF THE STUDY
1.2 STATEMENT OF THE PROBLEM
1.3 RESEARCH QUESTIONS
1.4 RESEARCH HYPOTHESES
1.5 PURPOSE OF THE STUDY
OF THE STUDY
1.7 SIGNIFICANCE OF THE STUDY
1.8 LIMITATIONS OF THE STUDY
BACKGROUND OF THE CASE STUDY
2.2 HISTORICAL DEVELOPMENT
OF FINANCIAL RATIO ANALYSIS
2.3 RELEVANT MODELS AND THEORIES OF FINANCIAL
RATIO ANALYSIS THEORIES ON SHAREHOLDER’S EQUITY
2.4 FINANCIAL RATIO ANALYSIS
2.5 BASIC PERFORMANCE COMPARISON
2.6 LIMITATION OF RATIOS
2.7 TECHNIQUES OF FINANCIAL RATIO INTERPRETATION
3.2 RESEARCH QUESTION RESTATED
3.3 REFORMULATING OF RESEARCH HYPOTHESES
3.4 RESEARCH DESIGN
3.5 CHARACTERISTICS OF THE STUDY POPULATION
3.6 SAMPLING DESIGN
3.7 SAMPLING PROCEDURE
3.8 DATA COLLECTION INSTRUMENT
3.9 PILOT TEST
ADMINISTRATION OF DATA COLLECTION INSTRUMENT
3.11 PROCEDURE FOR PROCESSING AND ANALYSIS DATA
AND THE METHODOLOGY
PRESENTATION AND DATA ANALYSIS
4.2 CHARACTERISTICS AND CLASSIFICATION OF
4.3 PRESENTATION AND DATA ANALYSIS
4.5 HYPOTHESIS TESTING AND INTERPRETATION OF
OF FINDINGS, RECOMMENDATIONS,
SUGGESTION FOR FURTHER STUDY AND CONCLUSIONS
5.1 SUMMARY OF FINDINGS
5.4 SUGGESTIONS FOR FURTHER STUDY
OF THE STUDY
Financial accounting information
contained in financial statement of business entities, is the bedrock for the
computation of accounting ratios of business concern. This in turn forms the
basis for the evaluation of both present and past business (operational) 1) Performances
by users of financial information, which are also referred to as the
It is worthy of note to assert
that the information contained in financial statement are well organized m such
a way that will enable its users to draw reasonable conclusion with respect to
the financial position and performance (past, present and future) of the reportingentity.
Ratio is one of the financial analytical tools used in assessing quantitative event (past, present and
anticipated future financial position.
Financial accounting ratios to a
proportion of fraction or percentage expressing the relationship between one
iii a set of’ financial statement and another item in the same financial
statement of the tools used in the analysis and interpretation of financial
statement such as the cash flow statement and accounting ratios, the later has
been proved to be the most powerful tool.
1.2 STATEMENT OF THE PROBLEM
Although, financial ratios
analysis is the most powerful tool used in analyzing the financial and operating performances of firms, the technique
suffer from some bottle necks
which are also inherent in financial statement prepared and presented to the
A major draw back derived from
the fact that facts and figuresmostly computed from historical accounts also
suffer from same limitations which historical account have. For instance
i. Financial ratio analysis drawn from historical information is
of little use in assessing the future prospects of a firm.
ii. Financial ratios are quantifiable information like the change in personnel level over-time.
iii. Some financial ratios are not universally accepted as uniform
parameter far financial analysis, such as the Return on capital employed (ROCE)
Closely allied to this is the fact
that the figures of financial statement are not adjusted for changes in the
price level, thus heading to unhealthy financial evaluation.
1.3 RESEARCH QUESTIONS
The following are research
questions formulated in assessing the financial health of Nestle Food Nigeria
what extent had the firm been operating profitably in terms of its profit
margin and assets utilization?
the firm consistent in theuse
of its accounting policies?.
the firm sustain or improve its profitability and operating Performance given
the strategic competitive advantages inthe industry?
the ratio of slow moving stock high in the current asset mix?
frequently and efficiently do, the firms convert its current asset into current liabilities?
what extent has the firm been able to efficiently manage its working capital?.
efficiently has the firm been able to convert its current asset into liquid
The research work is aimed at
finding answer to certain hypothesis that are central to the research work.
