Unilever
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Lahore School of Economics BBA II Majors in Finance and Minors
in Mathematics and Statistics Financial Accounting II, B Ms. Maheen
Khan 11th April, 2011
UnileverExecutive Summary
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The report discusses the detail analysis of Unilever Balance
Sheet and Income Statement from 2008-2010. The purpose of this
report is to determine the overall trend in profit and net income;
liquidity; credit risk and profitability. Financial statements of
Unilever were used to assist us in identifying key relationships
and trends. These are presented in comparative form. All the
necessary information was extracted to conduct financial analysis.
The four tools used for analysis were: o Trend percentages o
Component percentages o Rupee amount and percentages o Ratios Trend
analysis shows extent and direction of change. The base year
selected to conduct trend analysis was 2007. Component percentages
shows relative size of each item included in total and express
which items are increasing in importance and which are becoming
less significant. Rupee percentages show rates of growth or
decline. The following ratios were used to check liquidity position
of company. : o Current ratio o Working capital o Quick ratio o
Debt and equity ratio o Return on equity o Return on assets
Unilever had overall favorable current ratio which suggests that
the company is able to pay off short term debts with its short term
assets. However, companys debt portion was more than its asset
which is a bad sign for the company. Overall, a continuous increase
in ROE resulted from increasing profitability, improving asset
efficiency, and proper financial leveraging.
UnileverTable of Content
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1. History..........4 2. Unilever Pakistan History5 3.
Product.....5 4. Analysis....7 a. Trend Analysis.7 b. Horizontal
Analysis...14 c. Vertical Analysis24 d. Ratios.29 i. Liquidity.29
ii. Short term credit risk.30 iii. Profitability31 5.
Conclusion.....35 6. Appendix....
UnileverHistory In 1930, Unilever was established by the
incorporation of British soap maker Lever Brothers and Dutch
margarine (producer of Margarine Unie). For both Margarines and
Soaps palm oil was a major raw material and was imported more
efficiently in hefty quantity.
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Unilevers new business enterprises were launched in Latin
America in 1930s. In 1972, Unilever purchased A&W Restaurants'
(Canadian division) but sold its shares through a management buyout
to former A&W Food Services of Canada CEO Jefferson J. Mooney
in July 1996. In 1984 Unilever lead to the brand Brooke Bond (maker
of PG Tips tea). In 1987, Unilever strengthened its position on the
international level by acquiring ChesebroughPonds, the maker of
Rag, Pond's, Aqua-Net, Cutex Nail Polish, and Vaseline. In 1989,
Unilever bought Calvin Klein Cosmetics, Faberg, and Elizabeth
Arden, but the latter was later sold (in 2000) to FFI Fragrances.
In 1996, Unilever purchased Helene Curtis Industries, giving the
company influential and authoritative presence in the United States
shampoo and deodorant market. In 2000, the Unilever immersed the
American business Best Foods, extending its range of foods brands
and strengthening its presence in North America. Unilever is a
multinational company with operating companies and factories in
every continent except Antarctica. It also has research
laboratories in England, Netherlands, United States, India and
China. The US division carried Lever Brothers name until the 1990s,
which it adopted from its parent company. Unilever has its
headquarters in New Jersey. In 1998, Unilever promoted
sustainability and started a sustainable agriculture program. In
May 2007, it became the first tea company to commit to sourcing all
its tea in a sustainable manner. It declared its aim to have all
Lipton Yellow Label and PG Tips tea bags sold in Western Europe
certified by 2010, followed by all Lipton tea bags globally by
2015. Unilever is ranked based on positive versus negative news
coverage for 2007 by an ethical reputation ranking agency. In 2008,
Unilever was honored for "Outstanding Achievement in Advanced Media
Technology for Creation and Distribution of Interactive Commercial
Advertising. In 2009, Unilever lead brands such as Radox, Badedas
and Duschdas to strengthen category leadership in Skin Cleansing
and Deodorants. In 2010, Unilever signed an asset
Unileverpurchase agreement with the Norwegian dairy group TINE.
EVGA and Unilever
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purchased Alberto-Culver, the maker of personal care and
household products. In 2011, Unilever announced that it has entered
into a binding agreement to sell the global Sanex business to
Colgate-Palmolive and it also announced that this agreement was to
acquire Colgate-Palmolives laundry detergent brands. Unilever
Pakistan History Unilever Pakistan has initiated an ineradicable
name for itself with brands such as Lifebuoy, Lux, Surf and Walls
in the world of consumer products. In Pakistan, UPL is a part of
the consumer products giant Unilever. Some fifty years ago, UPL was
established in the newly created Pakistan. In 1958, Rahim Yar Khan
Site was chosen for setting up a vegetable oil factory and that is
where the first UPL manufacturing facility developed. Today,
Unilever Pakistan is a force to deem with. It contributed a lot in
Pakistan's economic development, which cant be overestimated.
Today, it is also operating four factories at different locations
around the country, and contributes a significant proportion of the
country's taxes. It is providing with large numbers of well-trained
and highly motivated employees to other segments and has introduced
new and innovative technologies into the country. In the mid 60's,
Unilever Pakistans UPL Head Office was shifted to Karachi from the
Rahim Yar Khan Site; as the village was the focal point for UPL. A
residential estate situated near the factory is the home of UPL
employees at Rahim Yar Khan. Products Food Brands Becel, Flora
Bertolli Lipton Blue Band Slim Fast Heart Brand Hellmanns,
Amora
Unilever
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Personal care brand AXE Dove Lifebuoy Lux Ponds Rexona Signal,
Close Up Sunsilk TIGI Vaseline
UnileverHome Care Brand Comfort Rin Surf Excel
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Analysis Analysis has been conducted on Unilevers financial
statements of 2008, 2009 and 2010 in order to establish significant
relationships and to identify changes and trends between those
years. Four analytical techniques are used: Trend Percentages;
Dollar and Percentage changes; Component Percentages and Ratios for
both balance sheet and income statement. Horizontal analysis is
conducted through Dollar and Percentages changes whereas Vertical
analysis is conducted through Component Percentages. Trend Analysis
Trend percentages show extend and direction of change in financial
statement items from a base year to a following year. In this case
the base year is 2007 and the following years are 2008, 2009 and
2010. Firstly, a base year was selected and each item in the
financial statement was given a weight of 100%. Secondly, each item
in the financial statement was expressed for 2008, 2009 and 2010 as
a percentage of its base year amount. Balance Sheet Balance sheet
is a financial statement that summarizes a company's assets,
liabilities and shareholders' equity at a specific point in
time.
