Finanacial Evaluation of Unilever
Table of Contents Table of Content3 List of Tables4 Table 1 6 1. Introduction2 2. Main Body2 3. Management Structure4 4. Ability to Earn Income 5 5. Size of Inventory Held5 6. Relience on Debt Financing5 7. Key Indicators for 2011 and 20126 8. Profitability of var. Product Lines and Geographic Regions 6 Table 28 9. FINANCIAL RATIOS FOR UNILEVER10 9. 1 Operations Analysis10 9. 2 Liquidity Analysis12 9. 3 Debt and Solvency Analysis 14 9. 4 Profitability Analysis15 5. CONCLUSION16 LIST OF REFERENCES17 Introduction
When evaluating a company important is to know company’s history, operations and the nature of the business in which it operates. On other hand by reviewing company’s financial statements, operational practices we can evaluate its performance and compare it with the previous years or with the key competitors. By analyzing its financial indicators we can assess how profitable and sound the company is. This research paper will give brief description Unilever, its main divisions and products, its managements structure and the financial performance evaluation, with an aim to highlight the best practices and the growth drivers.
Main Body 2. 1 Profile of the company, its divisions, products and supply chain Unilever is multinational corporation and is one of the worlds fast moving consumer goods companies with a host of well known brands. The company operates through four segments: Personal Care, Foods, Refreshment, and Home Care. Unilever is a joint venture of two companies that date back from the late nineteen century. It was formed by two Dutch families, Jurgens and Van den Bergh, butter merchants who later started producing margarine and by the British soap producer William Hesketh Lever.
Since the early nineteen century the two companies were concentrated on acquisitions and in the early 1929 they signed an agreement to create Unilever (Unilever, 1929 p. 2). Unilever over the last two decades acquired the meat business Zwanenberg’s at Oss, Lipton International, Brooke Bond, Naarden, Calvin Klein and Elizabeth Arden/Faberge, Brayers ice cream, Kibon ice cream, Bestfoods, Slim Fast Foods, Ben & Jerry’s and the Amora-Maille. In 1992 Unilever entered the Czech Republic and Hungary, and established UniRus in Russia, also enters in India and other parts of the world. (Unilever, 1995 p. 3) Unilever N.
V. operates as a fast-moving consumer goods company in Asia, Africa, the Middle East, Turkey, Europe, and the Americas Unilever possesses a portfolio of more than 400 brands, from nutritionally balanced foods to indulgent ice creams, affordable soaps, luxurious shampoos and everyday household care products. Their products are sold in more than 190 countries, generating sales of €51 billion in 2012. In the 21st century they launched growth strategies, in order to transform the business, leading to more acquisitions, rationalization of manufacturing and production sites to form centers of excellence.
Unilever is responding quickly to rapid shifts in consumer behavior by investing in Research and Development and changing market conditions. Unilever’s sells its product across 170 countries and their procurement teams are purchasing from a network of around 160,000 suppliers worldwide. For the same reason its suppliers’ materials and services are an integral part of their commercial operations. Unilever has integrated supply management informational system that helps their local, regional and global supply managers to make appropriate sourcing decisions, allowing them to analyze information quickly and easily.
Through this system they can negotiate with their suppliers in a more transparent and efficient way. Unilever’s largest international competitors are Procter & Gamble and Nestle. While the competition in local markets or specific product ranges from numerous companies, including Beiersdorf, ConAgra, Danone, Henkel, Mars, Pepsico, and others (Unilever) Management Structure Maintaining good governance is one of the essentials factors for the long-term success of the company. For the same reason Unilever is engaged in conducting its operations in accordance with internationally accepted principles of good corporate governance.
The success of Unilever is due to a combination of structural formality and managerial flexibility. Being a company that is present for more than a century, that operated in changing and transitional environment, is evidence of a flexible management structure that made Unilever successful (Floris 1992,p. 6). Learning through a trial and error Unilever has focused on two reliable and related practices to strengthen all structural changes: recruitment and training of high-quality managers, and the importance of linking decentralized units through a common corporate culture (Annual report 2012 p. 5) Unilever’s companies maintain formal processes to inform, consult and involve employees. They recognize collective bargaining on a number of sites and engage with employees. Their usage of sites tools such as Total Productive Maintenance rely heavily on employee involvement, contribution and commitment (Annual Report 2012 p. 28). The profitable growth that Unilever accomplishes is mainly due and is achieved through the right people working in an organization that is fit to win and with a culture in which performance is aligned with values.
