Please read the "Focus on International Issues" on the top of
page 120 in your textbook. After reading, please discuss why
Siemen's earnings were able to increase so much faster than their
revenue? What would happen if their revenue would have fallen by
9.4%?
From 2017 to 2019 nestles revenue increased only 3.1 percent,
but its operating earnings increased 59.0 percent. In other words
its profit grew 19 times as fast as its revenue.
- Please Read The Focus On International Issues On The Top Of Page 120 In Your Textbook After Reading Please Discuss W 1 (128.83 KiB) Viewed 57 times
FOCUS ON INTERNATIONAL ISSUES COST-VOLUME-PROFIT ANALYSIS AT A SWISS
COMPANY The greater the percentage of a
company's total costs that are fixed, the more sensitive the
company's earnings are to changes in rev- enue or volume. Operating leverage, the relationship between the changes in revenue and changes in earnings, introduced earlier, applies to companies throughout the world, large or small. Nestle Manufacturing companies often have significant fixed costs. Nestle Group, SA is a large, food manufacturing
company head- quartered in Vevey, Vaud, Switzerland. Most college students will be familiar with its candy products, but it is also a major producer in infant formulas. From 2017 through 2019 Nestle's revenues increased only 3.1 percent, but its operating earnings increased 59.0 percent. In other words, its profit grew 19 times as fast as its revenue (volume). This is a classic example of the effects of fixed costs, whether measured in dollars, euros, or Swiss francs. Studying Nestle offers insight into a true global enterprise. Though headquartered in Switzerland, it does business in almost ev- ery county in the world. In 2019 it generated less than 25 percent of Klaus Ohlenschlaeger/Alamy its revenues in Europe, let alone Switzerland. Its financial statements are presented in Swiss francs (CHFs), but it does business in 11 other major currencies. Its stock is currently traded on the SIX Swiss Stock Exchange, but it can also be purchased using ADRS (American De- pository Receipts) on the over-the-counter market in the United States.