ACCT3310: AUDITING

GROUP ASSIGNMENT

SUBMISSION DATE: 13TH MAY 2020

LECTURER NAME: NURKAMARIAH KASIM

ABDULKADIR ALI SHEIKH ADAN 141912812

AMIRA NUR AFIQAH BINTI AGUS SALIM 172018976

WONG YEW WENG 182020294

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TABLE OF CONTENT

CONTENT PAGE

Company’s Background & History 3

ANALYSIS

Major Sources of Revenue 6

Key Customers & Suppliers 9

Sources of Financing 11

Information on Related Parties 12

Competitor Analysis 13

Risk Analysis 14

Internal Control 22

Audit Planning 24

Ratio Analysis 26

Trend Analysis 31

Conclusion 38

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INTRODUCTION

Nestle is a Swiss food and drink corporation based in Vevey, Vaud, Switzerland. It is one
of the largest food company in the world, when it comes to revenue and other measures,
since 2014. It ranked No. 64 on the Fortune Global in 2017 and No. 33 on the 2016 edition
of the Forbes Global 2000 list highest grossing companies in the world.

It produces a lot a variety of foods including baby food, bottled water, dairy products, ice
cream, pet foods and snacks. Nestles’ most successful products contains Nescafe and
kitKat.

NESTLES MISSION

In order to become the world’s number one nutrition, health and wellness corporation. Our
mission of "Good Food, Good Life" is to offer consumers with the best tasting, most
nutritious picks in a broad categories of food and beverage categories and eating events,
from morning to night.

VISION

The goal of achieving our targets of, aggressive, nutrition, Health and Wellness Company
delivering improved shareholder value by being a preferred corporate citizen, preferred
employer, preferred supplier selling preferred products.

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HISTORY

The organization’s history begins from 1866, with the foundation of the Anglo-Swiss
Condensed Milk Company. Henri Nestlé acquires a breakthrough infant food in 1867, and
in 1905 the company he founded combines with Anglo-Swiss, to form what is now known
as the Nestlé Group. During this time, cities grow and railways and steamships bring down
product costs, driving international trade in consumer goods.

Since the early 1900’s, Nestlé & Anglo Swiss has more than 20 factories, and begins using
overseas divisions to start a sales network that covers Africa, Asia, Latin America and
Australia. At the start of World War One looms, the firm takes advantage from the period
of prosperity known as the Belle Époque or ‘Beautiful Age’, and becomes a global dairy
corporation.

SURVIVAL DURING WARTIME

During the eruption of war in 1914 leads to higher demand for condensed milk and
chocolate, but a shortage of raw materials and places restrictions on cross-border trade and
hamper production for Nestlé & Anglo-Swiss. Finding a solution to this challenge, the
company buys processing facilities in the US and Australia, and by the end of the war it
has 40 factories.

GREATER CONSUMER CONVENIENCE

After the war period is marked by growing prosperity, and people in the US and Europe
spend money on machines that make life more convenient, such as refrigerators and
freezers. They also prefer convenience foods, and Nestlé meets this need with better
products including Nesquik and Maggi ready meals.

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TOWARDS NUTRITION, HEALTH AND WELLNESS

After a number of years of growth, Nestlé throws out unprofitable brands and advertises
those that please increasingly health aware consumers, in line with its new ‘Nutrition,
Health and Wellness’ goal. The company grows in the US, Eastern Europe and Asia, and
targets for global leadership in water, ice cream and animal food.

CREATING SHARED VALUE

Nestlé expresses its Creating Shared Value tactic to business for the first time, and starts
its Nestlé Cocoa Plan and Nescafé Plan to further creates sustainable supply chains in cocoa
and coffee. While consolidating its position in old fashioned segments, infant formula and
frozen foods, Nestlé strengthens its focus on medical nutrition.

NESTLE MALASYIA

From 1912, Nestlé has been sustaining Malaysians through our quality brands and products,
whilst consolidating our Halal merit and reliability. In order to achieve our drive of
increasing quality of life and adding to a healthier opportunity as well as our goal of
delivering GOOD FOOD, GOOD LIFE to all.

At this time, Nestlé Malaysia runs 6 factories and employs not less than 4,600 employees
in the whole country, creating over 500 Halal-certified products. Most of our key brands
have now become a part of Malaysian family circles for generations including Malaysian
favorites such as MILO, MAGGI, NESCAFÉ and KITKAT. Since Nestle has been in
existence in the nation and in the hearts of Malaysians for over a century, we are firmly
committed to offering the very best in quality, nutrition and taste

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MAJOR SOURCE OF REVENUE

Revenue is stated as the amount of money a company gets from its customers in trade for
the sales of goods or services. Revenue or sales is the upper line entry on an income
statement from which all costs and expenses are subtracted to arrive at net income. In other
parts of the world revenue is also referred as sales which has the same meaning.

