International Journal of Academic Research and Development

International Journal of Academic Research and Development

ISSN: 2455-4197
Impact Factor: RJIF 5.22
www.academicsjournal.com
Volume 2; Issue 6; November 2017; Page No. 932-938

Comparative analysis of financial performance of nestle and Britannia by using financial ratios
1
Harendra Singh, 2 Dr. Anil Vashisht
1
Assistant Professor, Amity Business School, Amity University Madhya Pradesh, India
2
Director, Amity Business School, Amity University Madhya Pradesh, India

Abstract
Keeping track of financial performance is a key in portfolio management. Every investor continuously tracks that how company is
performing in terms of Profitability, Liquidity, and Solvency etc. Ratio analysis is one of the tools in financial analysis a nd proved
the best tool by past researchers. In this research paper I tried to compare the financial performance of Nestle and Britannia by
Using Financial Ratios from year 2011 to year 2015.

Keywords: ratio analysis, solvency ratio, liquidity ratio, profitability ratio

1. Introduction on venture choices. Before we bounce into the specifics of the

Articulation of monetary examination (or money related three most critical budgetary explanations - wage
investigation) is the technique for analyzing and to isolate an articulations, asset reports and income proclamations - we will
organization's budgetary explanations to attempt great quickly present each monetary proclamation's particular
conservative choices. The money related explanations capacity, alongside where they can be found.
incorporate the salary articulation, monetary record,
proclamation of income, and an announcement of changes in 1.1 Users of Financial Statement Analysis
value. Money related explanation investigation is a way or 1. Management: The supervisors of the organization utilize
arrangement including particular strategies for deciding their money related explanation investigation to settle on
dangers, execution, back condition, and future plausibility of insightful choices about their execution. Case in point,
an association they gage per cost circulation channel, or how much
It has been utilized by shareholders, creditor and value money they have cleared out, from their bookkeeping
financial specialists, the administration, the general records and settle on choices from these examination
population, and choices making association. These partners comes about.
have unmistakable significance and apply differences of 2. Proprietors: Small business people require fiscal
various procedures to meet their needs. For instance, value information from their operations to make sense of if the
speculators are highly inspired by the long term monetary business is profitable. It helps in settling on decisions like
capability of an association and practically the manageability whether to continue working the business, whether to
and extension of installments to profit. Loan bosses intend to upgrade business frameworks or whether to forsake the
guaranteeing to paid the intrigue and standard on the business totally
organization commitment securities (e.g., bonds) when it 3. Investors: Individuals who have obtained stock or partake
remarkable. in an organization require monetary data to break down the
The acknowledged approach of monetary proclamation way the organization is performing. They utilize budgetary
examination incorporates principal investigation, DuPont articulation examination to figure out what to do with their
investigation, flat and vertical investigation with the assistance interests in the organization. So relying upon how the
of money related proportions. Accurate data associated with a organization is getting along, they will either clutch their
succession of suspicions and conformity to the money related stock, offer it or purchase more.
information might be utilized to execution of future venture. 4. Lenders: Banks are keen on knowing whether an
The expert of monetary sanctioned assignment is accessible organization will have the capacity to respect its
for expert money related investigators. installments as they get to be expected. They utilize
The enormous measure of numbers in an organization's income investigation of the organization's bookkeeping
monetary articulations can confound and threatening to records to gauge the organization's liquidity, or its capacity
numerous financial specialists. Then again, in the event that to make fleeting installments.
you know how to investigate them, the budgetary articulations 5. Government: Overseeing and controlling collections of the
are a gold mine of data. Financial statements are the medium state take a gander at money related articulation
by which an organization unveils data concerning its money investigation to decide how the economy is performing
related execution. Supporters of major examination utilize the when all is said in done so they can arrange their monetary
quantitative data gathered from financial statements to settle and modern strategies. Charge powers additionally break

