CONTENT
NO. CONTENT
1
PAGE
Activity 2:
Provide detailed discussion on usefulness of non-accounting information and
2-8
accounting information in the annual report.
2
Activity 3:
Provide Detailed discussion on specific financial accounting information that might
9-10
be of interest users of financial statements such as government, shareholders and
bankers.
3
Activity 4:
Provide detailed discussion on specific financial accounting information that might
11
be of interest of users (employees, customers, suppliers) of financial statements.
4
5
Activity 5:
Financial statement analysis – required: calculating ratios and doing some
interpretation. Perform financial analysis at company and group levels for two years.
12-15
Activity 6:
16-19
Corporate governance – required: locating and commenting on aspects of corporate
governance at Nestle Malaysia Berhad
6
Reference
20
1
2. Provide detailed discussion on usefulness of non-accounting information (such as mission and
vision of Nestle Malaysia Berhad, Corporate Social responsibility, Statement of Corporate
Governance, Statement of Risk Management and Internal Control and Audit Committee Report)
and accounting information (financial statements) in the annual report.
Usefulness of non-accounting information
Mission and Vision of Nestle Malaysian Berhad
 Mission
“Nestle is dedicated to providing the best foods to people throughout their day, throughout their
lives, throughout the world. With our unique experience of anticipating consumers’ needs and
creating solutions. Nestle contributes to your well-being and enhances your quality of life.”
The mission statement of Nestle is well articulated and reflects the long terms objective of
doing the business. It has mentioned in the mission statement that the company will provide
consistently the best food product with the best quality throughout the life of their customers,
which will ultimately enhance the quality of the life of its customers. The mission statement put
the emphasis on the presence of the company in nearly every country. It promises in its mission
statement that the company will understand the need of its customers and provide the best products
to full-fill the needs. The mission also shows the high quality which is maintained in the wide
range of products of Nestle. The company reassures that they provide the best range of food
products to remain the first preference of its consumers.
 Vision
“Nestle Norden’s aim is to meet the various needs of the consumer every day by marketing and
selling food of a consistently high quality,”
To achieve this vision Nestle has two steps to follow, first is High quality and collaboration,
which is integral part of any food business to flourish and second is Focus on e-business and
websites. Nestle has started investing heavy in development of e-business and its promotion so as
to capture clients in e-business sphere also.
2
Corporate Social Responsibility
Key Objectives:
To make sure the Board comprises of individuals with the necessary skills, knowledge and experience to
ensure that it is effective in discharging its responsibilities and to have oversight of all matters relating to
corporate governance.

Leads the process for identifying and making recommendations to the Board regarding candidates for
appointment as Directors, giving full consideration to succession planning and the leadership needs of
the Company.

Regularly reviews and makes recommendations in relation to the structure, size and composition of
the Board including the diversity and balance of skills, knowledge and experience, and the
independence of the Independent Non-Executive Directors;

Oversees the performance evaluation of the Board, the Board Committees and individual Directors;

Reviews the succession plans, including the potential candidates to the Board, policy on Board
composition and Board Diversity (including gender, ethnicity/cultural background and age diversity)
and reviews the management development and succession plans for the Management Team of the
Company;

Makes recommendations to the Board on the composition of the Board and Board Committees; and