• Itemization of Revenue 2018

In the year of 2018, Nestle Malaysia has verified RM 5.52 billion in group revenue and
from which, its sales breakdown is as follows:

Revenue 2018 Revenue 2018

Segment
(RM’000) (%)
Food & Beverages 4,427 80.2
Globally Managed Businesses 1,092 198
Total Revenue 5,519 100

• Segment 1: Food & Beverage (F&B)

This section is involved in developing and sales of a broad range of F&B products under
brands such as MILO, MAGGI, Kit Kat, Nestum and so on and so forth. It has reached
CAGR of 4.1% and 8.8% in revenues and operating profits over the last 10 years. sales had
gone up from RM 3.08 billion in 2009 to RM 4.43 billion in 2018. This led to achieving a
growth in its operating profits, up from RM 350.4 million in 2009 to RM 744.9 million in
2018.

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Segment 2: Global Managed Businesses (GMB)

This section gets its income from 4 sectors which are:

– Nestle Nutrition: Milk Powders for Babies and Toddlers.

– NESPRESSO: Coffee Machines and Capsules (started since 2016)
– Nestle Professional: F&B products to F&B operators.
– Nestle Health Science: Innovative Products for the Healthcare Industry.

All in all, the GMB part has achieved compound annual growth (CAGR) of 5.8% and 4.0%
for its revenues and operating profits. Its revenues improved from RM 660.3 million in
2009 to RM 1.09 billion in 2018. It has added to progress in operating profits from RM
118.9 million in 2009 to RM 169.9 million in 2018.

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8
KEY CUSTOMERS AND SUPPLIERS

According to the Nestle Malaysia, the customers of the nestle is selling the goods-based
merchandise, the customers today look for great nourishments and drinks that are
additionally progressively nutritious, we stayed focused on improving the healthful
substance of our item portfolio with important contributions. Consistently, we kept on
putting resources into our brands, not exclusively to drive their momentary development
and furthermore to additionally sustain them for the more drawn out term. We concentrated
on venturing into new business regions of chance through online business and kept on
conveying on our responsibility towards supporting Malaysians, through the development
of our Healthier Choice Logo (HCL) portfolio, and activities to empower more
advantageous ways of life.

In a key achievement, we increase activities with the dispatch of our new best class of
Nestlé Distribution Center (NDC) in 2018. Traversing 515,000 sq. ft, the all-new NDC is
currently Nestlé's biggest dispersion place in Asia. Advancing asset improvement, the
office flaunts a high thickness stockroom space which can put away to 20% more items
regardless of a 20% decrease away territory contrasted with the past conveyance place.

Taking advantages of capability to web-based businesses, we enrolled consistent

development and fortified our essence in this field in a joint collaborate with Rurutiki, our
fundamental internet business partnership. Through this association, we had the option to
increase activities and labor backing to guarantee the convenient satisfaction of all online
business orders. Our fruitful endeavors in internet business were additionally utilized
through our organizations with mainstream online deals stages, including Shopee and
Lazada, where we attempted to guarantee predominant perceivability, Nestlé leader had
stores on two stages. To extended the web-based business contributions as KIT KAT
CHOCOLATORY commenced an exceptional activity, permitting purchasers in Malaysia
and Singapore to put in online requests for their most loved CHOCOLATORY items from
boutique store in Kuala Lumpur. With the e-retailers, the KIT KAT CHOCOLATORY
additionally permits buyers to modify and customize blessing packs for unique events,
giving a helpful stage to an improved brand understanding.

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According to 2018 report, the Nestle customers of segment, 29% of the customers is female
and 71% of the male used the product, while 29% of people is from the ages from 61-70,
42% on age 50-60 and 29% is from age 71 and above. There was 14% customers of
ethnicity is Indian and 43% is Bumiputera and rest is other.

The Nestle food suppliers list was earlier to publish on web site was palm oil, vanilla, soya,
hazelnuts and the meat by beef, veal lamb and mutton. The commodities had cover 95% of
company’s annual sourcing raw material. The upstream of the suppliers and the total
volume sourced for the commodity is origin from Asia pacific, New Zealand, Australia,
China and Vietnam to supply Meat. The vast Majority over 90% of the Nestle’s palm oils
was supllied from Malaysia and Indonesia. The hazelnuts were from Turkey and while the
soya is coming from Brazil and United States and all Vanilla is coming from Madagascar.

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SOURCES OF FINANCING

In 2018, Nestle Malaysia has recorded RM 5.52 billion in group revenue. The performance
of the nestle on the stock is well perform. From 2016 prices is RM 81 I the highest and
lowest on price RM 73. 2017 from the price between RM 74.12 to 103.20 from the lowest
to highest. While RM 157.40 to RM 113.30 from the highest and lowest. There was the
boost goes up of the capital on 2017 and 2018 due to the stock goes up.