Unilever has built an employer brand development tool which leverages best practice, and adapts recruitment models to reach the best people worldwide. The better recruitment, family-friendly working conditions, a culture of accountability, initiatives, and remuneration represent one of the crucial factors for the success which it achieves (Annual Report 2012, p. 66). Ability to earn income Unilever’s ability to earn income has increased due to the increase in revenue. In 2012 their ability to earn income has increased by 8. % compared with 2011, and with no changes from 2010 to 2011 (Annual Report 2012/11, p. 32 p. 24). Size of inventory held millionsmillionsmillions Inventories 201220112010 Raw materials and consumables1. 5171. 5381. 554 Finished goods and goods for resale2. 9193. 0172. 753 4. 4364. 6014. 307 Source: www. unilever. com The size of inventory during the last three years was moving closely. The raw materials and consumables from 2010 to 2011 decreased by 1% and in 2012 by 1. 3%. On the other hand the finished goods and goods for resale increased by 8. 5 in 2011 and a decrease of 3. 35% in 2012. This change in the finished goods and goods for resale was charged to the income statement for damaged, obsolete and lost inventories (Annual Report 2012/11, p. 113). Reliance on debt financing The net debt position in 2011 was 8. 781 billion or €2. 1 billion higher than the last year, in part due to the acquisition of Alberto Culver (Annual Report 2011, p. 28). In 2012 the net debt was 7. 355 billion, or 1. 4 billion lower than 2011.
The cash outflow from acquisitions, dividends, tax, net capital expenditure and interest, and the negative impact of foreign exchange rates exceeded the cash inflow from operating activities and business disposals. The leverage ratio reveals that 32% of the financing its covered by debt (Annual Report 2012, p. 36). Key indicators for 2011 and 2012 The sales growth of Unilever in 2011 increased by 6. 5% and volume growth by 1. 6%. Emerging markets delivered 11. 5% underlying sales growth and turnover of 5% compared to 2010 (Annual Report 2011, p. 9). In 2012 the sale growth increased by 6. % and volume growth increase of 3. 4%. Emerging markets represented 55% of the turnover or 11. 6% of sales and turnover of 10. 5% compared to 2011 (Annual Report 2012, p. 9). Profitability of various product lines and geographical regions The region with the highest turnover, sales and volume growth in 2011 and 2012 is Asia, Africa and Central & Eastern Europe with over €20. 5 billion of turnover in 2012 and €18. 9 in 2011. Followed by Americas €17. 1 billion in 2012 and €15. 3 in 2011. the last is Western Europe with turnover of € 13. 9 in 2012 and €12. in 2011 (Annual Report 2012/11, p. 10) Table 2 Formulas for Financial Ratios (Methodology) FormulasNumber 1. Activities (Operating) ratios Inventory Turnover = COGS/average inventory1. 1 Average number days in stock =365 days/inventory turnover1. 1. 1 Receivables Turnover = Net Sales/average receivables 1. 2 Av. Number of days receivables outstanding =365days/receivables turnover 1. 2. 1 Account Payable Turnover =Cost of Sale/Average Acc. Payable 1. 3 Av. N. of days payables outstanding =365days/payable turnover1. 3. 1 Working Capital Turnover =Sales/Average Working Capital . 4 Fixed asset turnover =net sales/av. Net fixed assets1. 5 Asset Turnover Ratio= Net Sales/Average Total Asset1. 6 Liquidity ratios Current Ratio= Current Assets/Current Liabilities2. 1. Quick Ratio= ((Cash + Marketable Securities)+ Acc. Receivables)/Current Liabilities2. 2 Cash Ratio =(Cash + Marketable Securities)/Current Liabilities2. 3 Cash Flow From Operations Ratio = CFO/Current Liabilities2. 4 Solvency ratios Debt to Capital Ratio= Total Debt/Total Capital3. 1 Times Interest Earned Ratio= EBIT/Interest Expense3. 2 CFO to Debt Ratio=CFO/Total Debt3. 3