Reviews the tenure of each of the Non-Executive Directors.
3
Statement of Corporate Governance
The role of the Board is to lead the Company and to oversee its governance. The Directors also
recognize the Board’s pivotal role in shaping the Group’s culture and values. Nestlé is an organization
built upon solid ethical foundations with a strong and constant culture. The members of the Board, together
with Senior Management (Nestlé Leadership Team), continue to work closely with the businesses to
promote ethical culture and standards across the Group through a robust governance framework. The
practice of good corporate governance enhances the credibility and reputation of the Company, as it
promotes and safeguards the interests of Shareholders and other Stakeholders.
The Board comprises of eight Directors. The Non-Executive members of the Board bring a wide
range of business and financial experience to the Board, which contributes to the effective direction of the
Group. Besides that, the process for the nomination and appointment of Directors is a vital process as it
determines the composition and quality of the Board’s capacity and competency. Aside from Board
meetings, the Board is informed or updated, on important issues and major development of matters by the
Management Team and the Company Secretary. In addition, depending on the quality of information, the
Board has adopted paperless meetings through the usage of electronic devices in order to have the effective
deliberation and make its decision-making process smoother.
All Directors attended and successfully completed the Mandatory Accreditation Programmed as
required under the Listing Requirements to enhance their skills and knowledge and to keep abreast with
new developments in the business environment, corporate governance. They also attend the conferences
and seminars, face-to-face briefings, training and presentations that aid the Directors in the discharge of
their duties and responsibilities as Directors.
A key objective of the Board evaluation is to ensure that the Board is functioning well. This
includes gaining an understanding of the issues that the Board thinks warrant greater focus, as well as
determining areas where additional competence is needed within the Board and whether the Board
composition is appropriate. The results of the 2017 Board Effectiveness Evaluation will be used as a basis
for a refined Board Improvement Programmed to be adopted in 2018. Overall, the results of the Board
Effectiveness Evaluation were positive based on the majority of responses and feedback received.
4
Statement of Risk Management and Internal Control
The Board acknowledges its overall responsibility for monitoring the Group’s risk management
and internal control systems in order to facilitate the identification, assessment and management of risk,
and the protection of Shareholders’ investments and the Group’s assets. The Directors recognize that they
are responsible for providing a return to Shareholders and confirm that there is a process for identifying,
evaluating and managing the risks faced by the Group and the operational effectiveness of the related
controls. The system ensures the risk of the occurrence of any material misstatement, loss or fraud is
substantially mitigated. They also confirm that they have regularly monitored the effectiveness of the risk
management and internal control systems utilizing the review process set out below:
1. Standard
-
There are guidelines on the requirements for health and safety and environmental standards. There are
also guidelines on the level of internal control that each of the divisions should exercise over specified
processes. Each business has developed and documented policies and procedures to comply with the
control standards established, including procedures for monitoring compliance and corrective action.
2. High Level Controls
-
All businesses prepare annual operating plans and budgets which are updated regularly. Performance
against budget is monitored at operational level and centrally, with variances being reported promptly.
The cash position at Group and business level is monitored constantly and variances from expected
levels are investigated thoroughly. Clearly defined guidelines have been established for capital
expenditure and investment decisions. These include the preparation of budgets, appraisal and review
procedures and delegated authority levels.
3. Financial Reporting
-
Detailed management accounts are prepared every calendar month, consolidated in a single system
and reviewed by the Senior Management. They include a comprehensive set of financial reports and
key performance indicators covering commercial, operational, environmental and people issues.
Performance against budgets and forecasts are discussed regularly at meetings between the operations
and the Management Team, and at Board meetings.
4. Internal Audit
-
The Group’s businesses employ internal auditors with skills and experience relevant to the operation
of each business. All of the internal audit activities are coordinated centrally and are accountable to
5
the Audit Committee. A key function of the Group’s internal audit resources is to undertake audits to
ensure compliance with the financial control framework and make recommendations for improvement
in controls where appropriate. Internal audit also conducts regular reviews to ensure that risk
management procedures and controls are observed.
Audit Committee Report
The Audit Committee is chaired by an Independent Director who is a member of the Malaysian
Institute of Accountants (MIA), appointed by the Board from its members. The Chairman of the Audit
Committee is not the Chairman of the Board. All of the members of the Audit Committee are NonExecutive Directors, with a majority being Independent Directors. The Chairman of the Audit Committee,
Dato’ Mohd. Rafik Bin Shah Mohamad, and another member, Tan Sri Dato’ Seri Syed Anwar Jamalullail,
are both qualified Chartered Accountants, being members of the MIA. Tan Sri Datuk (Dr.) Rafiah Binti
Salim was the Assistant Governor of the Central Bank of Malaysia. All members of the Audit Committee
are financially literate and equipped with the required business skills. A quorum, established by the
presence of the Chairman, and at least one other member who is an Independent Director, has always been
met for the meetings of the Audit Committee. Upon invitation by the Audit Committee, the CFO,
representatives of the external auditor, the Head of Nestlé Internal Audit and the Head, Accounting &
Consolidation, Insurance/Pension have attended all the Audit Committee meetings.
The membership of the Audit Committee has been selected with the aim of providing a wide range
of financial and commercial expertise necessary to meet its responsibilities. The Audit Committee meets
at least four times during the year as part of its standard processes, supplemented by additional meetings
whenever necessary. The Company Secretary of the Company acts as the Secretary of the Audit
Committee who is in attendance at all meetings and records the proceedings of the meeting. The Audit
Committee may invite any employee of the Company to attend its meetings, has access to any form of
independent professional advice, information and the advice and services of the Company Secretary, if
and when required, in carrying out its functions. The Audit Committee reports to the Board every quarter
on matters falling within the Audit Committee’s Terms of Reference, including the recommendations of
the Audit Committee for the Board's consideration and approval. The Audit Committee continuously
reviews and updates its Terms of Reference with the last review carried out on 19 February 2018 and
approved by the Board on 20 February 2018.
6
Accounting Information (Financial Statements)
The consolidated financial statements of the Company as at and for the financial year ended 31
December 2017 comprise the Company and its subsidiaries (together referred to as the “Group” and
individually referred to as “Group entities”) and the Group’s interest in an associate. The financial
statements of the Company as at and for the financial year ended 31 December 2017 do not include other
entities. The principal activity of the Company is that of an investment holding company, whilst the
principal activities of the subsidiaries are as stated in note 5 to the financial statements. The holding
company during the financial year was Nestlé S.A., a company incorporated in Switzerland. The financial
statements were authorized for issue by the Board of Directors on 28 February 2018. The financial
statements of the Group and the Company have been prepared in accordance with Malaysian Financial
Reporting Standards (“MFRSs”), International Financial Reporting Standards and the requirements of the
Companies Act 2016 in Malaysia.
A complete set of financial statements is used to give readers an overview of the financial
results and condition of a business. The financial statements are comprised of four basic reports,
which are as follows:

