Financial analysis of unilever pakistan

Financial Analysis of UNILEVER PAKISTAN

FINANCIAL ANALYSIS OF UNILEVER PAKISTAN (2014)

FINANCIAL ANALYSIS OF

UNILEVER PAKISTAN

Group Members:

1. Azam Aliani (2893)2. Namraah Khalid (3096)3. Afsheen S. Baig (1036)

Report Submitted to Sir IQBAL NIYANI

Final Project Of INTRODUCTION TO BUSINESS FINANCE (IBF)

Spring 2015

Annual Report 2014

UNILEVER PAKISTAN

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Our Visit To

Unilever Pakistan limitedOn April 16, 2015

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No Particular Page

1 Acknowledgement 5

2 Abstract 6

3 Introduction 8

4 Brands 9

5 History 10-12

6 Vision Of unilever 13

7 What is ratio Analysis 14

8 Director’s Review 15

9 Performance Indicator 16-17

10 Balance sheet 18-19

11 Income statement 20-21

12 Cashflow statement 22-23

13 Ratio Anaylsis 24-35

14 Conclusion 36

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ACKNOWLEDGEMENT

This report is the result of the hard work of all our group members. First of all we would

like to thank the ALMIGHTY ALLAH on the successful completion of this report. We

would also like to thank our course instructor Mr. Iqbal Nayani for helping us understand

the depths of Finance and it was only because of his support, help and guidance

throughout the semester that we were successfully able to complete this project report. It

was because of this report that we were able to do our own analysis of a company’s

financial statements, which required a great deal of thinking and brainstorming. This

whole project has been an excellent learning experience for us all as it helped us put our

knowledge about business finance to practical implementation.

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ABSTRACT

A financial statement is a formal record of the financial activities of a business, person,

or other entity. Relevant financial information is presented in a structured manner and in

a form which is easy to understand. They typically include basic financial Statements that

include the Balance Sheet or Statement of Financial Position, Income Statement or Profit

and Loss Account and Cash Flow Statement. Financial statements provide the overview

of the financial position of the company to the company’s stakeholders and the

management; however the company’s true financial position cannot be determined unless

the company’s financial statements are analyzed. Analysis of these Financial Statements

helps us find out about the liquidity position of the company, the company’s long term

solvency, the company’s profitability and its financial viability. Ratio analysis and

interpretation of financial statements help in determining the liquidity position, long term

solvency, financial viability and profitability of a firm and shows overall whether the

company has improved or deteriorated in the past few years. In this report we have done

our best to analyze the financial statements of Unilever Pakistan Limited.

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UNILEVER PAKISTAN LIMITED

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INTRODUCTION TO UNILEVER PAKISTAN LTD.

Unilever Pakistan (70.4% Unilever equity) is the largest FMCG company in Pakistan, as well as

one of the largest multinationals operating in the country..The company had a turnover of

Rs. 23.3 bn (Euro 309 Mn) in 2007, and enjoys a leading position in most of its core Home and

Personal Care and Foods categories, e.g. Personal Wash, Personal Care, Laundry, Beverages

(Tea) and Ice Cream.

Since the time Unilever Pakistan began its operations in 1948, the Company has been

closely connected to the Pakistani people and its brands have been an integral feature in

their daily lives. In fact, the nature of our business enables our brands to be the pulse and

heartbeat of the 164 million people in Pakistan.

This is a huge commitment, which makes them responsible and accountable to all our

stakeholders and society as a whole and strengthens our resolve to:

Make a positive difference to the lives of low income consumers

Create new opportunities for growth

Improve the overall quality of life in Pakistan, by promoting education, nutrition, health

and hygiene.

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VIEW OUR BRANDS

Unilever makes and sells products under more than 400 brand names worldwide. Two

billion people use them on any given day. Here is a selection of our top brands, available

in many countries, along with the stories behind them.

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HISTORY

HELPING PEOPLE GET MORE OUT OF LIFE

In the 1890s, William Hesketh Lever, founder of Lever Bros, wrote down his ideas for

Sunlight Soap – his revolutionary new product that helped popularize cleanliness and

hygiene in Victorian England. It was 'to make cleanliness commonplace; to lessen work

for women; to foster health and contribute to personal attractiveness, that life may be

more enjoyable and rewarding for the people who use their products'.

This was long before the phrase 'Corporate Mission' had been invented, but these ideas

have stayed at the heart of their business. Even if their language - and the notion of only

women doing housework – has become outdated.

