Business Analysis: Nestle and Dutch Lady

1. INTRODUCTION

In this assignment, we will be conducting a business analysis on two major corporations in the same industry. Nestle and Dutch Lady. The analysis will be based on the companies’ performance for both the years 2011 and 2012 and the data will be extracted from the companies’ financial reports.

2. PROFITABILITY

2.1 Return on ordinary shareholder’s fund (ROSF)

According to the chart above, there is an increase on Nestlé’s ROSF of 6.63%. Such that, in 2011 the ROSF was 65.36% while in 2012 was 71.99%. Analytically, in 2011 for every RM 1 of ordinary shares contributed, it was able to generate RM 65.36 on the net profit. While in 2012, for every RM 1 of the ordinary share, it was able to generate RM 71.99 on the net profit. However, according to the balance sheet, in 2012 the ordinary share capital (RM 751.2 million) was more than that of 2011 (RM 652.7 million). Actually, this is a great improvement experienced by Nestlé berhad of RM 98.5 million on the share capital have strong asset productivity, structure of finance and most importantly the business is growing, rapidly, (Sander & Haley, 2008).

However, on the other hand; Dutch Lady has also experience an increase in it ROSF. The ROSF increased by 4.58% from the year 2011 to 2012. Moreover, from the annual report on the financial summary (p. 4), it shows that Dutch Lady experience a decline in its shareholders’ funds from the 2011 (RM 259.2 million) to the 2012 (RM 216.1 million). Thus, the growth of ROSF was less affected by the decline in the shareholders’ funds.

2.2 Return on capital employed (ROCE)

ROCE refers to the net operating profit of a company to its capital employed, (Peavler, 2009).The chart above shows the return on capital e...

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...e liquidity ratio, most of Dutch Lady’s ratios decline in value (figure) from the financial year 2011 to 2012. From our point of view, the company was experiencing some liquidity problems. As recommend, b the company should decrease its borrowing and consider meeting its maturing obligations as soon as possible. Besides that, the company should increase its ability of generating cash from trading operation, as it is among the fast moving consumer good (FMCG) in Malaysia.

In conclusion, Nestle has been successively a good performance for the past two financial years. And from our recommendations, they will help the company perform even much better for the current financial year, and even other years to come. On the other hand, Dutch Lady should look closer to the conclusion that we draw, because they may help the company to perform effectively in terms of liquidity