Income statement.
Presents the revenues, expenses, and profits/losses generated during the reporting period. Revenues
include such things as sales, service revenues, and interest revenue. Expenses include the cost of goods
sold, operating expenses (such as salaries, rent, utilities, advertising), and nonoperating expenses (such
as interest expense). If a corporation's stock is publicly traded, the earnings per share of its common stock
are reported on the income statement. This is usually considered the most important of the financial
statements, since it presents the operating results of an entity. From the Statement of Profit and Loss
in the Nestle Financial Report, showing that net income for the year 2017 is RM34,558,000, profit
after tax as RM645,795,000 and total comprehensive income is RM625,857,000.

Balance sheet.
Presents the assets, liabilities, and equity of the entity as of the reporting date. Thus, the information
presented is as of a specific point in time. The first section of the balance sheet reports the
company's assets and includes such things as cash, accounts receivable, inventory, prepaid insurance,
buildings, and equipment. The next section reports the company's liabilities; these are obligations that
are due at the date of the balance sheet and often include the word "payable" in their title (Notes Payable,
7
Accounts Payable, Wages Payable, and Interest Payable). The final section is stockholders' equity,
defined as the difference between the amount of assets and the amount of liabilities. This is typically
considered the second most important financial statement, since it provides information about the
liquidity and capitalization of an organization. From the financial position in Nestle Financial
Report, the total amount of assets, liabilities and equity are shown as RM2,556,986,000,
RM1,917,058,000 and RM639,928,000 in the year 2017 respectively.

Statement of cash flows.
Presents the cash inflows and outflows that occurred during the reporting period. This can provide
a useful comparison to the income statement, especially when the amount of profit or loss reported
does not reflect the cash flows experienced by the business. This statement may be presented when
issuing financial statements to outside parties. The operating activities section explains how a
company's cash (and cash equivalents) have changed due to operations. Investing activities refer to
amounts spent or received in transactions involving long-term assets. The financing activities section
reports such things as cash received through the issuance of long-term debt, the issuance of stock, or
money spent to retire long-term liabilities. According to the statement of cash flow in Nestle Financial
Report 2017, there shows the result of cash flows from operating activities which net cash is
RM703,515,000 and cash flows from investing activities results as RM169,709,000 whereas cash flows
from financing activities is -RM404,359,000.

