Financial Accounting Assignment

Analysis of Financial Statements of Cadbury India Ltd and Nestle India Ltd for year ending on 31st December 2008

Submitted by

Aniket Deshpande, 31064Ankit Saxena, 31065Raj Kumar,31098

Index

Cadburys India Ltd.o Overview……………………………………………………………………….2o Financial Statements as per 31st Dec 2008

Balance Sheet……………………………………………………….3 Profit and Loss Account…………………………………………4

Nestle India Ltd.o Overview……………………………………………………………………….5o Financial Statements as per 31st Dec 2008

Balance Sheet……………………………………………………….6 Profit and Loss Account…………………………………………7

Financial Ratios……………………………………………………………………..8

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Cadbury India Ltd.

Overview

Cadbury India is a fully owned subsidy of Kraft Foods Inc. The combination of Kraft Foods and Cadbury creates a global powerhouse in snacks, confectionery and quick meals. It is currently the world's No.1 confectionery and biscuit company. Cadbury is also the world’s second-largest food company with sales in approximately 160 countries. Cadbury India is a fully owned subsidy of Kraft Foods Inc. The combination of Kraft Foods and Cadbury creates a global powerhouse in snacks, confectionery and quick meals. With annual revenues of approximately $50 billion, the combined company is the world's second largest food company, making delicious products for billions of consumers in more than 160 countries. We employ approximately 140,000 people and have operations in more than 70 countries.

Cadbury enjoys a value market share of over 70% - the highest Cadbury brand share in the world! Cadbury’s billion-dollar brand Cadbury Dairy Milk is considered the "gold standard" for chocolates in India. The pure taste of CDM defines the chocolate taste for the Indian consumer. In the Milk Food drinks segment our main product is Bournvita - the leading Malted Food Drink (MFD) in the country. Similarly in the medicated candy category Halls is the undisputed leader. In India, Cadbury began its operations in 1948 by importing chocolates. After 60 years of existence, it today has five company-owned manufacturing facilities at Thane, Induri (Pune) and Malanpur (Gwalior), Bangalore and Baddi (Himachal Pradesh) and 4 sales offices (New Delhi, Mumbai, Kolkota and Chennai). The corporate office is in Mumbai. Since 1965 Cadbury has also pioneered the development of cocoa cultivation in India. For over two decades, we have worked with the Kerala Agriculture University to undertake cocoa research and released clones, hybrids that improve the cocoa yield. Our Cocoa team visits farmers and advise them on the cultivation aspects from planting to harvesting. We also conduct farmers meetings & seminars to educate them on Cocoa cultivation aspects. Our efforts have increased cocoa productivity and touched the lives of thousands of farmers. Hardly surprising then that the Cocoa tree is called the Cadbury tree! Today, as a combined company with an unmatched portfolio in confectionery, snacking and quick meals, we are poised in our leap towards quantum growth. We are the world's No.1 Confectionery Company. And we will continue to “make today delicious”!

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Financial Statements

Balance Sheet as on 31st December 2008

Particulars Amount (in Million Rs) Equity Capital 321.83 Preference Capital 0.00Share Capital 321.83Reserves and Surplus 4322.20Loan Funds 417.03 Current Liabilities 4291.79 Provisions 203.96Current Liabilities and Provisions 4495.75Total Liabilities and Stockholders’ Equity 9280.43 Tangible Assets Net 2513.89 Intangible Assets Net 0.00 Net Block 2513.89 Capital Work In Progress Net 1238.65Fixed Assets 3752.54Investments 29.24 Inventories 2228.05 Accounts Receivable 196.75 Cash and Cash Equivalents 2695.90 Other Current Assets 43.54Current Assets 5164.24Loans & Advances 654.62Miscellaneous Expenditure Other Assets 0.00Total Assets 9600.64

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Profit and Loss Account as on 31st December 2008

Particulars Amount (In Million Rs) Net Sales 15885.95 Material Cost 7309.63 Increase Decrease Inventories -513.19 Personnel Expenses 1302.20 Manufacturing Expenses 798.13Gross Profit 6989.18 Administration Selling and Distribution Expenses 4803.67EBITDA 2185.51 Depreciation Depletion and Amortization 365.22EBIT 1820.29 Interest Expense 52.04 Other Income 250.65Pretax Income 2018.90 Provision for Tax 361.07 Extra Ordinary and Prior Period Items Net 0.00Net Profit 1657.85Adjusted Net Profit 1657.85Dividend - Preference 0.00Dividend - Equity 0.00

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Nestle India Ltd. Nestlé India is a subsidiary of Nestlé S.A. of Switzerland. With seven factories and a large number of co-packers, Nestlé India is a vibrant Company providing consumers in India with products of global standards committed to long-term sustainable growth and shareholder satisfaction.