932
International Journal of Academic Research and Development

down an organization's announcements to figure the as a remainder. Proportions are easy to compute and
taxation rate that the organization needs to pay. straightforward. The people intrigued by the investigation of
6. Workers: Representatives require to understand whether budgetary proclamations can be gathered under three heads,
their livelihood is secure and if there is a possibility of a 1. Proprietors or financial specialists
salary increase. They need to be side by side of their 2. Creditors and
organization's gainfulness and dependability. 3. Budgetary administers
Representatives may likewise be keen on knowing the
organization's budgetary state to see whether there might 2. Review of Literature
be arrangements for extension and henceforth, profession Gopinathan (2009) [10] has displayed that the money related
prospects for them. proportions investigation can spot better venture alternatives
7. Clients: Customers require to consider the limit of the for speculators as the proportion examination measures
association to organization its clients into what's to come. different parts of the execution and breaks down essentials of
The need to consider the association's strength of an organization or an establishment
operations is elevated if the customer (i.e. a distributer or Ho and Zhu (2004) [9] have reported that the assessment of an
procurer of particular things) is dependent totally on the organization's execution has been centering the operational
association for its provisions. adequacy and productivity, which may impact the
8. General Public: Anybody in the overall population, similar organization's survival straightforwardly.
to understudies, examiners and specialists, might be Dansby et al. (2000) [2] defined ratio as “fractional relationship
occupied with utilizing an organization's monetary of one number to another”. On the other hand, Needles et al.
articulation investigation. They may want to assess the (1996) [14] defined ratio analysis as “a technique of financial
impacts of the organisation on the earth, or the economy or analysis in which meaningful relationship is shown between
even the nearby group. For example, if the organization is the components of financial statements”. Ratio analysis is
running corporate social obligation programs for often expressed proportionately to show the relationship
enhancing the group, the general population might need to between figures in the financial statements. Ratios are guides
know about the future operations of the organization. or shortcuts that are useful in evaluating a company‘s financial
position and operations and making comparisons with results
1.2 Ratio analysis in previous years or with other companies. The primary
Fundamental analysis has an exceptionally wide extension. purpose of ratio is to point out areas needing further
One perspective resembles a general (qualitative) factor of the investigation. They should be used in connection with a
organization. The opposite side considers unmistakable and general understanding of the company and its environment.
quantifiable components (quantitative).this implies crunching (Needles et al., 1996) [14].
and analyzing numbers from the budgetary proclamation. In Thus, Lasher (1997) [13] noted are most meaningful when used
the event that utilized as a part of conjunction with other in comparison. For that reason, it is difficult to make a
methods, quantitative examination can deliver phenomenal generalization about with a good or acceptable value is for any
results. particular figure. One measure alone does not tell the whole
Proportion investigation isn't simply comparing distinctive story about a company and one measure should never be the
numbers from balance sheet, wage proclamation and income sole basis for a financial decision”.
explanation. Its contrasting the numbers against earlier years, Hermanson et al. (1992) [11] added: “standing alone, a single
different organizations, the industry or even the economy in financial ratio may not be informative. Greater insight can be
general. ratio take a gander at the connections between obtained by computing and analyzing several related ratios for
personal qualities relate them to how an organization a company”.
performed before, and may be later on. According to Dansby et al. (2000) [2] “Liquidity is the ability
of a business to meet its financial obligations as they fall due”.
Meaning of the ratios One the other hand, Needles et al. (1996) [14] defines liquidity,
A proportion is one figure express as far as another figure. It is as “a company’s ability to pay bills when they are due and to
a mathematical measuring stick that measures the relationship meet unexpected needs of cash”.
of two figures, which are identified with each other and Liquidity ratios can be divided into two – short-term liquidity
commonly free. Proportion is express by partitioning one (solvency) ratios. However, for the purpose of this study,
figure by the other related figure. accordingly a proportion is liquidity Ratios refers to short-term liquidity ratios while Debt
an expression relating one number to another. its essentially management Ratios refer to long-term liquidity ratios.
the remainder of two numbers. It can be communicated as a Liquidity ratios (short-terms solvency ratios) are of particular
division or as a decimal or as an immaculate proportion or in concern to short-term lenders and suppliers who provide
supreme figures as such a variety of times. products and services to the firm on credit. They want to be
sure the company has the ability to pay its debts. (Lasher,
Meaning of ratio analysis 1997) [13]. Liquidity Ratios include Current Ratio and Quick or
Proportion examination is the way toward deciding and Acid Test Ratio
deciphering numerical connections in light of budgetary Profitability and solvency are the two primary objectives of
proclamations. A proportion is a factual measuring stick that any business. Profitability is the ability of a business to earn
gives a measure of the relationship between two factors or profit, and solvency is the ability of a business to pay back
figures. This relationship can be communicated as a percent or their debts as they come due. (Hermanson et al, 1992) [11].

