GRADUATE SCHOOL OF MANAGEMENT

FINANCIAL MANAGEMENT AND POLICIES (FIN 6600)

Semester I, 2014/2015
FINANCIAL RATIO ANALYSIS
ASSET MANAGEMENT RATIO
DUTCH LADY & NESTLE CORPORATION
PREPARED BY :
MOHAMED MOHAMUD ADEN

G1325713

LI ZE YUAN

G1314146

PATCHAREEYA SOHHENG

G 1217086

FARAH YAZIT

G1319716

PREPARED FOR: BRO.ASRUL BIN DAHARI

Table of Contents

Introduction....1
Financial Ratio Analysis....3
1. Liquidity Ratios.. ..3
2. Assets Management Ratios.......5
3. Debt Management Ratios......9
4. Profitability Ratios...14
5. Market Value Ratios...............18
6. Working Capital Management...................................................23
7.
Trend Analysis
Nestle..
8.
Asset Management

Conclusion....25

Appendix
1. Balance Sheet Statement
2. Statement of Comprehensive Income
3.

Cash Flow Statement

4. Summary of Ratios
5. Ratio Calcultion
6.

Nestle Asset management calculation

INTRODUCTION
1. Company Background
Dutch Lady Milk Industries Berhad ("Dutch Lady Malaysia") is a leader in the quality
branded dairy business in Malaysia. It was incorporated in 1963, and was the first milk company
in Malaysia to be listed on Bursa Malaysia, the local Stock Exchange in 1968. Its holding
company is Royal FrieslandCampina, a Dutch multinational corporation and one of the largest
milk companies in the world. Permodalan Nasional Berhad is the second largest shareholder in
the Company. Dutch Lady Malaysia manufactures and sells a wide range of quality dairy
products and fruit juices for the home and export market such as Infant Formula, Growing-up
Milk, Powdered Milk, Condensed Milk, UHT Milk, Sterilised Milk, Pasteurised Milk, Cultured
Milk, Yoghurt and Fruit Juice Drinks. The Company's dairy products have a strong consumer
following and are represented by strong brands such as Dutch Lady, Frisolac, Friso, Completa,
Omela and Joy. The Company believes in product innovation and is well supported by its
holding company, Royal FrieslandCampina. The Company constantly strives to improve its
processes in order to deliver nutritious products of high quality to its consumers. It was the first
company in the world to introduce a growing up milk powder specifically formulated for
children from ages one to three. These products are currently marketed in Malaysia as Dutch
Lady 123 and Dutch Lady 456.Dutch Lady Malaysias annual revenue in 2009 is RM692
million. The Companys factory is located in Petaling Jaya and it employs 600 Malaysians.
2. Corporate Vision
To further strengthen our position as the leading dairy company, driving growth.
3. Corporate Mission
Helping Malaysians move forward in life with trusted dairy nutrition.
4. Products

Dutch Lady Milk Malaysia manufactures a wide range of dairy products and markets them
under the brand names of Dutch Lady and Friso.
4.1 Dutch Lady Brand
The Dutch Lady brand has different types of dairy products suitable for both children and
adults.
Children and Toddlers

Dutch Lady Langkah 1 and Langkah 2

Dutch Lady Growing Up Milk

Dutch Lady ActivGold

Dutch Lady Kid

For the Family

Dutch Lady Milk Powder

Dutch Lady UHT Milk

Dutch Lady Sterilised Milk

Dutch Lady Pasteurised Milk

Dutch Lady Chocolate Drink EzyMix

Dutch Lady Yoghurt

4.2 Friso Brand

Friso dairy products consist of maternal milk and growing up milk in powder form and
Frisolac is the infant products brand in powder and liquid form.

Frisolac Comfort
Frisolac 2

Friso Gold 3 and Friso Gold 4

5. Operations

Dutch Lady Malaysia maintains and improves processes through Good Manufacturing
Practices, Hazard Analysis Critical Control Point (HACCP) System and Quality Management
System (ISO 9001). Their effort towards the environment is embodied in the ISO 14001
Environment Management System, a systematic management approach towards the
environment.

