UNIVERSITI MALAYSIA SABAH

LABUAN INTERNATIONAL CAMPUS

GT00103 – PRINCIPLES OF ACCOUNTINGGROUP ASSIGMENT

Prepared for : SIR AZLAN ZAINOL ABIDIN

Prepared by :

No. Name Matric Number1. Afif Fakrudin Bin Safidar BG121100062. Ummi Norasyidah Binti Mohd Salleh BG101105343. Adzrin Bin Muhajim BG101605784. Ibnihar Bin Amat BG091103835. Sitiza Binti Abdullah BG09110489

INTRODUCTION

Nestle

Who never heard this company before? Nestle become a biggest company that supply food

and beverage in the world especially in Malaysia. Many of their product we have consumed

everyday. As an example is Nescafe. And many product is under this company commercially

sold in market. About to know this company, Nestle (Malaysia) Berhad is an investment holding

company. The Company has two segments: Food and beverages and Others, which include

Nutrition and Nestle Professional. Its products are categorized into coffee and beverages,

culinary aids/prepared foods, milks, liquid drinks, junior foods, breakfast cereals, chilled dairy,

ice cream, chocolate and confectionery, healthcare nutrition, performance nutrition and Nestle

professional. The Company is the regional manufacturer for infant cereal. The Company’s

subsidiaries include Nestl Products Sdn. Bhd., Nestle Manufacturing (Malaysia) Sdn. Bhd.,

Nestle Asean (Malaysia) Sdn. Bhd. and Nestle Foods (Malaysia) Sdn. Bhd.

Activities

Based on Nestle Malaysia Annual report, the activities of Nestle Malaysia can be divided into

name of subsidiary such as Nestle Products Sdn.Bhd, Nestle Manufacturing (Malaysia) Sdn. Bhd,

and Nestle Foods (Malaysia) Sdn. Bhd. This entire subsidiary has own principal activities. These

activities are as follows:-

1.Nestle Products Sdn. Bhd

The principal activities of this subsidiaries is marketing and sales of ice-cream, powdered

milk and drinks, liquid milk and juices, instant coffee and other beverages, chocolate

confectionery products, instant noodles, culinary products, cereals, yogurt and related

products. The effective ownership interest is 100% in 2011 and 2010.

2.Nestle Manufacturing (Malaysia) Sdn.Bhd and sales

The activities of Nestle manufacturing including the manufacturing and sales of ice-

cream, powdered milk and drinks, liquid milk and juices, instant coffee and other beverages,

instant noodles, culinary products, cereals, yogurt and related products. The effective

ownership interest is 100 % for year 2010 and 2011.

3.Nestle Foods (Malaysia) Sdn. Bhd

The Food Business continued to sustain strong growth driven by its core categories

within noodles, stocks, seasoning and sauces, supported by investments in consumer

engagements and renovations. The Me and My MAGGI Campaign promoted tasty and balanced

preparation of MAGGI noodles with fresh eggs, meat and vegetables, which was supported by

the launch of a new packaging with noodle recipe suggestions. Consumers were also

encouraged to share their unique recipes through a digital campaign. The effective ownership is

inactive in year 2010 and 2011.

FINANCIAL STATEMENT ANALYSIS

Accounting analysis is one of the most common techniques for accounting analysis is calculating

rations from the data to compare with those of other companies or with the past performance of

the company. For instance, return on assets as well as a measure of its profitability.1

Financial statement analysis applies analytical tools to general-purpose financial statements and

related data for making business decisions. It involves transforming accounting data into more

useful information. Financial statement analysis reduces reliance and hunches, guesses, and

intuition as well as uncertainty in decision making.2

Advantages of Financial Statement Analysis

i Provides an idea to the investor about deciding on investing their funds in a particular

company.

ii The regulatory authorities can ensure the company following the required accounting

standard.

iii Helpful to the government in analyzing the taxation owe to the firm.

iv The company is able to analyze its own performance over a specific time period.3

Comparative Statements

Comparing financial statements over relatively short period (two to three years) is often done by

analyzing changes in line items.4 A change analysis usually includes analyzing absolute Ringgit

Malaysia (RM) amount changes and percent changes. Both analyses are relevant because RM

changes can yield large percent changes inconsistent with their importance. Reference to Ringgit

Malaysia is necessary to retain a proper perspective and to assess the importance of changes. We

compute the Ringgit Malaysia change for a financial statement item as follows:

1 Investopedia dictionary2 Financial Accounting INFORMATION FOR DECISIONS by John J. Wild and Winston Kwok, page 5203 http://www.readyratios.com/reference/analysis/financial_statement_analysis.html4 Financial Accounting INFORMATION FOR DECISIONS by John J. Wild and Winston Kwok, page 523