933
International Journal of Academic Research and Development

According to Igben (1999) [12], “Accounting {or financial} production of stores.

ratio is a proportion or fraction or percentage expressing the
relationship between one item in a set financial statements and
another item in the financial statements. Accounting ratios are
the most powerful of all tools used in analyzed and
interpreting financial statements”. Therefore, ratio analysis b. Operating Profit Margin Ratio: This proportion measures
involves taking stats of number (or items) out of financial the extent of an enterprise's. Cost of offers and working costs
statements and forming ratios with them, to enhance informed in contrast with its deals". Working Ratio is an estimation of
judgments and decisions (Lasher, 1997) [13]. the proficiency and productivity of the business endeavor.
Decision-making calls information. Bittel et al. (1984) [8]
observed: “Managers want information because they need to
make decisions. The proper use of information is an important
part of decision-making.” Remarkably, one of the effective
c. Net Profit Margin Ratio: This proportion measures the rate
ways of providing information needed for decision-making is
of net benefit earned on deals. It helps in deciding the general
ratio analysis.
productivity of the business operation. An expansion in the
proportion over the earlier year demonstrates change in the
3. Research Methodology
general effectiveness of the business.
Data Collection
We have collected the data (Balance Sheets and Income
Statements) of Nestle and Britannia for 5 Years from 2011 to
2015.
3. Activity Ratios: These proportions are figured on the
Data Analysis
premise of 'cost of offers' or 'deals'; hence, these proportions
We have analyzed the downloaded data by using financial
are likewise called as 'Turnover Ratios'. Turnover shows the
ratio analysis.
speed or number of times the capital utilized has been pivoted
In Financial ratio analysis the ratios may be classified into the
during the time spent working together. Turnover proportions
four categories as follows;
incorporate the accompanying
1. Liquidity Ratios: "Liquidity" is the capacity of the firm to
a. Inventory Turnover Ratio: It is computed by dividing the
meet its present liabilities. The "liquidity ratio", consequently,
cost of goods sold by average inventory. It measures the
are additionally called 'short term Solvency Ratios.' These
relationship between the cost of goods sold and the inventory
ratios are utilized to survey the short-term money related
level.
position of the company. They show the company's capacity
to meet its present commitments out of current assets.
Liquidity ratios include two ratios: -
a. Current Ratio: The ratio is utilized to survey the company's
capacity to meet its short-term liabilities on time. It is by and b. Debtors Turnover Ratio: This ratio indicates the
large trust that 2:1 ratios demonstrate a comfortable to relationship between credit sales and average debtors during
liquidity position. the year.

b. Quick Ratio: Quick or Acid Test indicates whether the firm 4. Solvency Ratios: These proportions are figured to evaluate
is in a position to pay its current liabilities within a month or the capacity of the organizations to meet its long haul
immediately. An ideal acid test ratio is said to be 1:1. liabilities as and when they end up noticeably due. Long haul
lenders including debenture holders are fundamentally
intrigued to know whether the organization has capacity to
pay frequently enthusiasm because of them and to reimburse
the vital sum when it ends up noticeably due. Dissolvability
2. Profitability Ratios: The principle question of all the
proportions incorporate the accompanying proportions:
business concerns is to earn profit. Prof it is the estimation of
a. Debt-Equity Ratio: This, proportion sets up connection
the productivity of the business. Value investors of the
between the outside long haul liabilities and proprietors'
organization are essentially keen on the profitability of the
assets. It demonstrates the extent of long haul External
organization. Profitability ratios include the following: a.
Equities and Internal Equities i.e. extent of assets gave by long
Gross Profit Margin Ratio: This proportion measures the edge
haul loan bosses and that gave by investors or proprietors
of benefit accessible on deals. The higher the gross benefit
proportion, the better it is. No perfect standard is settled for
this proportion; however the gross benefit proportion ought to
be sufficiently satisfactory to cover the working costs as well
as to accommodate devaluation, Interest on credits, profits and b. Debt Ratio: is a monetary proportion that demonstrates the

