890330-14-5630 Financial Analysis of Unilever

ABSTRACT
At this moment, investment in companies becomes wider. Investment in company is
when the company will invests the money that they receives from investor and each investor
shares in the profits and losses in proportion to the interest. The performance of the investment
in the company will be based on the securities and other assets that the company owns. In this
age, company is growth wider than before. Investor’s interest more in the companies profit
share which have faster rates than the overall economy.

Dividends can be seen as a reward for shareholders. The more profitable a company,
the higher dividend will be paid. In addition, there are high competitions between the companies
in issuing shares. The purpose of issuing shares is they want to raise more capital in order to
run day to day operation or to expand their business.

INTRODUCTION
Many investors find managing their own group is more difficult and take time. So, they
purchase shares in investment companies. Shares will represent ownership of the company. It
is better to invest more than less because each dollar invested encourages potential return.
Each investor must determine how much money to invest. Investor need to make decision
whether want to take a buy and hold approach or buy and sell depending on market. The best is
to buy and hold. Just imagine if the stock value price is sudden drop when you sell it.

Nowadays investments in companies by investors are highly risk. Here, the researcher
took a sample of 5 years annual report of Unilever Company to suggest the public whether to
invest or not using ratio, trend, comparative, and SWOT analysis.

STATEMENT OF PROBLEM
Companies have to familiarize to a globalized world where customers will cross many
tastes. Investors face many problems in making investment decision in company shares. They
expect high rate of return. They must work hard and patience together with good understanding
of the company’s fundamentals. Companies can lose money, if people stop buying the shares.
Then the stock price goes down. However you can make riches if the price goes back up.
Investor will never achieve consistent results because every little change that make can have
dramatic results over a monthly or annual. Investments also irreversible because we cannot
recover the money back. If the business does not become prosperous, the cost of investment is
completely ruined.

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METHODOLOGY
The researcher collected financials data from the internet source to conduct a literature
review on financial statement analysis and investment decision by investor. To performed ratio
analysis, trend analysis and comparative balance sheet analysis to analyze Unilever’s five yeas
annual report. Industry average analysis is to compare with competitors and SWOT analysis to
evaluate the company. Ratio will be defined and stated the reason why using as a tool. The
recommendation also will be provided to suggest the public.

LIMITATIONS
The researcher recognized that this report has the limitations. All the data collected
through secondary sources and data for Unilever’s is up to 31 December 2009 only. The
limitations of financial analysis apply to the limitations of the study too. The ratios need to be
interpreted carefully and the result of this report cannot be generalized.

OBJECTIVE OF THE STUDY

The primary objective is to asses the financial performance of the Unilever plc in order to
suggest the public whether to invest or not.

The secondary objective is to analyze the liquidity, solvency, profitability, comparative

balance sheet, trend analysis and industry comparison analysis of company. Then, find out the
performance of company through their strength, weaknesses, opportunities and threats.

LITERATUE REVIEW
1. Accounting records give evidence to support management’s evaluation of product cost
during a given period. Porter (1980)
2. Economic condition and price movement is the most important contribution to investor
gain and losses in their investment. Friedman (1988)
3. Permanent character of planned investment is to forecast the uncertain future. Del Sol &
Ghemawat (1999)
4. Even most studies are done for business that already working, the evaluation of the
investment decision seen as the creation of new business. Sapag (2001)
5. Marota (2008), Malaysian investor are partly rational in their decision making.
6. Elsayed & Martin (1980), Katz (1998), Young and O’Neill, (1992) said investor are
irrational in decision making.
7. Hirshleifer et al. (2006) disagree that irrational investor can earn better profit than
rational when stock price manipulate basics by affecting corporate investment.