UnileverTotal Assets:
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The Non-Current Assets show an increasing trend over the years:
2008, 2009 and 2010. 2008-2009 show an increasing trend mainly due
to a tremendous increase in property, plant and equipment, long
term investment, long term loans, long term deposits and
prepayments and retirement benefits. The only item that decreased
from 2008- 2009 was intangibles. The reason for an increase in
property, plant and equipment from 8.76% to 134.81% is due to a
drastic increase in operating assets in 2009. Operating assets are
long-lived assets that are used in normal business operations. The
companys operating assets at that time were land, building, plant
and machinery, furniture and fittings and motor vehicles. This
126.05%, increase shows that the company invested in its operating
assets to make favorable outcomes for itself. A favorable amount
shows that Unilever has what it needs to generate revenue that can
settle short term debts obligations. Long Term investments and
funds are investments a company intends to hold for more than one
year. The reason for an increase in Long term investments from 0%
to 100% is that in 2009 Unilever bought ordinary shares of Lever
Chemicals Pvt Ltd, Levers Associated Pakistan Trust Pvt Ltd and
Sadiq Pvt Ltd. There were 9500,000 shares bought from each company
and each share was worth Rs.10. Unilever benefited from the
purchase of share by receiving dividends which the company can
invest in projects and new product innovations. In 2009, there was
an increase in Long term loans from 4.19% to 85.03% as directors
and executives of the company borrowed long term loans in 2009 of
Rs. 98117000. According to the notes in the annual report the loans
under the terms of employment have been given interest free charges
to facilitate purchase of houses, vehicles and computers repayable
in monthly installments over a period of three to five years. Other
reasons may include investments in a new project or debt purposes.
Another benefit of long term loans is that the repayments are
spread over a long period of time which means that monthly
repayments are lower. Long term deposits increased from 111.542% to
7985.69%. In 2008, Unilever only received prepaid rent of
Rs.9276000 whereas in 2009 Unilever received both prepaid rent as
well
Unileveras security of Rs 368,064000 and Rs.4627000
respectively. According to this there was a tremendous increase in
the amount of prepaid rent. In 2009, there was a 17.65% increase in
retirement benefits. The company has some
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defined contribution plans: 1) Provident Fund- in which equal
monthly contributions are made, both by the Company and the
employees, to the fund at the rate of 6% per annum of the gross
salary; 2) DC pension Fund - for permanent employees who joined on
or after January 1, 2009; and permanent employees who joined on or
before December 31, 2008 and opted for DC Pension plan in lieu of
future benefits under the existing pension, management bonuses and
pensioners' medical plans. An increase in retirement benefits leads
to cash inflows as 6% is deducted from the employees gross salary.
Intangibles decreased drastically from 1488% to 19.99%. In 2008,
Unilever made an acquisition of GlaxoSmithKline Pakistan Ltd. When
this event took place Unilever paid for the goodwill, agreement in
restraint of trade and trademark. Therefore the amount of
intangibles in 2008 is more than 2009. The non-current assets
during the year 2009-2010 show an overall increasing trend. This is
due to an increase in property, plant and equipment, intangibles
and long term investment. The items that decreased from 2009- 2010
were long term loans, long term deposits and prepayments and
retirement benefits. The reason for an increase in property, plant
and equipment from 134.81% to 139.38% is due to a drastic increase
in operating assets in 2009. Operating assets are long-lived assets
that are used in normal business operations. The companys operating
assets at that time were land, building, plant and machinery,
furniture and fittings and motor vehicles. This 4.57% increase
shows that the company invests in its operating assets to make the
outcomes favorable for itself. A favorable amount shows that
Unilever has what it needs to generate revenue that can settle
short term debt obligations. Intangibles significantly increased
from 19.99% to 6745.14% as the company acquired license of SAP
Enterprise Resource Planning (ERP) System Solution. The software
integrates internal and external management information across an
entire organization including
Unileveraccounting, manufacturing, sales and service, CRM, etc.
Unilever purchased this software because it is important to remain
updated with the growing trend of implementing highly technological
systems being introduced in todays world.
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Long term loans decreased from 85.03% to 72.70%, due to monthly
payments made by Unilever which automatically reduced the principal
amount. Another reason for not borrowing more loans is that
Unilever may have financed its operations through its retained
earnings for the year 2010. Long term Deposits and prepayments
decreased from 7985.69% to 569.04% in 2010, because prepaid rent
fell by a very large amount of Rs. 362027. Retirement benefits
decreased from 74.96% to 59.31%. This may be the fact that many
employees retired during 2009-2010 and payments were made to them.
Even in 2010 the Long term investment was 100% which is the same as
2009. This means that no further investment was made in 2010. The
company might be receiving sufficient return on its investments and
therefore did not feel the need to increase its investments
further. The Current Assets show an increasing trend over the
years: 2008, 2009 and 2010. In 2008-2009 the current assets
increased from 12.62% to 144.48%. The reason for this 131.86%
increase is that there was an increase in stocks and spares, stocks
in trade, trade debts, loans and advances, trade deposits and short
term prepayments, taxes refunds due from government, other
receivables and cash and bank balances. Stores and spares increased
to 139.52%. The Company made a provision of Rs. 8.31 million (2008:
Rs. 8.63 million) for obsolescence and has written off stores and
spares of Rs. 4.54 million. Stocks in trade are goods kept
available for sale at a store or tools, materials, etc. used in
carrying on a trade or a business. They increased from 7.65% to
147.17%. Unilever had finished goods worth of Rs. 1,293,954,000 and
made a provision of Rs. 109.19 million for obsolescence. Trade
debts facilitate business activities by permitting purchasers to
pay at a later date and in this case it is trade receivables. This
is a credit facility for increasing the sales revenue for Unilever.
This increased from 20.88% to 211.59%.
UnileverLoans and advances increased to 91.92%. According to the
annual report notes the advances to executives are given to meet
business expenses and are settled as and when the expenses are
incurred.
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Trade deposits and short term prepayments increased to 274.85%
because trade deposits increased from Rs. 1605000 to Rs. 16192000
in 2009. Taxes refunds due from government increased from 0% to
239.10% because sales tax refundable was zero in 2008 and increased
to Rs. 137012 in 2009. Other receivables increased to 31.96%. They
include receivables from distributors on account of Equipment
supply and receivables in respect of sale of fixed assets from the
following parties: o Unilever Pakistan Foods Limited o Unilever
Gratuity Fund o Associated undertakings o Workers' Profits
Participation Fund Cash increased to 122.71% due to overall high
sales from a variety of diversified products resulting from high
demand and successful and efficient operations of business. In
2009-2010 there is an increase of 37.01%. The increase in the
current assets in 20092010 was because of an increase in stocks and
spares, stocks in trade, trade debts, and taxes refunds due from
government, and cash and bank balances. Stores and spares have
increased to 50.97%. The Company has made a provision during the
year of Rs. 4.18 million (2009: Rs. 8.31 million) for obsolescence.
Stocks in trade for Unilever had finished goods worth of Rs.1,
264,130,000 and made a provision of Rs. 109.19 million for
obsolescence. Trade debts are a credit facility for increasing the
sales revenue for Unilever. This has increased to 6.87%. Taxes
refunds due from government had a 74.98% increase because taxation
payment increased from Rs. 218013 to Rs. 329355 in 2010. Cash had
an 804.82% increase due to overall high sales of a variety of
diversified products resulting from high demand and successful and
efficient operations of business.
UnileverEquity and Liability section:
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The equity and liabilities section of balance sheet show an
increasing trend over the three years. Trend percentages for 2008,
2009 and 2010 were 12.56%, 141.33% and 167.01% respectively. In
2008-2009, there was an accelerated increase in trend percentages
of total equity and liabilities and this was due to the fact that
all the three components: capital and reserves, noncurrent
liabilities and current liabilities were increasing. The trend
percentages for capital and reserves increased from 15.11% to
165.69% in 2009. This sharp increase was based on shares capital,
reserves and surplus on revaluation of fixed assets. Shares capital
increased from 9.2% to 100% because Unilever authorized and issued
more shares in 2009 as compared to 2008.The authorized share
capital and issued capital for 2009 was Rs. 800000000 and Rs.