934
International Journal of Academic Research and Development

level of an organization's advantages that are given by means

of obligation. It is the proportion of aggregate obligation (the
whole of current liabilities and long haul liabilities) and
aggregate resources (the entirety of current resources, settled
resources, and different resources, for example, “Goodwill”).

4. Data Analysis and Interpretation

Table 1: Current ratios of Nestle and Britannia for 2011-2015

Year Nestle Britannia
2015 0.55 1.00 Source: Researcher’s database
2014 0.54 0.84
2013 0.65 0.79 Fig 2: Quick ratios of Nestle and Britannia for 2011-2015
2012 0.54 0.70
2011 0.55 1.54 From the above analysis, we can view that in 2011 the quick
Source: Researcher’s database ratio were 0.27 times in nestle India ltd. It was fluctuating year
to year on the other hand Britannia ltd company in 2011 is
0.86 its also fluctuating its year to year. Both companies are
showing fluctuating results for quick ratio because these
figures also showing these situation.

Table 3: Debt to equity ratio Nestle and Britannia for 2011-2015

Year Nestle Britannia
2015 0.01 0.01
2014 0.01 0.01
2013 0.50 0.31
2012 0.58 0.05
2011 0.76 0.95
Source: Researcher’s database

Source: Researcher’s database

Fig 1: Current ratios of Nestle and Britannia for 2011-2015
From the above analysis, we can see that in 2011 the present
proportions were 0.55 times in nestle India ltd. It was
diminishing the following year. Then again, Britannia ltd
Company in 2011 was 1.54. It was additionally diminishing
one year from now. So we comprehend that both sustenance
area organizations are not performing great in regard of
current proportion as perfect current proportion is 2:1 and
deviation from the perfect proportion is more for both the
organizations. Source: Researcher’s database

Table 2: Quick ratios of Nestle and Britannia for 2011-2015 Fig 3: Debt to Equity Ratios of Nestle and Britannia for 2011-2015

Year Nestle Britannia Ideal ratio for debt equity ratio is 2:1. For nestle in year 2011
2015 0.25 0.70 is 0.76 and it is continuously decreasing till 2015. For
2014 0.25 0.46 Britannia in year 2011 is 0.95 and it is fluctuating for the rest
2013 0.39 0.58 of the years till 2015. The overall situation for both the
2012 0.22 0.36 companies is not good as there is great deviation from the
2011 0.27 0.86 ideal ratio.
Source: Researcher’s database

935
International Journal of Academic Research and Development

Table 4: Total assets to debt ratio Nestle and Britannia for 2011-2015
Year Nestle Britannia
2015 0.25 0.70
2014 0.25 0.46
2013 0.39 0.58
2012 0.22 0.36
2011 0.27 0.86
Source: Researcher’s database

