QuestionsSelect a public company which is in the business of producing and marketing fast moving...

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QuestionsSelect a public company which is in the business of producing and marketing fast moving consumer goods (e.g. Unilever). Be sure to timely enlist the company of your choice with your teacher, as a company can only be used once in each class. The enlisting will be done on a first come, first served basis. To execute the tasks below consult the company’s annual report over the 3 year period 2017-2019. In addition to the requirements for each question, ensure to provide formulas, assumptions and models as appropriate. Analysis or conclusions which are not based on the applicable theory will consequently limit your marks.Task 1. Ratio analysis (30 marks) You are required to:I. Analyse the company’s consolidated financial statements over 2017-2019 using the following ratios as defined in the book (Financial Management for Decision Makers, Peter Atrill, 9th edition):A. 4 Profitability ratiosB. 5 Efficiency ratiosC. 2 Liquidity ratiosD. 2 Financial gearing ratios
II. Reflect on these ratio outcomes over the 3 year period, and provide your conclusions and recommendations to the Board.
Task 2. Sensitivity analysis (35 marks) Treat the figures in the 2017-2019 Income Statement and Balance Sheet of the company of your choice as if it were a 3 year prognosis. You are asked to execute a separate sensitivity analysis on the original figures as presented in the company’s annual report with each of the following 4 items:
A. Sales in each of the 3 years are 10% higher than currently “forecasted”; use the ‘percentof-sales’ methodB. Sales in each of the 3 years are 10% lower than currently “forecasted”; use the ‘percentof-sales’ methodC. Operating costs in each of the 3 years are 7% higher than currently “forecasted”D. Operating costs in each of the 3 years are 7% lower than currently “forecasted”
For each of the situations A, B , C , and D you are required to:I. Show the effects on the total 3-year Income Statements and Balance Sheets, including the effect on the required financing.
II. Discuss the implications of each of these effects with the Board and draw conclusions with respect to the main risks in the business over this “prognosis” period.

Task 3. Working capital analysis (20 marks) In this task you are also to assume that the figures in the 2017-2019 Income Statement and Balance Sheet of the company of your choice are a 3 year prognosis. Consider the following 6 deviations from the original figures :A. Trade receivables of each of the 3 years are 20% higher than currently “forecasted” B. Trade receivables of each of the 3 years are 20% lower than currently “forecasted” C. Trade payables of each of the 3 years are 30% higher than currently “forecasted”D. Trade payables of each of the 3 years are 15% lower than currently “forecasted”E. Inventories of each of the 3 years are 40% higher than currently “forecasted”F. Inventories of each of the 3 years are 20% lower than currently “forecasted”
You are required to:I. Discuss the effects of each of these 6 deviations on the operating cash cycle in all 3 years.
II. Provide recommendations to the Board on what the focus of their working capital management should be for each of the six (6) scenarios above.

Task 4. Capital structure analysis (15 Marks) Discuss the capital structure of the company over the years 2017-2019.You are required to:
I. Relate the term of the different sources of funds to the term of the different uses of funds.II. Provide a rationale for your conclusions for each of the ‘’term of sources and application (uses)of funds” based on the appropriate concepts used in capital budgeting.

Nitish Lath · Accepted Answer

Company Overview
The selected entity Nestle was formed in the year 1905 through the merger of the Anglo Swiss Milk entity formed in the year 1866. The selected entity is engaged in producing various products such as baby food, breakfast cereals, coffee, confectionary, dairy products, food for pets, ice-cream and other snacks. The entity is primarily listed on the SIX Swiss Exchange and it is element of the Swiss market index. The entity is having secondary listing in Euronext. This entity is considered as the most gainful business around the world (Annual report 2019). 
Task 1 Ratio Analysis
	 
	Profitability Ratio
	 
	2019
	2018
	2017
	 
	 
	 
	 
	 
	 
	1
	Net Profit margin
	Net Profit
	13.94%
	11.45%
	8.38%
	 
	 
	Sales
	 
	 
	 