Statement of retained earnings/ stockholders’ equity.
Presents changes in equity during the reporting period. The report format varies, but can include
the sale or repurchase of stock, dividend payments, and changes caused by reported profits or losses.
This is the least used of the financial statements, and is commonly only included in the audited
financial statement package. According to statement of financial position, there shows the part of
owner’s equity with the share capital RM267,500,000 and the retained earnings RM381,600,000.
When the financial statements are issued internally, the management team usually only sees
the income statement and balance sheet, since these documents are relatively easy to prepare . The
four basic financial statements may be accompanied by extensive disclosures that provide additional
information about certain topics, as defined by the relevant accounting framework (such as generally
accepted accounting principles).
8
3. Find the financial highlights page. List the items given. Why might Nestle Malaysia Berhad want
its users to see this accounting information? Which users might be interested in this information
and why?
A quick glance on the corporate governance and financial report 2017 for Nestle will show a few
financial highlights worth mentioning. For FY2017, nestle with its subsidiaries as a group reported a profit
before tax of RM814,129,000, an increase of 6.2% from FY2016 profit before tax of RM766,494,000.
Profit after tax and minority interest in FY2017 stands at RM645,795,000, up 1.4% from RM637,127,000
in FY2016. Dividends paid and proposed for FY2017 is RM644,875,000 up 1.9% from RM6333,150,000
recorded in FY2016 (Nestle, 2017, pg. 42).
Nestle Malaysia Berhad might want its users to see this accounting information so that they can
use to reach decisions about how to manage the business, or invest in it, or lend money to it. Nestle
provided the summative data regarding all inflows of cash received by Nestle from its ongoing operations
as well as external investment sources, and the information is accumulated in accounting records with
accounting transactions which are recorded either through such standardized business transaction as
customer invoicing or supplier invoices or through more specialized transactions. Thus, the information
can help to earn trust from its stakeholders such as employees, consumers, suppliers and business partners
as the company share out the accounting information publicly.
Directors of businesses use accounting information to set goals for their organizations, to evaluate
and monitor progress towards those goals, and to take corrective action if necessary. Decisions based on
accounting information may include decisions on how much cash to borrow, which costs exceed budget,
which building to purchase. To assist management in making the optimum decision, accounting provides
internal reports. They need to know the total liabilities of Nestle for FY2017 in order for them to chart the
strategic direction of Nestle for FY2018, they can refer to the statements of financial positions as at 31st
December 2017 (at page 49 of Corporate Governance and Financial Report 2017). From the financial
report, we know that the total liabilities of Nestle for FY2017 is RM1,917,058,000 which comprised of
loans and borrowings, employee benefits, deferred tax liabilities, trade and other payables and current tax
liabilities. Several accountants and auditors can verify these items by asking Nestle to furnish all the
relevant documents which recorded these transactions and these different accountants and auditors in all
probabilities will come to the same conclusion that the amount is either correct or wrong.
9
-
Provide Detailed discussion on specific financial accounting information that might be of
interest users of financial statements such as government, shareholders and bankers (you may
discuss other users of financial statements).
Firstly, one of the interest users of financial statements – government agencies track and use taxes
are interested in the financial story of the company. They need the information on business profitability
in order to levy and they want to know whether the company is paying taxes according to current tax laws
in order to support decision about takeovers and grants. For example, Income Tax (Exemption) (No. 2)
Order 2017 has been gazette to provide companies which achieve an incremental chargeable income
(subject to fulfillment of conditions) to enjoy a reduction of their income tax rate of up to 4% for year
2017 and year 2018. Thus, Nestle Malaysia Bhd. Had paid RM955,000 for the income tax. (Corporate
Governance & Financial Report 2017, pg. 83)
Secondly, shareholders are the business proprietors of the company. The information that needed
by shareholders are sales, gross profit, net income, cash flow, assets and liabilities, earnings per share and
others. Although the information is primarily financial it may also include non- financial information and
this information is often provided in summary form summarizing the relevant state of affairs of the
company as a whole. For example, in Corporate Governance & Financial Report 2017 (pg.109- pg.111),
we can know that there are many shareholders of the Nestle Malaysia Berhad which are 30 companies (no.
of shareholders is 6922 people). Nestle Malaysia Bhd. is the biggest shareholders which has 72.613% of
the capital while the second largest is Citigroup Nominees (Tempatan) Sdn Bhd (6.613% of the capital).
They need to know the financial statement of the company before they invest the company because they
want to get the investment back after they invest the company and get a higher dividend.
Thirdly, bankers may use accounting information to guide decisions such as whether to lend or
how much to lend a business. They will first determine the borrowers’ ability to check whether the
borrowers’ meet scheduled payments or not. Based on accounting information, this assessment includes a
forecast of future operations and revenue. Hence, the bankers offer loans and other credit facilities on
terms that are based on the assessment of financial health of borrowers. Good financial health is indicated
by the company’s ability to pay its liabilities on time, high profitability, substantial securable assets and
liquidity while poor liquidity, low profitability, lack of assets that can be secured and an inability to pay
liabilities on time demonstrate poor financial health of borrowers.
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4. Find information in the annual report which might be of interest to employees, customers,
suppliers. Provide detailed discussion on specific financial accounting information that might be
of interest of above users of financial statements.
a) Employees
Employees use financial information as an indication of the company’s performance, to determine
if the company is profitable and whether they should expect a salary increment. In recent years, the
increase in number of shares and share options schemes for employees particularly in startups has fostered
a greater level of interest in accounting information by employees. Moreover, potential employees are also
interested to learn about the financial health of the organization they aspire to join in the future. For
example, in Statements of Profit or Loss and Other Comprehensive Income for the year ended 31
December 2017 of Nestle Malaysia Berhad, the profit shows RM 645,795,000 and have increasing from
RM637,127,000 for FY2016. This increasing of profit will give them confidence to work in Nestle
Malaysia Berhad.
b) Customers
Accounting information provides important information to customers about current position of a
business organization and to make a judgment about its future. Customers can be divided into three groups
– manufactures or producers, wholesalers and retailers and end users or final consumers. They need
assurance that the organization will continue providing inputs such as raw materials and must be assured
of consistent supply of products. They are also interested in continuous availability of products and related
accessories. For instance, in Statements of Profit or Loss and Other Comprehensive Income for the year
ended 31 December 2017 of Nestle Malaysia Berhad shows that the cost of sales increases from
RM3,066,051 to RM3,330,141 as showing Nestle is always available about providing products.
c) Suppliers
Suppliers need accounting information to assess the credit-worthiness of its customers before
offering goods and services on credit. Some suppliers only have a handful of customers. These customers
could be very large businesses themselves. Suppliers need accounting information of its key customers to
assess whether their business is in good health which is necessary for sustainable business growth. For
example, the suppliers can refer the Statement of Financial Position, showing the current liabilities in year
2017 is RM1,622,058 while the current assets is RM1,073,112, as calculating the current ratio, suppliers
know that Nestle is able to use up 66% of assets to cover the liabilities.
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5. Financial Statement Analysis (at company and group levels for two years)
(a) Profitability ratio
i. Gross profit margin= =

