Accounting Project
diana3612
PROJECTNestleGeneralMillsExample.pptx
Annual Financial Reports: Nestle & General Mills
MMG 520: FINANCIAL ACCOUNTING
Agenda
Background
Comparisons
Value Drivers
Profitability
Capital Structure
Analysis
Swiss multinational food and drink company founded in 1866
The largest food and beverage company in the world
Has 413 factories
Sell in 190 countries
Over 308,000 employees
Owns over 2000 brands
Began as a single mill on the Mississippi River in 1866
Incorporated in 1928
Operating in 130 countries
4th largest U.S. natural & organic food producer
Owns over 100 brands
Revenue Growth Rate
Nestle had increasing revenue growth due to a 2018 Starbucks alliance and partnership with Atrium Innovations, a global leader in nutritional health products
General Mills suffered a 7% decline in 2017 due to removal of Green Giant and a 1% decline in 2018 due to unfavorable higher pricings
Nestle
•In 2018, Nestle partnered with Starbucks. Made a perpetual global license of Starbucks Consumer Packaged Goods and Foodservice products worldwide – roast and ground coffee, whole beans as well as instant and proportioned coffee.
•2018 Partnered with Atrium Innovations, a global leader in nutritional health products. This partnership added value to Nestle’s Health Science Care portfolio and extends Nestle’s product range with value-added solutions.
General Mills
•The 7 percent decrease in North America Retail net sales for fiscal 2017 was driven by declines in the U.S. Meals & Baking, U.S. Yogurt, U.S. Cereal, and Canada operating units. The decline in net sales also includes the impact of the Green Giant divestiture from the U.S. Meals & Baking and Canada operating units in fiscal 2016.
•North America Retail organic net sales decreased 1 percentage point in fiscal 2018, compared to fiscal 2017, driven by unfavorable organic net price realization and mix. North America Retail organic net sales decreased 5 percentage points in fiscal 2017 which reflects the impact of reduced marketing and higher pricing as a result of lower promotional spending.
Revenue Growth
Nestle 2016 2017 2018 7.0000000000000001E-3 1E-3 2.1000000000000001E-2 General Mills 2016 2017 2018 8.0000000000000002E-3 -5.7000000000000002E-2 -6.0999999999999999E-2
Tax Rate
Nestle shows slight decrease in 2018 due to merge with Starbucks, creating synergies, that result in goodwill recognized, which was created deductible for tax purposes
General Mills 2018 decline was due to TCJA which resulted in significant revisions to the U.S. corporate income tax system, including a one-time deemed return tax on untaxed foreign earnings
General Mills
On December 22, 2017, the TCJA ( Tax Cut and Job Act) was signed into law. The TCJA results in significant revisions to the U.S.
corporate income tax system, including a reduction in the U.S. corporate income tax rate, implementation of a
territorial system, and a one-time deemed repatriation tax on untaxed foreign earnings.
The full-year fiscal 2018 adjusted effective tax rate is expected to be approximately 27 percent. This is 2 percentage points lower than prior guidance, driven by the impact of the U.S. Tax Cuts and Jobs Act.
Tax Rate
Nestle 2016 2017 2018 0.35230720102187452 0.29312896405919664 0.26472173042875835 General Mills 2016 2017 2018 0.3141905950894715 0.23637675929267413 2.6697892271662763E-2
Operating Margin
In 2017, Nestle had 77% decrease in operating profits compared to 2016 due to higher other operating expenses.
Restructuring cost: $1 billion in cutting jobs and shifting headquarters
Operating segments: Natural disasters (Hurricane Harvey) and expropriation of assets
General Mills operating profit margin of 16.4 percent was up .1% from fiscal 2016 levels driven by cost savings and spending optimization initiatives and favorable net prices
Nestle
In 2017, Nestle had $10,156 (in millions) in operating profits, which was a $3,007 decrease (77%) from 2016. In 2017, Nestle faced higher “other operating expenses” due to restructuring cost, where they spent close to $1 billion in cutting jobs at its skin-health unit and shifting headquarters in the U.S and France as well as expenses due to operating segments due to natural disasters and expropriation of assets due to Hurricane Harvey and over 1 million donations of bottled water and services.