669477000 and for 2008 was Rs. 200000000 and Rs. 61576000
respectively. The reserves increased from 18.29% to 200.07% in 2009
as Unilever had schemes of arrangements for amalgamation with
former Mehran International (Private) Limited, former Ambrosia
International Limited and former Pakistan Industrial Promoters
(Private) Limited. No such schemes for amalgamation were part of
financial year of 2008. The surplus on revaluation of fixed assets
increased from 0% to 90.91% as revenue figure in 2009 was Rs.
2229243000 as compared to Rs. 214251000 in 2008. The increase in
revenue shows that year 2009 was more profitable. The trend
percentages for Non-current liabilities increased from 8.37% to
203% in 2009. This increased is based on liabilities against assets
subject to finance leases, deferred taxation and retirement
benefits obligation. There was no liability against assets subject
to finance lease in 2008 and in 2009 this liability amounted to
Rs.56762000 which results in 107.24% increase during the year.
Deferred taxation increased from 12.03% to 205.84% because the
credit balance arising in result of accelerated tax depreciation
allowances and surplus was Rs. 881206000 in 2009 more than Rs.
720512000 in 2008 which caused increased deferred tax amount of Rs.
636130000 in 2009. The trend percentages for Retirement benefit
obligation increased from 3.48% to 232.84% in 2009. This can be
explained as company contributed Rs. 14.2 million towards
Retirement benefit fund in 2009 as compared to Rs. 9.57 million in
2008.
UnileverThe trend percentages for current liabilities increased
from 12.03% to 127.07%. This
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increase was based on trades and other payable, accrued
interest, current maturity of liabilities against assets subject to
finance lease, short term borrowing and provisions. Trades and
other payables increased from 8.75% to 121.79% because there was an
increase in creditors; technical services fee; advance payment from
customers, sales tax payables; excise duty payable and unclaimed
dividends. Short term borrowing increased from 57.27% to 245.05%in
2009 because finance available from banks was Rs.6.67 billion
(2008: Rs 5.99 billion) in 2009. In 2009-2010, there was a modest
increase in trend percentages of total equity and liabilities. This
increase was based on capital and reserves and current liabilities.
The trend percentages for capital and reserves increased from
165.69% to 179.16% in 2010. The reserves were increasing at an
increasing rate and surplus was decreasing at a decreasing rate
which caused capital and reserves to increase in 2010. The reserves
increased from 200.07% to 220.62% because the amount of revenue
earned in 2010 was Rs. 2498441000 as compared to Rs. 2229243000 in
2009. The trend percentages for current liabilities increased from
127.1% to 160.60% in 2010. In the current liability section trade
and other payables, current maturity and provisions were increasing
at an increasing rate and accrued interest and short term borrowing
were decreasing at a decreasing rate which caused current
liabilities to increase. Trade and other payables increased because
there was an increase in creditors; technical services fee; advance
payment from customers, sales tax payables; excise duty payable;
bill payable and unclaimed dividends. The amount of current
maturity increased from Rs. 28419000 to Rs. 28877000. Short term
borrowing decreased because finance available from banks was
Rs.10.78 billion (2009: Rs 6.67 billion) in 2010. For Income
Statement The trend percentages for sales are computed by dividing
the sales amount of each following year. The trend percentages for
net income are computed by dividing the net income amount for each
following year by the base year amount. Trend percentages are the
tools for comparing information from successive time periods.
Unilever
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In 2008, the sales increased by 13.21%, CGS by 13.51%, gross
profit by 12.74%, distribution cost by 10.68%, administrative
expense by 4.51%, other operating expenses by 18.79%, other
operating income by 10.98%, restructuring cost by 0%, financing
cost by 20.36% and taxation by 21.58%, whereas the net income of
2008 is increased by 20.66%. In 2009, the sales increased by
163.67%, CGS by 174.42%, gross profit by 146.81%, distribution cost
by 142.99%, administrative expense by 102.27%, other operating
expenses by 159.83%, other operating income by 100.91%,
restructuring cost by 0%, financing cost by 391.65% and taxation by
173.33%, whereas the net income of 2009 is increased by 181.10%. In
2010, the sales increased by 191.46%, CGS by 211.21%, gross profit
by 160.49%, distribution cost by 159.99%, administrative expense by
121.07%, other operating expenses by 165.94%, other operating
income by 65.14%, restructuring cost by 24.18%, financing cost by
173.60% and taxation by 178.94%, whereas the net income of 2010 is
increased by 193.98%. (The reasons why there is an increase in
expenses, cost and gross profit is already explained in vertical
and horizontal analysis of income statement). By glancing at these
trend percentages of three years (2008-2011), we can conclude that
these percentages indicate a modest growth in sales in the early
years and have accelerating growth in 2009 and 2010. Whereas all
the components like CGS, gross profit, distribution cost,
administrative expenses, other operating expenses, other operating
income, financing cost and taxation are also accelerating in 2009
and 2010, which show that as sales are increasing the expenses
which are occurring with it are also increasing. If we look at a
trend percentages we also come to know that net income also shows
an increasing growth trend with the exception of the year 2008,
when net income declined despite a solid increase in sales. The
problem was overcome in 2010 with a sharp rise in net income.
Overall the trend percentages give a picture of a profitable,
growing enterprise. Horizontal Analysis Horizontal analysis is used
to evaluate rates of growth (decline) for company. The percentage
was computed by dividing the amount of the dollar change between
2007-2008, 2008-2009 and 2009-2010 by the amount for the base
years.
UnileverFor Balance Sheet Total Assets: Non-current assets:
Plant, property, and equipment in 2007 were Rs. 3513499000 and in
2008, it was Rs.307707000. This means that there was a decline of
Rs.3205792000 in property, plant, and equipment in 2008. This
noticeable fall is due to decline in capital work in progress,
which reduced from Rs.87446000 in 2007 to Rs.11677000 in 2008. The
decrease in capital work in
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progress is the result of two reasons i.e. falls in civil work
in progress from Rs.13499000 in 2007 to Rs.4511000 in 2008 and fall
in plant and machinery from Rs.73947000 to Rs.7166000. Intangibles
are showing an increase of Rs.168972000. It rose from Rs.12173000
in 2007 to Rs.181145000 in 2008. Intangibles include goodwill,
trademark, cost etc. This increase is mainly due to the merger with
Galaxo-D. Long-term investments declined from Rs.95202000 in 2007
to 0 in 2008. These figures are indicating that investments were
not made in 2008. Long-term loans have a decrease in 2008. They
were Rs.115388000 in 2007 and Rs.48736000 in 2008. This means that
more loans were issued in 2007 as compare to 2008. Loans were
issued to executives and employees to facilitate them. Loans made
to employees in 2007 were Rs.6738000 and in 2008 it was Rs.5294000.