Ringgit Malaysia (RM )change=analysis period amount−base period amount

Analysis period is the point or period of time for the financial statements under analysis, and

base period is the point or period of time for the financial statements used for comparison

purposes. The prior year is 2010 for the Financial Statement of Nestle Malaysia Berhad

Company. We compute the percent change by dividing the Ringgit Malaysia change by the base

period amount and then multiplying this quantity by 100 as follows:

Percent change ( %)=analysis period amount−base period amountbase period amount

×100

COMPARATIVE BALANCE SHEETS

NESTLE MALAYSIA BERHADComparative Balance Sheets

For The Year Ended December 31, 2010 and December 31, 2011

Group Group

2011RM ‘000

2010RM ‘000

RM Change

Percent Change

Assets Property, plant and equipment 889, 741 897, 505 (7, 764) (0.87) Goodwill 61, 024 61, 024 0 0 Investment in subsidiaries - - - Investment in an associate 3, 210 3, 189 21 0.66 Deferred tax assets 9, 482 10, 441 (959) (9.18) Trade and other receivables 23, 802 22, 653 1, 149 5.07TOTAL NON-CURRENT ASSETS 987, 259 994, 812 (7, 553) (0.76)

Trade and other receivables 444, 854 354, 303 90, 551 25.56 Inventories 517, 573 380, 539 137, 034 36.01 Current tax assets 176 344 (168) (48.84) Cash and cash equivalent 52, 461 48, 683 3, 778 7.76TOTAL CURRENT ASSETS 1, 015, 064 783, 869 231, 195 29.49TOTAL ASSETS 2, 002, 323 1, 778, 681 223, 642 12.57

Equity 234, 500 234, 500 0 0

Share capital Reserves 10, 560 37, 016 (26, 456) (71.47) Retained earning 395, 800 341, 820 53, 980 15.79TOTAL EQUITY ATTRIBUTLE TO OWNERS OF THE COMPANY

640, 860 613, 336 27, 524 4.49

Liabilities Loans and borrowings 337,711 326, 298 11, 413 3.50 Employee benefits 42, 316 42, 537 (221) (0.52) Deferred tax liabilities 66,696 75, 595 (8, 899) (11.77)TOTAL NON-CURRENT LIABILITIES 446, 723 444, 430 2, 293 0.52 Loans and borrowings 4, 223 87, 256 (83, 033) (95.16) Trade and other payables 878, 321 623, 269 255, 052 40.92 Taxation 32, 196 10, 390 21, 806 209.87TOTAL CURRENT LIABILITIES 914, 740 720, 915 193, 825 26.89TOTAL LIABILITIES 1, 361, 463 1, 165, 345 196, 118 16.83TOTAL EQUITY AND LIABILITIES 2, 002, 323 1, 778, 681 223, 642 12.57

According to the comparative balance sheets, it shows that the inventories increase up to 36.01% from

2010 to 2011. The difference between the amounts of inventories for Nestle Malaysia Berhad in 2011

compared in year 2010 is RM137, 034. The total asset in 2011 shows the positive growth to 12.57%

compared with the year 2010 from RM1, 778,681 to RM 2,002,323.

But, in equity shows the decrease of reserve to RM26, 456 for Nestle Malaysia Berhad in the year 2010

to the year 2011. In total, the equity and the liabilities have increase to 12.57% from RM 1, 778, 681 to

RM 2, 002, 323. The difference between equity and liabilities in year 2010 and 2011 is RM 223, 642.

COMPARATIVE INCOME STATEMENTS

NESTLE MALAYSIA BERHADComparative Income Statements

For the Year Ended December 31, 2010 and December 31, 2011

Group Group

2011RM ‘000

2010RM ‘000

RM Change

Percent Change

Revenue 4, 700, 994 4, 026, 319 674, 675 16.76

Cost of goods sold (3, 158, 877) (2, 682, 027) 476, 850 17.78

Gross profit 1, 542, 117 1, 344, 292 197, 825 14.72

Other income 1, 595 736 859 116.71

Distribution and selling expenses (828, 947) (749, 794) 79, 153 10.56

Administrative expenses (128, 711) (95, 576) 33, 135 34.67

Other expenses (6, 626) (12, 167) (5, 541) (45.54)

Results from operating activities 579, 428 487, 491 91, 937 18.86

Finance income 458 35 423 1, 208.57

Finance cost (21, 398) (21, 669) (271) (1.25)

Net finance (costs)/income (20, 940) (21, 634) (694) (3.21)

