By Folakemi Emem-Akpan
PZ Cussons and Nestle are two of the well-known conglomerates in Nigeria. Of the two, Nestle was the hands down winner for the 2016 comparison analysis in terms of profitability ratios. We examined six profitability ratios and Nestle took the top spot in five, with PZ Cussons coming out tops in one, and that only by a small margin.
Turnover growth rate
This was the first ratio in which Nestle was the winner of the two for the 2016 financial year. The company was able to grow the level of its gross earnings from N151 billion in 2015 to N182 billion in 2016, and translating to a 19.8 per cent growth rate. Meanwhile, PZ Cussons was unable to advance its gross earnings at all, such gross earnings decreasing instead of increasing over the preceding year’s. Analysis shows that this translates to a decline rate of 4.9 per cent.
Pre-tax profit growth rate
This was also another of the ratios that Nestle came out tops. Pretax profit for Nestle was N21.5 billion, 27.6 per cent less than the N29.3 billion in the preceding year. While the company had a lower profit, its situation was nowhere as bad as that of PZ Cussons’s.
On the other hand, PZ Cussons had a pretax profit that was much lower than that of the preceding year. In fact, the company’s pre tax profit was 52 per cent lower than that of 2015.
Nestle was also better able to translate its turnover to profit than PZ Cussons was able to. For the 2016 financial year, pre-tax profit margin (which measures a company’s ability to squeeze as much profit as is possible from turnover) for Nestle was 11.9 per cent, higher and better than PZ Cussons’s result. PZ Cussons had a profit margin of 4.5 per cent, meaning that it made N4.50 on every N100 income earned. This is as compared to the profit of N11.90 that Nestle made on every N100 income earned.
Nestle was easily the winner in terms of return on equity for the 2016 financial year. Working with shareholders’ funds valued at N30.9 billion, Nestle was able to record a return on equity of 25.5 per cent. This 25.5 per cent return on equity is as compared to and better than PZ Cussons’s return on equity of 4.9 for 2016 which is in turn as compared to PZ Cussons’s return on equity of 10.5 per cent for 2015.
Analysis shows that while every N100 worth of equity deployed by Nestle earned it N25.50 in after-tax profit, such N100 equity deployed earned PZ Cussons a lower profit of N4.90.
Nestle had a return on assets of 12.7 per cent while PZ Cussons had a return on assets of 4.2 per cent. This means that Nestle has a profit of N12.70 on every N100 worth of assets deployed while PZ Cussons recorded a pre tax profit of N4.20 on the same N100 worth of assets.
This was the ratio in which PZ came out tops. As a ratio, this should be kept as low as possible without compromising quality. Nestle had a ratio of 20.4 per cent, even lower and thus better than the 21.9 per cent result recorded in 2015. This result was however not as good as PZ Cussons’s 20.1 per cent result.
A point to consider
It is important to note that Nestle also did not do generally as well in 2016 as it did in 2015, but it did enough to still remain very profitable (or at least more profitable than PZ Cussons).