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 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. By which method does Nestlé report cash flows from operating activities? How can you tell?

2. Suppose Nestlé reported net cash flows from operating activities using the direct method.

Compute these amounts for the year ended December 31, 20X6 (ignore the statement of cash flows, and use only Nestlé’s Income Statement and Balance Sheet).

a. Collections from vendors, customers, and others. Assume that all sales are on account.

b. Payments to suppliers. Assume all inventory is purchased on account, and that all cash payments to suppliers are made from accounts payable.

3. What is Nestlé’s main source of cash? Is this good news or bad news to Nestlé’s managers, shareholders, and creditors? What is Nestlé’s main use of cash? Good news or bad news?

4. Calculate Nestlé’s free cash flow and cash realization ratio for 20X6 and 20X5.