Loans to employees carry no mark up. Long-term deposits and
prepayments increased by amount Rs.568000. It was Rs.4920000 in
2007 and Rs.5488000 in 2008. Prepaid rent is the reason for its
increase. Retirement benefits-prepayments have a drastic decline in
2008. In 2007, it was Rs.250878000 while in 2008 it was zero. This
means that company conducted, provident fund, pension plans, and
gratuity plans for its employees in 2007 to benefit them but these
plans were not part of the year 2008.
UnileverCurrent assets: Stores and spares have been decreased in
2008 due to the nil balance of others in this account in 2008 while
it was 90 in 2007. The amount of stores and spares in 2007 was
Rs.180355000 which fell to Rs.13804000 in 2008. This shows a
decrease of Rs.166551000.
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Stocks in trade are also showing a decrease of Rs.2373670000.
The reasons for this are that firstly provision for obsolescence
for raw material and packing material in lower in 2007 Rs.9573000
while it was higher in 2008 that is Rs.34641000 secondly the
provision for obsolescence is also lower in 2007 Rs.6608000 and
higher in 2008 Rs.15206000. This resulted in change of negative
amount of Rs.2373670000. Trade debts are also showing a decrease in
2008 of Rs.49976000 while it was Rs.239313000 in 2007. This is
because in the account of considered goods the unsecured related
party of Unilever Pakistan limited has a nil balance in 2008 while
it was Rs. 1442000 in 2007. Also others have fell from Rs. 83920000
in 2007 to Rs. 49971000 in 2007. And in the account of considered
good the secured party of Unilever Bangladesh limited has nil
balance in 2008 while it was Rs. 1338000 in 2007. Against letters
of credit it shows a drastic decrease in 2008 of Rs. 5000 while it
was Rs.1401000 in 2007. Provision for doubtful debts were less in
2007 which is Rs.12487000 and in 2008 it was Rs.13801000. Loans and
advances have also declined drastically in 2008. They were
Rs.122888000 in 2007 to Rs. 18897000 in 2008. The issuance of loans
to employees decreased in 2008 to Rs. 1241000 and it was Rs.1514000
in 2007. This means fewer loans were issued in the year of 2008.
Accrued interests account is showing a considerable change in 2008.
It was Rs.1115000 in 2007 while in 2008 the account is having a
zero balance. This is because balance receivable from provident
fund and gratuity fund is having zero balance while it was
Rs.2284000 and Rs.5710000 respectively in 2007. Trade deposits and
short term prepayments have been declined in 2008 to Rs.32132000
from Rs.236064000 in 2007. This is due to decrease in current
portion of long-term rent from
Unilever
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Rs.3945000 in 2007 to Rs. 3788000 in 2008 and a fall in trade
deposits in 2008 of Rs.1605000 from Rs.3790000 in 2007. Other
receivables account is showing a fall of Rs. 246620000. The amount
was Rs.249139000 in 2007 while it was Rs.2519000 in 2008. This
drastic decline is due to four reasons. Firstly, Rafhan best foods
provident fund has a nil balance in 2008 while it was Rs.2098000 in
2007. Secondly, Rafhan best foods pension fund has fallen from
Rs.638000 in 2007 to Rs.156000 in 2008. Thirdly, Rafhan best foods
gratuity fund also has a Rs. 2352000 balance in 2008 while it was
Rs.2312000 in 2007 and fourthly workers profit participation fund
was Rs.101000 in 2007 and in 2008 it was Rs. 11000. Taxes refunds
due to government have a drastic decrease from Rs148496 in 2007 to
zero to in 2008. Taxation is showing an increase in 2008 of
Rs.36693000 from zero in 2007 and sales tax refundable is the same
in both years with zero balance. Cash and bank balances have a fall
in 2008 of Rs.180660000. It was Rs.188682000 in 2007 and in 2008 it
was Rs.8022000. This change is due to the decrease in savings
account of Rs.840000 in 2008 while it was Rs.12469000 in 2007.
Non-current assets: Property, plant and equipment have been
increased drastically in 2009. It was Rs.307707000 in 2008 while in
2009 it grows to Rs.4736619000. This increment is caused by
increase in operating assets. Operating assets were Rs.3998216000
in 2008 and in 2009 they were Rs.4563048000. Intangibles are
showing decrease in 2009. They were Rs.181145000 in 2008 and in
2009 they fell to Rs.2433000. This is due to net carrying value
basis which were 7303 in 2008 and in 2009 they decline to
Rs.2433000. Gross carrying value basis also showed the same figures
for both years.
Unilever
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Long-term investments are increasing in 2009 because no
investments were made in 2008 and in 2009 they were Rs.95202000.
Long-term loans have been increased in 2009 to Rs.98117000 from
Rs.4836000 in 2008. This means that loans have been issued to
executives, employees in this year. Long-term deposits and
prepayments are increasing in 2009. They were Rs.5488000 in 2008
and in 2009 they increased to Rs.392896000. This is because
security deposits increased in 2009 to Rs.4627000 and in 2008 they
were Rs.4480000. Retirement benefits and prepayments increased
drastically in 2009. The balance in 2008 was zero which became
Rs.188054000 in 2009. This means company started giving benefits to
its employees in 2009. Current assets: Current assets are showing
an overall increasing trend of 1044.84% in 2009. This increase is
mainly due to following reasons. Stores and spares are showing an
increasing trend of 1822.78%. It was Rs.13804000 in 2008 and it
reached to Rs.265420000 in 2009. This trend is due the increasing
effects of stores from Rs.78744000 in 2008 to Rs.80825000 in 2009,
also due to an increase in spares from Rs.194971000 in 2008 to
Rs.219657000 in 2009 and due to an increase in others from
Rs.2920000 in 2008 to Rs.3595000 in 2009. Trade deposits and short
term prepayments are increasing drastically from Rs.34132000 in
2008 to Rs.682949000 in 2009. This increase is of 1900.91%. ERP
implementation also increases from Rs.141274000 to Rs.355123000 in
2009. There is an increase in rent from Rs.146073000 to
Rs.151155000 in 2009, and also an increase in others from
Rs.98288000 in 2008 to Rs.160479000 in 2009. Other receivables are
also another reason for the increasing trend of current assets.
There is a drastic increase of 3160.86%. They are increasing from
Rs.2519000 in 2008 to Rs.82141000 in 2009.
Unilever
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Cash and balance is showing growth of 2886.2%. It has increased
from Rs.8022000 in 2007 to Rs.239553000 in 2009. The increase is
caused by an increase in the current account and an increase in
savings account. Current account was Rs.104988000 in 2008 and in
2009 it was Rs.238365000. Savings accounts balance was nil in 2008
but Rs.444000 in 2009 Non-current assets: Non-current assets are
showing an overall increase of 10.17% in 2010. Accounts which
caused this increase are property, plant and equipment and
intangibles. Property, plant and equipment are presenting an
increase of 3.39%. The balance was Rs.4736619000 in 2009 and in
2010 it was Rs.4897171000. This increase occurred due to operating
assets which were Rs.4563048000 in 2009 and in 2010 they were
Rs.4588190000. Intangibles increased due to increase in intangible
assets under development which were Rs.355123000 in 2009 and
Rs.821086000 in 2010. The overall increase in intangibles was
33647.88%. Current assets: Current assets are presenting an overall
increase of 18.16% in 2010. The main reasons for this increase are
stores and spares, cash and bank balances. Stores and spares are
increasing by 34.63%. Balance of this account was Rs.265420000 in
2009 and in 2010 it was Rs.357338000. This increase is caused by
stores which were Rs.80825000 in 2009 and Rs.169893000 in 2010. And
also because of increase in spares that is Rs.219657000 in 2009 and
in 2010 it was Rs.226090000. Cash and bank balances are having a
drastic increasing trend of 633.91%. This trend is the result of
the increase in current accounts, savings account, deposit account
and cash in hand which were lower in 2009 as compare to 2010.