FINANCIAL RATIO ANALYSIS

1. Liquidity Ratios
1.1. The Current Ratio
Year
Current ratio

2008
1.76

2009
2

2010
2.2

2011
2.39

2012
1.9

Figures and Graph of Current Ratio from 2008 2012

The above charts show Dutch Lady current ratios for the last five years starting from year
2008 to 2012, the company current ratio had increased continuously from year 2008 to 2011
which shows that Dutch Ladys ability to payback its short-term debts has been increasing and
good performance. This is because this company did not have long term debt borrowing in its
current liabilities, as shown in the companys balance sheet for the last five years. While the
current ratio had decreased in 2012 because total current liabilities is higher than other years and
5

this company also has high borrowing from trade payable as mentioned in balance sheet. In
addition, a high current ratio could indicate that too much money is tied up in current assets, for
example, giving customers too much credit.
From the current ratio we can conclude that overall performance for this company is in
good since liquidity ratios are greater than 1. They can quickly payback the debts and also this
company is at good financial health. Even though, the ratio had dropped in year 2012 but they
can still payback for the debts.
1.2 The Quick Ratio
Year
Quick ratio

2008
1.17

2009
1.41

2010
2.21

2011
1.7

2012
1.37

Figures and Graph of Quick Ratio from 2008 2012

The quick ratio offers another way to determine the adequacy of working capital. It is also
determined how companys financial strength and weakness as we see from short term liquidity.
Based on the above data, it shows that Dutch Lady quick ratio is more than the average quick
ratio of 1, additionally this can identify that Dutch Lady is quickly to convert its assets into cash
in short term period.
One of the major reasons that led to increase of Dutch Lady quick ratio is that in the
companys balance sheet, it shows that at the first three years, they did not borrow much.
6

Especially, they did not borrow in year 2010 which mean that the quick ratio is higher than other
years. Also the amount of inventories was increasing in 2011 and decreasing again in year 2012
In conclusion, from the above graph shown that Dutch Lady is able to get high profit revenue,
it can be seen that quick ratio is more than 1. Also this company is fast at convert its inventories
into cash.
2. Asset Management Ratios
2.1 The Average Collection Period (ACP)
The Average Collection Period represents the average number of days the firm takes to
collect its receivables. That is how long it takes to get paid on credit sales.
Year

2008

2009

2010

2011

2012

Average Collection Period

60.50

36.42

50.48

54.10

59.80

Figures and Graph of Average Collection Period from 2008 2012

The graph shows the number of collection period from 2008-2012.As can be seen from
the graph, there was the highest number in the year 2008 which was 60.5 days .This is because of
economic crisis starting the middle of 2007 and then continue into 2008 that affected the
company. Dutch Lady had problem in collecting their credit as 50% of its business. Then, the
7

average collection period continue to a good number in the year 2009, this was the most effective
with 36.42 days. On the other hand, there were increased significantly in the number of
collection period in the year 2010, 2011 and 2012, which were 50.48, 54.10 and 59.8
respectively. For overall rate and collection period in collecting their debts, it is not that bad, but
Dutch Lady must improve its credit policies to make it more efficient and to ensure that they are
not going to lose much money to bad debts.
2.2 The Inventory Turnover

Inventory turnover ratio indicates how many times during the year the company is able to sell
a quantity of goods equal to its average inventory. One thing that should be bear in mind is that,
the inventory turnover rate indicates how quickly inventory sells, but not how quickly this asset
converts into cash.
Year

2008

2009

2010

2011

2012

Inventory Turnover

7.03

8.04

6.16

5.42

6.17

Figures and Graph of Inventory Turnover from 2008 2012

From the graph, we can see that the inventory start with 7.03 in the year 2008.Then, it was
being at the highest in 2009 with 8.04 and continue to decrease in the year 2010 and 2011. It can
be seen that the number of Inventory turnover increased slightly in the year 2012 which was
8

6.17. For overall inventory turnover rate, Dutch Lady does not achieve the ideal turnover rate yet
because the number is fluctuated. However, it depends on the company whether it likes to
produce in large portion or just enjoy low margin of production. It is good to have high inventory
turnover rate as it generates more revenues and reduce the cost of maintaining the inventories. To
improve inventory turnover, consider reducing the quantity it normally buy from the supplier.
2.3 Fixed Asset Turnover
Fixed asset turnover shows the relationship between assets and sales. The fixed asset
turnover ratio measures a company's ability to generate net sales from fixed asset investments
and specifically property, plant and equipment (PP&E) and net of depreciation. A higher fixed
asset turnover ratio shows that the company has been more effective in using the investment in
fixed assets to generate revenues. The ratios are long-term measures of performance, which is of
primary interest to equity investors and stork market analysts.
Year

2008

2009

2010

2011

2012

Fixed Asset Turnover

10.63

7.93

9.70

10.95

11.88

Figures and Graph of Fixed Asset Turnover from 2008 2012

This graph indicates that the fixed asset turnover start at 10.63 in the year 2008 and then it
dropped significantly to 7.93 in the year 2009 because of fixed asset was very high RM 78,621
compare to other years. It can be clearly seen that the number of fixed asset turnover increased
9

continually from 2009 to 2012, which from 7.93 to 10.95 this is the highest number of the year.
For overall fixed asset turnover, this company is quite a good number because the number of
fixed asset turnover increased continually that means, Dutch Lady has been more effective in
using the investment in fixed assets to generate revenues.
2.4 Total Asset Turnover
The total asset turnover ratio measures the ability of a company to use its assets to generate
sales. The total asset turnover ratio considers all assets including fixed assets, like plant and
equipment, as well as inventory and accounts receivables.