Nestle Malaysia has achieved CAGR of 4.6% and 7.2% in group revenue and shareholders’
earnings over the last 10 years. Revenue has grown from RM 3.74 billion in 2009 to RM
5.52 billion in 2018. This had contributed higher shareholders’ earnings, up from RM 351.8
million in 2009 to RM 658.9 million in 2018. It is contributed by revenue growth from the
two segments as discussed above. From 2009 to 2018, Nestle Malaysia has brought in as
much as RM 7.22 billion in cash flows from operations. Out of which, it has spent:

• RM 1.85 billion in capital expenditures.

• RM 344.3 million in repayments of net long-term debts.
• RM 5.16 billion in dividend payments to its existing shareholders.

Thus, Nestle Malaysia is a cash-cow and has chosen to pay out the bulk of its cash flows
received to reward its shareholders in the form of dividends.

As at 28 February 2019, Nestle S.A. remains as the biggest shareholder of Nestle Malaysia
with 72.61% shareholdings. Meanwhile, the second largest shareholder is the Employees
Provident Fund (EPF) Board as it owns 7.39% shareholdings of Nestle Malaysia.
Combined, they hold a total of 80% shareholdings in Nestle Malaysia presently. The
remaining 20% are predominantly held by reputable financial institutions such as:

• State Street Bank & Trust Company: 0.63%

• Vanguard Total International Stock Index Fund: 0.40%
• Citibank New York (Norges Bank 14): 0.37%
• Vanguard Emerging Markets Stock Index Fund: 0.36%
• GIC Private Limited for Government of Singapore (C): 0.24%

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INFORMATION ON RELATED PARTIES,

According to the 2019 financial report of circulation the parties related to the nestle is in
below: Nestlé S.A. is the holding company of Nesmal with holdings of 170,276,563 or
72.61% of Nesmal Shares as at 1 March 2019. Nestlé S.A. has presence in more than 180
countries worldwide through its subsidiaries or affiliated companies wherein it owns direct
and indirect shareholdings. This group of companies are referred to as the Nestlé Affiliated
Companies.

CPM is an affiliated company of Nesmal where 1,250,000 of its shares (50%) are owned
by Nestlé S.A. Nestlé S.A. owns 170,276,563 or 72.61% of Nesmal Shares as at 1 March
2019.

PPM is wholly owned by Nestlé S.A. Nestlé S.A. owns 170,276,563 or 72.61% of Nesmal
Shares as at 1 March 2019.

WN is wholly owned by Wyeth (Hong Kong) Holding Company Limited, which in turn is
a wholly owned subsidiary of Nestlé S.A. Nestlé S.A. owns 170,276,563 or 72.61% of
Nesmal Shares as at 1 March 2019.

NTC-MEA is wholly owned by Nestlé S.A. Nestlé S.A. owns 170,276,563 or 72.61% of
Nesmal Shares as at 1 March 2019.

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COMPETITOR ANALYSIS

Nestlé Malaysia makes its item in 7 production lines and works from its administrative
center in Mutiara Damansara with six different deals workplaces across the nation. the
organization utilizes 5000 individuals and markets in excess of 300 Halal items in Malaysia,
for example, Milo, Nescafe, Maggi, Kit-Kat, Nesvita and so forth. Nestlé Company despite
everything sticks to its originator's convictions and standards giving the best items to each
person.

The soda drink industry in the Malaysia advertise faces numerous opposition and
difficulties. Among the couple of soda pop makers in Malaysia are

• F&N Sdn Bhd, Pemanis Sdn Bhd, Yeo Hiap Seng (M) Bhd,
• Malaysia Milk Sdn Bhd,
• Lam Soon (M) Sdn Bhd,
• Pokka Ace Sdn Bhd,
• Dutch Lady Milk Industries Bhd and so on.

One of the main soda pop makers in Malaysia is F&N Sdn Bhd (Asia Food Journal, 2009)
where the principle item for F&N Sdn Bhd in Malaysia is Coca-Cola which is known to be
the main soda brand far and wide and positioned first in the Best Global Brand 2000-2009
(Interbrand, 2010). Besides, F&N Sdn Bhd additionally creates the fundamental selling
isotonic beverage which is 100Plus. In any case, the immediate rivalries looked by Nestlé
Malaysia are as expressed in the table where these contenders are known to have item
which have likeness according to Nestlé's drink item.

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RISK ANALYSIS

According to Investopedia (2017), Credit risk is characterized as the hazard that borrower
unable to reimburse the advance and the bank may lose the chief sum or enthusiasm on it.
Non-performing advance can add to credit hazard, and it can prompt breakdown of banking
industry.

