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 financial statements in Appendix A. Alternatively, you may choose to obtain the full annual report from Nestlé’s website at 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. What method does Nestlé use to measure its inventories?

2. What would be the effect of Nestlé adopting FIFO to measure the value of its sundry supplies

(previously measured under weighted average method) assuming rising inventory prices?

3. Three important pieces of inventory information are the cost of inventory on hand,

(a) the cost of goods sold, and

(b) the cost of inventory purchases. Assume that the actual cost of inventory is equal to the fair value of the inventory, at CHF 8,401 million and CHF 8,153 million at December 31, 2016 and 2015, respectively. Identify or compute items

(a) and (b)

for Nestlé for the year ended December 31, 2016.

4. Did Nestlé’s gross profit margin percentage (use sales and cost of goods sold) on company sales improve or deteriorate in the year ended December 31, 2016, compared to the previous year?

5. Calculate Nestlé’s inventory turnover for the years ended December 31, 2015, and December 31, 2016. Did inventory turnover rise or fall? How does this affect your analysis of Nestlé?

What additional information would help you make a better judgment on Nestlé’s inventory management practices? (Assume that the value of inventory at December 31, 2014, is CHF 9,170 million.)