Year

2008

2009

2010

2011

2012

Total Asset Turnover

2.45

2.46

2.31

3.13

2.30

Figures and Graph of Total Asset Turnover from 2008 2012

Referring to the graph, total asset turnover is the highest in 2011 which was 3.13, while the
rest were around 2.5. It can be seen that there were remain stable between 2008 and 2009, then it
slightly decreased in the year 2010. We can see that the total asset turnover in the year 2011 and
2013 were the same number which is 2.3. The overall of total asset turnover in this company is
not bad, but they have to improve the sales by increasing the utilization of assets or disposed
some of the unused assets.
10

3. Debt Management Ratios

Debt management ratios attempt to measure the firm's use of debts (financial leverage) and
ability to avoid financial distress in the long run. These ratios are also known as long-term
solvency ratios. These ratios are considered as a measure of the extent to which a firm uses
borrowed funds to finance its operations. Owners and creditors are interested in debt
management ratios because the ratios indicate the riskiness of the firm's position. With the use of
debt also comes the possibility of financial distress and bankruptcy.
3.1 The Debt Ratio
Deb ratio is determined how much the company in debts and also how good company in
managing its debts. It can identify how much companys asset can finance the debt which can see
from the balance sheet of Dutch Lady Company. This can be calculated from total liabilities
divided by total assets. In addition, it measures the level of riskiness of the company.
Year

2008

2009

2010

2011

2012

Debt Ratio

0.44

0.34

0.36

0.54

0.44

11

Figures and Graph of Debt Ratio from 2008 2012

The debt ratio of Dutch Lady has fluctuated from 2008 through 2012. In 2011 the company
was depending on loans for financing their assets. The graph shown that the debt ratio had
fluctuating in every year. In 2011 it is comparatively high. This ratio is also considered one of the
most important indicators of the efficiency of the company. The ratio was not very high in each
year because this company can manage their debt well in every year.
In sum up, overall performance for debt ratio is at good financial health since their assets are
greater than liabilities especially, in year 2010 the company did not make any borrowing from
others.
3.2 Debt to Equity Ratio
This ratio is a measure of the mix of debt and equity within the firms total capital. It is an
important measure of risk, because a high level of debt can burden the income statement with
excessive interest. This makes the firms profitability fragile in recessionary times. This ratio is
unusual in that it is commonly stated as a proportion rather than as a decimal or a percentage.
Year

2008

2009

2010

2011

2012

Debt To Equity Ratio

0.80

0.56

0.56

0.54

0.77

12

Figures and Graph of Debt to Equity from 2008 2012

The graph above explained the debt to equity ratio for Dutch Lady Milk Industries
Berhad. Lower ratio was indicated less in risk. On the other hand, high ratio the firm more
depends on external lenders. Since this companys ratio is less than 1 in every year. It meant that
this business did not have many debts. The ratio decreased from 2008 and remained until 2011
and increased again in 2012, shown that the percentage of assets of the business which are
financed by the debts is increasing.
3.3 Times Interest Earn (TIE)
Interest time earned ratio measures how easily company can pay interest expense on
outstanding debt. It calculated from companys earnings before interest and taxes (EBIT) and
divided by the total interest expense. It is usually quoted as a ratio and indicates how many times
a company can cover its interest charges and failing to meet these obligations could force a
company into bankruptcy.
Year

2008

2009

2010

2011

2012

Time Interest Earned

196.46

82031

151.65

56.82

Figures and Graph of Time Interest Earned from 2008 2012

As stated in the balance sheet, this company did not much on making borrowing from others.
Especially, in year 2010 as it shown from the table above the ratio cannot determine due to
13

financial cost or interest expense was zero amounts which meant that they did not make any
borrowing in year 2010. This year the company did not has financial liabilities was not exposed
to a risk of change in cash flow due to no short term borrowing.
3.4 Financial Leverage Index
The Financial Leverage Index measures how well a company is using its debt. The Financial
Leverage Index compares two other financial performance ratios which are return on equity
(ROE) and a modified version of return on total assets. The return on total assets is mainly
adding in the effects of interest expense and the tax rate.
Year

2008

2009

2010

2011

2012

Financial Leverage Index

1.79

1.56

1.55

1.52

1.74

Figures and Graph of Financial Leverage Index from 2008 2012

Based on our figures and graph, it can be seen that the Dutch Ladys financial leverage
index was decreased in 2008, 2009, 2010, and 2011. However, the company has performed better
in 2012. The financial leverage index results are greater than 1. This means that the company is
using its debt in a positive way or another way of saying this is its return on equity is larger than
its return on assets. This ratio will be able to tell investors that as borrowing increases for a
company, whether or not the debt the company shouldered was overall beneficial or detrimental.
14

For Dutch Lady, they are able to use its debt efficiently or utilized it in the best way that brings
profit to the company.