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8. Neither hedging nor financing decisions give value to shareholders since companies
always get external funds at the same costs as internal funds to finance their investment.
Modigliani and Miller (1958, 1963)
9. Most of hedging and financing theories explain why investors concern with these by
introducing some market imperfections by Modigliani and Miller (1958) which includes
firms to make investment, financial, or risk management decisions that effect firm value.
10.A high ratio implies highly variable marginal. The returns of small and high market stock
will cover negative marginal utility. So it needs to be high in good times when marginal utility
is low and vice versa. Hansen and Jagannathan (1991)

HISTORY OF THE COMPANY

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Unilever is a dual listed company consists of Unilever N.V. in Rotterdam and Unilever PLC in
London incorporated on 1929. Both companies have the same directors and operate as a single
business. The current non-executive Chairman of Unilever is Michael Treschow. The purpose of
Unilever is to satisfy people’s needs everyday. Their vision is to develop new ways of doing
business with the aim of doubling-up the size of our company while decreasing the
environmental impact. Unilever is a multinational corporation that owns many of the world’s
consumer product brands in food and beverages, cleaning agents and personal care product.
Unilever operates in many global markets, such as Africa, Asia, Latin America, the Middle East,
North America, and Western Europe.

BOARD OF DIRECTORS

ANALYSIS AND THE INTERPRETATION

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Ratio analysis is one of the techniques that will be used to assessing an entity. (Frank Wood
2002)

I. LIQUIDITY RATIO

Figure 1

A liquidity ratio measures the capability of the company to pay their short term debt as it is
become outstanding. The picture above clearly shows the current ratio, quick ratio and cash
ratio is increased from 2005 until 2009. For example, in the current ratio there was increased
around 0.05, 0.08 and 0.12 in 2007, 2008 and 2009 respectively.

II. PROFITABILITY RATIO

Figure 2

Liquidity ratio helps the organization to know about the earning capacity of their business
concern. From 2005, the return on asset, earning per share, net profit margin and operating
profit margin ratio is increased until 2008 and then decreased back in 2009. For example,
earning per share ratio is increased from 1.07% until 1.79% then fell to 1.21% in 2009 which the
shareholders will not receive any profit.

III. SOLVENCY RATIO

Figure 3

Solvency ratio is to evaluate the company ability to meet their long term liabilities. From
the graph above, it clearly stated that the debt to equity, debt to capital, and stock
turnover ratio is increasing up for the overall five years. For example from 2008 to 2009
the ratio is increased about 0.75 times.

(See Appendix 1)

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Trend analysis calculates the percentage change for one account over a period of time of two
years or more. (Cliffs Notes)

INCOME STATEMENT ANALYSIS

Figure 4

From the figure 4, it concludes that the future trend line of Unilever plc is increasing. It clearly
shows the turnover, operating profit, profit before taxation, net profit from continuing operation
and net profit is increasing from 2010 to 2012. The researcher concludes that this company will
be able to sustain their profit in the future too. And this trend also will guide to profit for an
investor.

BALANCE SHEET ANALYSIS

Figure 5

The above figure 5 shows that the future trend line of Unilever plc is increasing and decreasing
trend from 2010 until 2012. The current asset is increasing which is good because the company
can solve short term obligations. Increase in total equity shows the capital structure will increase
in future. However, the non current asset, non current liabilities and current liabilities are
decreased. The researcher concludes that this company able to handle their debt and their
payment in future will be less too.

(See Appendix 2)

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€ million € million € million € million € million

2009 2008 2007 2006 2005

Non-current assets 26,205 24,967 27,374 27,571 28,358

Current assets 10,811 11,175 9,928 9,501 11,142

Total assets 37,016 36,142 37,302 37,072 39,500

Current liabilities (11,599) (13,800) (13,559) (13,884) (15,394)