In a history that now crosses three centuries, Unilever's success has been influenced by

the major events of the day – economic boom, depression, world wars, changing

consumer lifestyles and advances in technology. And throughout They've created

products that help people get more out of life – cutting the time spent on household

chores, improving nutrition, enabling people to enjoy food and take care of their homes,

their clothes and themselves.

BALANCING PROFIT WITH RESPONSIBLE CORPORATE BEHAVIOUR

In the late 19th century the businesses that would later become Unilever were among the

most philanthropic of their time. They set up projects to improve the lot of their workers

and created products with a positive social impact, making hygiene and personal care

commonplace and improving nutrition through adding vitamins to foods that were

already daily staples.

Today, Unilever still believes that success means acting with 'the highest standards of

corporate behavior towards their employees, consumers and the societies and world in

which they live'. Over the years they've launched or participated in an ever-growing

range of initiatives to source sustainable supplies of raw materials, protect environments,

support local communities and much more.

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Through this timeline you'll see how their brand portfolio has evolved. At the beginning

of the 21st century, their Path to Growth strategy focused us on global high-potential

brands and their Vitality mission is taking us into a new phase of development.

19th Century: Although Unilever wasn't formed until 1930, the companies that joined

forces to create the business they know today they’re already well-established before the

start of the 20th century.

1900s: Unilever's founding companies produced products made of oils and fats,

principally soap and margarine. At the beginning of the 20th century their expansion

nearly outstrips the supply of raw materials.

1910s: Tough economic conditions and the First World War make trading difficult for

everyone, so many businesses form trade associations to protect their shared interests.

1920s: With businesses expanding fast, companies set up negotiations intending to stop

others producing the same types of products. But instead they agree to merge - and so

Unilever is created.

1930s: Unilever's first decade is no easy ride: it starts with the Great Depression and ends

with the Second World War. But while the business rationalises operations, it also

continues to diversify.

1940s: Unilever's operations around the world begin to fragment, but the business

continues to expand further into the foods market and increase investment in research and

development.

1950s: Business booms as new technology and the European Economic Community lead

to rising standards of living, while new markets open up in emerging economies around

the globe.

1960s: As the world economy expands so does Unilever and it sets about developing new

products, entering new markets and running a highly ambitious acquisition program.

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1970s: Hard economic conditions and high inflation make the '70s a tough time for

everyone, but things are particularly difficult in the Fast Moving Consumer Goods

(FMCG) sector as the big retailers start to flex their muscles.

1980s: Unilever is now one of the world's biggest companies, but takes the decision to

focus its portfolio, and rationalize its businesses to focus on core products and brands.

1990s: The business expands into Central and Eastern Europe and further sharpens its

focus on few product categories, leading to the sale or withdrawal of two-thirds of its

brands.

21st Century: The decade starts with the launch of Path to Growth, a five-year strategic

plan, and in 2004 further sharpens its focus on the needs of 21st century-consumers with

its Vitality mission.

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VISION OF UNILEVER

“We help people around the world meet everyday needs for nutrition; hygiene and wellbeing, with brands that help people look good, feel good and get more out of life.”

Unilever is committed to supporting sustainability and providing our consumers around

the world with the products they need to look good, feel good and get more out of life.

Our priorities & principles

Unilever is committed to supporting sustainability and providing our consumers around

the world with the products they need to look good, feel good and get more out of life.

Five key priorities provide the foundation for our brand’s campaigns. Read some

examples of how different brands are upholding these principles.

A better future for children

Our oral care brands Signal and Close-Up encourage children to brush their teeth day and

night for optimal dental health. We also partner the FDI World Dental Federation,

supporting oral health programmes around the world

Brands such as Omo and Persil have helped parents believe the unconventional

philosophy that Dirt is Good. Children learn through play, and mud spatters and grass

stains can easily be removed with effective laundry products

Unilever also partners the World Food Programme and launched the Together for Child

Vitality initiative to bring our expertise in nutrition to children in some of the world’s

poorest countries.

A healthier future

Our Flora/Becel margarine brands have been scientifically proven to help reduce

cholesterol levels, and a new Flora/Becel Heart Age tool allows consumers to work out

whether their heart might be old beyond its years

Vaseline has launched the Vaseline Skin Care Foundation, providing research into skin

conditions and support for people affected by them

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WHAT IS RATIO ANALYSIS?