Total asset represents the size of company for this Nestle. Before financial specialists need
to contribute n any organization, they will audit the organization execution first,
particularly the organization's complete resources. This one is to decide if the business has
enough existing worth speculation. The graph below will show the Nestle’s total assets for
the five years starting from 2011 to 2015. In year 2011 to 2014, total assets of Nestle keep
increasing every year. Nestle has the higher total assets in year 2014, with amount of RM
680,336,000. In year 2015, it decreases to RM 574,699,000

YEAR TOTAL ASSETS(RM)

2011 563,514,000

2012 632,640,000

2013 679,937,000

2014 680,336,000

2015 574,699,000

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Net profit of Nestle for five consecutive year

YEAR NET PROFIT (RM)

2011 423,440,000

2012 490,472,000

2013 551,436,000

2014 551,305,000

2015 609,758,000

RETURN ON ASSET

YEAR ROA (%)

2011 75%

2012 76%

2013 81%

2014 81%

2015 106%

Return on Assets (ROA) shows the rate of return being earned on all of the firm's assets
regardless of financing structure. ROA measure how effectively the organization is
utilizing the partners' advantages for win returns. In ROA, the higher will be the better one,
since it shows that the organization is doing great in produce the benefit.

In the graph above, we can see the higher number of ROA in 2015 with ratio of 106%. The
lowest in 2011, with ratio of 75%% and this indicates Nestle was not really efficient in
using the assets to earn the return. However, the graph still shows an increasing trend in
Nestle for the five years. In the year of 2011 to 2014, we can see that there is not much of
difference gap between the years, except for the year of 2015. The difference gap between
2014 and 2015 was about 25%%. Even the total asset in 2015 is lower than previous year,

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but the net income is higher. It shows that during that year, nestle was really good in
manage their assets to earn the profit.

RETURN ON EQUITY

ROE is the indicator of how much money the investors are expected to receive if they
invest more in the company. Therefore, the higher percentage of ROE shows the more
capable a company are. Based on the graph above, it shows the higher percentage of ROE
in 2015 with ratio of 106%. As we can see, the graph shows little improvement from year
2011 until 2014, but in year 2015, it shows substantial increase which is about 25%. Nestle
has a stronger position in year 2015 since the profit generated during that year is good. If
we compare the difference between the year 2011 and 2015, their total equity not so differ,
but the net profit of Nestle is huge difference which is from RM 423,440,000 to RM
609,758,000. Thus, in 2011, it shows Nestle did not perform well in generate the profit
with the money that shareholders have invested.

YEAR ROE (%)

2011 75%

2012 78%

2013 81%

2014 81%

2015 106%

RETURN ON INVESTMENT

Return on investment is a performance measure that used to evaluate the efficiency of an

investment or to compare the efficiency of a number of different investments. ROI
measures the amount of return on an investment relative to the investment’s cost. In
calculating ROI, the return of an investment is divided by the cost of the investment, and
the result is expressed as a percentage or a ratio. As we can see in the graph, in year 2011
to 2012, the ratio is increased from 222% to 257%. In year 2013 to 2014, the ratio is same,

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which is 2.89% for both years. The higher ROA is in 2015, with ratio of 319%. Thus, it
indicates that Nestle is efficient in use the money invested in a project to produce the profit.

LEVERAGE RATIO

Leverage ratio is a financial measurement to look on how much capital comes in the form
debt, which is the loans, and assesses the ability of a company to meet financial obligations.
In a

YEAR ROI (%)

2011 222%

2012 257%

2013 289%

2014 289%

2015 319%

YEAR LEVERAGE RATIO

2011 0.001320253

2012 0.002371887

2013 0.002259715

2014 0.002507979

2015 0.002672868

Nestle is good in managing their liabilities since their total liabilities not too huge
differences for every year. In this financial measurement, the lower the leverage ratio, the
good the company are. As we can see from the graph, the leverage ratio in year 2011 to
2012 is increase from 0.0013 to 0.002, but then it decreases in 2013. However, it just a
slight decrease in 2013. Then, it starts to increase back from 2014 to 2015. Nestle has good

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leverage ratio in year 2011, as the lower the leverage ratio, the better the company
performance. Therefore, nestle need to make sure the leverage ratio will not increase too
much year by year. If not, nestle might facing the bankruptcy or having problem with their
debts.

LIQUIDITY RATIO

Liquidity ratio is an indicator for a company to know whether their current assets will be
sufficient or not to meet the company's obligations when they become due. Investors often
take a close look at liquidity ratios when performing fundamental analysis on a firm. Thus,
they use this ratio since liquidity ratio is a good measure of whether a company will be able
to comfortably continue as a going concern. As we can see from the trend of the graph
above, nestle has the lowest liquidity ratio in year 2015 with 375.13 and has the highest
liquidity ratio in year 2011 with 758.43. However, if the company has higher liquidity ratio
which is more than 3, it shows the company is not efficient

YEAR LIQUIDITY RATIO

2011 758.4306864

2012 422.6052104

2013 443.5335943

2014 399.7273796

2015 375.1298956

in using their current assets. Thus, since Nestle have too much of liquidity in their company,
it shows the Nestle having too much of their current asset and not efficient in using it.