Total assets less current 25,417 22,342 23,743 23,188 24,106

liabilities

Non-current liabilities 12,881 11,970 10,924 11,516 15,341

Shareholders’ equity 12,065 9,948 12,387 11,230 8,361

Minority interests 471 424 432 442 404

Total equity 12,536 10,372 12,819 11,672 8,765

Total capital employed 25,417 22,342 23,743 23,188 24,106

CONSOLIDATED BALANCE SHEET ANALYSIS

This comparative balance sheet will serves as a financial evaluation from year to year. The
above table shows the increasing and decreasing trend from 2005 to 2010. For non current
assets, current assets, non current liabilities and total capital employed, there is remaining
decreasing until 2008 and increased in the year 2009. Subsequently, the current liabilities
amount is downward for all five years. This is good because the company able to reduce their
debt each year. Shareholders equity, minority interest and total equity is the amount was
increase until 2007 and then decrease in the year 2008 before it was recovered back in 2009.

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INDUSTRY COMPARISON ANALYSIS

Figure 6

Figure 6 compare Unilever Company with the top competitor like Kraft Foods, Nestle and
Procter & Gamble. Based on the valuation data, Unilever is the highest ratio in the price
earnings. In per share data, last dividend for Unilever also highest than others competitor.
Unilever is the second highest after PG in the gross profit margin and dividend yield for five year
average. For dividend, Unilever was in the first place for dividend yield and payout ratio. There
are highest competitions in revenue which the different for Unilever and PG is around 23.48
billion. Financial strength data shows Unilever are strong in their return and higher debt to
capital. Lastly, Unilever is the most efficient in using its assets to generate revenue. (See
Appendix 3)

SWOT ANALYSIS
Strength

Strength is the advantage and the needs of the markets compare with competitors. A major
strength of the Unilever is it’s geographic of its major product. Unilever had sales and good
marketing in many countries. They give power to manager to make decision in order to fit their
product to the market.

Weaknesses

Weakness is a constraint or insufficiency in resources or competencies with competitors that

affect a firm’s effective performance.

Opportunity

Opportunity is to determine how the company can continue to grow in the market. Unilever have
good opportunity in the future since this company was produces many consumer products that
meet the customer lifestyle. Financial performance and position of Unilever is good compare to
others which by the end of the year was generate more than half of its revenue.

Threats

Many threats can arise in the business such as price wars, new technology and changes in
consumers taste. New and innovative product will be produce and competitors have better
access to channels of distribution. KFT is giving more threat since this company is increasing in
their ratio analysis. (Op Papers 2010)

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RECOMMENDATION
The above financial analysis reveals that the Unilever plc performance was on the downward
trend in 2005 until 2008 but it will recovered in 2009 which is meet future obligations. The
researcher concludes the evidence from all analysis in this report. The liquidity and solvency
ratio shows the company able to meet their debt obligation. Higher ratio in profitability shows the
company is doing well also. Even though Unilever have high competition in the consumer goods
market Unilever also have a good financial strength and business opportunities compare with
others. The researcher strongly recommends the public to invest in Unilever Company.

CONCLUSION
Through this report, the researcher can update the knowledge on how to evaluate the
performance of the company with its competitors through many type of analysis. Also able to
analyze and predict the future financial performance of the company with ratio, trend,
comparative statement analysis and industry comparison analysis. The researcher suggested
the public to invest in Unilever plc.