Ratio analysis involves the calculation and comparison of ratios which are derived from

the information given in the company's financial statements. The historical trends of these

ratios can be used to make inferences about a company's financial condition, its

operations and its investment attractiveness and whether the company has improved or

deteriorated in the past few years. Financial ratio analysis groups the ratios into

categories that tell us about the different sides of a company's financial state. Some of

those categories are described below:

1. Liquidity Ratios:

Liquidity ratios tell us about the company’s short term debt paying ability, or the

company’s short term financial situation or the company’s short term solvency.

2. Efficiency/Turnover Ratios :

Efficiency Ratios are used in order to determine that how quickly and efficiently certain

assets are converted in to cash.

3. Leverage Ratios:

The Leverage Ratios measure the long term solvency and ability of the company to pay

to its long term creditors.

4. Profitability Ratios:

Profitability ratios measure the operating efficiency and ability of a company to pay an

adequate return to its Shareholders/Stockholders. Management and Shareholders are

interested in profitability ratios, profitability ratios can be computed on the basis of sales

or investment.

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Director’s Review

The directors present the 2014 Annual Report together with audited financial statements

of the Company for the year ended December 31, 2014.Sales grew by 8.5% in a

challenging economic and operational environment, with significant commodity deflation

headwind. Growth was broad-based and volume led. In the case of Tea, commodity

deflation and the resulting price reductions offset the strong volume growth. The

improvement in gross margin through higher volume, cost efficiencies and better mix,

was offset by restructuring charges. The business continued to invest strategically behind

key brands and increased spend by177 bps to 12.1% of Sales. Profit after tax grew by

3%.

Sales: sales increased by 8.54% to 65705 Millions

G.P: gross profit increase by 8.19% to 26424 Millions

EBIT: Earning before profit is increased by 1.28 % to 9019 millions

Net Earning : is increased by 3.02% to 6302 Millions

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Financial Position Of UNILEVER PAKISTAN LIMITED

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Operating and Financial Trends Of

UNILEVER PAKISTAN LIMITED

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STATEMENT OF FINANCIAL POSITION (SOFP)

ASSET OF Unilever Pakistan Limited as at

December 31, 2014

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EQUITY AND LIABILITIES

OF

Unilever Pakistan Limited

as at December 31, 2014

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Profit And Loss Account of Unilever Pakistan LimitedAs at December 31, 2014

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UNILEVER PAKISTAN LIMITEDCASH FLOW STATEMENT

As at December 31, 2014

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Cont..

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RATIO ANALYSIS

COMPARISON OF CURRENT YEAR WITH PREVIOUS YEAR:

LIQUIDITY RATIOS

Current Ratio:

Current Ratio = Current Assets/Current Liabilities

Current Ratio for 2014 = 17,021,156/ 23,874,046 = 0.71 times or. 0.71:1.00

Current Ratio for 2013 = 12,086,992/ 18,033,609 = 0.67 times or. 0.67:1.00

Interpretation:

In 2013, to pay off Current liabilities of Rs. 1 the company has Current Assets of

Rs. 0.71, which means that the company is not capable of paying its current

liabilities, when they fall due.

In 2014, to pay off Current liabilities of Rs. 1 the company has Current Assets of

Rs. 0.67 which means that the company is not capable of paying its current

liabilities when they fall due.

The company’s current ratio was down in 2013 and it is still not capable to pay

off its current liabilities when they fall due. Although the company’s current ratio

got better in 2014 but in both years the company is not in a good position to pay

off its current liabilities.

Current Ratio 2014 2013 2012 2011 2010

Times 0.71 0.67 0.82 0.79 0.83

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Quick or Acid Test Ratio:

Acid test Ratio = Quick Assets/Current Liabilities

Acid Test Ratio for 2014 = 12,008,898/23,874,046 = 0.50 times or. 0.50:1.00

Acid Test Ratio for 2013 = 5,410,082/18,033,609 = 0.30 times or. 0.30:1.00

Interpretation:

In 2014, to pay off Current Liabilities of Rs. 1, the company has Quick Assets of

Rs. 0.50, which means that the company is not capable of paying its current

liabilities with its Quick Assets, when they fall due.

In 2013, to pay off Current Liabilities of Rs. 1, the company has Quick Assets of

Rs. 0.30 which means that the company is not capable of paying its current

liabilities with its Quick Assets when they fall due.

The company’s Quick ratio improved in 2014 compared to 2013, but it is still not

capable to pay off its current liabilities when they fall due. In both years the

company is not in a good position to pay off its current liabilities.