𝐺𝑟𝑜𝑠𝑠 𝑝𝑟𝑜𝑓𝑖𝑡
𝑆𝑎𝑙𝑒𝑠
𝑥 100
For Company at the year 2016 =
𝑅𝑀633450000
𝑅𝑀633450000
𝑥 100 = 100%
Interpretation: For every RM generated in sales, the company has 100% left over to cover basic
operating costs and profit.

For Company at the year 2017 =
𝑅𝑀645175000
𝑅𝑀645175000
𝑥 100 = 100%
Interpretation: For every RM generated in sales, the company has 100% left over to cover basic
operating costs and profit.

For Group at the year 2016 =
𝑅𝑀1997455000
𝑅𝑀5063506000
𝑥 100 = 39.45%
Interpretation: For every RM generated in sales, the company has 39.45% left over to cover basic
operating costs and profit.

For Group at the year 2017 =
𝑅𝑀1930349000
𝑅𝑀5260490000
𝑥 100 = 36.70%
Interpretation: For every RM generated in sales, the company has 36.7% left over to cover basic
operating costs and profit.
ii. Net profit margin =

𝑁𝑒𝑡 𝑝𝑟𝑜𝑓𝑖𝑡
𝑁𝑒𝑡 𝑠𝑎𝑙𝑒𝑠
𝑥 100
For Company at the year 2016 = =
𝑅𝑀632384000
𝑅𝑀633450000
𝑥 100 = 99.83%
Interpretation: For every RM1 of revenue earned, the firm has generated 99.83% of net profit after
corporate tax.

For Company at the year 2017 =
𝑅𝑀643675000
𝑅𝑀645175000
𝑥 100 = 99.77%
Interpretation: For every RM1 of revenue earned, the firm has generated 99.77% of net profit after
corporate tax.

For Group at the year 2016 =
𝑅𝑀571775000
𝑅𝑀5063506000
𝑥 100 = 11.29%
Interpretation: For every RM1 of revenue earned, the firm has generated 11.29% of net profit after
corporate tax.

For Group at the year 2017 =
𝑅𝑀625857000
𝑅𝑀5260490000
𝑥 100 = 11.90%
Interpretation: For every RM1 of revenue earned, the firm has generated 11.90% of net profit after
corporate tax.
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𝑁𝑒𝑡 𝑜𝑝𝑒𝑟𝑎𝑡𝑖𝑛𝑔 𝑝𝑟𝑜𝑓𝑖𝑡
iii. Return on capital employed (ROCE) = 𝑇𝑜𝑡𝑎𝑙 𝑎𝑠𝑠𝑒𝑡𝑠−𝑐𝑢𝑟𝑟𝑒𝑛𝑡 𝑙𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠

𝑅𝑀632384000
For Company at the year 2016 = 𝑅𝑀573760000−𝑅𝑀1359000 = 1.1048
Interpretation: Every RM invested in employed capital, the firm earns RM1.10.

𝑅𝑀643675000
For Company at the year 2017 = 𝑅𝑀584376000−𝑅𝑀1450000 = 1.1042
Interpretation: Every RM invested in employed capital, the firm earns RM1.10.

𝑅𝑀571775000
For Group at the year 2016 = 𝑅𝑀2494610000−𝑅𝑀1576843000 = 0.6230
Interpretation: Every RM invested in employed capital, the firm earns RM0.62.

𝑅𝑀625857000
For Group at the year 2017 = 𝑅𝑀2556986000−𝑅𝑀1622058000 = 0.6694
Interpretation: Every RM invested in employed capital, the firm earns RM0.67.
𝑁𝑒𝑡 𝑝𝑟𝑜𝑓𝑖𝑡
iv. Return on equity (ROE)= 𝑆ℎ𝑎𝑟𝑒ℎ𝑜𝑙𝑑𝑒𝑟 𝑒𝑞𝑢𝑖𝑡𝑦

𝑅𝑀632384000
For Company at the year 2016 = 𝑅𝑀572401000 = 1.1048
Interpretation: For every RM1 of funds that shareholders invested, management has generated
RM1.10 of net income.

𝑅𝑀643675000
For Company at the year 2017 = 𝑅𝑀582926000 = 1.1042
Interpretation: For every RM1 of funds that shareholders invested, management has generated
RM1.10 of net income.