3.5 Bankruptcy Risk (Z-Score)

Year
Z-Score

2008
17.85

2009
22.05

2010
20.43

2011
19.33

2012
9.49

Figures and Graph of Z-Score from 2008 2012

Bankruptcy risk is determined the chance for the company to go bankrupt. It might be that
they are taking more debts. Z-score explained how the company get risk on debts, if higher than
2.99 is strong financial health but lower than 1.88 is high risk.
From the above table, it can be explained that Dutch Lady is very strong on their financial
health because Z-score is higher than 2.99 in every year. This can predict that the company does
not have a chance to get bankrupt.
To conclude, investors will be safe if they invest in this company because they have a strong
for financial and also the shareholders can get high market shares and get more in return.

15

4. Profitability Ratios
4.1 Return on Sales (ROS)
Return on sales is a ratio widely used to evaluate an entity's operating performance. It is also
known as profit margin or net profit margin. It measures how much of revenue results in profit
for the company rather than going toward paying the company's costs. A higher ratio means that
the company keeps more money in profit. Typically, the ratio is measured as a percentage, which
shows how many cents per dollar the company keeps as profit.
Year

2008

2009

2010

2011

2012

Return on Sales

5.99%

8.73%

8.99%

13.33%

13.98%

Figures and Graph of Return on Sales from 2008 2012

16

We can see that Dutch Ladys return on sales of 5.99%, 8.73%, 8.99%, 13.33%, and
13.98% in 2008, 2009, 2010, 2011, and 2012 respectively. It means that the company
generated 5.99 cents, 8.73cents, 8.99 cents, 13.33 cents, and 13.98 cents of profit per dollar of
sales in 2008, 2009, 2010, 2011, and 2012 respectively. The company has performed very well.
The figures and graph shows that return on sales of Dutch Lady Milk Industries has increased
continuously from year to year and will continue to increase in the future. This increasing in
ROS indicates the company is becoming more efficient.
4.2 Return on Assets (ROA)
Return on assets is an indicator of how profitable a company is relative to its total assets. It
gives an idea as to how efficient management of the business is at using its assets to generate
earnings. The higher the return, the more efficient management is in utilizing its asset base or
that business is more profitable. This ratio should be only used to compare companies in the
same industry.
Year

2008

2009

2010

2011

2012

Return on Assets

14.65%

21.49%

20.78%

27.12%

32.23%

Figures and Graph of Return on Assets from 2008 2012

17

From the figure and the graph shows that this company is effectively in converting its
total assets it has to invest into net income. The graph is upward sloping which is a good
prediction of profitability of the company in the future. Even though there was a slightly
decreased in ROS of 0.71% in 2010 but the company can recover in 2 years later. The increasing
trend of ROA for Dutch Lady indicates that the profitability of the company is improving.

4.3 Return on Equity (ROE)

Return on equity is one of the most fundamental profitability ratios. Return on equity or
return on capital is the ratio of net income of a business during a year to its stockholders' equity
during that year. It is a measure of profitability of stockholders' investments. It shows net
income as percentage of shareholder equity.
Year

2008

2009

2010

2011

2012

Return on Equity

26.39%

33.56%

32.35%

41.70%

57.08%

Figures and Graph of Return on Equity from 2008 2012

18

From the figure and the graph, we can see that the ROE increased by 7.17% due to arising
from net income in 2009. Also, the ROE in 2010 was 32.35%. It means that every dollar of
shareholders equity, the shareholder will earn RM32.35. So it is good for the shareholders
because the company was efficient in generating income on new investment. However, the ROE
in 2010 was slightly lower than the ROE in 2009 but then the ROE kept increasing in later years,
2011 and 2012. This is because of the increasing in net income for both years. Therefore, we can
say that the company was efficient in generating income on new investment. It is suggested that
investors should compare the ROE of different companies and also check the trend in ROE over
time and relying solely on ROE for investment decisions is not safe.
4.4 Du Pont Equations
Year
Du Pont Equations

2008
26.37%

2009
33.52%

2010
32.20%

2011
41.49%

2012
57.04%

Figures and Graph of Du Pont Equations from 2008 2012

The extended Du Pont Equation says something very important about running a business.
The operation of the business itself is reflected in ROA. This means managing customers,
people, costs, expenses, and equipment. For example in 2012, Dutch Lady has total assets of RM
382,774 and equity of RM 216,134 then the equity multiplier is 1.77. The extended Du Pont
equation says that the firms ROE will be 1.77 times its ROA because the use of other peoples
19

money. Dutch Lady is making a profit and ROA is a positive number. This year ROA is 32.23%,
ROE would be a healthy 57.04%. We can see that from 2008-2012, times or the equity multiplier
get well. It means that the company in using other peoples money is generally good.