Share of profit/ loss of an equity accounted associate, net of tax

321 (113) 208 184.07

Profit before tax 558, 809 465, 744 93, 065 19.98

Income tax expense (102, 508) (74, 346) 28, 162 37.88

Profit for the year 456, 301 391, 398 64, 903 16.58

Other comprehensive (expense)/ income, net of tax

Cash flow hedge (26, 456) 4, 125 22, 331 541.36

Defined benefit plan actuarial (losses)/ gains

(3, 671) 2, 384 1, 287 53.98

Other comprehensive (expenses) /income for the year , net of tax

(30, 127) 6, 509 23, 618 362.85

Total of comprehensive income for the year

426, 174 397, 907 28, 267 7.10

Basic and diluted earnings per ordinary share (sen)

195 167 28 16.77

Nestle Malaysia Berhad has modest revenue growth of 16.76% in 2011. This finding helps support

management’s expansion strategy as reflected in the comparative balance sheets. Nestle Malaysia

Berhad shows their ability to control cost of goods sold, which increase 17.78%. Nestle Malaysia Berhad

net income decrease 3.21% on revenue growth of 16.76% is good.

RATIO ANALYSIS

Below are the analysis of the ratio of Nestle Malaysia Berhad for 2011 and 2010. (For the

calculation, refer to the APPENDIX).

Liquidity and Efficiency Ratio

Financial Ratio 2011 2010

Current ratio 1.110 1.087

Acid-test ratio 0.54 0.56

Account Receivable

Turnover

11.76 times 10.08 times

Inventory Turnover 7.034 times 5.973 times

Days sales uncollected 34.5 days 32.1 days

Days sales in inventory 59.80 days 51.79 days

Total asset turnover 2.49 times 2.13 times

Solvency Ratio

Financial Ratio 2011 2010

Debt Ratio 67.99% 65.52%

Equity Ratio 32.00% 34.48%

Debt to Equity Ratio 212% 190%

Profitability Ratio

Financial Ratio 2011 2010

Profit Margin Ratio 9.71% 9.72%

Gross Margin Ratio 32.80% 33.39%

Return on assets 24.14% 20.70%

Return on common

stockholders’ equity

72.74% 62.41%

Trend Analysis

Trend analysis, also called trend percent analysis or index number trend analysis is a form of horizontal

analysis that can reveal patterns in data across successive periods. In a trend analysis, the financial

statements of the company are compared with each other for the several years after converting them in

the percentage.

Specifically, a trend percent is compute as follows5:

trend percent (% )= Analysis peri od amountBase period amount

×100

Nestle Malaysia Berhad data;

The trend percents;

2011

RM ‘000

2010

RM ‘000

2009

RM ‘000

2008

RM ‘000

2007

RM ‘000

TURNOVER 4 ,700 ,9943 ,416 ,028

×100=137.62 %4 ,026 ,3193 ,416 ,028

×100=117.87 %3 ,744 ,2333 ,416 ,028

×100=109.61 %3 ,877 ,0683 ,416 ,028

×100=113.50 %3, 416, 028= 100%

5 Financial Accounting INFORMATION FOR DECISIONS by John J. Wild and Winston Kwok, page 525

The base period is 2007 and the trend percent is computed in each subsequent year by dividing that

year’s amount by its 2007 amount. For instance, the sales trend percent for 2011 is 137.62%.

2007 2008 2009 2010 20110

20

40

60

80

100

120

140

160

turnover (%)

turnover (%)

Trend analysis has a great advantage that it can used to predict the future events. This is possible by

forecasting the future cash flow based on data available in the past. With the help of trend analysis, we

can predict and track the variances to add performance. Trend analysis is apart from investment and

financial data of the company useful tool that can be used effectively for the projection. This allows the

company to conduct market research and draw trend to forecast the demand of difference product and

help in marketing purpose to select the right marketing approaches to address the issue.

Common-Size Statements

Common-size financial statements are to reveal changes in the relative importance of each financial

statement item. All individual amounts in common-size statements are redefined in terms of common-

size percents. A common-size percent is measured by dividing each individual financial statement

amount under analysis by its base amount:6

common−s ize perent (%)=analysisamountbase amount

×100

6 Financial Accounting INFORMATION FOR DECISIONS by John J. Wild and Winston Kwok, page 527

COMMON-SIZE BALANCE SHEETS

NESTLE MALAYSIA BERHADCommon-Size Comparative Balance Sheets

For The Year Ended December 31, 2010 and December 31, 2011

Group Common-size percents

2011RM ‘000

2010RM ‘000

2011 2010

Assets Property, plant and equipment 889, 741 897, 505 44.4% 50.5% Goodwill 61, 024 61, 024 3.0% 3.4% Investment in subsidiaries - - - - Investment in an associate 3, 210 3, 189 0.2% 0.2% Deferred tax assets 9, 482 10, 441 0.5% 0.6% Trade and other receivables 23, 802 22, 653 1.2% 1.3%TOTAL NON-CURRENT ASSETS 987, 259 994, 812 49.3% 55.9%