OPERATING PROFIT MARGIN

Operating profit margin indicates how much profit generated by a company after paying
for variable costs of production. It allows a company to examine a company’s efficiency

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in more detail, where generating profits from revenues is concerned. Operating profit
margin ratio shows how much of each Ringgit in sales translates into profits from a firm’s
regular business operations, as opposed to from other income sources, such as the sale of
an asset.

For the Nestle’s operating profit margin, the trend of movement in the graph in year 2011
to 2015 is up and down. For example, if we look at the year 2011, the operating profit
margin ratio is 1.00246, then it decreases to 0.999 in 2012. In 2013, the ratio increases back
to 1.0007 and same movement happen in year 2014 and 2015. Nestle have higher ratio
value in 2011. Therefore, it shows the more revenues are available to fund Nestle’s non-
operational costs, such as the interest payments on any debts it may be carrying. However,
a higher operating margin ratio also means there is more cash available to be paid out as
dividends to investors.

As should be obvious from the information examination that has been done in this
investigation, there have a few shortcomings in Nestle that ought to be improve. Right off
the bat, Nestle ought to improve their training in the corporate administration. Corporate
administration is the framework by which an organization are coordinated and controlled.
The better the acts of corporate administration in an organization, the better the
organization are. In Nestle, they don't have ideal corporate administration since hazard the
board panel not have any significant bearing in their organization. Hazard the executives
is significant in an organization since it established to help the board in the release of its
obligations and duties in such manner. Great practices in corporate administration can build
the organization execution. The influence in this organization shows a decent outcome,
along these lines Nestle must keep up this normal in 2015 onwards. So as to look after it,
Nestle must control the obligation and decreased the buying in credit. Influence and
productivity assumes the fundamental job so as to increase high benefit. When the risk of
organization is higher than value, it can brings about unpredictable gaining. In the event
that the influence hazard is high, it might expand the odds of insolvency. Other than that,
the other proposal is Nestle ought to apply the Shariah Committee Board in the board
advisory group. Indeed, even Nestle is a universal business and work around the world, yet

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they have business activity in Malaysia. As we probably am aware, Malaysia is an Islamic
nation. Along these lines, it is better if any business that works in Malaysia actualize the
Shariah council board in the organization. Settle ought to give the Shariah Committee
Board in Nestle Malaysia for a superior administration advisory group. In the liquidity
proportion, there are negative relationship between's the benefit and the diagram of
liquidity proportion likewise decline for the five sequential years. It shows Nestle become
more terrible for the up and coming years, as we can foresee from the earlier year
examination. This may cause to liquidity hazard. Consequently, so as to forestall it, review
board of trustees should screen the income which is timing between when a business
gathers its business incomes and takes care of its tabs.

Nestle company is a purchaser industry that creating top notch items, for example, Maggi,
Kitkat and Nescafe. Settle is a decent worldwide organization rather than their fare import
and furthermore regarding their gainfulness. In view of the examination that have been
broke down for the five successive years, Nestle is acceptable in their arrival on resource
(ROA) and profit for value (ROE). Regarding hazard, Nestle have little hazard in their
liquidity and operational risk. These kinds of hazard generally looked to all organizations.
In addition, Nestle has negative immaterial connection between the complete resources and
the organization execution. By and large, it shows Nestle not productive in utilizing their
resources for create pay. Hence, this organization should concern more in their reasonable
of complete resources for decrease the wastefulness of capacity to produce benefit. In 2015,
Nestle has the higher net benefit. Settle must keep up and improve their persistent benefit
for the up and coming years. Settle ought to have better practice on their corporate
administration, so we have prescribe to this organization to actualize the Shariah
Committee and hazard the board advisory group for a superior practices. Creating Shared
Value ("CSV") is a principal part of Nestlé's method for working together. We accept that
all together for our business to succeed in the long haul, it is fundamental to think about
the requirements of our investors, just as the necessities of the networks in which we work.
CSV is the establishment of our Company's way of life and qualities and shapes how we
maintain our business. At Nestlé, we accept that we should guarantee that the networks
wherein we work have chances to create and flourish. This will hence guarantee the
manageable achievement of our Company over the long haul. So as to accomplish this, we

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have effectively inserted the idea of CSV over our worth chain and activities, concentrating
on these three columns which are center to our business and have magnificent potential for
joint-esteem advancement: Nutrition: Food and Nutrition are the premise of health and our
business – it is the explanation we exist.