4.4 Internal Growth Rate

Year
Internal Growth Rate

2008
0.13

2009
0.07

2010
0.18

2011
0.31

2012
0.1

Internal growth rate shows the general business operations can continue to fund and growth
the company. This internal growth rate determines the maximum the firm can growth without
borrowing from banks or shareholders. From the table above, the internal growth rate had
decreased at the year 2009 and 2012 and also significantly increase in 2011 due to its retain
earnings and dividend amounts are higher than other years. As a result, this business can growth
and generate their profit without creating the debts.
5. Market Value Ratios
5.1 Earnings per Share (EPS)
Earnings per share (EPS) of a business are the portion of its net income of a period that can
be attributed to each share of its common stock. It serves as an indicator of a company's
profitability.
Year

2008

2009

2010

2011

2012

Earnings per Share (Sen)

0.67

0.94

0.99

1.69

1.93

20

Figures and Graph of Earnings per Share from 2008 2012

The net income of Dutch Lady has increased from 2008 through 2012 and its number of
shares of common stock outstanding was the same in the specific years which was RM
64,000,000. Based on the calculations, the earnings available to shareholders have increased
every year. Therefore, we recommend that the investors should invest in this company as the
earnings continue to rise in the future.
5.2 Dividend per Share (DPS)

Dividend per share (DPS) shows how much the shareholders were actually paid by way of
dividends. It is the total dividend pay over a year divided by the number of shares issued.
Year

2008

2009

2010

2011

2012

Dividend per Share (Sen)

0.13

0.66

0.73

0.73

2.6

21

Figures and Graph of Dividend per Share from 2008 2012

Dutch Lady has increased the number of dividends paid to shareholders every year and the
number of shares issued remained the same from 2008 to 2012. As a result, the dividend per
share of the company continues to move upward according to the graph, particularly in 2012.
There was a huge increased of dividends paid in this year from 0.73 to 2.6.
Dividends are a sign of investors. If dividend per share is dropped down than investors
predict it means that company is not in good condition. On the other hand, if a dividend per share
is going up then investors feel that it performs well. We recommend the investors to invest in
Dutch Lady since it has performed well as dividend per share continued to increase.
5.3 Dividend Yield (DY)
Dividend yield is the amount that a company pays to its shareholders annually for their
investments. It is expressed as a percentage and indicates attractiveness of investing in a
companys stocks. Dividend yield is considered as ROI for income investors who are not
interested in capital gains or long-term earnings. It is calculated as annual dividend per share
divided by current market price per share.
Year

2008

2009

2010

2011

2012

Dividend Yield

0.28%

1.41%

1.56%

1.56%

5.54%
22

Figures and Graph of Dividend Yield from 2008 2012

From our analysis on dividend yield, we used the current market price based on the
StarBiz, May 8, 2013. It can be seen that dividend yield was increasing from year by year
especially in 2012 which was increased by 3.85%. To elaborate, if the investors invest in Dutch
Lady they will get 5.54% earning for each dollar invested in a company for the year 2012. As an
investor, we can consider their past dividend yield ratios to decide whether to invest in the
company or not. This can be concluded that Dutch Lady is good for investors to invest.
5.4 Price/Earnings Ratio
The P/E ratio looks at the relationship between the stock price and the companys earnings. It
gives an idea of how much investors are willing to pay for a dollar of the firms earnings. The
P/E ratio is very important in the stock market analysis.
Year

2008

2009

2010

2011

2012

Price/Earnings Ratio

70

49.37

47.37

27.73

24.30

23

Figures and Graph of Price/Earnings Ratio from 2008 2012

From our analysis, it can be seen that P/E Ratio was decreased from year by year but it does
not matter because it tells us how much investors are willing to pay for a dollar of the firms
earnings. For example, the companys P/E is 24.30 and earnings per share are $1.93 in 2012, the
stock selling for $46.90. These stock market people would say that the company is selling for
24.30 times earnings.
In general, a high P/E suggests that investors are expecting higher earnings growth in the
future compared to companies with a lower P/E. However, the P/E ratio does not tell us the
whole story by itself. It is usually more useful to compare the P/E ratios of one company to other
companies in the same industry, to the market in general or against the company's own historical
P/E ratio.
5.5 Market to Book Value Ratio
Market to Book Value Ratio measures how much a company worths at present, in
comparison with the amount of capital invested by current and past shareholders into it. It is an
indication of how much shareholders are paying for the net assets of a company.
Year

