The company’s profitability review reflects a challenging trend. Net Profit Margin declined sharply from 13.66% in 2020 to -17.17% in 2024, signaling losses despite revenue activity.
However, operating performance remained relatively strong, with an average EBIT Margin of 20.50% across the period, showing that core operations were profitable before financing and tax costs.
On efficiency metrics, Inventory turnover improved from 6.72 in 2020 to 7.30 in 2024, indicating high performance in managing stock relative to revenue.
Asset turnover also rose slightly from 1.31 to 1.33 over the same period, suggesting fair utilization of assets in generating sales.
Overall, while operational efficiency and inventory management appear solid, the steep decline in Net Profit Margin highlights significant financial pressures—likely from high costs, financing burdens, or other non-operating factors—that eroded profitability
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Profitability
Nestle’s revenue trend shows strong growth in the earlier years but a sharp reversal in the current period. Between 2020 and 2021, revenue rose by 22.55%, followed by an even stronger 27.00% increase between 2021 and 2022. However, in the current period (2023–2024), revenue declined significantly by 75.25%, marking a major setback after years of expansion.
Despite this downturn, profitability performance appears resilient, as the return on capital employed recorded good results during the analysis period, indicating efficient use of capital to generate returns even in the face of revenue volatility.
Liquidity
The company’s liquidity has clearly deteriorated, with the current ratio dropping from 1.24:1 to 0.89:1 in the last year. This decline means that current liabilities now outweigh current assets, signalling insufficient resources to cover short-term obligations. Such a position raises concerns about the firm’s immediate solvency and could pressure working capital management, making it more vulnerable to cash flow challenges and reliance on external financing to meet obligations
Capital Structure
Nestle operates with a mix of equity and debt financing.
Over the five-year period, the debt-to-equity ratio has fluctuated, reflecting changes in the company’s capital structure. In the current year, the gearing ratio reached a very high level of 506%, indicating that debt financing heavily outweighs equity. Such a high gearing position suggests elevated financial risk, as the company is significantly leveraged, which could impact flexibility and increase vulnerability to interest rate movements or downturns in earnings.
