Project Unilever FINAL

8/4/2019 Project Unilever FINAL

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FINANCIAL ANALYSIS OF

UNILEVER PAKISTAN LIMITED

June 17th

, 2010

Submitted To:

Mr. Muhammad Usman

Submitted By:

Uzma Jamil 014

Sidra Shirazi 025

Shanawer Baig 035Deeba Sabahat 040

(MBA 2009-2011)


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FOREWORD ..................................................................................................................... 4

ABSTRACT ........................................................................................................................ 5

ACKNOWLEDGEMENTS .................................................................................................... 6

UNILEVERS MISSION STATEMENT .................................................................................... 7

UNILEVERS VISION STATEMENT ....................................................................................... 8

UNILEVER'S CORE VALUES9

HISTORY ........................................................................................................................ 10

CURRENT STATUS .......................................................................................................... 11

LIQUIDITY RATIOS FOR 2005, 2006, 2007, 2008 & 2009 ................................................... 15

ACTIVITY RATIOS FOR 2005, 2006, 2007, 2008 & 2009 ..................................................... 17

DEBT RATIOS FOR 2005, 2006, 2007, 2008 & 2009 ........................................................... 21

PROFITABILITY RATIOS FOR 2005, 2006, 2007, 2008 & 2009 ............................................ 25

RETURN ON INVESTMENT RATIO .................................................................................... 28

RETURN ON EQUITY RATIO ............................................................................................. 29

RATIOS IMPORTANT FROM INVESTORS POINT OF VIEW FOR 2005, 2006, 2007, 2008 &

2009 .............................................................................................................................. 30

FINANCIAL ANALYSIS FROM RATIOS CALCULATED........................................................... 32

LIQUIDITY RATIOS .......................................................................................................... 32


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ACTIVITY RATIOS ............................................................................................................ 32

INVESTMENT DECISIONS: ............................................................................................... 34

INDEX ANALYSIS ............................................................................................................ 36

COMMON SIZE ANALYSIS ............................................................................................... 38

SWOT ANALYSIS............................................................................................................. 40

CONCLUSION ................................................................................................................. 42

RECOMMENDATIONS ..................................................................................................... 42

GLOSSARY: .................................................................................................................... 43

ANNEXURES ................................................................................................................... 44

BIBLIOGRAPHY:.............................................................................................................. 55


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FOREWORD

It was a knowledgeable experience to make this Financial Analysisreport on largest fast moving consumer products (FMCG)company in Pakistan, i.e. Unilever Pakistan Limited (UPL). Themaking of the report helped to have a deep insight into the workingof the company. We learned how to analyze the important financialstatements and draw out valuable results out of them in order tounderstand the companys overall standing. it first seemed to bean easy task but some areas needed special attention andunderstanding.

Here we express our deep gratitude to our respected courseinstructor, Mr. Muhammad Usman who was always here to guideus and provide us support to complete this challenging task.


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ABSTRACT

This report covers the financial analysis of Unilever, a giantconsumer good manufacturer. Using the industrys financial data,some very important aspects have been brought forward whichinclude liquidity, activity, and debt and profitability position of thecompany. These key aspects have been used to discuss thecompanys performance of the five consecutive years; 2005, 2006,2007, 2008, 2009.

This report consists of ratio analysis, interpretation of thecalculated ratios, conclusions and in the end some valuable

recommendations for a better future of the company. Besides this, thesources from where information has been acquired have also beenmentioned vividly. And in the very end, a glossary has been preparedfor the convenience of readers, who might come across some difficultwords and terms while going through the report.


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ACKNOWLEDGEMENTS

The most beautiful things we can experience are themysterious .It is source of all true art and science

We are highly grateful to Almighty Allah who bestowed on us theability to accomplish this project assigned to us. We are very thankfulto students, who have been the part of our research and provided usvaluable information. We pay gratitude for their cooperation.

The kind guidance of our honorable course instructor Mr. Mohammad

Usman helped and enabled us to bind papers into project manner. Weare very thankful to her.

We have poured all our efforts in this project but still it is no wayperfect. Together we overcame obstacles by undertaking setbacks inthe stride and got the task done. No doubt, this is the beauty of teamwork. Working together always manifolds greater results.