Trade and other receivables 444, 854 354, 303 22.2% 19.2% Inventories 517, 573 380, 539 25.8% 21.4% Current tax assets 176 344 0.1% 0.1% Cash and cash equivalent 52, 461 48, 683 2.6% 2.7%TOTAL CURRENT ASSETS 1, 015, 064 783, 869 50.7% 44.1%TOTAL ASSETS 2, 002, 323 1, 778, 681 100.0% 100.0%

Equity Share capital 234, 500 234, 500 11.7% 13.2% Reserves 10, 560 37, 016 0.5% 2.1% Retained earning 395, 800 341, 820 19.8% 19.2%TOTAL EQUITY ATTRIBUTLE TO OWNERS OF THE COMPANY

640, 860 613, 336 32.0% 34.5%

Liabilities Loans and borrowings 337,711 326, 298 16.9% 18.3% Employee benefits 42, 316 42, 537 2.1% 2.4% Deferred tax liabilities 66,696 75, 595 3.3% 4.3%TOTAL NON-CURRENT LIABILITIES 446, 723 444, 430 22.3% 25.0% Loans and borrowings 4, 223 87, 256 0.2% 4.9% Trade and other payables 878, 321 623, 269 43.9% 35.0% Taxation 32, 196 10, 390 1.6% 0.6%TOTAL CURRENT LIABILITIES 914, 740 720, 915 45.7% 40.5%TOTAL LIABILITIES 1, 361, 463 1, 165, 345 68.0% 65.5%TOTAL EQUITY AND LIABILITIES 2, 002, 323 1, 778, 681 100.0% 100.0%

*percents are rounded to tenth and thus may not exactly sum to totals and subtotals.

Some relations that stand out on both a magnitude and percentage basis in Nestle Malaysia Berhad

includes;

i Property, plant and equipment decrease 6.1% as a percentage of assets

ii Trade and other receivable also inventory almost half of total assets.

iii A marked increase in current liabilities.

iv An increase in retained earning which is 0.6%.

Most of these changes are characteristic of a successful stable company. The concern, if any, is whether

Nestle Malaysia Berhad can continue to generate sufficient revenues and income to support its asset

buildup within a very competitive industry.

COMMON-SIZE INCOME STATEMENTS

NESTLE MALAYSIA BERHADCommon-Size Comparative Income Statements

For the Year Ended December 31, 2010 and December 31, 2011

Group Common-Size Percent

2011RM ‘000

2010RM ‘000

2011 2010

Revenue 4, 700, 994 4, 026, 319 100.0% 100.0%

Cost of goods sold (3, 158, 877) (2, 682, 027) 67.2% 66.6%

Gross profit 1, 542, 117 1, 344, 292 32.8% 33.4%

Other income 1, 595 736 0.03% 0.02%

Distribution and selling expenses (828, 947) (749, 794) 17.6% 18.6%

Administrative expenses (128, 711) (95, 576) 2.7% 2.4%

Other expenses (6, 626) (12, 167) 0.1% 0.3%

Results from operating activities 579, 428 487, 491 12.3% 12.1%

Finance income 458 35 0.001% 0.00%

Finance cost (21, 398) (21, 669) 0.5% 0.5%

Net finance (costs)/income (20, 940) (21, 634) 0.4% 0.5%

Share of profit/ loss of an equity accounted associate, net of tax

321 (113) 0.01% 0.002%

Profit before tax 558, 809 465, 744 11.9% 11.6%

Income tax expense (102, 508) (74, 346) 2.2% 1.8%

Profit for the year 456, 301 391, 398 9.7% 9.7%

Other comprehensive (expense)/ income, net of tax

Cash flow hedge (26, 456) 4, 125 0.6% 0.1%

Defined benefit plan actuarial (losses)/ gains

(3, 671) 2, 384 0.1% 0.1%

Other comprehensive (expenses) /income for the year , net of tax

(30, 127) 6, 509 0.6% 0.2%

Total of comprehensive income for the year

426, 174 397, 907 9.1% 9.9%

*percents are rounded to tenth and thus may not exactly sum to totals and subtotals.