After India’s independence in 1947, the economic policies of the Indian Government emphasized the need for local production. Nestlé responded to India’s aspirations by forming a company in India and set up its first factory in 1961 at Moga, Punjab, where the Government wanted Nestlé to develop the milk economy. Progress in Moga required the introduction of Nestlé’s Agricultural Services to educate advice and help the farmer in a variety of aspects. From increasing the milk yield of their cows through improved dairy farming methods, to irrigation, scientific crop management practices and helping with the procurement of bank loans. Nestlé set up milk collection centers that would not only ensure prompt collection and pay fair prices, but also instill amongst the community, a confidence in the dairy business. Progress involved the creation of prosperity on an on-going and sustainable basis that has resulted in not just the transformation of Moga into a prosperous and vibrant milk district today, but a thriving hub of industrial activity, as well. Nestlé has been a partner in India's growth for over nine decades now and has built a very special relationship of trust and commitment with the people of India. The Company's activities in India have facilitated direct and indirect employment and provides livelihood to about one million people including farmers, suppliers of packaging materials, services and other goods. The Company continuously focuses its efforts to better understand the changing lifestyles of India and anticipate consumer needs in order to provide Taste, Nutrition, Health and Wellness through its product offerings. The culture of innovation and renovation within the Company and access to the Nestlé Group's proprietary technology/Brands expertise and the extensive centralized Research and Development facilities gives it a distinct advantage in these efforts. It helps the Company to create value that can be sustained over the long term by offering consumers a wide variety of high quality, safe food products at affordable prices. Nestlé India manufactures products under internationally famous brand names such as NESCAFÉ, MAGGI, MILKYBAR, MILO, KIT KAT, BAR-ONE, MILKMAID and NESTEA and in recent years the Company has also introduced products of daily consumption and use such as NESTLÉ Milk, NESTLÉ SLIM Milk, NESTLÉ Fresh 'n' Natural Dahi and NESTLÉ Jeera Raita.

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Financial Statements

Balance Sheet as on 31st December 2008

Particulars Amount (in Million Rs) Equity Capital 964.16 Preference Capital 0.00Share Capital 964.16Reserves and Surplus 3769.34Loan Funds 0.00 Current Liabilities 5074.67 Provisions 6773.16Current Liabilities and Provisions 11847.83Total Liabilities and Stockholders’ Equity 16950.14 Tangible Assets Net 7386.92 Intangible Assets Net 143.00 Net Block 7529.92 Capital Work In Progress Net 1091.69Fixed Assets 8621.61Investments 348.99 Inventories 4349.12 Accounts Receivable 455.93 Cash and Cash Equivalents 1936.89 Other Current Assets 0.00Current Assets 6741.94Loans & Advances 1237.59Miscellaneous Expenditure Other Assets 0.00Total Assets 16950.14

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Profit and Loss Account as on 31st December, 2008

Particulars Amount (in Million Rs) Net Sales 43242.45 Material Cost 21036.25 Increase Decrease Inventories 156.82 Personnel Expenses 3321.05 Manufacturing Expenses 4249.16Gross Profit 14479.17 Administration Selling and Distribution Expenses 6149.73EBITDA 8329.44 Depreciation Depletion and Amortization 923.60EBIT 7405.84 Interest Expense 16.43 Other Income 338.85Pretax Income 7728.26 Provision for Tax 2387.45 Extra Ordinary and Prior Period Items Net 0.00Net Profit 5340.82Adjusted Net Profit 5340.82Dividend - Preference 0.00Dividend - Equity 4097.67

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Financial Ratios

Ratio FormulaCadbury India Ltd. Nestle India Ltd.