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INTERNAL CONTROL ANALYSIS

The foundation of a proper control condition and control structure just as for auditing its
viability, ampleness and trustworthiness is proof of the Board's general duty regarding the
Group's arrangement of inside control. It is intended to deal with the danger of non-
accomplishment of the Group's goals and give sufficient confirmation against the event of
any material error or misfortune. The Directors' Statement on Risk Management and
Internal Control, which gives a review of the condition of inner controls inside the Group,
is counted at pages 22 to 24 of this Corporate Governance and Financial Report 2015.
Access to Information and Advice the Board and the Board Committees get convenient
and cutting-edge data. The Company Secretary, under the bearing of the Chairman,
guarantees a reasonable progression of data is scattered for choices to be made on an
educated reason for the powerful release regarding the Board's obligations. Preceding the
Board and Board Committee gatherings, a formal and organized plan, as endorsed by the
particular Chairman of the Board and the Committees, together with a lot of Board and
Board Committee papers, are sent to all Directors in any event five (5) days before the
Board and Board Committee gatherings, for the Directors to be set up to manage matters
emerging from such gatherings and to empower the Board and Board Committees to decide.
Notwithstanding that, perusing materials on the topic, assuming any, are additionally
arranged and circled at any rate five (5) days before each gathering to help Directors in
having a comprehension of the topic. The Board solidly accepts that successful pondering
and its dynamic procedure is profoundly reliant on the nature of data outfitted by the
Management Team and the Leadership Team. As a feature of the Board's drive to advance
ecological manageability and efficiencies, the Board has received paperless gathering
documentations through the use of electronic gadgets. Every now and then, at whatever
point the Board requires applicable data refreshes from any individuals from the
Management Team or the Leadership Team, the pertinent individual from the Management
Team or the Leadership. Outside counsels may likewise be welcome to go to Board and
Board Committee gatherings, all things considered, to give extra experiences and expert
perspectives, guidance and clarifications on explicit things on the gathering plan. All
Directors have unlimited access to data inside the Group. There is additionally a
conventional methodology endorsed by the Board for all Directors, in the case of going

22
about as a full Board or Board Committee, or in their individual limit, to acquire
autonomous expert exhortation, when vital, at the Company's cost. Preceding connecting
with an autonomous counselor, endorsement must be gotten from the Chairman and, where
pertinent, the Chairman may raise the solicitation for the Board's assessment on the
requirement for outside exhortation.

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AUDIT CYCLE

The function and responsibility,

Reporting

Internal and external control

Risk management

Internal audit

External audit

Committee meeting

Disclosure

Review of terms of reference

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REPORTING

Review the quarterly, cumulative half year and full year results, and final draft of the
financial statements (prior to the meeting of the Board to approve the financial statements),
receiving explanations for significant variations from the prior year and from budget, if
any, and referring issues to the Board, as and when necessary;

INTERNAL AND EXTERNAL CONTROLS

Review and evaluate, with the external and internal auditors, management procedures
which are designed to provide assurance of compliance with laws, regulations, policies and
codes of practice or conduct

RISK MANAGEMENT

Oversee the formulation of the Group’s overall enterprise risk management framework and
strategies, including policies, procedures, systems, capability and parameters to identify,
assess and manage risks, including any new or emerging trends of threats to ensure their
relevance and appropriateness to the Group’s position and business.

INTERNAL AUDIT

Review the performance of the Head of Nestlé Internal Audit and the members of the
Nestlé Internal Audit Department, and review the appointment and movement of the Head
of Nestlé Internal Audit and the members of the Nestlé Internal Audit Department; and
Ensure an Internal Audit Charter is in place and that the internal audit function is operating
effectively and in accordance with the Standards for the Professional Practice of Internal
Auditing.

EXTERNAL AUDIT

Review the provision of non-audit services by the external auditor to ascertain whether
such provision of services would impair the auditor’s independence or objectivity.

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RATIO ANALYSIS

PROFITABILITY RATIO

Profitability ratio assess a business’s ability to generate incomes. In assessing profitability ratios,
having higher ratio than the competitors/prior period indicates that the business is doing well.

GROSS PROFIT MARGIN

Measures how much of every RM of revenue is left after paying the cost of goods sold/cost of sales
(COGS).

