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Financial Statement Analysis Of Unilever

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Question:

Descirbe about the Financial Statement Analysis of Unilever?

 

Answer:

Executive Summary

According to the overall analysis of the project is based on the management accounting techniques and profitability status of the company Unilever. The entire project report is showing the strength, weaknesses, opportunities and threats of the business activities of the company in the different countries all around the world. The business strategies and objectives give impact on the financial status of the company to growth within a certain period of time.

Introduction

This particular study has emphasized on explaining how management accounting can supply information to assist the management of the organisation. In order to conduct this study, Unilever has been considered as the case organization. The overall study has been subdivided into several sub sections. The first part of this project is all about understanding the accounting techniques available for business organization and also the SWOT analysis of the company Unilever. The overall operational activities of the company in terms of both the financial and Non-financial criteria also have been explained here.

Background of the organization

The company Unilever established in the year 1933. Now the company is operating in 190 different countries in all around the world. The company is primarily supplies the large number of variety products which is utilized by the different ages group of customer segment of the company in all around the world (Unilever.com, 2015).The actual turnover of the company at the end of the financial year 2013-2014 is 48.4 billion which is showing that company 57% growth in their products and services market in all around the world. The company uses some new utility plans which is mainly support in reducing the wastage impact of the company by 15%. Unilever is the one of the best FMCG Company which preferred by the billions of customers in all around the world.

Management accounting techniques

There are various tools and techniques which are used by the company during the calculation of the management accounting of organization Unilever. There are several accounting calculation techniques which are used by the company during the calculation of the financial statement analysis of the company Unilever (Bhimani, 2012).

The ratio analysis, capital budgeting and the portfolio analysis are the main tools which is easily measured the financial status of the organization Unilever limited. Management accounting of the company is generally evaluation to fix the long term goal of the company Unilever. The primary function of the management accounting which is based on the planning, control, cost accounting, decision making and auditing process of the company. There are different tools and techniques which are describe the cost volume profit and capital investment.

 

Useful capital budgeting techniques:

While, ratio analysis has been considered as the major tool to analyze the performance of the company over the time frame, capital budgeting techniques entirely revolves around investment opportunity assessment. There are several capital budgeting techniques that organization can employ. All these capital budgeting techniques mainly classified under two broad heads: discounting techniques and non discounting techniques.

Under discounting techniques, there are several approaches exists like payback period, profitability index, etc. Similarly, net present value, internal rate of return, modified internal rate of return etc are the major discounting techniques organizations employed for investment decision.

Payback period:

 According to this method, the investment option will selected on the basis of recovery period of the initial expenditure made by the organization. Following is the formula for payback period:

Payback period: Initial investment for the project / net annual cash flow

This formula will be applied in case of identical cash inflow over the time frame. If the cash inflow remains uneven over the time frame, following formula will be applied:

Payback period = A + (B/C)

Where, A = corresponding year of the last negative cumulative cash inflow

B = Absolute value of the last negative cumulative cash inflow

And C = Cash inflow of the subsequent year of the last negative cumulative cash inflow.

Taken for example, let us consider, the organization Unilever has the following investment opportunity:

Initial investment required: $10000000

Cash inflow:

Year 1: $5000000

Year 2: $4000000

Year 3: $2000000

Year 4: $2000000

Year 5: $1000000

 

Year 0

Year 1

Year 2

Year 3

Year 4

Year 5

Initial Investment

 $  100,00,000.00

         

Cash Inflow

 

 $ 50,00,000.00

 $ 40,00,000.00

 $ 20,00,000.00

 $ 20,00,000.00

 $ 10,00,000.00

Cumulative Cash Inflow

 $    -50,00,000.00

 $    -10,00,000.00

 $     10,00,000.00

 $     30,00,000.00

 $     40,00,000.00

Payback Period

2.5

Years

       

 

Net Present value:

When, payback period is used widely because of easy access, net present value, which is a discounting technique, also utilized by the firm broadly. The formula for net present value is as mentioned below:

NPV =  C1 / (1+R) + C2 / (1+R)2 + C3 / (1+R)3 + C4 / (1+R)4 + C5 / (1+R)5- C0

 C0 = initial investment

C1= 1st year inflow

C2 = 2nd year inflow

C3 = 3rd year inflow

C4 = 4th year inflow

C5 = 5th year inflow

R = Discount Rate

If the above investment opportunity is considered here and if the required rate of return for Unilever is 12%, then the npv of this project will be calculated as below:

 

Year 0

Year 1

Year 2

Year 3

Year 4

Year 5

Initial Investment

 $  100,00,000.00

 

 

 

 

 

Cash Inflow

 

 $ 50,00,000.00

 $ 40,00,000.00

 $ 20,00,000.00

 $ 20,00,000.00

 $ 10,00,000.00

Cumulative Cash Inflow

 