2008

2009

2010

2011

2012

Market to Book Value Ratio

18.61

16.69

15.22

11.60

13.91
24

Figures and Graph of Market to Book Value Ratio from 2008 2012

Market to book value ratio provides investors a way to compare the market value or what
they are paying for each share, to a conservative measure of the value of the firm. For example in
2012, the dollar amount in the numerator, $46.90, is the closing stock price for Dutch Lady Milk
Industries Berhad as of May, 2013, as reported in the StarBiz. In the demominator, the book
value per share is calculated by dividing the shareholders equity by the number of common
shares outstanding to obtain the $3.37 book value per share. By simply dividing, it gives us the
market to book value ratio indicating that, as of Dutch Lady Milk Industries Berhad2012 fiscal
yearend, its stock was trading at 13.91-times the companys book value of $3.37 per share.The
market to book value ratio is widely used as a valuation metric. It is probably more relevant for
use by investors looking at capital intensive or finance related businesses, such as banks. In
terms of general usage, it appears that the P/E ratio is firmly entrenched as the valuation of
choice by the investment community.

6. Working Capital Management

6.1 Cash Conversion Cycle (CCC)
Year
Cash Conversion Cycle

2008
29.95

2009
11.9

2010
-19.28

2011
8.95

2012
-3.31

25

Figures and Graph of Cash Conversion Cycle from 2008 2012

Cash conversion cycle explains processing where the company purchases inventory and sell
inventory on credit, then collect receivable into cash. In fact, the shorter period on cash
conversion cycle is better. As shown at the table above, CCC was decreased significantly from
year 2008 to 2010 because Dutch Lady did not owe much debts and borrowings. In year 2010,
the CCC was a negative amount because Dutch Lady brought money from account receivable
first then they did not require or borrow money from the bank to finance their business.
6.2 Working Capital Financing
Year

2008

2009

2010

2011

2012

Working Capital Financing

107,505.91

22,869.39

20,153.59

Working capital financing was determined how much the company has to borrow from
the bank in order to cover their investment operation payment. As we can see from the graph
above, CCC continue to decrease from year to year. Also working capital financing amount has
decreased in every year from RM 107,505.91 to RM 20,153.59 which meant that they did not
have much debt, they can control their business and get money to pay their business operations.
TREND ANALYSIS NESTLE
Receivable turnover
26

We can notice that the receivable turnover ratio had declined from 9.9 to 10.11. This result
indicate that nestle was losing its ability to collect faster the account receivable and thus was
getting less capable to invest its money in order to earn interest income or to reduce borrowing
and consequently reduce its interest expenses.
The average receivable turnover ratio of food industry was 12, 67 as December 3, 2011.nestle
receivable turnover ratio was by far smaller than food industry average. Thus indicates that nestle
lass capable to collect fast its account receivable than Dutch lady, and that point of time.
This may happen because nestle wants to gain a market share. So its wanted to come in new
market and as a result its should gain and advantage against Dutch lady, selling more product on
wanted to convince customer to prefer its product because of its more flexible collection of
account receivable in comparison with Dutch lady. However, nestle must change this strategy
and accelerate the collection of its account receivable because the most of its assets will tie up
with its account receivable limiting its cash soon.
Inventory turnover ratio
Using this formula we calculate inventory turnover ratio its 6.95, 7.05, 6.10, and 7.30, 7.56
for2008 until 2012.
We can notice that its inventory turnover ratio have remained steady during these years. This
suggests that this company has a certain strategy to keep high stock in its warehouse.
The average industry turnover ratio for food industry was 10,778 at Dec, 31, 2011.nestle had all
most small inventory turnover ratio in comparison with Dutch lady. This indicates that nestle
inventory moves slower through the production process to the last customer, compare its rival
Dutch lady. Dutch lady is faster than nestle in production process. The inventory storage and the
cost of holding, its inventory is higher than nestle. Nestle need to improve the holding expenses.
Nestle need to change its strategy regarding the inventory production process and holding cost by
using just in time strategy.
Fixed asset turnover ratio
Measures the sales dollars generated by each dollar of fixed asset .we find that the fixed asset
turnover ratio is 4.35, 4.486, And5.2, 4.48 for 2008, 2009 and 2010, 2011, 2012.we can observe
27

the fixed asset turnover ratio haves reduced from4.35 to 4.48. This may happen because the
company expected higher future sales as it wants to become the biggest company of food market
in the world.
The average fixed asset turnover ratio of food industry was 4.6,at dec,31 2012.despite the
reduction of fixed asset turnover ratio which was occurred during the years 2008.nestle ratio was
higher than the competitors Dutch lady, and also nestle is above the average industry.
Total asset turnover ratio