For Group at the year 2016 =
𝑅𝑀571775000
𝑅𝑀647221000
= 0.8834
Interpretation: For every RM1 of funds that shareholders invested, management has generated
RM0.88 of net income.

𝑅𝑀625857000
For Group at the year 2017 = 𝑅𝑀639928000 = 0.9780
Interpretation: For every RM1 of funds that shareholders invested, management has generated
RM0.98 of net income.
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(b) Liquidity ratio
𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝑎𝑠𝑠𝑒𝑡𝑠
i. Current ratio = 𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝑙𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠

For Company at the year 2016 =
𝑅𝑀382738000
𝑅𝑀1359000
= 281.6321
Interpretation: For every RM1 of current liabilities that the firm has, it has RM281.63 worth of
current assets.

For Company at the year 2017=
𝑅𝑀393354000
𝑅𝑀1450000
= 271.2786
Interpretation: For every RM1 of current liabilities that the firm has, it has RM271.28 worth of
current assets.

For Group at the year 2016 =
𝑅𝑀1030036000
𝑅𝑀1576843000
= 0.6532
Interpretation: For every RM1 of current liabilities that the firm has, it has RM0.65 worth of current
assets.

𝑅𝑀1073112000
For Group at the year 2017 = 𝑅𝑀1622058000 = 0.6616
Interpretation: For every RM1 of current liabilities that the firm has, it has RM0.66 worth of current
assets.
ii. Acid test ratio =

𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝑎𝑠𝑠𝑒𝑡𝑠−𝑖𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑖𝑒𝑠
𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝑙𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠
For Company at the year 2016 =
𝑅𝑀382738000−0
𝑅𝑀1359000
= 283.6321
Interpretation: For every RM1 of current liabilities, it has RM283.63 worth of ‘current assets less
stock’.

For Company at the year 2017 =
𝑅𝑀393354000−0
𝑅𝑀1450000
= 271.2786
Interpretation: For every RM1 of current liabilities, it has RM271.28 worth of ‘current assets less
stock’.

For Group at the year 2016 =
𝑅𝑀1030036000−𝑅𝑀455337000
𝑅𝑀1576843000
= 0.3645
Interpretation: For every RM1 of current liabilities, it has RM0.36 worth of ‘current assets less
stock’.

For Group at the year 2017 =
𝑅𝑀1073112000−𝑅𝑀467316000
𝑅𝑀1622058000
= 0.3735
Interpretation: For every RM1 of current liabilities, it has RM0.37 worth of ‘current assets less
stock’.
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(c) Efficiency ratio
𝑆𝑎𝑙𝑒𝑠
i. Assets turnover = 𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑡𝑜𝑡𝑎𝑙 𝑎𝑠𝑠𝑒𝑡𝑠

For Company at the year 2017 =
𝑅𝑀645175000
𝑅𝑀584376000+𝑅𝑀573760000
2
= 1.1142
Interpretation: For every RM in assets, the firms generates RM1.11.

For Group at the year 2017 =
𝑅𝑀5260490000
𝑅𝑀2556986000+𝑅𝑀2494610000
2
= 2.0827
Interpretation: For every RM in assets, the firms generates RM2.08.
𝐶𝑂𝐺𝑆
ii. Inventory turnover (Number of times)= 𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑖𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑖𝑒𝑠

For Group at the year 2017=
𝑅𝑀3330141000
𝑅𝑀455337000+𝑅𝑀467316000
2
=7.2186
Interpretation: On average, the firm has produced and sold inventories 7.22 times in a year.
iii. Inventory turnover (Number of days)=

For Group at the year 2017 =
𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑖𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑖𝑒𝑠
𝐶𝑂𝐺𝑆
𝑅𝑀455337000+𝑅𝑀467316000
2
𝑅𝑀3330141000
𝑥 365
𝑥 365 = 50.5911
Interpretation: On average, the firm takes 51 days to sell its inventories.
(d) Investment ratio
𝑁𝑒𝑡 𝑖𝑛𝑐𝑜𝑚𝑒
i. Earnings per share = 𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑠ℎ𝑎𝑟𝑒𝑠 𝑜𝑓 𝑐𝑎𝑝𝑖𝑡𝑎𝑙 𝑠𝑡𝑜𝑐𝑘 𝑜𝑢𝑡𝑠𝑡𝑎𝑛𝑑𝑖𝑛𝑔

For Group at the year 2016 = 271.7 sen (refer from statement of profit or loss 2016)
Interpretation: Distribution of every RM of income to its shareholders, each share would receive
271.7 sen.