 $    -50,00,000.00

 $    -10,00,000.00

 $     10,00,000.00

 $     30,00,000.00

 $     40,00,000.00

Payback Period

2.5

Years

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Year 0

Year 1

Year 2

Year 3

Year 4

Year 5

Initial Investment

 $  100,00,000.00

 

 

 

 

 

Cash Inflow

 

 $ 50,00,000.00

 $ 40,00,000.00

 $ 20,00,000.00

 $ 20,00,000.00

 $ 10,00,000.00

Discounting rate

12%

0.892857143

0.797193878

0.711780248

0.635518078

0.567426856

Present value

 

 $     44,64,285.71

 $     31,88,775.51

 $     14,23,560.50

 $     12,71,036.16

 $        5,67,426.86

Total Present value

 $       109,15,084.73

 

 

 

 

 

Net Present Value

 $           9,15,084.73

 

 

 

 

 

 

 

 

 Ratio Analysis

The ratio analysis of the company Unilever is commonly based on the financial statements of the company within the given period of time. The financial statement analysis of the company which is analyzes the overall techniques of the financial status analysis of the company which is based on the ratio analysis techniques of the company Unilever (Drury, 2012).

6.1 Profitability ratio

Profitability ratio of the company is based on the analysis of the capabilities of the organization in terms of measuring the earning capacities of the company. The overall profitability ratio calculation of the company is decided by the financial statement for period 2013 and 2014.

Particulars

Unilever

2013

2014

TOTAL REVENUE

25,810.21

28,019.13

GROSS PROFIT

4,957.88

5,028.39

GROSS PROFIT MARGIN

0.192089875

0.179462746

 The gross profit margin of the company is based on the earning capabilities of the organization in terms of their operational activities.According to the analysis the gross profit margin of the Unilever 0.192 and 0.179 in the financial year 2013 and 2014. According to the gross profit margin of the company financial period 2013 is more profitable year for the Unilever.

 

Particulars

Unilever

2013

2014

TOTAL REVENUE

25,810.21

28,019.13

NET PROFIT

3,796.67

3,867.49

NET PROFIT MARGIN

0.147099539

0.138030339

 The net profit margin of the company is generally related to the earning capabilities of the organization in terms of their operational activities. According to the analysis the gross profit margin of the Unilever 0.147 and 0.139 in the financial year 2013 and 2014. According to the gross profit margin of the company financial period 2013 is more profitable year for the unilever(Edwards and Boyns, 2012).

 

Particulars

Unilever

2013

2014

NET PROFIT

3,796.67

3,867.49

TOTAL ASSET

11,512.47

12,998.40

RETURN ON ASSETS

0.309794797

0.595071701

 The returns from assets of the company is dependent on the earning capabilities of the organization in terms of revenue generation activities of their financial statements. According to the analysis the asset returns of the Unilever 0.309 and 0.595 in the financial year 2013 and 2014. According to the returns from assets acquired by the company financial period 2014 is more profitable year for the company unilever than 2014.

 

 

Liquidity ratio

Liquidity ratios of any organization which is generally support the liquidity position of the company Unilever which is measuring the financial situations of the company by which is easily pay the short-term financial obligation of the company(Follett, 2012).

Particulars

Unilever

2013

2014

current assets

11,512.47

12,998.40

current liabilities

5,167.69

5,793.89

current ratio

2.227778756

2.243466825

 The current ratio of the company unilever is showing the financial position of the company which is making understand that the company is able to pay the short obligation of the company within financial period 2013 and 2014. The current ratio of the company is 2.22 and 2.24 in the financial period of time. Thecurrent ratio of the unilever company is more profitable in the financial year 2014.

 

Particulars

Unilever

2013

2014

current assets

11,512.47

12,998.40

current liabilities

5,167.69

5,793.89

INVENTORY

2,526.99

2,747.53

quick ratio

1.738780771

1.769255198

  The quick ratio of the company unilever is showing the financial position of the company which is making understand that the company is able to pay the short obligation of the company within financial period 2013 and 2014. The current ratio of the company is 1.738 and 1.769 in the financial period of time. The current ratio of the unilever company is more profitable in the financial year 2014.


SWOT Analysis

The SWOT analysis of the company Unilever is based on the analysis of the all the strength, weaknesses, opportunity and the threats of the company in the market.The company is also operating their product distribution activities in more than 190 countries(Garrison and Brewer, 2012). The company is providing the large range of the products for different range of clients and customers. The company also getting product manufacturing services is from 270 manufacturing sites in all around the world and also having more than 25 international brands which is generating 70% revenue from the overall selling activities of the organization.

 

Strength

The strength of the Unilever Company is mainly following in nature:

  • The company is also operating their product distribution activities in more than 190 countries.
     
  • The company is providing the large range of the products for different range of clients and customers.
     
  • The company also getting product manufacturing services is from 270 manufacturing sites in all around the world and also having more than 25 international brands which is generating 70% revenue from the overall selling activities of the organization.
     