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Unilevers Mission statement


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Unilevers Vision Statement

WE WORK TO CREATE A BETTER FUTURE

EVERY DAYWe help people feel good, look goodand get more out of life with brands and services thatare good for them and good for others.We will inspire

people to take small everyday actions that can add up toa big difference in the world.We will develop new ways

of doing business that will allow us to double the size ofour company while reducing our environmental impact.


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History

Unilever Pakistan Limited (UPL), formerly known as Lever BrothersPakistan Limited (LBPL) is a wholly-owned subsidiary of UnileverOverseas Holdings Limited, UK, whereas its ultimate parent company isthe consumer products giant, Unilever PLC, UK.

Following a series of high-profile acquisitions, including US-basedBestfoods, Unilever's foods business is the world's third largest afterNestle and Kraft. It is a global leader in culinary foods, ice cream,margarine and tea-based beverages. Major brands include Knorr,

Lipton and Magnum.

UPL was incorporated in Pakistan in 1948 as Lever Brothers PakistanLimited with head office in Rahim Yar Khan and merged with Lipton in1989 and Brooke Bond in 1997. It became the largest ice-creammanufacturers in Pakistan through amalgamation with Polka in May1999. These acquisitions have further strengthened the distributionnetwork of UPL. Now operating six factories at different locationsaround the country, the company contributes a significant proportion ofthe country's taxes. It employs a large number of local managers and

workers. It provides a pool of well-trained and highly motivatedmanpower to other segments and has introduced new and innovativetechnologies into the country.

The UPL Head Office was shifted to Karachi from the Rahim Yar Khansite in the mid 60's. By this time the once dusty and sleepy village wasthe hub of activities for UPL. A residential estate situated near thefactory is the home of UPL employees at Rahim Yar Khan. Since itsbeginning the Company has seen many changes but its purpose

remains the same "Meeting the Everyday Needs of PeopleEverywhere."

It is listed on all the three stock exchanges of Pakistan.


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Current status

Currently, UPL is the largest fast moving consumer products (FMCG)company in Pakistan. It is engaged in manufacture and marketing of homeand personal care products, beverages, ice cream and spreads.

UPL has adapted Unilever global brands such as Lifebuoy, Lux, Surf andWalls to local consumer needs at affordable prices. It has increased itsleading market position over the years, in most of its core home and personal

care and foods categories, e.g. personal wash, personal care, laundry,beverages (tea) and ice cream.

Unilever Pakistan is being exported a range of products catering to the"external constituency", for the last forty years. Since 1998, the companyentrusted with the responsibility of developing the Afghanistan businessthrough a dedicated sales and distribution network. A wide range of homecare, personal care, foods, ice cream and beverage brands are offered forexport.


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In June 2008, Unilever Overseas Holding Limited, a wholly-owned subsidiaryof Unilever PLC, UK, the ultimate parent company, purchased all the sharesheld by the Punjab government. This has increased its shareholding in the

company from 67.04% to 70.4%

After tax profit for the third quarter increased by 20% due to strong volumeincreases in home and personal care and lower tealeaf costs. Sales increased7%. The sales mix improved with robust growth in home and personal care.Beverages sales declined due to lower market selling prices and lowervolumes. Ice Cream performance was flat due to an unfavorable businessenvironment. Year-to-date sales are up 10% and after tax profit up by 5%.

In addition to the generally difficult operating environment that impacted allbusinesses in 2009, rampant smuggling of tea affected the growth andprofitability of ULP business. Despite this the Company delivered 54%higher profit after tax on the back of strong and competitive 23.4% growth insales.

Pakistan faced multiple challenges during 2009. Low GDP growth, doubledigit inflation, deteriorating security environment, continuing devaluation of therupee and debilitating power cuts impacted business in general. ULP teabusiness which represents 30.6% of turnover suffered due to rampant misuseof the Afghanistan Transit Treaty.

In 2009, the Company invested more than Rs. 50 million in infrastructure,equipment and skill development with the aim of making business operationssignificantly safer.


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HOME AND PERSONAL CARE: Sales for the 2009 increased 27%. In 2009,the business saw overall reduction in material cost, benefit of which wasshared with consumers.

BEVERAGES: Sales for the quarter were down by 1% due to lower sellingprices and volume loss to small local brands in the Punjab, however lower tealeaf costs resulted in profit for the quarter compared to a loss in 2008. Normal

gross margins have been restored


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ICE CREAM AND SPREADS:

Wallscontinued its journey towards habit building and making ice cream and

frozen dessert consumption an inherent part of occasions and celebrations.Despite severe electricity crisis in the summer season, Walls delivered agrowth of 8.9% in 2009. Spreads category grew by 28.4% driven by a healthyvolume growth.