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REFERENCES
1. Board of Directors [Online Image] Available at:
http://annualreview07.unilever.com/governance_and_fin_statements/index.html
(Accessed 15 June)
2. Cliff Notes (2010). Trend Analysis. 13th June.
3. Daily Finance (2010). Unilever PLC Top Competitors. Available at:
http://www.dailyfinance.com/company/unilever-plc/ul/nys/top-competitors
4. Del Sol & Ghemawat (1999). ‘Making Investment Decisions in a Chilean Family-Oriented
Business: Who is Right the Parents or the Children?’ Contemporary Management
Research. 5(2), pp.165, PDF [Online]. Available at: www.cmr-
journal.org/article/download/2207/3068
5. Elsayed & Martin (1980), Katz (1998), Young and O’Neill, (1992). Investment Decision
Behavior: Does Investors Rational or Irrational?’ Word [Online]. Available at:
www.nikmaheran.com/.../030_INVESTMENT%20DECISION%20MAKING.doc
6. Frank Wood and Alan Sangster (2002). Business Accounting 1. 9th Edition. Published by
Pearson Education Limited. Page 565 and 567.
7. Friedman (1988). ‘Investment Decision Behavior: Does Investors Rational or Irrational?’
Word [Online]. Available at: www.nikmaheran.com/.../030_INVESTMENT%20DECISION
%20MAKING.doc
8. Hansen and Jagannathan (1991). ‘Behavioural Finance: A Review and Synthesis’.
European Financial Management. 14(1). Pp.14, PDF [Online]. Available at:
http://www.efmaefm.org/subrahamanyam.pdf
9. Hirshleifer et al. (2006). ‘Behavioural Finance: A Review and Synthesis’. European
Financial Management. 14(1). Pp.18, PDF [Online]. Available at:
http://www.efmaefm.org/subrahamanyam.pdf
10.http://annualreport09.unilever.com/financial_statements/financial_record.html
11.http://www.fundinguniverse.com/company-histories/Unilever-Company-History.html
12.Marota (2008). ‘Investment Decision Behavior: Does Investors Rational or Irrational?’
Word [Online]. Available at: www.nikmaheran.com/.../030_INVESTMENT%20DECISION
%20MAKING.doc

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890330-14-5630 Financial Analysis of Unilever

13.Modigliani and Miller (1958, 1963). ‘Hedging, Financing, and Investment Decisions: A
Simultaneous Equations Framework’. Working Paper Series. Pp.1, PDF [Online].
Available at: http://www.frbatlanta.org/filelegacydocs/wp0505.pdf
14.Modigliani and Miller (1958). ‘Hedging, Financing, and Investment Decisions: A
Simultaneous Equations Framework’. Working Paper Series. Pp.3, PDF [Online].
Available at: http://www.frbatlanta.org/filelegacydocs/wp0505.pdf
15.Porter (1980). ‘Optimizing Investment Decisions through Informative Accounting
Reporting’. European Journal of Social Science. 7(3), pp.180, PDF [Online]. Available at:
http://www.eurojournals.com/ejss_7_3_17.pdf
16.Sapag (2001). ‘Making Investment Decisions in a Chilean Family-Oriented Business:
Who is Right the Parents or the Children?’ Contemporary Management Research. 5(2),
pp.164, PDF [Online]. Available at: www.cmr-journal.org/article/download/2207/3068

17.Sweetrani (2010). Swot Analysis of Unilever Company. Oppapers, 14 March

[Online]. Available at: http://www.oppapers.com/essays/Swot-Analysis-Of-
Unilever-Company/294814 (Accessed: 15 June 2010)

BIBLIOGRAPHY
1. Board of Directors [Online Image] Available at:
http://annualreview07.unilever.com/governance_and_fin_statements/index.html
(Accessed 15 June)
2. Bodie, Kane and Marcus (2007). “Essential of Investment”. 6th Edition. Published by
McGraw-Hill Companies.
3. Cliff Notes (2010). Trend Analysis. 13th June.
4. Daily Finance (2010). Unilever PLC Top Competitors. Available at:
http://www.dailyfinance.com/company/unilever-plc/ul/nys/top-competitors
5. Del Sol & Ghemawat (1999). ‘Making Investment Decisions in a Chilean Family-Oriented
Business: Who is Right the Parents or the Children?’ Contemporary Management
Research. 5(2), pp.165, PDF [Online]. Available at: www.cmr-
journal.org/article/download/2207/3068
6. Elsayed & Martin (1980), Katz (1998), Young and O’Neill, (1992). Investment Decision
Behavior: Does Investors Rational or Irrational?’ Word [Online]. Available at:
www.nikmaheran.com/.../030_INVESTMENT%20DECISION%20MAKING.doc
7. Frank Wood and Alan Sangster (2002). Business Accounting 1. 9th Edition. Published by
Pearson Education Limited. Page 565 and 567.
8. Frank Wood and Alan Sangster (2005). “Business Accounting 1”. 10th Edition. Published
by Prentice Hall.
9. Friedman (1988). ‘Investment Decision Behavior: Does Investors Rational or Irrational?’
Word [Online]. Available at: www.nikmaheran.com/.../030_INVESTMENT%20DECISION
%20MAKING.doc
10.Hansen and Jagannathan (1991). ‘Behavioural Finance: A Review and Synthesis’.
European Financial Management. 14(1). Pp.14, PDF [Online]. Available at:
http://www.efmaefm.org/subrahamanyam.pdf