Current account was Rs.238365000 in 2009 and in 2010 it reached to
Rs.658090000. Savings account grew from Rs.444000 in 2009 to
Rs.298509000 in 2010. Deposit account is representing nil balance
in 2009 and in 2010 it was
UnileverRs.800000000. And cash in hand was Rs.744000 in 2009
which was higher in 2010 that is Rs.1511000. Equity and
liabilities:
20
The rupees and percentage changes for 2008 were Rs. -7068563000
and -87.44%. This shows that amount of equity and liabilities
decreased in 2008. The rupee percentage for capital and reserves
was -84.49% and was based on decrease in shares capital, reserves
and surplus on revaluation of fixed assets. Share capital rupee
percentage is -90.8% as Unilever issued share capital of Rs.
61576000 in 2008 less than that of 2007. Reserve rupee percentage
was -81.71% as capital reserves was Rs. 25258000 and revenue
reserves was Rs. 214389000 resulting in reserves of Rs. 239647000
in 2008 (2007: Rs. 669477000). The rupee percentage for non-current
liabilities was -91.63% because deferred taxation and retirement
benefit obligation were decreasing. The deferred taxation
percentage was 87.97% because accelerated tax depreciation
allowances decreases to Rs. 26891000 from Rs. 509544000 and also
there was a decrease in provision for retirement benefit, stock in
trade and doubtful debts. Retirement benefit obligation was 96.75%
because company contributed Rs. 9.57 million to retirement benefit
fund less than the amount contributed in 2007. The rupee percentage
for current liabilities was -87.97%. The decrease was based on the
fact that trade and other payables and short term borrowing are
decreasing at an increasing rate and accrued interest is increasing
at a decreasing rate. Decrease in creditors, technical services
fee, advance payment from customers and unclaimed dividends caused
trade and other payables to decrease. Short term borrowing
decreased because in 2008 finance available from banks was Rs. 750
million and it was Rs. 850 million in 2007. The rupee and
percentage changes for 2009 were Rs. 10410102000 and 1025.01%. This
shows that amount of equity and liabilities increased in 2009. The
rupee percentage for capital and reserves was 996.89% and was based
on increase in shares capital and reserves. Share capital dollar
percentage was 987.24% as Unilever issued
Unilever
21
share capital of Rs. 669477000 in 2009 more than that of 2008.
By issuing more shares company increased its equity. Reserve rupee
percentage was 993.96% as capital reserves increased to amount of
Rs. 392499. Increase in capital reserves was due schemes of
arrangements for amalgamation with former Mehran International
(Private) Limited, former Ambrosia International Limited and former
Pakistan Industrial Promoters (Private) Limited. The rupee
percentage for non-current liabilities was 2323.9% because deferred
taxation and retirement benefit obligation were increasing. The
deferred taxation percentage was 1610.49% because in 2009 Rs.
245076000 deferred taxes were paid off as compared to Rs. 350859000
in 2008. Retirement benefit obligation was 658.71% because company
contributed Rs. 560 million to retirement benefit fund in 2009. The
rupee percentage for current liabilities was 956.31%. The increase
was based on the fact that trade and other payables, short term
borrowing and accrued interest were increasing. Short term
borrowing increased because in 2009 finance available from banks
was Rs. 6.67 million and in 2008 it was Rs. 5.99 million. Trade and
other payables increased because of following components: Trade and
other payables Creditors Accrued liabilities Technical service fee
Advance payment from customers Sales tax payable Excise duty
payable 2009 886,814,000 3,599,177,000 291,852,000 114,122,000
216,400,000 114,444,000 2008 701,789,000 2,627,780,000 246,507,000
87,011,000 91,309,000 90,814,000
In 2010, rupee change and percentage were Rs. 2075932000 and
18.16%. The positive change signified that there had an increase in
equity and liabilities. The capital and reserves and current
liabilities caused positive change as they were increasing at an
increasing rate than non-current liabilities decreasing at
decreasing rate.
Unilever
22
The rupee percentage for capital and reserves was 8.13% and was
caused by reserves of the company as the amount of revenue earned
in 2010 was Rs. 2498441000 as compared to Rs. 2229243000 in 2009.
The rupee percentage for current liabilities was 26.36% and this
percentage was based on trades and other payables, current maturity
of liabilities and provisions which increased during 2010 and
caused a positive change in current liability. For Income Statement
Computing the percentage changes in sales, gross profit, and net
income from one year to the next year gives insight into a companys
rate of growth. If a company is experiencing growth in its economic
activities, sales and earnings should increase at more than the
rate of inflation. In 2008 the sales of the Unilever were
decreasing at a decreasing rate of 86.79% while CGS was decreasing
at an increasing rate of 86.49%, due to this the gross profit is
decreasing by 87.26%. The reason the gross profit is decreasing in
2008 is because gross margins remained under pressure due to high
cost push inflation fuelled by higher material and energy costs and
rupee depreciation. However, well managed pricing decisions and
cost saving initiatives helped to improve gross margin. The sales
of 2008 are decreasing because of the increase in gross sales and
charged more federal excise duty and sales tax in this year rather
in 2007 and the decrease in CGS is because of the increase in raw
and packing material consumed, stores and spares consumed, staff
costs, fuel and power, rentals, depreciation, and other expenses
which lead to increase in CGS. The net income is decreased
by79.34%, this is because of decrease in gross profit by 87.26%,
distribution costs by 89.32%, administrative expenses by 95.49%,
other operating expenses by 81.21% (this decrease in other
operating expenses is occurred because of the increase in Auditors
remuneration, donation, provision for doubtful debts-trade,
workers' profits participations fund and workers' welfare funds in
2008 rather in 2007. There was no loss on disposal of property,
plant and equipment shown in 2008 but there was a loss on disposal
in 2007). The net income is also decreasing because of the decrease
in other operating income by 89.02% (this decrease in other
operating income is occurring because of the increase in salvage
value and gain on disposal
Unilever
23
of property, plant and equipment), restructuring cost by 100%,
and financial cost by 79.64% and taxation by 78.42%. In 2009, the
sales of Unilever are increasing at a decreasing rate of 1139.10%
while CGS was increasing at an increasing rate of 1191.20%, due to
this the gross profit increases by 1052.43%. The reason the gross
profit is increasing in 2009 is because higher volumes and
favorable changes in mix result in a gross margin improvement. The
sales of 2009 are increasing at a decreasing rate because of the
increase in manufacturing goods gross sales and charged more
federal excise duty and sales tax in this year and increased
rebates and allowances rather in 2008 and the increase in CGS is
because of the increase in raw and packing material consumed,
stores and spares consumed, staff costs, rentals, rates and taxes,
depreciation, utilities, repairs and maintenance, expenses on
Information Technology and other expenses which lead to increase in
CGS. The net income is increased by 776.71%, this is because of an
increase in gross profit by 1052.43%, distribution costs by
1239.14%, administrative expenses by 2168.73%, other operating