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Liquidity Ratios for 2005, 2006, 2007, 2008 & 2009

Current Ratio

Current Ratio= current assetsCurrent liabilities

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1

2005 2006 2007 2008 2009

R

a

t

i

o

Year

Current Ratio

Current Ratio

2005 2006 2007 2008 2009

Current assets 3,437,090 3,795,005 4,210,831 5,989,708 5,912,394Currentliabilities 3,574,493 4,241,141 5,590,070 9,157,047 8,121,630

Ratio 0.96 0.89 0.75 0.65 0.73


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Quick Ratio

Quick Ratio= current assets-inventoryCurrent liabilities

0

0.05

0.1

0.15

0.2

0.25

0.3

0.35

0.4

0.45

2005 2006 2007 2008 2009

R

a

t

i

o

Year

Quick Ratio

Quick Ratio2005 2006 2007 2008 2009

Current assets 3,437,0900 3,795,005 4,210,831 5,989,708 5,912,394

less:Stock in trade 1,804,768 2,156,472 2,726,064 4,251,914 3,649,070less:Stores &spares 124,194 206,021 180,355 241,753 265,420Current liabilities 3,574,493 4,241,141 5,590,070 9,157,047 8,121,630

Ratio 0.42 0.34 0.23 0.16 0.24


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Activity Ratios for 2005, 2006, 2007, 2008 & 2009

Inventory Turnover Ratio

Inventory turnover ratio= Cost of goods soldAverage inventory

Inventory Turnover2005 2006 2007 2008 2009

Cost of goodssold 10,817,255 13,244,679 14,248,581 20,219,184 24,852,625Stock in trade(begin) 1,690,306 1,804,768 2,156,472 2,726,064 4,251,914Stock in trade(ending) 1,804,768 2,156,472 2,726,064 4,251,914 3,649,070Avg. Stock intrade 1,747,537 1,980,620 2,441,268 3,488,989 3,950,492

Ratio 6.19 6.69 5.84 5.79 6.29

5.2

5.4

5.6

5.8

6

6.2

6.4

6.6

6.8

2005 2006 2007 2008 2009

R

a

t

i

o

Year

Inventory Turnover


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Average Age of Inventory

Average Age of Inventory = Days in the YearInventory Turnover

Average Age Of Inventory2005 2006 2007 2008 2009

No. days in ayear 365 365 365 365 365InventoryTurnover 6.19 6.69 5.84 5.79 6.29

Ratio 59 54 62 63 58

48

50

52

54

56

58

60

62

64

2005 2006 2007 2008 2009

R

a

t

i

o

Year

Average Age of Inventory


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Fixed Asset Turnover Ratio

Fixed Asset Turnover ratio= Net SalesFixed assets

Fixed Asset Turnover

2005 2006 2007 2008 2009

Net Sales 17,671,000 20,988,000 23,332,000 30,956,839 38,187,582Property, plant &Equipment 1,761,170 2,137,350 3,513,499 4,428,278 4,736,619

Ratio 10.03 9.82 6.64 6.99 8.06

0

2

4

6

8

10

12

2005 2006 2007 2008 2009

R

a

t

i

o

Year

Fixed Asset Turn Over


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Total Asset Turnover Ratio

Total Asset Turnover ratio = Net salesTotal assets

Total Asset Turnover

2005 2006 2007 2008 2009

Net Sales 17,671,000 20,988,000 23,332,000 30,956,839 38,187,582

Total Assets 5,806,667 6,444,010 8,107,889 11,386,418 11,425,715

Ratio 3.04 3.26 2.88 2.72 3.34

0

0.5

1

1.5

2

2.5

3

3.5

4

2005 2006 2007 2008 2009

R

a

t

i

o

Year

Total Asset Turnover Ratio


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Debt Ratios for 2005, 2006, 2007, 2008 & 2009

