This is a corporate financial analysis of Nestlé. Throughout various application tests, quantitative as well as qualitative, investigations on Nestlé’s financial performance will be applied. Detailed information regarding the structure can be extracted from the table of contents. As of 2018, Nestlé is present in 189 countries, operates 413 factories in 85 counties and employs around 323.000 employees. The company is operating through the following operating segments: Zone Americas, Zone Europe, Middle East and North Africa, Zone Asia, Oceania and sub-Saharan Africa, Nestle Waters, Nestle Nutrition and other businesses. For the year 2017, ending on 31 December 2017, the Nestles total sales were stated CHF 89.8 billion. Nestlé shares are enlisted on the SIX Swiss Exchange in Switzerland. At 31 December 2017, the market capitalization was CHF 25,223,000,000.
The 1866 founded transnational Swiss company Nestlé S.A. operates as a nutrition, health and wellness company, headquartered in Vevey, Vaus, Switzerland. By providing over 2000 brands Nestlé is considered the world’s largest food and beverage company measured by revenues and further metrics.
Table of Contents
1 Introduction
1.1 Nestlé’s Company Profile
1.2 Structure of Paper
2 Application Test 1: Who’s on Board?
2.1 Nestlé’s Board of Directors
2.1.1 The Constitution of the Board
2.1.2 Independence of the Board
2.2 The ISS Governance Score
3 Application Test 2: Who is the Marginal Investor of Nestlé?
3.1 Top Shareholders
4 Application Test 3: Estimating Nestlé’s Market Risk Premium
4.1 The Risk-Free Rate of the CHF
4.2 The Equity Risk Premium
5 Application Test 4: Analyzing the Risk Regression
5.1 Estimating Historical Risk Parameters (Top Down Betas)
6 Application Test 5: Estimating a Bottom-up Beta
6.1 Unlevered Beta: based on Historical Beta
6.2 Unlevered Beta: based on Sector Betas
6.3 Choosing between Betas
7 Application Test 6: Estimating the Cost of Debt
7.1 Bond Rating of Nestlé
7.2 Company Rating of Nestlé
7.3 Synthetic Rating of Nestlé
7.4 Pre-tax and After-tax Cost of Debt of Nestlé
8 Application Test 7: Estimating Market Value
8.1 Estimating Market Value and Book Value of Equity
8.1.1 Market Value of Equity
8.1.2 Book Value of Equity
8.1.3 Book Value of Debt
8.1.4 Market Value of Debt
8.2 Weights for Equity and Debt
8.2.1 Based upon Market Value
8.2.2 Based upon Book Value
9 Application Test 8: Estimating Cost of Capital
9.1 Bottom-Up Levered Beta
9.2 Cost of Equity
9.3 Cost of Capital
10 Application Test 9: Assessing Investment Quality
10.1 Computation of Return on Capital (ROC)
10.2 Computation of Return Spread
10.3 Computation of Economic Added Value (EVA)
11 Application Test 10: Would you expect your Firm to gain or lose from using a lot of debt?
11.1 Tax Benefit
11.2 Added Discipline of Debt
11.3 Bankruptcy Risk
11.4 Agency Costs
11.5 Future Flexibility
11.6 Qualitative Judgment
12 Application Test 11: The optimal Financing Mix of Nestlé
12.1 Financing Mix at Nestlé
12.1.1 Nestlé’s optimal Debt Ratio
12.1.2 Nestlé’s new Cost of Capital
12.1.3 The effect on the Firm Value
12.1.4 The effect on the Stock Price
12.2 Mechanics to get to the Optimum
13 Application Test 12: Getting to the Optimum
13.1 Mapping out Nestlé’s Path
14 Application Test 13: Choosing your Financing Type
14.1 Duration
14.2 Currency
14.3 Fixed or Floating Rate
14.4 Straight or Convertible
15 Application Test 14: Estimating Nestlé’s FCFE
15.1 Nestlé’s FCFE
15.2 Comparing Nestlé’s FCFE to Dividend Policy
16 Application Test 15: Assessing Nestlé’s Dividend Policy
16.1 FCFE and Dividend Measure for the past Five Years
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