Source: Researcher’s database

Fig 4: Total assets to debt ratio Nestle and Britannia for 2011-2015

There is no ideal ratio but higher the ratio, better for the From the above analysis we can observe that in 2011 ratio is
company. Ratio for Nestle in the year 2011 is 0.27 and it is 10.49 for nestle and it is fluctuating between 10 to 13 for rest
fluctuating for the rest of the years till 2015. And for Britannia of the years till 2015.For Britannia it is continuously
in the year 2011 is 0.86 and same fluctuating for the rest of the increasing from 2011 till 2015.This ratio should not be so high
years till 2015.The overall situation for the company is not or so low it should be just an average number. The overall
good. When comparing both the companies Britannia is in situation for both the companies is OK.
better position as compared to Nestle.
Table 6: Debtor / Receivable Turnover Ratio Nestle and Britannia
Table 5: Stock / Inventory Turnover Ratio of Nestle and Britannia for 2011-2015
for 2011-2015
Year Nestle Britannia
Year Nestle Britannia 2015 92.11 115.12
2015 10.33 21.24 2014 107.49 96.44
2014 12.06 17.19 2013 105.92 86.89
2013 12.80 16.94 2012 82.12 90.94
2012 11.55 13.17 2011 84.10 87.13
2011 10.49 13.57 Source: Researcher’s database
Source: Researcher’s database

Source: Researcher’s database

Source: Researcher’s database
Fig 6: Debtor / Receivable Turnover Ratio Nestle and Britannia for
Fig 5: Stock / Inventory Turnover Ratio of Nestle and Britannia for 2011-2015
2011-2015

936
International Journal of Academic Research and Development

The above ratio depicts how rapidly credit sales are converted Nestle in the year 2011 is 3.87 and from then it is
into cash. The higher ratio is better for the company. For continuously fluctuating till 2015 on the other hand for
Nestle and Britannia both ratio is fluctuating between 80 Britannia it is continuously increasing till 2015. For nestle the
to120. Overall situation for both the companies is good. situation is not in favor as it is decreasing but for Britannia the
situation is good as graph is increasing but if we compare both
Table 7: Gross Profit Ratio Nestle and Britannia for 2011-2015 the companies Nestle is better than Britannia.
Year Nestle Britannia
2015 14.17 9.11 Table 9: Net Profit Ratios of Nestle and Britannia for 2011-2015
2014 17.19 8.45 Year Nestle Britannia
2013 17.77 5.59 2015 6.88 8.67
2012 18.57 4.66 2014 12.02 5.86
2011 18.17 3.14 2013 12.27 4.16
Source: Researcher’s database 2012 12.81 3.75
2011 12.79 3.44
Source: Researcher’s database

Source: Researcher’s database

Fig 7: Gross Profit Ratio Nestle and Britannia for 2011-2015
Source: Researcher’s database
There is no ideal ratio but higher the ratio better it is. For Fig 9: Net Profit Ratios of Nestle and Britannia for 2011-2015
Nestle in the year 2011 is 18.17 and from then it is
continuously decreasing till 2015 on the other hand for There is no ideal ratio but higher the ratios better it is. For
Britannia it is continuously increasing till 2015. For nestle the Nestle in the year 2011 is 12.79 and from then it is decreasing
situation is not in favor but for Britannia the situation is good. continuously till 2015 on the other hand for Britannia it is
When comparing both the companies Nestle is in better continuously increasing till 2015. For nestle the situation is
position as compared to Britannia. not in favor but for Britannia the situation is good. When
comparing both the companies Nestle is in better position as
Table 8: Operating Profit Ratio Nestle and Britannia for 2011-2015 compared to Britannia
Year Nestle Britannia
Table 10: Returns on Investment Ratio of Nestle and Britannia
2015 19.01 10.75
2014 20.61 9.45 Year Nestle Britannia
2013 21.39 6.61 2015 14.57 9.00
2012 21.90 5.61 2014 17.04 8.40
2011 20.21 3.87 2013 17.61 5.54
Source: Researcher’s database 2012 18.50 4.60
2011 18.11 5.58
Source: Researcher’s database

Source: Researcher’s database

Fig 8: Operating Profit Ratios of Nestle and Britannia for 2011-2015
Source: Researcher’s database
There is no ideal ratio but higher the ratio better it is. For Fig 10