Source: https://www.bloomberg.com/news/articles/2017-10-19/nestle-has-slowest-nine-month-sales-growth-in-almost-two-decades
General Mills
The net sales decline of 6 percent was driven by declining contributions from volume in the North America Retail and Europe & Australia segments including the impact of the divestiture of the North American Green Giant product lines in fiscal 2016, which were partially offset by favorable net price realization and mix. Operating profit margin of 16.4 percent was up 10 basis points from fiscal 2016 levels primarily driven by benefits from cost savings and spending optimization initiatives and favorable net prices
Operational Margin
Nestle 2016 2017 2018 0.14712358470531692 0.11336086616809912 0.15039534553090039 General Mills 2016 2017 2018 0.16343657549960755 0.1642870862411166 0.1594027954256671
Operating Margin Comparison (in millions)
Nestle
General Mills
| 2018 | 2017 | 2016 | ||||
| Net Sales | $91,439 | $89,590 | $89,469 | |||
| COGS | $46,070 | 50.4% | $45,571 | 50.9% | $44,191 | 49.4% |
| M&A | $20,003 | 21.9% | $19,818 | 22.1% | $21,485 | 24% |
| R&D | $1,687 | 1.8% | $1,739 | 1.9% | $1,736 | 1.9% |
| Other | $5,349 | 5.8% | $5,954 | 6.6% | $2,355 | 2.6% |
| 2018 | 2017 | 2016 | ||||
| Net Sales | $15,740 | $15,619 | $16,563 | |||
| COGS | $10,312 | 65.5% | $10,056 | 64.4% | $10,733 | 64.8% |
| M&A | $3,327 | 21.1% | $3,424 | 21.9% | $3,872 | 23.4% |
| R&D | $219 | 1.4% | $218 | 1.4% | $222 | 1.3% |
| Other | $165 | 1% | $182 | 1.2% | $151 | .9% |
Although, General Mills net sales decreased from $16,563 in 2016 to $15,740 in 2018, its operating profit margin has remained consistent at 16%.
On the other hand Nestle had a drastic decrease in net sales from $13,163 in 2016 to $10,156 in 2017 and then back to $13,752 in 2018. In turns translates to a fluctuating operating profit of 15% in 2016, to 11% in 2017 and then back to 15% in 2018.
Profitability
In 2018, Nestle earned a little over 11 cents profit for every dollar of sale, a 1.6% profit increase from 2016, compared to General Mills who earned just a little over 13 cents profit of sales, a 3.2% profit increase. These numbers indicate that Nestle is subtracting approximately 89 cents in expenses while General Mills is subtracting approximately 87 cents.
Although General Mills shows to have larger profit margins than Nestle, Nestle has higher Net sales. Nestlé’s profit of 11.5% of $91 billion in sales is a better trade-off between profit margin and sales volume than General Mills’ 13.5% profit of $15 billion of sales.
The difference between them is that gross profit margin only figures in the direct costs involved in production. Usually refers to the percentage of revenue remaining after all costs, depreciation, interest, taxes, and other expenses have been deducted. While operating profit margin measures how much profit a company makes on a dollar of sales, after paying for variable costs of production, such as wages and raw materials, but before paying interest or tax.
Capital Structure
General Mills depend on stable, liquid, and well-functioning capital and credit markets to fund our operations.
Although they believe that their operating cash flows, financial assets, access to capital and credit markets, and revolving credit agreements will permit them to meet their financing needs for the foreseeable future, there can be no assurance that future instability or disruption in the capital and credit markets will not impair their liquidity or increase their costs of borrowing
Nestlé's overall investment policy and strategy for the Group’s funded defined benefit plans is guided by the objective of achieving an investment return which, together with the contributions paid, is sufficient to maintain reasonable control over the various funding risks of the plans.
The capital structure is how a firm finances its overall operations and growth by using different sources of funds. Debt comes in the form of bond issues or long-term notes payable, while equity is classified as common stock, preferred stock or retained earnings
ROA depends on capital structure (how they operate/finance)
ROIC is operational and combines the two
General Mills
“We depend on stable, liquid, and well-functioning capital and credit markets to fund our operations. Although we
believe that our operating cash flows, financial assets, access to capital and credit markets, and revolving credit
agreements will permit us to meet our financing needs for the foreseeable future, there can be no assurance that
future volatility or disruption in the capital and credit markets will not impair our liquidity or increase our costs
of borrowing.”