CONCLUSION
Dutch Lady Milk Industries Berhad is still in its growth phase. Looking at the business
cycle, it could be said that over coming years the corporation could work more channels of
generating revenue. The total revenue increased over the year from 2008 to 2012.
By looking at various financial ratios analysis is evident that the firm is efficient in
generating liquidity and efficiency in operations. The firm has ability to cover its short term
obligations in 5 years which means that they were able to cover all the debts. Moreover, Dutch
Lady is quickly in converting its current assets such as inventories into cash.
Debt management ratios determined how the firm can use other peoples money to its
own advantage. Since most of the debt management ratios are lower than 1, it means that the
firm used other peoples money in the best way to generate profit. We found that the company
does not use so much of funds or they borrowed less that it assumes excessive risk. The company
borrowed less so they have to pay less the cash outflows for interest and repayment.
In terms of Liquidity, Dutch Lady has ability to generate earnings relative to sales, assets
and equity. The profitability of a company is being effectively managed. The profitability ratios
28

including return on sales (ROS), return on assets (ROA), and return on equity (ROE). All of
these ratios indicate that the company is doing well and it is good at generating profits, revenues,
and cash flows. Lastly, Dutch Lady will be attracted by more investors in the future as its
earnings increased year by year and expected to have higher earnings growth in the future. To
conclude, Dutch Ladys performance is at good financial health.

Appendix
29

1. Balance Sheet Statement

30

31

2. Statement of Comprehensive Income

32

3. Cash Flow Statement

33

4. Summary of Ratios for Dutch Lady Milk Industries Berhad 2008-2012

Ratio
Liquidity Ratios
1. Current Ratio
2. Quick Ratio
Asset Management Ratios
1. Average Collection Period
2. Inventory Turnover
3. Fixed Asset Turnover
4. Total Asset Turnover
Debt Management Ratios
1. Debt Ratio
2. Debt to Equity Ratio
3. Time Interest Earned
4. Financial Leverage Index
5. Bankruptcy Risk (Z-Score)
Profitability Ratios
1. Return on Sales
2. Return on Assets
3. Return on Equity
Market Value Ratios
1. Earnings per Share
2. Dividend per Share
3. Dividend Yield
4. Price/Earnings Ratio
5.Market to Book Value Ratio
Working Capital Management
1. Cash Conventional Cycle
2. Working Capital Financing
Internal Growth Rate
Du Pont Equations