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890330-14-5630 Financial Analysis of Unilever

11.Hirshleifer et al. (2006). ‘Behavioural Finance: A Review and Synthesis’. European

Financial Management. 14(1). Pp.18, PDF [Online]. Available at:
http://www.efmaefm.org/subrahamanyam.pdf
12.http://annualreport09.unilever.com/financial_statements/financial_record.html
13.http://www.fundinguniverse.com/company-histories/Unilever-Company-History.html
14.http://www.unilever.com/
15.Jane Lazar and Tan Lay Leng (2006). “Company and Group Accounting and Reporting”.
2nd Edition. Published by Prentice Hall
16.Marota (2008). ‘Investment Decision Behavior: Does Investors Rational or Irrational?’
Word [Online]. Available at: www.nikmaheran.com/.../030_INVESTMENT%20DECISION
%20MAKING.doc
17.Modigliani and Miller (1958, 1963). ‘Hedging, Financing, and Investment Decisions: A
Simultaneous Equations Framework’. Working Paper Series. Pp.1, PDF [Online].
Available at: http://www.frbatlanta.org/filelegacydocs/wp0505.pdf
18.Modigliani and Miller (1958). ‘Hedging, Financing, and Investment Decisions: A
Simultaneous Equations Framework’. Working Paper Series. Pp.3, PDF [Online].
Available at: http://www.frbatlanta.org/filelegacydocs/wp0505.pdf
19.Porter (1980). ‘Optimizing Investment Decisions through Informative Accounting
Reporting’. European Journal of Social Science. 7(3), pp.180, PDF [Online]. Available at:
http://www.eurojournals.com/ejss_7_3_17.pdf
20.Sapag (2001). ‘Making Investment Decisions in a Chilean Family-Oriented Business:
Who is Right the Parents or the Children?’ Contemporary Management Research. 5(2),
pp.164, PDF [Online]. Available at: www.cmr-journal.org/article/download/2207/3068
21.Sweetrani (2010). Swot Analysis of Unilever Company. Oppapers, 14 March
[Online]. Available at: http://www.oppapers.com/essays/Swot-Analysis-Of-
Unilever-Company/294814 (Accessed: 15 June 2010)

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APPENDIX 1

RATIO ANALYSIS

RATIO FORMULA 2009 2008 2007 2006 2005

LIQUIDITY
RATIO

Current
asset/current
Current Ratio liabilities 0.93 0.81 0.73 0.68 0.72

Cash + short term

marketable
investment
+receivables/Curren
Quick Ratio 0.61 0.51 0.41 0.40 0.44
t Liabilities

Cash + short term

marketable
Cash Ratio investment/current 0.31 0.23 0.10 0.09 0.12
Liabilities

PROFITABILITY

RATIO

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Operating Profit Operating 12.61 17.69 13.05 13.64 13.39

Margin (%) Income/Revenue

Net Profit Margin Net 8.46 12.41 9.67 11.97 9.49

(%) Income/Revenue

Net profit after

interest and tax and
Earnings Per preference
Share dividends/ number
1.21 1.79 1.32 1.19 1.07
of ordinary share