𝑅𝑒𝑣𝑒𝑛𝑢𝑒 − 𝐶𝑂𝐺𝑆
𝐺𝑟𝑜𝑠𝑠 𝑃𝑟𝑜𝑓𝑖𝑡 𝑀𝑎𝑟𝑔𝑖𝑛 =
𝑅𝑒𝑣𝑒𝑛𝑢𝑒

GROSS PROFIT MARGIN

2017 2018 2019

COGS 3,330,141 3,381,380 3,444,561

REVENUE 5,260,490 5,519,045 5,518,076

RATIO 0.36695232 0.38732516 0.37576775

According to the gross profit margin calculated, Nestle used up almost 60% of its revenue to pay
off the cost of goods sold. For every RM1 they earned through sales, only approximately RM0.40
are left for them to pay for other expenses

NET PROFIT MARGIN

It is the percentage of remaining revenue after paying off all expenses and taxes. The ratio indicates
how much of the revenue is left for Nestle to keep the company rolling and pay off dividends to
the shareholders

𝑃𝑟𝑜𝑓𝑖𝑡 𝐴𝑓𝑡𝑒𝑟 𝑇𝑎𝑥

𝑁𝑒𝑡 𝑃𝑟𝑜𝑓𝑖𝑡 𝑀𝑎𝑟𝑔𝑖𝑛 =
𝑅𝑒𝑣𝑒𝑛𝑢𝑒

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 NET PROFIT MARGIN

2017 2018 2019

PROFIT AFTER TAX 645,795 658,882 672,913

REVENUE 5,260,490 5,519,045 5,518,076

RATIO 0.12276328 0.11938334 0.12194703

For the three years analysed, Nestle used up around 85% of its revenue on expenses and taxes,
which leave them to about 15% of its revenue to pay off dividends and kept as retained earnings.
This means that, for every RM1 of revenue earned, RM0.85 are used to pay off expenses and taxes
including interests and only RM0.15 are left for dividends and retained earnings.

LIQUIDITY RATIO

Financial metrics that is important to determine business’s ability to pay off current debt obligation
without any external capital. It measure’s company ability to cover short-term obligations and cash
flows without affecting its solvency.

CURRENT RATIO

Measures the company’s ability to pay off short-term debt or debt due within a year. Helps investors
decide whether or not company maximize its current assets to satisfy current debts.

𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐴𝑠𝑠𝑒𝑡𝑠
𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝑟𝑎𝑡𝑖𝑜 =
𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠

CURRENT RATIO

2017 2018 2019

CURRENT ASSETS 1,073,112 1,215,416 1,073,013

CURRENT LIABILITIES 1,622,058 1,782,079 1,654,750

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 RATIO 0.66157437 0.68202139 0.64844418

Since the ratios for all three years are under 1, it indicates that Nestle’s debt are greater than its
assets. The ratio is translated as every RM1 of debt, only about RM0.65 assets are available to
pay off its debt.

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QUICK RATIO

Also known as the acid-test ratio, where it measures the company’s quick assets’ ability to pay off
its immediate debt.

𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐴𝑠𝑠𝑒𝑡𝑠 − 𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦

𝑄𝑢𝑖𝑐𝑘 𝑅𝑎𝑡𝑖𝑜 =
𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠

QUICK RATIO

2017 2018 2019

CURRENT ASSETS 1,073,112 1,215,416 1,073,013

INVENTORY 467,316 530,378 551,827

CURRENT LIABILITIES 1,622,058 1,782,079 1,654,750

RATIO 0.3734737 0.38440383 0.31496359

Since the quick ratios for all three years are below the value of 0.5, it indicates that Nestle’s debt
are much greater than its assets. The ratio is translated as every RM1 of debt, only about RM0.40
quick assets are available to pay off its debt. Nestle’s may not be able to pay off its immediate debt
without resorting to external capital since its own assets are not enough to repay its liabilities.

RETURN RATIO

Measures the amount of profit earned respective of firm’s level of investment in total assets.

RETURN ON ASSETS

Measures the net income produced by total assets during the period. In other words, measures the
efficiency of a company’s management of its assets to generate profit.

𝑁𝑒𝑡 𝐼𝑛𝑐𝑜𝑚𝑒
𝑅𝑒𝑡𝑢𝑟𝑛 𝑜𝑛 𝐴𝑠𝑠𝑒𝑡𝑠 =
𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡𝑠

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 RETURN ON ASSETS

2017 2018 2019

OPERATING INCOME 847,902 914,596 911,993

TOTAL ASSETS 2,556,986 2,847,282 2,726,538

RATIO 0.33160213 0.32121722 0.33448754

Higher ratio is much more favorable to the investors since it shows that the company is utilizing its
asset effectively. In this case, only about 30% of assets are used to generate revenue. From the
investors’ perspective, Nestle is not managing its assets effectively to generate revenue.

RETURN ON EQUITY

Similar to return on assets, this ratio measures ability of one firm to generate revenue from its
shareholders’ investments. ROE also shows how much profit will each RM1 of equity generates.

𝑁𝑒𝑡 𝐼𝑛𝑐𝑜𝑚𝑒
𝑅𝑒𝑡𝑢𝑟𝑛 𝑜𝑛 𝐸𝑞𝑢𝑖𝑡𝑦 =
𝑆ℎ𝑎𝑟𝑒ℎ𝑜𝑙𝑑𝑒𝑟 ! 𝑠 𝐸𝑞𝑢𝑖𝑡𝑦

RETURN ON EQUITY

2017 2018 2019

NET INCOME 645,795 658,882 672,913

SHAREHOLDER'S
639,928 654,333 664,924
EQUITY

RATIO 1.00916822 1.00695212 1.01201491

From this calculation, we can assume that most of the income are generated from the shareholder’s
equity. And for every RM1 that is invested, the profit generated is also RM1.