937
International Journal of Academic Research and Development

In this analysis we can observe that in 2011 ratio is 18.11 for in performing awesome according to their extents. so
nestle and it is decreasing for rest of the years till 2015.For Britannia has growing awesome turnover however settle not
Britannia it is fluctuating from 2011 till 2015.This ratio extraordinary in extending its turnover.
depicts the return on capital employed the higher the ratio the In advantage extent the position of Britannia is awesome its
better is the position. The overall situation for Nestle is not Ok continually growing in its benefit of an association however as
on the other hand for Britannia is it OK. settle shows OK execution in its examination So, both
associations demonstrates their execution by their extents
5. Future prospects/Conclusion examination and we know the genuine position of both the
Key future prospects associations.
Grocery store deals will extend at a much higher rate than
other retail arranges. This is on account of more prominent 7. References
number of higher pay Indians will like to shop at general 1. companies-profiles.blogspot.com/2009/08/nestle-
stores in light of accommodation, higher gauges of india.html
cleanliness, and alluring feel. 2. Dansby, Robert l., Burton s. Kaliski, annd Michael D.
1. It is normal that natural product utilization will increment Lawrence. Paracligin college Accounting. 4th ed. st paul,
at a CAGR of 4.33% for the period spreading over from MN: paradigm publishing Inc, 2000.
2007-2011, most astounding among all the sustenance 3. https://www.cleverism.com/financial-statement-analysis-
items taken in this report. introduction/
2. The handled sustenance market is the primary center for 4. https://www.crfonline.org/orc/cro/cro-7.html
remote organizations as this section is immature and 5. www.business-standard.com › Companies › Company
presents colossal potential for development. The Overview
development of present day, sorted out retailing — as 6. www.investopedia.com/university/ratio-analysis/
opposed to the stands and little shops from which Indians 7. www.Moneycontrol.com
have been buying nourishment generally — will likewise 8. Bittel, lester R, Ronald Burke S, Lawrence R. Lanf orge.
build the interest for esteem included sustenances. An Introduction to business: Business in Action 2nd ed.
3. Rising family wages, expanding urbanization, changing New York: Mc Graw Hill Book company.Boston, MA:
ways of life and the quick development of the private-part Richard D. Irwon, Inc, 1984.
and dairy-handling industry ought to prompt more 9. Chien‐Ta Ho, Dauw‐Song Zhu. Performance
noteworthy interest for esteem included, drain based items, measurement of Taiwan's commercial banks,
for example, prepared cheddar, table spread and frozen International Journal of Productivity and Performance
yogurt. Management. 2004; 53(5):425-434.
4. Rising livelihoods will make angle more reasonable for a https://doi.org/10.1108/17410400410545897
bigger portion of the populace. It is normal that the 10. Gopinathan T. Financial ratio analysis for performance
utilization per head will increment at a CAGR of 3.45% check, 2009. http://suite101.com/article/financial-ratio-
for the estimated period. analysis-for-performancecheck-a109025.
5. The development rate of soda pop deals will decelerate 11. Hermanson, Roger H. James Don Edwards and Michael
amid the determined period because of pesticide tainting W. Maher. Accounting principles. 5th ed, 1992.
issues and developing notoriety of natural product juice 12. Igben, Robert O. Financial Accounting made simple.
drinks and filtered water. Lagos: Rol publishers, 1999.
6. Coffee utilization is probably going to extend at a quick 13. Lasher, William R. Advanced financial Accounting. 5th
rate amid the estimated period. It is normal that it will ed. London: pitman publishing co, 1997.
increment at a CAGR of 10.05% for the period spreading 14. Needles, Belverd E, et al. Principles of Accounting. 6th
over from 2007-2011. ed. Boston: Houghton Miffin company, 1996.

6. Conclusion
In this we do the extent examination of two packaged
sustenance division associations Nestle and Britannia they are
both awesome performer associations. By extent examination
we indentify the genuine position of an association. We can
understand what the point of confinement of an association to
pay its long too a transient duties and the benefit status of an
association.
In liquidity extent we understand that the liquidity position of
an association is terrible at all its extent are decreasing in both
associations and they are not in immaculate extent
In solvency extent we understand that the utmost of the
relationship to pay its long tem duties is terrible as its exhibit
its fluctuating results in both the associations.
In real life/turnover extent its exhibit that Britannia has
incessantly growing in thier extents where as settle is terrible

938