  • The company is having huge products range for the different segment of customers which is mainly defining the huge revenue generation activities of the organization.
     
  • The strong research and development authorities of the organization is based on the price and quality of the products which provided by the company in the all around the world market.
     
  • The company is having more than 400 international brands which are selling in the market in different size and varieties as per the customers taste and preferences.
     
  • The promotional activity of the company and the advance technologies which is going to use by the unilever is providing the competitive advantages to the company unilever.

Weaknesses

There are several weaknesses which is related to the unilever brands during the selling and distribution activities of their products in the market(Horngren and Oliver, 2012). Those weaknesses are following in nature:

  • The company is having very strong product manufacturing competitors in the market those are like P&G and Nestle which is preferable by the millions of customers in all around the world.
     
  • The products which are produced by the company are also manufactured by the other company in the market in reasonable price and better quality in the local consumer market which is lower in compare to the company Unilever.

Opportunity

There are various opportunities which are awaited for the Unilever in the market as per the several conditions which are based on the demand of the products and the changes in the taste and preferences of the customers in the market. The following opportunity is waiting in the future of the organization.

  • The company highly famous in the health conscious products which is generallybetter in compare to the other products of different brand.
     
  • The company is mainly famous for the changing the life styles and trends of the consumers which is related to the several activities of the organization.The company is changing the trend of the project which is enhancing the demand of the project in the market.
     
  • The huge demand in the organization which is based on the demand the production capacities of the company will increase significantly.

Threats

Thethreats of the company Unilever are generally survive on the performance of the company in the current scenario of the products demands in the market(Drury, 2012). There are some threats which are measures by the company during their management and operational activities of the company and those threats are following in nature:

  • The economic inflation and reception mainly give negative impact on the business activity of the company Unilever which will decrease the profitability of the company within the given financial period of time.
     
  • The customer are more conscious about the products they buy from the market so the company mainly focusing on the making the eco-friendly products in the environment.
     
  • The global market competition need to match by the company with their competitors which is depends upon the innovative products features which are prefer by the customer of the company.
     
  • The legal rules and regulations which arebased on the government taxation policies and the different procedure of the company.

Conclusion

According to the overall analysis of the company unilever it is shown that the company is huge expanded in the global market for their products range provided in the market as per the taste and preferences of the different segments of customers in the all around the world.The financial status of the company is mainly measure by the ratio analysis of the company which is generally based on the financial statement analysis of the company Unilever. The company is having higher numbers of strength which is provided by the investors and the customers of the company within a particular financial year of company Unilever.

 

Reference

Hul.co.in, 2. (2015). Our history | Hindustan Unilever. [online] Hul.co.in. Available at: https://www.hul.co.in/aboutus/ourhistory/ [Accessed 17 Jun. 2015].

Bhimani, A. (2012). Management and cost accounting. Harlow, England: Financial Times/Prentice Hall.

Drury, C. (2012). Management and cost accounting. Andover: Cengage Learning.

Drury, C. (2012). Management and cost accounting. Andover: Cengage Learning.

Edwards, R. and Boyns, T. (2012). A History of Cost and Management Accounting. Hoboken: Taylor and Francis.

Follett, R. (2012). How to keep score in business. Upper Saddle River, N.J.: FT Press.

Garrison, R., Noreen, E. and Brewer, P. (2012). Managerial accounting. New York: McGraw-Hill/Irwin.

Gibson, C. (2012). Financial statement analysis. Mason, Ohio: South-Western.

Horngren, C., Datar, S. and Rajan, M. (2012). Cost accounting. Upper Saddle River, N.J.: Pearson/Prentice Hall.

Horngren, C., Harrison, W. and Oliver, M. (2012). Accounting. Upper Saddle River, N.J.: Pearson Prentice Hall.

Hsu, S. and Qu, S. (2012). Strategic Cost Management and Institutional Changes in Hospitals.European Accounting Review, pp.1-33.

Kieso, D., Weygandt, J. and Warfield, T. (2012). Intermediate accounting. Hoboken, NJ: Wiley.

Mayes, T. and Shank, T. (2012). Financial analysis with Microsoft Excel. Australia: South-Western.

Moeschler, M. (2012). Cost Accounting in Germany and Japan. Frankfurt: Lang, Peter, Internationaler Verlag der Wissenschaften.

Petersen, C. and Plenborg, T. (2012). Financial statement analysis. Harlow, England: Financial Times/Prentice Hall.

Peterson Drake, P. and Fabozzi, F. (2012). Analysis of financial statements. Hoboken, N.J.: Wiley.

Ratnatunga, J., Tse, M. and Balachandran, K. (2012). Cost Management in Sri Lanka: A Case Study on Volume, Activity and Time as Cost Drivers. The International Journal of Accounting, 47(3), pp.281-301.

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