Nestle Nigeria Plc. recently released its financial statement for the 2021 full year, showing revenue growth of 23 percent (from N287.1 billion in 2020 to N351.8 billion in 2021) and a 2 percent growth in profit (from N39.2 billion to N40.0 billion). In this article, four key financial ratios that give insights into Nestle’s performance are presented, comparing the company’s results over five years.
This is a financial ratio that shows how a company is able to turn as much of its revenue into profit. In our analysis, we use the net profit margin which is measured as the net profit divided by revenue multiplied by hundred. A higher profit margin shows the firm is more efficient in generating more profit from its revenue and vice versa.
The table below shows the profit margin of Nestle over the last five years.
From the table above, we see that in 2018 and 2019 Nestle showed more efficiency in turning its revenue into profit, but this declined in 2020 and further reduced in 2021.
Debt to equity ratio
This ratio shows if a company is using more debt to finance its operations or equity. It is measured by dividing the total debt by total equity. If the debt to equity ratio is high it means the company is using more debt to finance its operation and vice versa.
The table below shows the debt to equity ratio of Nestle plc over the last five years.
From the table above, we see a two-fold increase in the debt to equity ratio of the company, first between 2019 and 2020, and a similar trend from 2020 to 2021. This shows Nestle had N13.51 of debt for every N1 of equity. This, however, may not give a complete picture without comparing with other similar companies in its industry.
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Return on equity
This is a ratio that shows how shareholders’ equity is able to generate profit for the business. The ratio tells how efficient the company is in using its owners’ equity to generate profit. It is measured as net income over shareholders’ equity. A higher return on equity ratio means the company is more efficient in using shareholders’ funds to generate revenue and vice versa.
The table below shows Nestle’s return on equity over the last five years.
From the above, it can be seen that the company has been efficient over the years in generating profit with the shareholders’ equity, with 2021 having the most return of N1.87 for every N1 of shareholders’ equity.
Return on asset ratio
This ratio shows how a company can use its assets to generate profit. It tells if the company is efficient in using its assets to make a profit or not. It is measured by dividing the company’s profit by its total assets. A higher return on asset ratios indicates the company is efficient in using its assets to create profit and vice versa.
The table below shows Nestle plc’s return on asset ratio for the last five years.
From the table, it can be seen that the company’s ability to generate profit with its assets has been on a decline since 2018 when it was 0.26 to 0.13 in 2021.