	 
	 
	 
	 
	 
	 
	2
	Gross Profit margin
	Gross Profit
	49.61%
	49.62%
	49.13%
	 
	 
	Sales
	 
	 
	 
	 
	 
	 
	 
	 
	 
	3
	Return on asset
	Net Profit
	10.09%
	7.64%
	5.64%
	 
	 
	Asset
	 
	 
	 
	 
	 
	 
	 
	 
	 
	4
	Return on equity
	Net Profit
	24.41%
	17.92%
	12.07%
	 
	 
	Equity
	 
	 
	 
	 
	 
	 
	 
	 
	 
	 
	Efficiency Ratio
	 
	 
	 
	 
	 
	 
	 
	 
	 
	 
	1
	Asset Turnover ratio
	Sales
	0.72
	0.67
	0.67
	 
	 
	Total assets
	 
	 
	 
	 
	 
	 
	 
	 
	 
	2
	Inventory turnover ratio
	cost of goods sold
	4.99
	5.05
	4.97
	 
	 
	Total inventory
	 
	 
	 
	 
	 
	 
	 
	 
	 
	3
	Receivable turnover ratio
	Sales
	7.87
	8.19
	7.44
	 
	 
	Receivables
	 
	 
	 
	 
	 
	 
	 
	 
	 
	4
	Days receivable ratio
	365
	46.39
	44.58
	49.04
	 
	 
	Receivable turnover ratio
	 
	 
	 
	 
	 
	 
	 
	 
	 
	 
	Liquidity Ratio
	 
	 
	 
	 
	 
	 
	 
	 
	 
	 
	1
	Current Ratio
	Current asset
	0.86
	0.95
	0.83
	 
	 
	Current liability
	 
	 
	 
	 
	 
	 
	 
	 
	 
	2
	Quick Ratio
	Quick asset
	0.57
	0.61
	0.58
	 
	 
	Current liability
	 
	 
	 
	 
	 
	 
	 
	 
	 
	 
	 
	 
	 
	 
	 
	 
	Financial gearing ratio
	 
	 
	 
	 
	 
	 
	 
	 
	 
	 
	1
	Debt Equity Ratio
	Debt
	1.42
	1.35
	1.14
	 
	 
	Equity
	 
	 
	 
	 
	 
	 
	 
	 
	 
	2
	Debt to total asset ratio
	Debt
	0.59
	0.57
	0.53
	 
	 
	Total asset
	 
	 
	 
	 
	 
	 
	 
	 
	 
Analysis of the ratios of the entity
From the above ratio it is evident that the profitability of the entity has shown sharp rise over the period of three year and it is good indicator for the entity. Further the efficiency of the entity is also quite good with the slight variation over the period of three years. In addition to this the liquidity condition of the entity is not so good as the current ratio and quick ratio are less than one which states that the entity is not having the ability for the payment off its current obligation from current assets of the entity (O'Farrell, Renee 2021). Moreover, the entity is having more debt component as compared to equity in its capital structure which is evident from the debt equity ratio which makes it quite risky for the investors. It can be concluded that the overall condition of the entity is stable and which prosper in the coming future. It can be recommended to the management to focus on the solvency and liquidity condition by focusing more on the current assets and equity of the entity which will further strengthen the condition of the entity.
TASK 2
A. APPENDIX 1
	Details of financing required
	
	
	
	Particulars
	2019
	2018
	2017
	Sales if increased by 10%
	            8,984 
	            8,769 
	            9,121 
	Sales if decreased by 10%
	          (8,984)
	          (8,769)
	          (9,121)
	Operating costs if increased by 7%
	            2,913 
	            3,012 
	            2,673 
	Operating costs if decreased by 7%
	          (2,913)
	          (3,012)
	          (2,

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QuestionsSelect a public company which is in the business of producing and marketing fast moving consumer goods (e.g. Unilever). Be sure to timely enlist the company of your choice with your teacher,...

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