Total Debt Ratio=Total Liabilities/Total Assets3. 4 Leverage Ratio= Long term debt/ (Long term debt+ Shareholders equity)3. 5 Profitability ratios Gross Profit Margin= Gross Profit/Net Sales4. 1 Operating Profit Margin = Operating Income/Net Sales4. 2 Pre Tax Margin = EBT/Sales4. 3 Return on Assets= EBIT/Average Total Assets4. 4 Return on Total Capital= (Net Income + Interest Expense)/(Long-Term debt +Equity)4. 5 Return On Total Equity = Net Income/Average Total Equity 4. 6 Authors own sources FINANCIAL RATIOS FOR UNILEVER 9. 1. Operational analysis Formula 1. 1 Formula 1. 1. Average inventory2010 =3942. 5 Average inventory2011 =4454 Average inventory2012=4518. 5 Inventory turnover ratio2010 =6. 57 Average number days in stock2010 =55. 6 days Inventory turnover ratio2011 = 6. 27 Average number days in stock2011 = 58. 2 days Inventory turnover ratio2012 = 6. 53 Average number days in stock2012 = 55days Conclusion: In year 2012 UN has performed better. Higher the ratio, better it is. Which means that in 2012 it required 55 days to turnover(renew its inventory) Formula 1. 2 Formula 1. 2. 1 Average receivebles2010 =2424. 5 Average receivebles2011 = 2719
Average receivebles2012 =3666. 5 Receivables Turnover 2010 = 18. 23 Av. Number of days receivables outstanding2010 =20days Receivables Turnover 2011 =17. 09 Av. Number of days receivables outstanding2011 =21. 3days Receivables Turnover 2012 =14 Av. Number of days receivables outstanding2012 =26days Conclusion: In year 2010 UN has performed better. Higher the ratio, better it is. Which means that in 2010 it required 20 days to collect its receivables from customers. Formula 1. 3 Formula 1. 3. 1 Average payables2010 = 5006 Average payables2011 = 6398. 5 Average payables2012 = 9217
Account Payable Turnover 2010 = 5. 1 Av. N. of days payables outstanding 2010 =71. 56days Account Payable Turnover 2011 = 4. 36 Av. N. of days payables outstanding 2011 = 83. 6days Account Payable Turnover 2012 = 3. 2 Av. N. of days payables outstanding 2012 =114days Conclusion: In year 2012 UN has performed better. Lower the ratio, better it is. Which means that in 2012 it required 114 days do pay its liabilities. By extending the period the company enables financing of its operation activities. Formula 1. 4 Average working capital2010 = -931 Average working capital2011 = -2356
Average working capital2012 = -3653 Working Capital Turnover2010 = -47. 54 Working Capital Turnover2011 = -19. 72 Working Capital Turnover2012 = -14 Conclusion: In year 2012 UN has performed better. Higher the ratio, better it is. Which means that in 2012 UN had more efficient utilization of the working capital, needed for maintaining certain level of sales, and even though it is negative we can see sharp decrease during the precedent years. Formula 1. 5 Average fix assets2010 = 6218 Average fix assets2011 =7033 Average fix assets2012 =8404 Fixed asset Turnover2010= 7. 11
Fixed asset Turnover2011= 6. 6 Fixed asset Turnover2012= 6. 1 Conclusion: In year 2010 UN has higher ratio. This means that in 2010 UN had more efficient utilization of the long-term capital investments. Formula 1. 6 Average total assets2010 =39094 Average total assets2011 =44342 Average total assets2012 =46839 Asset Turnover Ratio 2010 = 1. 13 Asset Turnover Ratio 2011 = 1. 048 Asset Turnover Ratio 2012 = 1. 1 Conclusion: In year 2010 and 2012 UN has higher ratio. This means that had higher and more efficient performance of the company. 9. 2 Liquidity analysis Formula 2. 1
Current Ratio2010 = 0. 92 Current Ratio2011 = 0. 79 Current Ratio2012 = 0. 76 Conclusion: In year 2010 UN has higher ratio. A commonly acceptable current ratio is 1. 5-2. This level of ratio may show than UN cannot meet its short-term financial obligations. Formula 2. 2 Quick Ratio2010 = 0. 36 Quick Ratio2011 =0. 37 Quick Ratio2012 =0. 46 Conclusion: In year 2012 UN has higher ratio. This means that in 2012 UN was more financially secure to meet its short-term financial obligations. Commonly acceptable current ratio is 1, but may vary from industry to industry. Formula 2. 3
Cash Ratio2010 =0. 179 Cash Ratio2011 = 0. 21 Cash Ratio2012 = 0. 182 Conclusion: In year 2011 UN has higher ratio. This indicates that in 2011 UN has good level of liquid assets which can be easily used to pay its current obligations. Formula 2. 4 CFO Ratio2010 = 0. 4034 CFO Ratio2011 =0. 3 CFO Ratio2012 =0. 432 Conclusion: In year 2012 UN has higher ratio. This indicates that in 2012 UN current liabilities were covered by the cash flow generated from operations. 9. 3 Debt and solvency analysis Formula 3. 1 Debt to Capital Ratio2010 = 1. 18 Debt to Capital Ratio2011 = 1. 44