Gross Profit Ratio (Gross Profit/Sales)*100 44% 32.60%

Operating Ratio(Cost of Sales+Operating Expenses)/Sales * 100 147.83% 149.09%

Expense Ratio Expense /Sales *100 30.56% 14.25%i) Selling and Distribution and Administrative Expenses Ratio Administrative Expenses /Sales *100 30.23% 14.22%

ii)Interest Ratio Interest Expenses/Sales *100 0.32% 0.03%

Net Profit RatioNet Profit(after interest and tax)/Sales *100 10.4% 12.8%

Return on capital employed

Net Profit/(Share Capital +Reserve + Long term Loans)*100 32.75% 112.82%

Return on Shareholder's funds

Net Profit/(Share Capital +Reserve)*100 35.69% 112.82%

Return on Equity Share capital

(Net Profit-Preference dividend)/Equity Share Capital *100 515.13% 563.26%

Earnings per Share

(After tax profit-Preference Dividend)/Number of Equity Shares *100 50.6% 55.4%

Current ratio Current Assests/Currrent Liabilities 1.2 1.32

Liquid Ratio Liquid Assests/Liquid LiabilitiesInformation not available

Information not available

Acid-test Ratio Quick Assests/Liquid Liabilities 0.7 0.5

Proprietary Ratio Proprietor's Fund/Total assests 48.37% 27.92%

Debt-Equity RatioLong term Liabilities/Owner's Funds *100 8.90% 0%

Gearing Ratio Preference Share capital + Debenture /Equity Share Capital 0 0

Long term funds to fixed assests Long Term Funds/Fixed Assests * 100 11.11% 0

Interest Coverage RatioPofit before interest and taxes/interest 34.97 450.75

Stock Turnover Cost of sales/Average Stock 27.21 6.88

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Debtors' ratio(Debtors'+Bills Receivables)/Credit sale *100 1.24% 1.05%

Creditors' Velocity(creditors +Bills payable )/Credit Purchases *365

Current Liability Breakup not available

Current Liability Breakup not available

Total assests Turnover Sales/Total Assets 165.46% 255.11%

Debt Service Coverage ratio

Profit(Available for debt payment)/(instalment of principal +interest)

Amount of Principle not available

Amount of Principle not available

Comparative Analysis ofCadbury India Ltd. and Nestle India Ltd.

Both companies have a gross profit ratio of more than 30 %. This is a decent percentage to account for the expenses which will be incurred before the net profit is ascertained.

The expense ratio is lower for Nestle India Ltd. by almost half the amount. This indicates

the amount of expenses under each head. The lesser the expenses occurred in sales, the greater the profitability of the company.

The Net Profit Ratio indicates the profitability of the organization. There is not a major difference between the two companies chosen as they enjoy duopoly in their specific markets. Here as well, Nestle being a larger firm is leading the market with a 2 % advantage over Cadbury.

Return on Capital employed and Return to shareholder’s funds are the indicators of profitability from the shareholder’s point of view. This will bring more share capital in the next year and better capital investments for the future.

Earnings per share is the individual earning which a shareholder will receive on his investment in our company. The more the earnings per share, the better for the company. In our case, there is almost a 50 % increase in both companies which is a great investment for the shareholders.

Current Ratio for both the firms is more than 1. This is perfect as the amount of assets should always be more than the total amount of liabilities for a business.

The quick asset ratio has been taken as it is from the annual reports of the companies as there is not break up of the liabilities information available about the companies. Analyzing the found ratio, it is a good ratio as the amount of quick assets are comparable to the liquid liabilities.

The proprietary ratio gives us the percentage of proprietor’s funds involved in the total funds of the company. This ratio should ideally be higher as it shows a stronger hold of

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the company. In our companies, Cadbury’s position is stronger as compared to Nestle when we consider the point of view of the proprietor. For Cadbury, its almost half of the total funds employed in the business.

The debt equity ratio should be an optimum value for the business. A higher value would mean low sustainability of the company and lower value would indicate that external credit is not being employed in the company. For Nestle, this value is alarmingly low, as it has not utilized any outside credit which was at its disposition.

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