1. HO: Ratio analysis assists in evaluating and
measuring both operating and financial performances of management.
HA: Financial ration analysis does not assist in assessing and
measuring both operating and financial performances of
2. HO: The result of a well conducted financial ratios can be used as basis for forecasting
future performances and efficiency of
HA: The result of a well
conducted financial ratio
analysis can not be used as a basis for forecasting future
performances and efficiency of management.
3. HO: Financial ratio analysis is used as a basis for decision
making by stakeholders
HA: Financial ratio analysis is
not used for decision-making by shareholders.
1.5 PURPOSE OF THE STUDY
research work is
designed primarily to justify
and place more premiums on the use of financial
ratios as veritable tools. For evaluation and measuring the performances and efficiency of management.
The prime purpose of the study is to analyze by way of financial ratio, the financial statement of Nestle Food
Nigeria Plc in order to determine.
efficiency of the firm in the use of its assets
profitability and productivity of the firm
the firm is capable of meeting its current financial obligation as at when due.
source of long-term funds employed by the firm.
the firm is measuring up in terms of the
average industry ratio established.
technique of financial ratio can be effectively employed by
shareholders and stakeholders in analyzing the performance of the firm (s) of their choice.
OF THE STUDY
It is discovered that most personnel
of the firm, especially the top level managers are unwilling to provide
required information relating to the study especially the average industry
ratios. Hence most average industry ratios
used in the study are based on past experience within the industry.
Also, the accounting ratio under consideration is limited to a period of five
years. From 2000 through year 2004.
1.7 SIGNIFICANCE OF THE STUDY
The prime objective of this study
investigate the extent at which financial statement serve as a bedrock for
financial analysis vis-à-vis financial ratios.
critically analyze the performances and position of the firm within its industry, using the accounting information
conveyed by its financial statements and annual reports in previous years.
verify whether the financial statement have
been prepared and presented in
compliance with statement of accounting
standards and other professional international
whether the firm in question as
a going concern, can meet and face future challenges and demands of both legal
and social responsibilities.
1.8 LIMITATIONS OF THE STUDY
the research work is limited to the information purveyed by the financial
statements of Nestle Food Nigeria Plc.
study is also limited by the responses provided by the respondent via the
personal interview aimed at sampling requisite information relevant to the study.
ØAbove all the study is limited by the average industry ratio which is not provided in the annual report and
account of the firms.
of the study conic in form of the
accounting policies, practices, basic and methods employed in the
preparation and presentation of the
financial statement upon which financial analysis have been based.
1.9 DEFINITION OF TERMS
refers to the proportion of
fraction or percentage, which expresses the relationship between one item of
account and another in the same financial
refers to the assessment of past, present and anticipated future event of the
financial position and conditions
aimed at identifying any weakness or strength in the performance of the firm evaluated.
This is an accounting terminology employed specifically to refer to the company
which its financial statement is being analyzed by way of financial ratios.
iv.FINANCIAL INFORMATION: This refers to those pieces of in formation contained
in the financial statement of the firm being assessed.
v.HISTORICAL ACCOUNT: This
refers to the financial statement which has been prepared and presented in
accordance with historical cost concept, which holds thatcostis the
appropriate basis for initial accounting recognition of all assets acquired,
services rendered or received and expenses incurred.
is the assessment or evaluation of the
operating financial performance of the management of company overtime via the
use of financial ratios.
1.10 HISTORICAL BACKGROUND OF THE CASE STUDY
Nestlé Company had started off
from a single man's idea, and developed into a giant corporation. In 1866 Henri
Nestlé, a pharmacist, developed a milk food formula for infants who were unable
to tolerate their mother’s milk (Nestle.com). His product became a success, and
it created a demand throughout Europe. As Nestlé’s popularity grew more
businesses wanted to merge and become partners with Henri Nestlé's business.