Debt to Capital Ratio2012 = 1. 308 Conclusion: In year 2011 UN has higher ratio. This means that in 2011 UN has low level of capital that is financed through debt. Formula 3. 2 Times interest earned2010 = 6. 46 Times interest earned2011 = 11. 66 Times interest earned2012 = 12. 87 Conclusion: In year 2012 UN has higher ratio. This means that in 2012 UN can 13 times make the interest payments on its debt with its EBIT, or this means that it easily can pay interest expenses on outstanding debt. Formula 3. 3 CFO to Debt Ratio 2010 = 0. 21 CFO to Debt Ratio 2011 =0. 16 CFO to Debt Ratio 2012 =0. 25 Conclusion: In year 2012 UN has higher ratio. This means that in 2012 UN has higher ability to cover the total debt from the cash flow from operations Formula 3. 4 Total Debt Ratio 2010 =0. 63 Total Debt Ratio 2011 =0. 68 Total Debt Ratio 2012 =0. 66 Conclusion: In year 2010 UN has lower ratio. This means that in 2010 UN risk is lower and the company relies less on debt to finance its assets. Formula 3. 5 Leverage Ratio 2011 =0. 38=38% Leverage Ratio 2012 =0. 32=32% Conclusion: In year 2012 UN has lower ratio. This means that in 2012 Unilever had 32% of its financing covered by debt. . 4 Profitability Analysis Formula 4. 1 Gross Profit Margin 2010 = 0. 41 Gross Profit Margin 2011 = 0. 39 Gross Profit Margin 2012 = 0. 45 Conclusion: In year 2012 UN has higher ratio. This means that in 2012 UN has higher earnings taking into consideration the costs that it incurs for producing its products. Formula 4. 2 Operating Profit Margin 2010 = 0. 144 Operating Profit Margin 2011 = 0. 142 Operating Profit Margin 2012 = 0. 137 Conclusion: In year 2010 UN has higher ratio. This means that in 2010 UN profit left after paying its variable costs was higher.
Formula 4. 3 Pre-tax Margin 2010 = 0. 06 Pre-tax Margin 2011 = 0. 123 Pre-tax Margin 2012 = 0. 122 Conclusion: In 2011 and 2012 UN has high ratio. This indicates that in 2011 and 2012 UN had greater profitability, comparing it with 2010 when it was two times lower. Formula 4. 4 Average Total assets2010 = 39094 Average Total assets2011 =44342 Average Total assets2012 =46839 ROA 2010 = 10. 8% ROA 2011 = 9. 58% ROA 2012 = 9. 56% Conclusion: : In year 2010 UN has higher ratio which suggest that it has earned more money and invested less in assets. Formula 4. 5
ROC2010 = 11. 36% ROC2011 = 21. 14% ROC2012 = 22. 3% Conclusion:In 2012 UN has higher ratio which indicates the return that UN is achieving from the capital employed and this return has doubled from 2010 to 2011/12. Formula 4. 6 ROE2010 = 28. 14% ROE2011 = 28. 49% ROE2012 = 29. 25% Conclusion: In 2012 UN has higher ratio which indicates a high level of profit UN earned in comparison to the total amount of shareholder equity. This ratio measures how profitable Unilever is for the owners of the investment, and how profitably the company employs its equity. Conclusion
The purpose of this paper was to reveal the financial performance of Unilever and to make an evaluation and assessment of the firm’s management structure and what contributes to the success they achieve and key figures and ratios. The financial position of Unilever for 2012 was admirable, due to the fact that had increased revenues, sales and volume growth of its divisions worldwide and decreased net debt. The compared data for 2010,2011, and 2012 show continuous improvement and increase of their financial position. List of references Unilever site www. unilever. com
Annual Report 2012, Available at: http://www. unilever. com/images/ir_Unilever_AR12_tcm13-348376. pdf [Accessed date 05/03/2012] Annual Report 2011, Available at: http://www. unilever. com/images/Unilever_AR11_tcm13-282960_tcm13-348380. pdf [Accessed date 07/03/2012} Floris M. (1992), Inside Unilever: The Evolving Transnational Company, Harvard Business Review; Vol. 70 Issue 5, p46-52, EBSCO Host http://web. ebscohost. com/ehost/detail? vid=4=8aace911-769a-43f3-9949-b4364f9185cf%40sessionmgr111=124=JnNpdGU9ZWhvc3QtbGl2ZQ%3d%3d#db=bth=9301105365 [Accessed date 09/03/2012]