For Group at the year 2017 = 275.4 sen (refer from statement of profit or loss 2017)
Interpretation: Distribution of every RM of income to its shareholders, each share would receive
275.4 sen.
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6. Definition of Corporate Governance
Corporate governance is the system of rules, practices and processes by which a firm is directed and
controlled. Corporate governance essentially involves balancing the interests of a company's many
stakeholders, such as shareholders, management, customers, suppliers, financiers, government and the
community. Since corporate governance also provides the framework for attaining a company's objectives,
it encompasses practically every sphere of management, from action plans and internal controls to
performance measurement and corporate disclosure.
Discuss key components of corporate governance (board, management, external auditor and
internal auditor)
The Board is a recognized group of people who is going to lead the company and to oversee its
governance and activities of company. The Board is collectively responsible to the company’s
shareholders for the direction and oversight of the company to ensure its long-term success. The Board
met regularly for the whole year to approve the strategic objectives of the Group and lead the Group within
an effective controls framework to assess and manage risk and ensure the sufficient resources are available
to achieve the objectives set. The directors of company are the persons who are members of the Board
include Chairman, Chief Executive Officer (CEO) and Non-Executive Directors. The roles of the
Chairman and the (CEO) are carried out separately, with clear division of their duties, written provisions,
and agreed by the Board to ensure that no one has unconstrained decision-making power. The Chairman
is responsible for the operation and leadership of the Board, ensuring its effectiveness and setting its
agenda. The CEO is responsible for leading and managing the Group’s business within a set of authorities
delegated by the Board and for implementing the Board’s strategy and policy. The main responsibility of
an Independent Non-Executive Directors is to protect the interest of minority Shareholders and other
Stakeholders. The effective participation of Independent Non-Executive Directors helps to promote
greater accountability and balance in the Board’s decision-making process. In addition to their
responsibilities for strategy and business outcomes, the Non-Executive Directors play a key role in
providing a solid foundation for good corporate governance and ensuring that no individual or group will
dominate the Board’s decision-making. Each of them occupies or has occupied senior positions in industry,
provide valuable external perspectives to the Board’s deliberations through their experience and insight
from other departments enabling them to contribute significantly to Board decision-making.
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Nestlé is a flat organization with few levels of management and span of control was founded in
1866 by Henri Nestlé at VeVey (Switzerland). Nestlé has a Board of Directors, led by a Chairman Paul
Bulcke, who was the former Nestlé CEO. Full details of each member and the committees that they operate
within can be found in the Board of Directors section. The day-to-day management of the Nestlé business
is taken care of by the Executive Board. The designated Board Members manage diverse parts of the
global business. A full curriculum vita of each member can be found in the Executive Board section. The
Nestlé Group is managed by geographies - Zones EMENA (Europe, Middle East and North Africa),
Americas and Asia/Oceania/sub-Saharan Africa - for most of the food and beverage business, except for
the globally managed businesses, which include Nestlé Waters, Nespresso, Nestlé Health Science and
Nestlé Skin Health. They also have joint ventures such as Cereal Partners Worldwide and Froneri.
Currently, Nestlé is one of the world largest nutrition, health and wellness company and committed to
provide the best Nutritional food products around the world. Moreover, in order to ensure company long
term sustainable growth, company constantly reviews its product portfolio and focuses on its efforts. Also,
better understand the need of customer, nestle monitor consumer panels by conducting research.
Management of professional skills, curiosity and open-mindedness as well as a high level of interest in
other cultures, and also commitment to continuous learning, improving, and sharing knowledge. Besides
that, management also able to motivate staff in order to promote broader group performance and
willingness to take risks and remain calm under pressure. The participation of each employee at all levels
are focused on continuously adding value to company. In addition, having responsiveness, being
effectiveness and efficiency are the must for the management in Nestle as good governance requires that
organizations and their processes are designed to serve the best interests of stakeholders within a
reasonable time frame. The processes implemented by the organization to produce favourable results meet
the needs of its stakeholders, while making the best use of resources – human, technological, financial,
natural and environmental – at its disposal directly showing the efficiency and effectiveness of the
company. Consequence, success of Nestle is a reflection of clear define responsibilities, reflection of
professionalism, responsible attitude of management, well defined objective as well as significant global
leadership position.
An internal auditor is an employee of a company charged with providing independent and
objective evaluations of the company's financial and operational business activities, including
its corporate governance. Internal auditors also provide evaluations of operational efficiencies and will
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usually report to the highest levels of management on how to improve the overall structure and practices
of the company. The Group’s businesses hire internal auditors with skills and experience relevant to the
operation of each business. All of the internal audit activities are co-ordinated centrally and are responsible
to the Audit Committee. All Group businesses are required to comply with the Group’s financial control
framework that sets out the minimum control standards. A key function of the Group’s internal audit