expenses by 750.67% (this increase in other operating expenses
occurred because of the increase in workers' profits participations
fund and workers' welfare funds in 2009 and also because of the
loss on disposal of property, plant and equipment shown in 2009
rather than 2008). The net income is also increasing because of the
increase in other operating income by 818.58% (this increase in
other operating income is occurring because of the increase in
scrap sales and sundries but there was no gain on disposal of
property, plant and equipment shown in 2009), restructuring cost by
0%, and financial cost by 1823.65% and taxation by 703.16%. In
2010, the sales of the Unilever were increasing at a decreasing
rate of 16.98% while CGS was increasing at an increasing rate of
21.09%, due to which the gross profit is increasing by 9.32%. The
reason the gross profit is increasing in 2010 is because rising
input costs which were not entirely passed on to consumers, coupled
with strategic investment behind brands, impacted Gross and
Operating Margins respectively. Strong volumes and value growth
resulted in higher Profit after Tax. Over the three years to 2010,
sales have nearly doubled. The sales of 2010 are increasing at a
decreasing rate because of the increase in manufacturing goods
gross sales and charged more federal excise duty and sales tax in
this year and increased rebates and allowances more in 2010 and the
increase in CGS is because of the
Unileverincrease in raw and packing material consumed, stores
and spares consumed, staff costs, depreciation, utilities, repairs
and maintenance, and other expenses which lead to increase in
24
CGS. The net income is increased by 7.12%, this is happened
because of increase in gross profit by 9.32%, distribution costs by
11.89%, administrative expenses by 18.39%, other operating expenses
by 3.82% (this increase in other operating expenses is occurred
because of the increase in donations, workers' profits
participations fund and workers' welfare funds in 2010 and there
was no loss on disposal of property, plant and equipment shown in
2010 rather shown in 2009). The net income is also increasing
because of the decrease in other operating income by 35.45% (this
increase in other operating income is occurring because of the
increase in scrap sales and gain on disposal of property, plant and
equipment shown in 2010), restructuring cost by 0%, and decrease in
financial cost by 55.67% and increase in taxation by 3.24%.
Vertical AnalysisVertical analysis indicates the relative size
of each item included in total. Each item of balance sheet and
income statement was expressed as percentage of total assets, total
liabilities and net income for year 2008, 2009 and 2010. For
Balance Sheet Total Assets: While doing the vertical analysis of
Assets from year 2008 -2009, we divide our assets into two parts
non-current assets and Current Assets. There had been a decrease in
non-current assets in going from 2008 to 2009.As percentage
decreased from 49.15% to 48.25% but as this decrease is only 0.9%
because of the fact that the intangibles had decreased from 17.84%
in 2008 to 0.02% in 2010 ,causing overall decrease in non-current
assets. Where as all other non-current assets like property, Plant
& equipment, long term investment, long term loans, long term
deposits & prepayments, Retirement benefits-prepayments had
increased, but as this percentage increase was a minor one and had
caused less percentage increase into the total non-current assets
when compared with the percentage decrease in intangibles.
Unilever
25
Similarly, current assets of 2008-2009 increased from 50.85% to
51.75% i.e. only 0.9% increase and it was majorly caused by taxes
refunds due from government from 0.00% to 3.11% and second most
influence on the current assets was of percentage increase in Trade
deposits and short term prepayments from 3.36% to 5.98% other than
that stores & spares, other receivables, Cash & bank
balances had also increased from 2008-2009. But as this percentages
increase was insignificant because of some current assets
percentage decreased during 2008-2009 which include stocks in trade
decreasing from 34.70% in 2008 to 31.94% on 2009.Other than this,
Trade debt and loans & advances had also decreased during
2008-2009. But overall there was an increase in current assets from
2008-2009. Non-current assets decreased from 48.25% in 2009 to
44.99% in 2010.i.e there was a 3.26% decrease in percentage majorly
due to property, Plant & equipment decreasing from 41.46% in
2009 to 36.27% in 2010.Then, long-term investments, long-term loan,
long term deposits & prepayments, Retirement benefits have also
decreased from 2009 to 2010 causing an overall decrease in
non-current assets. The only non-current asset that has increased
is intangibles increasing from 0.02% in 2009 to 6.08% in 2010.
Current asset in 2009 are 51.75% and 55.01% in 2010 i.e. there was
a 3.26% increase in current assets overall. This increase is
largely due to cash & bank balances increasing from 2.10% in
2009 to 13.02% in 2010.other than Cash & bank balances , stores
& spares, Taxes refunds due from government have also increased
causing overall increase in Current assets. Current assets like
Trade deposits &short term prepayments had decreased most i.e.
5.98% in 2009 to 1.80% in 2010. Also, stocks in trade, Trade debts,
Loans & advances, other receivables have decreased from 2009 to
2010. But there percentage decrease is smaller as compared to the
percentage increase of Cash &bank balances. Thus there was an
overall increase in current assets of 2009-2010. Equity and
liability: The component percentages for capital and reserves
section in year 2008, 2009 and 2010 were 29.66%, 28.92% and 26.46%
respectively. This decrease signified that as the years passes the
capital and reserves are becoming less significant.
Unilever
26
In 2009, the decrease was caused due to a drastic decrease in
reserves and capital shares of the company. Reserves decreased from
25.6% to 22.95% and capital shares decreased from 6.06% to 5.86%.
This change was mainly due a decrease in issuance of shares and
retaining less profit. In 2010, the component percentages for
capital and reserves further decreased to 26.46% and reason was
again decrease in reserves, capital shares and surplus on
revaluation of fixed assets. The component percentages for
non-current liabilities in year 2008, 2009 and 2010 were 4.14%,
8.93% and 7.07 % respectively. In 2009, the percentages increased
from 4.14% to 8.93% i.e. becoming more significant for the company
and the reason was increase in deferred taxation and retirement
benefit obligation. In 2010, the percentages decreased from 8.93%
to 7.07% i.e. becoming less significant and the reason was decrease
in liabilities against assets subject to finance lease, deferred
taxation and retirement benefit obligation. The component
percentages for current liabilities in year 2008, 2009 and 2010
were 66.2%, 62.16% and 66.47% respectively. In 2009, the
percentages decreased from 66.2% to 62.16% i.e. becoming less
significant for the company and the reason was decrease in trades
and other payables, taxation, current maturity of liabilities,
short term borrowing and provisions. In 2010, the percentages
increased from 62.16% to 66.47% i.e. becoming more significant for
the company and the reason was increase in trades and other
payables and provisions which were increasing at an increasing rate
as compared to other current liabilities which were decreasing at a
decreasing rate. For Income Statement Component percentage is used
to express all items in an income statement as a percentage of net
sales. Such a statement is called a common size income statement.