Quick Ratio 2014 2013 2012 2011 2010

Times 0.50 0.30 0.30 0.30 0.40

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PROFITABILITY RATIOS :

Gross Profit Margin:

Gross Profit Margin = 100 x Gross Profit/Net Sales

Gross Profit Margin for 2014 = 100 x 26,424,000/65,705,000 = 40%

Gross Profit Margin for 2013 = 100 x 24,422,000/60,535,000 = 40%

Interpretation:

In 2014, if the company makes net sales of Rs. 100, then the company will earn a

Gross Profit of Rs 40.


Gross Profit of Rs. 40.

In terms of gross profitability the company is in same position in 2014, as it is

earning same Gross Profit.

G.P Margin 2014 2013 2012 2011 2010

% 40% 40% 36% 35% 33%

Net Profit Margin:27


Net Profit Margin = 100 x Net Income After tax/Net Sales

Net Profit Margin for 2014 = 100 x 6,302,000/65,705,000= 10%

Net Profit Margin for 2013 = 100 x 6,117,000/60,535,000 = 10%

Interpretation :


Net Profit of Rs. 10.


Net Profit of Rs. 10.

In terms of net profitability the company is in same position in 2014, as it earning

same Net Profit.

N.P Margin 2014 2013 2012 2011 2010

% 10% 10% 9% 8% 7%

Earnings before Interest and Tax (EBIT) Margin:

EBIT Margin = 100 x EBIT/Net Sales

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EBIT Margin for 2014 = 100 x 9949065/65,705,000 = 15%

EBIT Margin for 2013 = 100 x 9315571/60,535,000 = 16%

Interpretation:

In 2014, if the company makes net sales of Rs. 100, then the company’s earnings

before interest and tax will be Rs. 15.

In 2013, if the company makes net sales of Rs. 100, company’s earnings before

interest and tax will be Rs. 16.

The company was in a slightly better position in 2013, as its earnings before

interest and tax are higher in 2013.

EBIT 2014 2013 2012 2011 2010

% 15% 16% 15% 13% 12%

Return on Equity:

Return on Equity = 100 x Net income after tax/Common Shareholder’s Equity

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Return on Equity for 2014 = 100 x 6,302,000/3,206,000 = 196%

Return on Equity for 2013 = 100 x 6,117,000/3,058,000 = 200%

Interpretation:

In 2014, if the company’s shareholder’s makes an investment of Rs.100 than the

company’s earnings after income tax will be of Rs.196.

In 2013, if the company’s shareholder’s makes an investment of Rs.100 than the

company’s earnings after income tax will be of Rs.200.

The company was in a better in 2013 because it was getting some good return on

its investment compared to only as small return in 2014.

Return On Equity 2014 2013 2012 2011 2010

% 196% 200% 104% 101% 92%

Equity Ratio:

Equity Ratio = Shareholder’s Equity/Total Assets

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Equity Ratio for 2014 = 3,206,000/27,856,186 = 0.12 times or 12%

Equity Ratio for 2013 = 3,058,000/22,003,808 = 0.14 times or 14%

Interpretation:

In 2014, the Equity Ratio of 0.12 times indicates that the Shareholders or the

Stockholders have a holding of 12% in the business.

In 2013, the Equity Ratio of 0.14 times indicates that the creditors have a holding

of 14% in the business.

The company was better in 2013 as the Shareholders had less holding or claims in

the business.

EFFICIENCY RATIOS

Inventory Turnover (Times and Days):

Inventory Turnover = Cost of Goods Sold/Average Inventory

Inventory Turnover for 2014 = 39,281,000/4,673,783 = 8 times

Inventory Turnover for 2013 = 36,114,000/4335309 =8.5 times

Interpretation:

In 2014, the inventory will turnover is 8 times in a year.

In 2013, the inventory will turnover was 8 times in a year.

The company is better in 2014 as compared to 2013 because the inventory turns

over more times in 2014.

Inventory Period = 360 days/ Inventory Turnover (times)31


Inventory Period for 2014 = 360/8 = 46 days

Inventory Period for 2013 = 360/78.5 = 43 days

Interpretation:

In 2014, after every 46 days the inventory will turnover. In 2013, after every 43 days the inventory will turnover The company is slightly better in 2014 as it takes fewer days for the inventory to

turnover or fewer days are required to sell the inventory in 2014.