From 1866 to 1947 the Nestlé Company had gone through several name changes. In
1905, Anglo-Swiss Condensed Milk Co. and Farine Lactee Henri Nestlé merged, and
the company’s name became Nestlé & Anglo-Swiss Condensed Milk Co. Then in
1929, Peter-Cailler-Kohler Chocolats Suisses S.A. merged with the company. The
name was then changed to Nestlé & Anglo-Swiss Holding Co. Ltd, on November
27, 1936. In December 1947, Co. acquired all the shares capital of the
Alimentana S.A. company in exchange for fifteen Nestlé shares and fifteen
Unilac shares for each of Alimentana S.A. share, so this point the name was at
Nestlé Alimentana S.A. And then finally, the last name change that the company
would endure was in 1977, where it adopted the name Nestlé SA (Mergent Online).
Along the way Nestlé’s company remain successful, which allowed them expand to
new region and territories throughout the world, making them the world’s
biggest food and beverage company. Nestlé’s headquarters are located in Vevey,
Switzerland, but the Nestlé Company has factories or operation in almost ever
country in the world. Since the Nestlé case was published in 1998, it stated
that Nestlé had employed 230,000 people worldwide, with $71.7 billion in sales
(Rodgers, 2000). Now moving forward to 2003, Nestlé has increased the amount of
employees to 253,000 people, with $88 billion in sales (Nestle.com). Nestlé is
increasing the size of their company year by year. In addition, to the increase
in the size of the Nestlé Company; Nestlé also has increased the variety in the
different products they offer. In Nestlé’s business strategy they encourage
product growth through innovation and renovation (Nestle.com). This strategy
has allowed Nestlé to develop many different products in the various fields:
baby foods, dairy products, breakfast cereals, ice creams, chocolates and
confectionery, prepared foods, beverages, food services, bottled water, and pet
care. This brings us to the main focus of our case analysis, the dairy
division, and the yogurt product LC1 that lies within that division.
Nestlé strives on being innovator
and renovators. So their research team in Switzerland discovered a culture
called Lactobacillus acidophilus, or La-1. This particular product was chosen
because it contains a probiotic agent, which is living microbial feeding
supplements that allow the lower intestine to function better (Rodgers, 2000).
La-1 helps the small intestine function by improving the body’s immune system,
and in turn helping the body in preventing diseases. Nestlé has now found a
solution for their health conscious consumers, but now they need to find a way
to implement it into one of their products. That is when the researchers at
Nestlé discovered that if they replace one of the mixes in their yogurt with
the La-1 the same texture would be maintained. Now with the combination of
Nestlé yogurt mix and the La-1; Nestlé has given their yogurt the name of LC1
Nestlé describes itself as a
food, nutrition, health, and wellness company. Recently they created Nestlé
Nutrition, a global business organization designed to strengthen the focus on
their core nutrition business. They believe strengthening their leadership in
this market is the key element of their corporate strategy. This market is
characterized as one in which the consumer’s primary motivation for a purchase
is the claims made by the product based on nutritional content.
In order to reinforce their
competitive advantage in this area, Nestlé created Nestlé Nutrition as an
autonomous global business unit within the organization, and charged it with
the operational and profit and loss responsibility for the claim-based business
of Infant Nutrition, HealthCare Nutrition, and Performance Nutrition. This unit
aims to deliver superior business performance by offering consumers trusted,
science based nutrition products and services.
The Corporate Wellness Unit was
designed to integrate nutritional value-added in their food and beverage
businesses. This unit will drive the nutrition, health and wellness
organization across all their food and beverage businesses. It encompasses a
major communication effort, both internally and externally, and strives to
closely align Nestlé’s scientific and R&D expertise with consumer benefits.
This unit is responsible for coordinating horizontal, cross-business projects
that address current customer concerns as well as anticipating future consumer
Nestlé is a global organization.
Knowing this, it is not surprising that international strategy is at the heart
of their competitive focus. Nestlé’s competitive strategies are associated
mainly with foreign direct investment in dairy and other food businesses.
Nestlé aims to balance sales between low risk but low growth countries of the
developed world and high risk and potentially high growth markets of Africa and
Latin America. Nestlé recognizes the profitability possibilities in these
high-risk countries, but pledges not to take unnecessary risks for the sake of
growth. This process of hedging keeps growth steady and shareholders happy.
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