INTERNAL ASSESSMENT FINANCE/ACCOUNTING

1
INTERNAL ASSESSMENTFINANCE/ACCOUNTING

• THREE DECISION AREAS
• INVESTMENT DECISION- WHAT ASSETS TO BUY
• FINANCING DECISION- WHAT IS THE BEST CAPITAL
  STRUCTURE
• OPERATING DECISION- HOW TO OPERATE THE ASSETS OF
  THE FIRM IN THE MOST EFFICIENT MANNER

2
RATIO ANALYSIS

• PROVIDE A PICTURE AT A POINT IN TIME
• MEASURES STRENGTH AND WEAKNESS
• CAN PROVIDE A COMPARISON WITH INDUSTRY NORMS
• PROVIDES A COMPARISON WITH INDUSTRY LEADERS
• NEEDS TO BE LOOKED AT OVER TIME

3
TYPES OF FINANCIAL RATIOS

• LIQUIDITY-MEASURES ABILITY TO PAY SHORT TERM DEBT
• LEVERAGE - THE EXTENT OF DEBT IN THE CAPITAL
  STRUCTURE
• ACTIVITY- HOW EFFECTIVELY A FIRM USES ITS ASSETS
• PROFITABILITY- HOW MUCH VALUE DOES THE FIRM
  CREATE
• GROWTH-MEASURES THE FIRMS ABILITY TO MAINTAIN
  ITS ECONOMIC POSITION

4
LIQUIDITY RATIOS

• LIQUIDITY RATIOS
• CURRENT RATIOCURRENT ASSETS/CURRENT
  LIABILITIES
• 1984 1.90
• 1989 1.99
• 1998 1.39
• NESTLE, 1998 1.18
• CAMPBELLS, 1998 .52

5
LEVERAGE RATIOS

• DEBT TO ASSETS- TOTAL DEBTS/ TOTAL ASSETS()
• 1984 13.62 1989 13.99 1998 70.4.03
• NESTLE, 1998 59.2
• CAMPBELLS, 1998 85.5
• DEBT TO EQUITY- TOTAL DEBT/ EQUITY
• 1984 .18 1989 .23 1998 2.26
• NESTLE, 1998 2.45
• CAMPBELLS, 1998 .85

6
ACTIVITY RATIOS

• TOTAL ASSET TURNOVER- SALES/TOTAL ASSETS
• 1984 1.80 1989 1.35 1998 1.30
• NESTLE, 1998 1.27
• CAMPBELLS, 1998 1.19

7
PROFITABILITY RATIOS

• NET PROFIT MARGIN- NET INCOME/ SALES
• 1984 5.74 1989 7.07 1998 7.66
• NESTLE, 1998 5.98
• CAMPBELLS, 1998 9.86
• RETURN ON EQUITY
• 1984 16.44 1989 16.12 1998 32.7
• NESTLE, 1998 18.6
• CAMPBELLS, 1998 75.5

8
GROWTH RATIOS

• EPS NET INCOME/ NO. SHARES OUTSTANDING
• HERSHEY NESTLE CAMPBELLS
• 1998 2.38 3.48
  3.83
• 5 YR. AVE. 1.69 3.14
  2.80

9
RETURN ON EQUITY

• EFFECTIVENESS X EFFICIENCY X LEVERAGE RETURN
  ON EQUITY
• (SALES/ TOTAL ASSETS) X (NET INCOME/ SALES) X
  (TOTAL ASSETS/ EQUITY) ROE
• HERSHEY, 1998 (000)
• (4435/3404) X (340/4435) X (3404/1042) 32.7

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PHARMACEUTICALS
COMPANY 1998 1996/1995
Novartis .196 .167 Schering Plough .439 .213 Wa
rner-Lambert .347 .105 American
Home .257 .134 Merck .41 .20 Pfizer .38 .19
6 Watson .16 .278