In 2008 CGS is decreasing by 62.45%, due to which the gross profit
is increasing by 37.55%. The reason the gross profit is decreasing
in 2008 because Gross margins remained under pressure due to high
cost push
Unileverinflation fuelled by higher material and energy costs
and rupee depreciation. However, well managed pricing decisions and
cost saving initiatives helped to improve gross margin. The
decrease in CGS of 2008 is because of the increase in raw and
packing material consumed, stores and spares consumed, staff costs,
fuel and power, rentals, depreciation, and other expenses which
lead to decrease in CGS. The net income is increased by11.31%, this
is because of an increase in gross profit by 37.55%, decrease in
distribution costs by 17.40%, administrative expenses by 1.47%,
other operating expenses by 1.43% (this decrease in other operating
expenses is occurred because of the increase in Auditors
remuneration, donation, provision for doubtful debts-trade,
workers' profits participations fund and workers' welfare
27
funds in 2008 rather in 2007. But the thing is that there was no
loss on disposal of property, plant and equipment shown in 2008 but
shown a loss on disposal in 2007). The net income is also affected
because of the increase in other operating income by 0.68% (this
decrease in other operating income is occurring because of the
increase in salvage value and gain on disposal of property, plant
and equipment), restructuring cost by 0%, and decrease in financial
cost by 0.72% and taxation by 5.90%. In 2009, CGS is decreasing at
an increasing rate by 65.08%, due to which the gross profit is
increasing by 34.92%. The reason the gross profit is increasing in
2009 because higher volumes and favorable change in mix resulted in
a gross margin improvement. The decrease in CGS is because of the
increase in raw and packing material consumed, stores and spares
consumed, staff costs, rentals, rates and taxes, depreciation,
utilities, repairs and maintenance, expenses on Information
Technology and other expenses which lead to decrease in CGS. The
net income is increased by 8.00%, this is because of an increase in
gross profit by 34.92%, decrease in distribution costs by 18.80%,
administrative expenses by 2.70%, other operating expenses by 0.98%
(this decrease in other operating expenses is occurred because of
the increase in workers' profits participations fund and workers'
welfare funds in 2009 and also because of the loss on disposal of
property, plant and equipment shown in 2009 rather in 2008). The
net income is also affected because of an increase in other
operating income by 0.50% (this increase in other operating income
is occurring because of the increase in scrap sales and sundries
but there was no gain on disposal of property, plant and equipment
shown in 2009), restructuring cost by 0%, and a decrease in
financial cost by 1.12% and taxation by 3.82%.
Unilever
28
In 2010, CGS is increasing at increasing rate by 21.09%, due to
which the gross profit is increasing by 9.32%. The reason the gross
profit is increasing in 2010 is because of rising input costs which
were not entirely passed on to consumers, coupled with strategic
investment behind brands, impacted Gross and Operating Margins
respectively. Strong volumes and value growth resulted in higher
Profit after Tax. A decrease in CGS is because of an increase in
raw and packing material consumed, stores and spares consumed,
staff costs, depreciation, utilities, repairs and maintenance, and
other expenses which lead to increase in CGS. The net income is
increased by 7.33%, this is because of an increase in gross profit
by 32.63%, a decrease in distribution costs by 17.98%,
administrative expenses by 2.73%, other operating expenses by 0.87%
(this decrease in other operating expenses is occurred because of
the increase in donations, workers' profits participations fund and
workers' welfare funds in 2010 and there was no loss on disposal of
property, plant and equipment shown in 2010 rather shown in 2009).
The net income is also affected because of an increase in other
operating income by 0.28% (this increase in other operating income
is occurring because of the increase in scrap sales and gain on
disposal of property, plant and equipment shown in 2010), a
decrease in restructuring cost by 0.20%, and a decrease in
financial cost by 0.42% and an increase in taxation by 3.37%. If we
analyze the three year data (2008 2010) we can generally conclude
by looking only at component percentages, that a decrease in CGS at
an increasing rate from 2008 to 2010 (62.45% to 65.08% to 67.37%)
was only partially offset by a decrease in expenses like
distribution cost, administrative cost, other operating expenses,
restructuring cost, financing cost and taxation as a percentage of
net sales, causing net income to decrease from 11.31% to 8.00% to
7.33% (yr 2008-2010). The reason of this has already been explained
in the paragraphs above.
UnileverRatios Liquidity The liquidity for Unilever was
expressed by using following ratios. 1. Current Ratio: This ratio
is used to give an idea of the company's ability to pay back its
short-term liabilities (debt and payables) with its short-term
assets (cash, inventory, receivables).
29
Current ratio is very important for a firm like Unilever. A good
figure for current ratio is 1 although being close to 1 is also a
good figure. Current ratio for the year 2008 was 0.7682 which is
satisfactory. Main problem for Unilever was that most of their
current assets comprise of stocks which are the least liquid assets
so at a time of difficulty it can create a problem for them. This
figure of Current ratio shows an improvement in the year 2009 and
has remained constant in 2010.The ratio for 2009 and 2010 are
0.8325 and 0.8276 respectively. The figure for current assets was a
good figure for Unilever .This information shows that Unilever was
consistent in their performance and had maintained a good current
ratio. This also shows that Unilever is aggressive in its approach
towards business as they are not afraid to take risks by keeping
too much stock on hand. This is a positive intention towards
business if taken with calculated risk and can lead Unilever to
attain its success in the business world. 2. Working Capital: Net
working capital is used for the cash conversion cycle, a business,
which uses cash for raw materials, converts into the finished
product, sells the product, then receives payment for it. This
conversion cycle may vary depending on the type of business, but
net working capital is essentially the cash needed to run the
business. Net working capital for Unilever was Rs. -155874000; a
negative sign shows that the current assets of Unilever were less
than their current liabilities because net working capital is found
by subtracting current assets from current liabilities. Having
negative net working capital is not a thing to worry .It is mainly
because Unilevers products are fast moving consumer goods and
Unilever
30
they turn their stock into cash very quickly and having so many
suppliers makes their liabilities go up. This figure for net
working capitals has worsened over the period of time as it was Rs.
1189284000 in 2009 and Rs. -1546745000 in 2010.In spite of the fact
that percentage of current assets out of total assets had increased
but net working capital decreased because of further more increase
in current liabilities. 3. Quick Ratio: Quick ratio is an indicator
of a company's short-term liquidity. The quick ratio measures a
company's ability to meet its short-term obligations with its most
liquid assets. The quick ratio for 2008 was 0.223 less than
standard value one which signified that Unilever quick assets were
less than current liabilities i.e. less amount of quick assets were
present to pay off debts. In 2009 quick ratio was 0.281 slightly
greater than previous year and the reason was increase in quick
assets. Quick assets were increasing at an increasing rate as
compared to current liabilities because company cash and bank
balances, receivables and trade debts were increasing. In 2010 the
quick ratio increased to 0.355. This was also due to increase in
quick assets. The increase in quick assets was brought by cash and
bank balance which increased from Rs. 239553000 to Rs. 1758110000
in 2010. This is a positive sign for Unilever as having quick ratio
in relaxation zone or close to it is good Short Term Credit Risk 1.