resources is to undertake audits to ensure commitment with the financial control framework and make
recommendations for improvement in controls where appropriate. Internal audit also regularly reviews to
oversee risk management procedures and controls. The Audit Committee receives regular reports on the
results of internal audit’s work and monitors the status of recommendations made. It also conducts regular
reviews regarding to the sufficiency, qualifications and experience of the Group’s internal audit resources
and the quality and range of internal audit activity in the overall context of the Group’s risk management
system.
An external auditor audits the financial statements of companies, government entity, other legal
entity or organization in accordance with specific laws or rules and is independent of the entity being
audited. Users of these entities' financial information, such as investors, government agencies, and the
general public, rely on the external auditor to present an unbiased and independent audit report. The
transparent and professional relationship between the Group and the external auditors is maintained
primarily through the Audit Committee. The Audit Committee will review the engagement of the
company’s external auditor before submitted to the Board for approval. The Audit Committee works
closely with the Management Team to assess the suitability, performance and the independence of the
external auditor by considering the factors such as the audit committee's own assessment and the feedback
from the company's senior finance staff focuses on a range of factors that the Audit Committee considered
relate to audit quality. Based on the review, the Audit Committee concluded that there had been
appropriate focus and challenge on the primary areas of audit and the external auditor had applied robust
challenge and skepticism through the audit conducted by them. The Audit Committee also obtained
confirmation from the external auditor that they are and have been, independent throughout the conduct
of the audit engagement. Further, in ensuring the independence of the external auditor, the Audit
Committee does impose a requirement on the external auditor to rotate the audit partner responsible for
the Company audit every five years. In this regard, the Board is satisfied with the suitability and the
independence of the external auditor.
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How good governance contributes to high quality of financial statements?
The governance, as known as the Board will determine the working processes include detailed
instructions on the type of financial reports and similar information which will be submitted to the Board.
Apart from the full-year report, interim reports and the annual report, the Board reviews and evaluates
comprehensive financial information regarding the whole Group. The Board also reviews mainly through
the Audit Committee, the most important accounting principles applied by the Group in financial reporting,
as well as major changes in these principles.
The tasks of Audit Committee are review the reports about internal control and financial reporting
processes, as well as internal audit reports submitted by the Group’s internal audit function, known as the
Nestlé Internal Audit. The external auditor attends all meetings of Audit Committee and other meetings
with them twice a year without the presence of the Management Team to raise concerns. During the
evaluation of the performance and independence of the external auditor, the Audit Committee will meet
the Management Team without the presence of the external auditor at least once a year. Then, the Audit
Committee reports to the Board after each of its meeting. The Audit Committee will complete all the
meetings in a few minutes and are made available to all Board members and auditors.
The Nestlé Internal Audit and the Audit Committee will able to assess the objectivity,
independence, performance, experience, competency and quality of service delivered by the Group’s
external auditor. The assessment of the suitability and independence of the external auditor was made
according to the established policy implemented by the company. If there were no major gaps, the Audit
Committee will satisfy the result of assessment and subsequently gave the necessary suggestion to the
Board. The Audit Committee has acquired written assurance from the external auditor to confirm its
independence according to the terms of relevant professional and regulatory requirements.
In my opinion, I conclude that the Nestlé company enjoy the excellent level of governance and
this is a positive indicator of the importance of corporate governance, as well as providing a degree
classification of corporate governance index and a guidance for investors to invest in well-managed
corporate stocks. From that, a high quality financial statement provides clearer causal evidence to the
company’s shareholders.
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References
Annual Report Nestle 2017 (page 12,13,68)
Nestle Financial Report 2017 (page 4,5, 6,7,8,15,16,30,37,38,39,42,49,50,53,)
Nestle Society report 2017 (page 8,9, 12,)
https://www.investopedia.com/terms/c/corporategovernance.asp
https://www.ukessays.com/essays/management/nestle-corporate-governance-business-principlesmanagement-essay.php
https://www.nestle.com/aboutus/management
http://www.governancepro.com/news/
https://en.wikipedia.org/wiki/Board_of_directors
https://en.wikipedia.org/wiki/External_auditor
https://www.investopedia.com/terms/i/internalauditor.asp
https://www.accountingverse.com/accounting-basics/users-of-financial-statements.html
https://www.accountingformanagement.org/users-of-accounting-information/
https://www.accountingtools.com/articles/the-four-basic-financial-statements.html
https://www.crfonline.org/orc/cro/cro-16.html
https://gabriellubale.com/what-are-the-components-of-a-good-corporate-governance-process-forchamassaccos-and-micro-finance-institutions/
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CIA1001 INTRODUCTORY ACCOUNTING
SEMESTER 1- ACADEMIC SESSION 2018/2019
GROUP ASSIGNMENT 1
TUTORIAL CLASS: MONDAY (2PM-4PM)
PREPARED BY:
GROUP MEMBERS
MATRIK NUMBER
ALVIN YEAP SHI KHAN
CIC180003
ANG WAN WEI
CIC180005
CHEAH YEN YEN
CIC180007
SAW YIN YING
CIB180121
TEE ZI TING
CIB180135
CHECKED BY: DR. YAZKHIRUNI BINTI YAHYA
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