2012

2011

Year
2010

1.90
1.37

2.39
1.70

2.2
2.21

2.00
1.41

1.76
1.17

59.80
6.17
11.88
2.30

54.10
5.42
10.95
3.13

50.48
6.16
9.70
2.31

36.42
8.04
7.93
2.46

60.50
7.03
10.63
2.45

0.44
0.77
56.82
1.74
9.49

0.54
0.54
151.65
1.53
19.33

0.36
0.56
1.56
20.43

0.34
0.56
82,031
1.56
22.05

0.44
0.80
196.46
1.79
17.85

13.98%
32.23%
57.08%

13.33%
27.12%
41.70%

8.99%
20.78%
32.35%

8.73%
21.49%
33.56%

5.99%
14.65%
26.39%

1.93
2.6
5.54%
24.30
13.91

1.69
0.73
1.56%
27.73
11.60

0.99
0.73
1.56%
47.37
15.22

0.94
0.66
1.41%
49.37
16.69

0.67
0.13
0.28%
70
18.61

-3.31
0.78
57.04%

8.95
20,153.59
0.13
41.49%

-19.28
0.18
32.20%

11.91
22,869.39
0.18
33.52%

29.95
107,505.91
0.30
26.37%

2009

2008

34

5. Ratio Calculations
1. Liquidity Ratios
1.1 Current Ratio =

2008 =

=1.76

2009 =

2010 =

2011=

2012=

1.2 Quick Ratio =

2008 =

2009 =

35

2010 =

2011 =

2012 =

2. Asset Management Ratios

2.1 ACP =

2008=

2009=

2010=

2011=

2012=

2.2 Inventory turnover =

2008=
36

2009 =

2010 =

2011 =

2012 =

2.3 Fixed Asset Turnover =

2008 =

2009 =

2010 =

2011 =

2012 =

2.4 Total Asset Turnover =

2008 =

37

2009 =

2.46

2010 =

2.31

2011 =

3.13

2012 =

2.30

3. Debt Management Ratios

3.1 Debt Ratio =

2008 =

2009 =

2010 =

2011 =

2012 =

38

3.2 Debt to Equity Ratio =

2008 =

2009 =

2010 =

2011 =

2012 =

3.3 Time Interest Earned =

2008=

2009=

2010=

2011=

2012=

39

3.4 Financial Leverage Index =

2008 =

2009 =

2010 =

=1.5609

= 1.5568

2011 =

1.5280

2012 =

= 1.7408

3.5 Bankruptcy Risk

Z score= 1.2x1 + 1.4x2 + 3.3x3 + 0.6x4 + 1.0x5
2008: X1 =

X2 =

X3 =

X4 =

40

X5 =

Z score2008 = (1.2*0.33) + (1.4*0.33) + (3.3*0.19) + (0.6*23.19) +2.45=17.849

2009: X1 =

X2 =

X3 =

X4 =

X5 =
Z score2009 = (1.2*0.33) + (1.4*0.39) + (3.3*0.28) + (0.6*29.72) + 2.35 = 22.05

2010: X1 =

X2 =

X3 =

X4 =

41

X5 =
Z score2010 = (1.2*0.42) + (1.4*0.43) + (3.3*0.29) + (0.6 * 26.76) + 2.31=20.43
2011: X1 =

X2 =

X3 =

X4 =

X5 =
Z score2011 = (1.2*0.37) + (1.4*0.75) + (3.3*0.54) + (0.6*21.54) +3.13=19.33

2012: X1 =

X2 =

X3 =

X4 =

42

X5 =
Z score2012 = (1.2*0.38) + (1.4*0.39)+(3.3*0.45)+(0.6*7.84)+2.30=9.49

4. Profitability Ratio
4.1 Return on Sales (ROS) =

2008 =

2009 =

2010 =

2011 =

2012 =

4.2 Return on Assets (ROA) =

2008 =

2009 =

2010 =
43

2011 =

2012 =

4.3 Return on Equity (ROE) =

2008 =

2009 =

2010 =

2011 =

2012 =

4.4 Equity multiplier =

2008 =

2009 =

2010 =
44

2011 =

2012 =

4.5 ROE =
2008 =
2009 =
2010 =
2011 =
2012 =

4.6 Internal Growth Rate=

2008=

2009=

2010=

= 0.18

45

2010=

= 0.31

2012=

5. Market Value Ratios

5.1 Earnings per Share =

2008 =

2009 =

2010 =

2011 =

2012 =

5.2 Dividend per Share =

2008 =

2009 =

46

2010 =

2011=

2012=

5.3 Dividend Yield =

2008

2009

= 0.0141=1.41%

2010 =

2011=

2012 =

= 0.055=5.54%

5.4 Price/Earnings Ratio =

2008 =

= 70

2009 =

47

2010 =

2011 =

2012 =

5.5 Book Value per Share=

2008=

2009=

2010=

2011=

2012=

5.6 Market to Book Value Ratio=

2008=

2009=

48

2010=

2011=

2012=

6. Working Capital Management

Cash Conversion Cycle = (Account Receivable Period+Inventory Conversion Period) - Account
Payable Period

CCC2008:

ARP=

2008=

ICP=
2008 =

APP=

2008 =
CCC2008 = (60.50+37.89) - 44= 54.39 or 54 days
Working Capital Financing2008 =
49

CCC2009:

ARP=

2009=

ICP=
2009=

or 30 days

APP=

2009 =
CCC2009 = (36.42+29.95)-54.47=11.9 days
Working Capital Financing2009 =

CCC2010:

ARP=
2010=

ICP=
2010 =

APP=
50

2010 =
CCC2010 = (50.48+10.24) 80 = -19.28

CCC2011:

ARP=
2011=

ICP=
2011 =

APP=

2011 =

CCC2011 = (54.10+41.50) - 86.65= 8.95

Working Capital Financing2011 =

CCC2012:

ARP=

2012=

ICP=

51

2012 =

APP=

2012 =
CCC2012 = (59.80+35.41) - 98.52= -3.31

Trend analysis nestle ratio calculation

Asset Management Ratios

ACP =

2008=
2009=

10.11

2010=

2011=

2012=

52

Inventory turnover =

2008=
2009 =

6.95

2010 =

2011 =

2012

Days Inventory==
2008=
2009=
2010=
2011=
2012=

Fixed Asset Turnover =

2008 =

53

2009 =

2010 =

2011 =

2012 =

Total Asset Turnover =

2008 =

2009 =

2010 =

2011 =

2012 =

2.26

2.34

2.39

54

55