Debt and Equity Ratio: Debt ratio indicates what proportion of debt
a company has relative to its assets. The measure gives an idea to
the leverage of the company along with the potential risks the
company faces in term of its debt ratio. Debt Ratio over the period
of 3 years hasnt improved even it had gone from bad to worse. Debt
ratio in 2008 was 70.34 % which was not appreciable because this
means Unilever was highly geared i.e. they relied too much on their
debts and loans for financing their activities. This ratio had
increased to 71.08% in 2009 and 73.54% in 2010 which was not a good
sign for Unilever. High debt ratio means poor equity ratio. The
equity ratio was 29.66%, 28.92% and
Unilever
31
26.46% for three years. This could be because of Unilever
relying too much on their investors who can force them to liquidate
their business at anytime if they are not able to pay off their
required payments and its not good for a business which is looking
forward to work as a going concern. Even though the total assets
figure over the period of 3 years have increased but they had not
increased in proportion to total liabilities. Total liabilities
figure in 2008 was Rs. 714390000 which increased to Rs. 8121630000
in 2009. This massive change was mainly because of deferred
taxation and retirement benefits obligation, trades and other
payables figure also increased a lot, the figure of total
liabilities increased to Rs. 9928472000 which was another big
change in total liabilities whereas total assets figure in 2008 was
Rs. 1015613000 which increased to Rs. 11425715000. This figure was
mainly changed because of increase in stocks of trade and in 2010
it increased to $1350117 but still debt ratio increased.
Profitability Measures of profitability are of interest to equity
investors and management, and are drawn primarily from the income
statement. In deciding where to invest their money, equity
investors want to know how efficiently companies utilize resources.
A common method of evaluating the efficiency with which the
financial resources are employed is to compute the rate of return
earned on these resources. This rate is called the return on
investment, or ROI. The annual return (or profit) generated by the
investment is stated as a percentage of the average amount invested
throughout the year. ROI has two common applications: return on
assets and return on equity. Assets, such as cash, equipment, and
property, are owned by the company for one reasonto increase the
businesss profitability and future wealth. One way to look at the
effectiveness of assets is to evaluate how well they are generating
profits by focusing on the Return on Assets (ROA). 1. Return on
assets (ROA) ROA is a measure of the productivity of assets,
regardless of how the assets are financed. Net Income/Total Assets:
indicates how effectively the company is deploying its assets.
In
Unilever
32
computation the return usually is defined as operating income,
since income taxes and interest expense are determined by factors
other than the manner in which the assets are used. A very low
return on assets (ROA) usually indicates inefficient management,
whereas a high ROA means efficient management. This ratio can be
distorted, however, by depreciation or any unusual expenses. ROA=
Operating Income/ Average Total Assets In 2008 we see that the
company has 12.14% returns on asset ratio; however the company has
seen to increase its asset ratio to 79.47% in 2009. We also see
that the ratio reduces to 39.88% in 2010. This trend shows us that
the companys best year for return on asset ratio was 2009 but the
future prospects of the company on return on assets are reducing. A
decrease in return on assets may mean that assets grow faster than
sales. By calculating the increase we see that the assets do grow
faster than the sales by approximately 2%.It's not a good trend.
The increase in the ROA from 2008 to 2009 is because the total
assets have increased from 1015613 to 11425715. This has also
increased the average rate of the total assets showing us an
increase of approximately 67.33% in the year 2009. However the
ratio now decreases in year 2010 to 39.88% from previously 79.47%.
Although we see an increase in the total assets to 13501107 in 2010
but this increase is smaller as compared to our net operating
income which has increased drastically from 552,544 to 4,943,313.
Therefore the simulatenous increases cause a overall decrease in
the return on assets ratio. Most successful businesses earn a
return on average total assets of, perhaps, 15% or more. At this
writing businesses must pay interest rates of between 6% and 12% to
borrow money. If a business is well managed and has good future
prospects, management should be able to earn a return on assets
that is higher than the companys cost of borrowing.
Unilever2. Return on equity (ROE)
33
ROE is the rate of return earned on the stockholders equity in
the business. The reason that Return on Equity is such a helpful
ratio is that it compares the relationship between three very
important financial strategiesprofitability, asset management, and
financial leverage. Increasing profitability, improving asset
efficiency, and proper financial leveraging will all have a
positive effect on your Return on Equity. ROE= Net Income/ Average
Total Stockholders Equity If Return on Equity is 30 percent, for
example, then thirty cents of Net Income is created for each dollar
that has been invested. The higher the number, the greater the
return the company is earning for its owners. In 2008 the ROE was
30.47% however we see that this drastically increases to169.51% in
2009. In 2010 we again see the ratio to increase and this time to a
much greater percentage than before 939.60%. Thus, ROE shows a
continuous increasing trend from 2008 to 2010; from 30.47% in 2008
to 939.60% in 2010. Return on equity is a measure of the net income
to the companys average stockholders equity throughout the year. In
2008, Unilevers stockholders equity averaged Rs 1,147,655.5. thus
for every rupee of equity capital, the company earned income of
approximately Rs 0.30. Unilevers balance sheet reports liabilities
of Rs 714,390, many of which required payments in the very near
future. However, at December 31, the company reports cash of only
Rs (234,569), which may be an indication of potential liquidity
problems. In 2009, Unilevers stockholders equity averaged Rs
1,802,654 thus for every rupee of equity capital, the company
earned income of approximately Rs 1.69. Unilevers balance sheet
reports liabilities of Rs 8,121,630, many of which required
payments in the very near future. However, at December 31, the
company reports cash of only Rs (798,358), which may be an
indication of potential liquidity problems.
Unilever
34
In 2010, Unilevers stockholders equity averaged Rs 3,438,360
thus for every rupee of equity capital, the company earned income
of approximately Rs 9.39. Unilivers balance sheet reports
liabilities of Rs 9,928,472, many of which required payments in the
very near future. However, at December 31, the company reports cash
of only Rs 1,460,967, which may be an indication of potential
liquidity problems but these, are somewhat better as compared to
the previous two years. Traditional stockholders have expected to
earn an average annual return of 12% or more from equity
investments in large, financially strong companies. Annual returns
on equity of 30% or more are a not uncommon, especially in rapidly
growing companies with new or highly successful products.
Therefore, such high figures of 169% and 939% are favorable for
Unilever. The return on equity may be higher or lower than the
overall return on assets, depending on how the company has financed
its assets and on the amounts of its non operating revenue and
expenses. A company that suffers a net loss provides its
stockholders with a negative return on stockholders equity however
Unilever does not have negative returns and it enjoys the high
returns on its equity.
UnileverConclusion Having negative net working capital is not a
thing to worry. It is mainly because
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Unilevers products are fast moving consumer goods and they turn
their stock into cash very quickly and having many suppliers makes
their liabilities go up. It does not matter whether the net working
capital is negative or positive. Overall the trend percentage
analysis of 2008-2010 gives a picture of a profitable, growing
enterprise. The debt ratio increased over the three years because
Unilever relied too much on its debts and loans for financing its
activities. There was a continuous increase in ROE because of
increasing profitability, improving asset efficiency, and proper
financial leveraging.
UnileverReferences 1. http://www.unilever.com/
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2.
http://www.unilever.pk/Images/Unilever%20Pakistan%20Limited%20annual%20report2010_tcm96-260483.pdf
3.
http://www.unilever.pk/Images/Unilever%20Pakistan%20Limited%20Unconsolitaded_tc
m96-215205.pdf 4.
http://www.unilever.pk/Images/UPFL%20Annual%20Report%2008_tcm96-164284.pdf
5. http://en.wikipedia.org/wiki/Unilever
Unilever
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Appendix