In fiscal 2017,
Net cash provided by operations totaled $2.3 billion at a conversation rate of 136% of net earnings
returned significant cash to shareholders through a 6% dividend increase and share repurchases totaling $1,652 million.
In fiscal 2018,
· Net cash provided by operations totaled $2.8 billion 18 representing a conversion rate of 131% of net earnings….
· returned significant cash to shareholders through dividends totaling $1.1 billion and share repurchases totaling $602 million. (GM 2018 pg 20)
what is the capital structure of the company?
ROA depends on capital structure (how they operate/finance)
ROIC is operational and combines the two
what do they do with profits- how much is reinvested in the company or distributed back to shareholders?
(look in equity section- how a company uses L&E to finance assets)
Return on Assets
In 2017, Nestle’s ROA was 5.6 percent, considerably lower than General Mills. This comparison indicates that General Mills utilized its assets more effectively than General Mills
On Average, in 2017, for every $1.00 of assets reported on the balance sheet, Nestle earned 6 cents and General Mills earned 8 cents
General Mills is consistent each fiscal year with higher ROA profits than Nestle
ROA can be defined as an indicator of how profitable a company's relative to its total assets
ROA = Net Income/Avg Total Assets
Net income can be defined as a company's net profit or loss after all revenue, income items and expenses have been accounted for.
Return on assets evaluate a company’s overall performance and measures how much a company earned for each dollar of investment in assets
Companies with higher ROA are doing a better job of selecting & managing investments
ROA
Nestle 2016 2017 2018 6.9427727322464161E-2 5.6599999999999998E-2 7.7399999999999997E-2 General Mills 2016 2017 2018 7.7899999999999997E-2 7.6100000000000001E-2 8.1000000000000003E-2
Return on Assets
General Mills Net Profit Margin of 13.5% means that 13.5 cent of every sales dollar is net profit. This compares with Nestles 11.5% net profit margin
Nestles efficiency of operations has a higher total asset turnover of 67.6% compared to General Mills of 60.0% in 2018. Nestle is more efficient at using its assets to generate revenue.
Return on Invested Capital
General Mills generates high returns on investments from 8.53% in 2016 to 9.31% in 2018.
General Mills used $8.7 billion of cash through investing activities compared to $647 million in fiscal 2017.
Given asset size and disregarding how the companies finance their business, General Mills is more efficient at making money than Nestle based on ROIC.
ROIC measures how well a company generates cash flow relative to the capital it has invested in its business.
ROIC is the amount of return a company makes above the average cost it pays for its debt and equity capital.
The return on invested capital can be used as a benchmark to calculate the value of other companies
A company is creating VALUE if its ROIC exceeds 2% and destroying value if less than 2%.
A capital efficiency ratio used to measure firms ability to create value for all its shareholders, debt and equity
General Mills
In fiscal 2018, we used $8.7 billion of cash through investing activities compared to $647 million in fiscal 2017. In the fourth quarter of fiscal 2018, we acquired Blue Buffalo for an aggregate purchase price of $8.0 billion, including $103 million of consideration for net debt repaid. We invested $623 million in land, buildings, and equipment in fiscal 2018, $62 million less than last year.
In fiscal 2017, we used $647 million of cash through investing activities compared to generating $93 million in fiscal 2016. We invested $684 million in land, buildings, and equipment in fiscal 2017, $45 million less than fiscal 2016. In fiscal 2016, we received proceeds of $828 million from the divestitures of certain businesses, primarily Green Giant.
Return on Equity
In 2016, Nestle earned 14% on the owner’s investment.
On average every $1.00 equity investors contributed to Nestle, the company earned 14 cents in fiscal 2016, 11 cents in 2017 and 17 cents in 2018.
General Mills maintained a consistent performance of, on average, 40 cents, producing a better return than its competitor.
ROE
Nestle 2016 2017 2018 0.1399 0.11899999999999999 1.7600000000000001E-2 General Mills 2016 2017 2018 0.40714558654948413 0.3579 0.40699999999999997
Conclusion
Overall, Nestle is the world’s largest fast moving consumer goods company in terms of revenue
Its performance metrics have improved significantly
General Mills, on the other hand is much more than a flour mill now , it severs people throughout America with foods for every occasion.
It targets to have organic net sales expected to range flat and up1%
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