Economic and Financial Analysis of Selected Nigerian Enterprises: Nestle and Cadbury

B.Sc. Olajide Bolawa, BSc

Master's thesis

Abstract:

The economic landscape of Nigeria has undergone dynamic shifts in recent years, necessitating a thorough examination of the financial health of enterprises within the country. Economic and financial analyses serve as fundamental tools for assessing the performance and stability of companies, offering stakeholders, investors, and policymakers a lens through which to evaluate economic health and potential risks. The primary objective of the thesis is to assess and compare the financial well-being of the selected companies, Nestlé and Cadbury, due to their competitive nature during the time period between 2012 and 2022. The financial analysis encompassed several dimensions, including absolute indicators, ratio analysis, analysis of cumulative indicators, and Economic Value Added (EVA). These analyses provided insights into the companies' profitability, liquidity, debt management, asset efficiency, financial stability, and operating cash flow. To outline the key findings, few areas were assessed. In terms of profitability, it was evident that Nestlé consistently outperformed Cadbury, demonstrating stronger revenue generation, cost control, and asset management practices. Cadbury, on the other hand, faced challenges in maintaining stable profitability, with lower ratios and higher variability. When looking at liquidity management, both companies generally maintained satisfactory liquidity ratios, Cadbury exhibited more robust liquidity positions, often surpassing optimal thresholds. However, fluctuations in these ratios for both companies highlighted the importance of vigilant liquidity management. Consequently, in debt management practices, Nestlé demonstrated higher levels of total debt and debt-to-equity ratios compared to Cadbury, suggesting greater financial leverage. However, Nestlé managed to maintain more stable interest coverage ratios, indicating better debt management practices. Another important area of assessment was asset efficiency. Cadbury displayed superior asset turnover ratios and shorter inventory holding periods, indicating better operational efficiency and resource utilization compared to Nestlé. This suggested that Cadbury effectively managed its assets to generate revenue and minimize excess inventory. In terms of financial stability, based on companies’ Altman Z-scores, both entities indicated decreasing trends with a higher risk of bankruptcy. However, Nestlé generally showed lower volatility in financial ratios, reflecting relatively better financial stability compared to Cadbury. Lastly, in operating cash flow, Nestlé consistently demonstrated stronger operating cash flow generation, indicating efficient working capital management and sustainable cash generation. Cadbury, meanwhile, exhibited more variability in performance, especially in operating cash flow relative to sales. Based on the overall findings, Nestlé presented itself as a more attractive investment option due to its stronger profitability, stable financial ratios, lower risk of bankruptcy, and more consistent performance across various financial metrics. Conducted financial analysis also included testing several hypotheses related to industry comparisons, profitability, financial metrics, financial stability, and operational efficiency. The findings supported the two of the identified hypotheses, indicating significant differences between the companies in various financial aspects. Lastly, the respective recommendations for Nestlé and Cadbury were offered. For Nestlé it included the following: •Maintain focus on profitability by sustaining effective cost control measures and optimizing revenue streams. •Improve liquidity management by maintaining adequate cash reserves and optimizing working capital efficiency. •Manage debt levels carefully to ensure sustainable financial leverage and maintain healthy interest coverage ratios. •Enhance asset efficiency by improving asset turnover ratios and reducing inventory holding

Abstract:

periods. •Strengthen financial stability by stabilizing Altman Z-scores through consistent financial performance and risk management. •Sustain strong operating cash flow generation by efficiently managing working capital and prioritizing investments with sustainable returns. For Cadbury, the following adjustments were advised: •Improve profitability by implementing strategies to enhance revenue generation and cost control. •Maintain vigilant liquidity management to ensure consistent liquidity positions and mitigate the risk of liquidity shortages. •Work on reducing total debt levels and debt-to-equity ratios to lower financial leverage and stabilize interest coverage ratios. •Optimize asset utilization by improving asset turnover ratios and reducing inventory holding periods. •Strengthen financial stability by stabilizing Altman Z-scores and reducing volatility in financial ratios. •Focus on improving operating cash flow management to ensure sustainable cash generation and profitability. In conclusion, it can be stated that by implementing the recommendations provided, both companies can enhance their financial well-being, mitigate risks, and position themselves for sustainable growth and success in the dynamic Nigerian food processing industry despite challenging economic environment.

Keywords

Financial statements, Financial ratios, Food processing industry, Kralicek Quick Test, Altman Z-score, Financial analysis

Language used: English

Date on which the thesis was submitted / produced: 3. 4. 2024

Thesis defence

• Date of defence: 27. 5. 2024
• Supervisor: Ing. Bohuslava Boučková, CSc.
• Reader: Libuše Jiskrová, externi

Czech University of Life Sciences Prague

Faculty of Economics and Management

Master programme:
Business Administration