Return On Net Income/ Assets 9.10 13.91 10.42 12.80 9.56

Assets (%)

SOLVENCY
RATIO

Debt-To-Equity Total Debt/Total 0.80 1.08 0.75 0.74 1.41

Ratio shareholders’ equity

Stock Turnover Cost Of 9.32 8.57 9.09 7.90 8.48

(Times) Sales/Average
Stock

APPENDIX 2

TREND ANALYSIS

Formula:

a=y-bx

b= ∑xy-nxyx2- nx2

FINANCIAL STATEMENT

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2005 2006 2007 2008 2009 2010 2011 2012

Operating profit 5074 5408 5245 7167 5020 6078.1 6243.2 6408.3
Profit before taxation 4516 4831 5184 7129 4916 6244.6 6554.4 6864
Net profit from continuing
operations 3335 3685 4056 5285 3659 4677.8 4902.6 5127.4
Net profit 3975 5015 4136 5285 3659 4305.4 4269.2 4233

BALANCE SHEET

2005 2006 2007 2008 2009 2010 2011 2012

Non current assets 28358 27571 27374 24967 26205 24822 24131 23440
10916. 11017.
Current assets 11142 9501 9928 11175 10811 10815 2 4
10577.
Current liabilities 15394 13884 13559 13800 11599 11345 6 9810.2
11130. 10209.
Non current liabilities 15341 11516 10924 11970 12811 6 10670 4
13105. 13729. 14353.
Total equity 8765 11672 12819 10372 12536 4 6 8

APPENDIX 3

INDUSTRY AVERAGE ANALYSIS

Company name Last Change Change (%) Volume

UNILEVER PLC 26.89 0.13 0.49 1.99 M

KRAFT FOOD INCS 29.69 0.56 1.92 17.77 M

NESTLE 45.04 -0.21 -0.46 1.09 M

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PROCTER & GAMBLER CO 61.85 0.24 0.39 23.16 M

UL KFT N SRGY PG

Valuation

Price/ Earning (TTM) 18.90 13.39 - 16.57

Price/ Cash Flow 14.21 11.32 - 13.18

Price/ Sales (TTM) 1.61 1.00 - 2.42

Price/ Book 4.81 1.54 - 2.80

Per Share Data

Last Dividend 57.86 65.17 - 49.23

Book Value 5.89 17.36 - 23.57

EPS (TTM) - 1.77 - 3.76

Revenue 55.54B 40.38B - 79.02

Profitability

EBIDTA 8.79 B 6.46 B - 19.70 B

Operating Margin 14.79% 13.78% - 20.69%

Profit Margin 8.48% 7.48% - 17.00%

Gross Profit Margin 47.90% 36.33% - 51.00%

Dividend

Dividend Yield 3.42% 3.86% - 3.08%

Payout Ratio 57.86 65.17 - 49.23

Annual Dividend (TTM) 0.00 - - -

Dividend Yield 5 Year Average 3.23% 3.42% - 2.18%

Growth

Net Income 5.10B 3.02B - 13.43B

EPS (TTM) - 1.77% - 3.76%

Revenue 55.54B 40.38B - 79.02B

PEG 1.91% 1.82% 2.03% 1.82%

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Financial Strength

Quick Ratio (MRQ) 8.48 7.48 - 17.90

Current Ratio (MRQ) 0.97 1.10 - 0.92

LT Debt to Equity Ratio (MRQ) 61.92 86.30 - 35.21

Total Debt to Capital (MRQ) 43.72 42.24 - 36.95

ROE 30.00 12.50 - 16.63

ROA 10.88 5.91 - 10.33

ROIC (Return on Invested Capital) 16.51 8.77 - 13.85

Assets

Asset Turnover 1.06 0.61 - 0.59

Asset per Employee 312,184.86961 687,773.19588 - 998,762.96296

Inventory Turnover 5.16 6.61 - 4.66

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