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TREND ANALYSIS

Trend analysis evaluates financial information over a period of time. In this case, the trend analysis
will be measured on yearly basis. The goal of this analysis is to calculate and analyze the amount
change from 2017 to 2019. With this analysis, we can calculate whether or not Nestle is improving
over the years.

HORIZONTAL ANALYSIS

Percentage Percentage
2017 2018 2019
changes changes
RM'000 RM'000 RM'000
(2018) (2019)

Revenue 5,260,490 5,519,045 4.92% 5,518,076 -0.02%

Cost of sales -3,309,386 -3,381,380 2.18% -3,444,561 1.87%

Gross profit 1,951,104 2,137,665 9.56% 2,073,515 -3.00%

Other income 5,056 16,819 232.65% 20,960 24.62%

Selling and
-944,096 -1,023,305 8.39% -977,094 -4.52%
distribution expenses

Administrative -156,335 -177,990 13.85% -192,373 8.08%

expenses

Other expenses -8,238 -38,593 368.48% -13,015 -66.28%

Results from
847,491 914,596 7.92% 911,993 -0.28%
operating activities

Finance income 1,443 3,622 151.00% 3,662 1.10%

Finance costs -37,503 -43,123 14.99% -40,663 -5.70%

Net finance
-36,060 -39,501 9.54% -37,001 -6.33%
(costs)/income

Share of profit of an
equity-accounted 785 795 1.27% 733 -7.80%
associate net of tax,

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Profit before tax 812,216 875,890 7.84% 875,725 -0.02%

-169,666 -217,008 27.90% -202,812 -6.54%

Income tax expense

642,550 658,882 2.54% 672,913 2.13%

Profit for the year

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VERTICAL ANALYSIS

2017
Percent
RM'000

Revenue 5,260,490 100.00%

Cost of sales -3,309,386 62.91%

Gross profit 1,951,104 37.09%

Other income 5,056 0.10%

Selling and distribution

-944,096 17.95%
expenses

Administrative expenses 2.97%

-156,335

Other expenses -8,238 0.16%

Results from operating

847,491 16.11%
activities

Finance income 1,443 0.03%

Finance costs -37,503 0.71%

Net finance
-36,060 0.69%
(costs)/income

Share of profit of an
equity-accounted 785 0.01%
associate net of tax,

Profit before tax 15.44%

812,216

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Income tax expense -169,666 3.23%

Profit for the year 642,550 12.21%

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 2018
Percent
RM'000

Revenue 5,519,045 100.00%

Cost of sales -3,381,380 61.27%

Gross profit 2,137,665 38.73%

Other income 16,819 0.30%

Selling and distribution

-1,023,305 18.54%
expenses

-177,990 3.23%
Administrative expenses

Other expenses -38,593 0.70%

Results from operating

914,596 16.57%
activities

Finance income 3,622 0.07%

Finance costs -43,123 0.78%

Net finance
-39,501 0.72%
(costs)/income

Share of profit of an
equity-accounted associate 795 0.01%
net of tax,

875,890 15.87%
Profit before tax

-217,008 3.93%

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Income tax expense

Profit for the year 658,882 11.94%

36
 2019
Percent
RM'000

Revenue 5,518,076 100.00%

Cost of sales -3,444,561 62.42%

Gross profit 2,073,515 37.58%

Other income 20,960 0.38%

Selling and distribution

-977,094 17.71%
expenses

Administrative expenses -192,373 3.49%

Other expenses -13,015 0.24%

Results from operating

911,993 16.53%
activities

Finance income 3,662 0.07%

Finance costs -40,663 0.74%

Net finance
-37,001 0.67%
(costs)/income

Share of profit of an
equity-accounted associate 733 0.01%
net of tax,

Profit before tax 875,725 15.87%

Income tax expense -202,812 3.68%

Profit for the year 672,913 12.19%

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CONCLUSION

Nestlé uses a lot of efforts to achieve its visions to be the world’s number one in Nutrition,
Health, and Wellness Company by generating better quality of products to the buyers. The
organization also goes into great lengths to learn about the consumer’s needs from
generation to generation and meet the customer’s hunger as much as possible. The
company’s powers like the larger financial capability, effective strategic marketing
capability, strong research and development, as well as great leaderships have helped them
through the complications. In particular, Nestlé concentrates on its missions and ensures
consistency by making the right decisions to manage and build its business to deliver the
promise of Good Food, Good Life all over the world.

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