The table shows common-size comparative income statements for each Ringgit Malaysia of Nestle

Malaysia Berhad sales. The past two years’ common size numbers are similar. The bad news is that

Nestle Malaysia Berhad has not been able to squeeze an extra 0.8 Ringgit Malaysia in earning sales RM.

This can be proved when on the year 2010; the percentage of sales is 9.9% and decrease to 9.1% in

2011. This implies that management is not effectively controlling cost and/or the company is not reaping

growth benefits. The horrible news is when the distribution and selling expenses and administrative

expenses has increase in the year of 2011. Analysis here shows that common-size percents for

successive income statement cannot cover the important changes in a company’s expenses.

CONCLUSION

Financial records of an organization that register all financial transactions, and must be kept at

its principal office or place of business. The purpose of these records is to enable anyone

to appraise the organization's current financial position with reasonable accuracy. Firms present

their annual accounts in two main parts: the balance sheet, and the income

statement (profit and loss account). The annual accounts of a registered or incorporated firm

are required by law to disclose a certain amount of information. And have to be certified by an

external auditor that they present a 'true and fair view' of the firm's financial affairs.

From the findings, Nestle Malaysia Berhad has modest revenue growth of 16.76% in 2011. This

finding helps support management’s expansion strategy as reflected in the comparative balance

sheets. Nestle Malaysia Berhad shows their ability to control cost of goods sold, which increase

17.78%. Nestle Malaysia Berhad net income decrease 3.21% on revenue growth of 16.76% can

be categorized as good. Analysis for common-size percents for successive shows income

statement cannot cover the important changes in a company’s expenses.

Here, we can see the main advantages of accounting are the accounting provides information to

the management to enable it to do its work properly. This information helps in planning, decision

making and controlling. Accounting reports can be analyzed to provide management with

financial information that can be used to run a business and plan ahead and make changes when

business is not going as expected. Besides, accounting was systematic record enables a business

to compare one year’s result with those of other years and locate significant factors leading to the

change if any. Data entered in an accounting system is venerable data. This accounting

information is unbiased because it is not opinions or wishes. Another advantage of accounting

information is reliable. If we have a question in any payable or receivable, report can show how

the number calculated.

Financial Ratio Analysis of Nestle Malaysia Berhad:

1. Liquidity and Efficiency Ratio

Category of Financial Ratios Year 2010(RM’000)

Year 2011(RM’000)

Current ratio = Current AssetsCurrent Liabilities

783,869720,915= 1.087

1,015,064914,740= 1. 11

Acid Test Ratio =Cash + short-term investment + current receivablesCurrent Liabilities

402,986720,915= 0.56

497,315914,740= .054

Account Receivable turnover= Net Sales________Average account receivable

4,026,319__(444,854+355,303)/2

10.08 times

4,700,994____(444,854+355,303)/2

11.76 times

Inventory Turnover=Cost goods of soldAverage inventory

2,682,027(517,573+380,539)/2

5.97 times

3,158,877____(517,573+380,539)/2

7.034 times

Days sales uncollected=Account receivable x 365 Net sales

354,303 x3654,026,31932.1 days

444,854 x3654,700,99434.5 days

Days sales in inventory=Ending inventory x 365Cost of goods sold

380,539 x 365 2,682,027

51.79 days

517,573 x 3653,158877

59.80 days

Total asset turnover=Net salesAverage total assets

4,026,319__(2,002,323+1,778,681)/2

2.13 times

4,700,994____(2,002,323+1,778,681)/2

2.49 times

Solvency Ratio

Category of Financial Ratios Year 2010(RM’000)

Year 2011(RM’000)

Debt ratio =Total liabilities

Total assets

1,165,3451,778,681

= 0.655 /65.5%

1,361,4632,002,323

= 0.6799/67.99%

Equity ratio=Total equityTotal assets

613,336 x1001,778,68134.48%

640,860 x1002,002,32332.00%

Debt to equity ratio=Total liabilities

Total equity

1,165,345613,336190%

1,361,463640,860212%

Profitability Ratio

Category of Financial Ratios Year 2010(RM’000)

Year 2011(RM’000)

Profit margin ratio=Net incomeNet sales

391,3984,026,319

9.72%

456,3014,700,994

9.71%Gross margin ratio=Net sales-cost of goods sold

4,026,319-2,682,0274,026,319

4,700,994-3,158,8774,700,994

Net sales 33.39% 32.80%Return on total assets=Net incomeAverage total assets

391,398(2,002,323+1,778,681)/2

20.70%

456,301(2,002,323+1,778,681)/2

24.14%

Return on common stockholders’ equity=Net income-preferred stockAverage common stockholders’ equity

391,398-0(640,860+613,336)/2

62.41%

456,301(640,860+613,336)/2

72.74%