This case spans all 12 chapters and is based on the consolidated financial statements of Nestl. As

This case spans all 12 chapters and is based on the consolidated financial statements of Nestlé.

As you work with Nestlé throughout this course, you will develop the confidence and ability to use the financial statements of other companies as well.

Refer to Nestlé’s consolidated financial statements in Appendix A. If you wish, you can obtain the full annual report from www.nestle.com/investors. You may find the information overwhelming for now, but try to spot the key principles that we have discussed in this chapter. It will get progressively easier as you gain familiarity with the elements of the financial statements.

Requirements 1. Suppose you are a Nestlé shareholder. If you could pick one item on the company’s Consolidated Income Statement to increase year after year, what would it be and why? Did this item increase or decrease during 2016? What does this mean for Nestlé?

2. What was Nestlé’s largest expense for 2016? In your own words, explain what you understand by this item.

3. Investors are keenly interested not just in a company’s sales and profits for a given year, but in trends in its sales and profits over time. Consider Nestlé’s sales and net income during the period from 2014 through 2016. Can you offer a possible explanation for these changes?

4. Use the Consolidated Balance Sheets of Nestlé in Appendix A to answer these questions:

a. At the end of 2016, how much in total resources did Nestlé have to work with?

b. How much of these resources did the company owe to external parties?

c. How much of these resources did the company’s shareholders actually own? Use these amounts to write Nestlé’s accounting equation at December 31, 2016.

5. Examine retained earnings in the Statement of Changes in Equity. Did retained earnings increase or decrease from 2015 to 2016? Also state how much in dividends the company paid out in 2016.

6. How much cash did Nestlé have at the beginning of the most recent year? How much cash did Nestlé have at the end of the year? Why is it important that a firm maintains a healthy cash balance?