Inventory Turnover 2014 2013 2012 2011 2010

Days 46 43 59 49 46

Debtor Turnover (Times and Days):

Debtor turnover= Credit Sales or Net Sales/Average Accounts Receivables

Debtor Turnover for 2014 = 65,704,906/972,405 = 68 times

Debtor Turnover for 2013 = 60,535,320/855,771 =71 times

Interpretation:

In 2014, 68 times receivable is collected from the customers or debtors in a year.

In 2013, 71 times receivable was collected from the customers or debtors in a

year.

The company is slightly better in 2013 as compared to 2014 because receivable

was collected more times in 2013.

Days Sales Outstanding = 360 days/ Receivable Turnover (times)

Days Sales Outstanding for 2014 = 360/68 =5 days

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Days Sales Outstanding for 2013 = 360/71 =5 days

Interpretation:

In 2014, after every 5 days the receivable is collected from the customers or

debtors.


debtors.

The company’s DSO same in 2014. As compare to 2013

Debtor Turnover 2014 2013 2012 2011 2010

Days 5 5 6 5 4

Creditor Turnover (Times and Days):

Creditors turnover= Credit purchases or Net purchases/Average Accounts payable

Creditors Turnover for 2014 = 39,364,604/23,286,354 =1.7 times

Creditors Turnover for 2013 = 35,348,870/17,079,170 =2.1 times

Interpretation:

In 2014, 1.7 times receivable is collected from the customers or debtors in a year.

In 2013, 2.1 times receivable was collected from the customers or debtors in a

year.

The company was slightly better in 2013 as compared to 2014 because receivable

is collected more times in 2013.

Days Sales Outstanding = 360 days/ Receivable Turnover (times)

Days Sales Outstanding for 2014 = 360/1.7 = 212 days

Days Sales Outstanding for 2013 = 360/2.1 = 172 days

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Interpretation:


debtors.


debtors.

The company is better in 2014 as it takes fewer days to collect receivables from

the debtors or customers.

Inventory turnover 2014 2013 2012 2011 2010

Days 212 171 108 98 75

Cash Cycle:

Cash Cycle = Inventory Turnover (days) + Accounts Receivable Turnover (days)-Account payable (days)

Cash Cycle for 2014 = 46+5-212=(161) days

Cash Cycle for 2013 = 43+5-171= (123) days

Interpretation:

In 2014, the Cash Cycle will complete in -161 days.

In 2013, the Cash cycle will complete in -129 days

The company is slightly better in 2014 as it takes fewer days for the Cash Cycle to

complete.

CCC 2014 2013 2012 2011 2010

Days (161) (123) 43 44 34

Total Assets Turnover (times)

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Total Assets Turnover = Net Sales/ Average Total Assets

Total Asset Turnover for 2014 = 65704906/27856186= 236 Times

Total Asset Turnover for 2013 = 60535320/22003808 = 276 Times

Interpretation:

In 2014, the total assets turnover is 236 times in one year

In 2012, the total assets turnover was 276 times in one year

The company was better in 2013 as the total assets turned over more times in that

year than they did in 2014.

Asset Turnover 2014 2013 2012 2011 2010

Times 236 278 324 327 331

LEVERAGE RATIOS

Debt Ratio = Total Liabilities/Total Assets

Debt Ratio for 2014 = 24,649,648/27,856,186 =0.88 Times

Debt Ratio for 2013 =18945838/22003808 =0.86 Times

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Interpretation:

In 2014, the Debt Ratio of 0.88 times indicates that the creditors have a holding of

88% in the business.

In 2013, the Debt Ratio of 0.86 times indicates that the creditors have a holding of

86% in the business.

The company is slightly better in 2014 as the Debtors have less holding in the

business. The holding of Debtor is almost same in both years.

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CONCLUSION

According to the above analysis of Unilever Pakistan Limited, the company is in a good

position as far as its profitability is concerned, over the past years the company has seen a

same in its Gross Profit, Net Profit, with the company’s Margins in the current year being

the highest.

However Unilever Pakistan Limited is in a good position. The company’s efficiency has

seen some improvement in the turnover for the inventory and decrease in the account

receivable turnover and it only takes a few days collect the money from customers,

however given the company’s current liquidity position the company is not still

converting the assets into cash quick enough to pay off its current liabilities. This is good

for a company that they are working on creditors money. They return their money in 213

days in 2014.And unilever pakistan’s EPS is Rs.474 in 2014.

Conclusively, Unilever Pakistan Limited is operating effectively and efficiently on

overall basis and generating enough profit to keep its operations running in the most

effective way possible and keeping its standard of being one of the largest and most

stable multinational organizations.

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