Debt ratio

Debt ratio = Total liabilitiesTotal assets

0.62

0.64

0.66

0.68

0.7

0.72

0.74

0.76

0.78

0.8

0.82

2005 2006 2007 2008 2009

R

a

t

i

o

Year

Debt Ratio

Debt Ratio

2005 2006 2007 2008 2009

Total liabilities 3,943,926 4,588,808 6,092,509 9,157,047 8,121,630

Total Assets 5,806,667 6,444,010 8,107,889 11,386,418 11,425,715

Ratio 0.68 0.71 0.75 0.80 0.71


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Debt-to-Equity ratio

Debt equity ratio = Total DebtStockholders equity

0

0.01

0.02

0.03

0.04

0.05

0.06

0.07

0.08

0.09

2005 2006 2007 2008 2009

R

a

t

i

o

Year

Debt Equity Ratio

Debt Equity Ratio

2005 2006 2007 2008 2009Liabilities againstassets subject tofinance leases 20,074 14,273 52,932 77,327 56,762Add: Currentmaturity of liabilities

against assetssubject to financeleases 4,322 16,962 17,273 32,322 28,419

Total debts 24,396 31,235 70,205 109,649 85,181

Share Capital 669,477 669,477 669,477 669,477 669,477

Add: Reserves 1,177,707 1,170,816 1,331,64 1,546,281 2,621,643Add: Surplus onrevaluation of fixedassets 15,557 14,909 14,261 13,613 12,965

Stockholder's equity 1,862,741 1,855,202 816,902 2,229,371 3,304,085

Ratio 0.01 0.02 0.08 0.05 0.03


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Debt-to-Total-Assets Ratio

Debt-to-Total-Assets Ratio =Total DebtTotal Assets

Debt-to-Total-Assets Ratio

2005 2006 2007 2008 2009

Total debts 24,396 31,235 70,205 109,649 85,181

Total assets 5,806,667 6,444,010 8,107,889 11,386,418 11,425,715

Ratio 0.004 0.005 0.009 0.009 0.007

0

0.001

0.002

0.003

0.004

0.005

0.006

0.007

0.008

0.009

0.01

2005 2006 2007 2008 2009

R

a

t

i

o

Year

Debt to Total Asset Ratio


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Coverage Ratios for 2005, 2006, 2007, 2008 & 2009

Times Interest Earned ratio

Times interest earned ratio = EBITInterest

0

50

100

150

200

250

300

2005 2006 2007 2008 2009

R

a

t

i

o

Year

Times Interest Earned Ratio

Times Interest Earned

2005 2006 2007 2008 2009

EBIT 2,558,747 2,596,174 3,026,078 3,880,248 4,943,313

Markup on shortterm running finance 9,279 7,344 23,140 138,705 229,009Finance charge onfinance leases 2,066 3,752 7,138 12,814 13,474

Total Interest 11,345 11,096 30,278 151,519 242,483

Ratio 225.54 233.97 99.94 25.61 20.39


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Profitability Ratios for 2005, 2006, 2007, 2008 & 2009

Gross Profit Margin

Gross Profit Margin % = Gross profit * 100Net Sales

32

33

34

35

36

37

38

39

40

2005 2006 2007 2008 2009

R

a

t

i

o

Year

Gross Profit Margin Ratio %

Gross Profit Margin

2005 2006 2007 2008 2009

Gross Profit 6,854,000 7,743,000 9,083,000 10,737,655 13,334,957Divide: NetSales 17,671,000 20,988,000 23,332,000 30,956,839 38,187,582

Gross ProfitMargin % 38.79 36.89 38.93 34.68 34.92


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Operating Profit Margin

Operating profit margin = EBIT * 100Net sales

11

11.5

12

12.5

13

13.5

14

14.5

15

2005 2006 2007 2008 2009

R

a

t

i

o

Year

Operating Profit Margin Ratio %

Operating Profit Margin

2005 2006 2007 2008 2009

EBIT 2,558,747 2,596,174 3,026,078 3,880,248 4,943,313Divide: NetSales 17,671,000 20,988,000 23,332,000 30,956,839 30,956,839

OperatingProfit Margin% 14.48 12.37 12.97 12.53 12.94


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Net Profit Margin

Net Profit Margin = Earnings after taxes * 100Net sales

0

2

4

6

8

10

12

2005 2006 2007 2008 2009

R

a

t

i

o

Year

Net Profit Margin %

Net Profit Margin

2005 2006 2007 2008 2009

Profit AfterTaxation 1,601,560 1,564,610 1,698,519 1,984,326 3,055,740Divide: NetSales 17,671,000 20,988,000 23,332,000 30,956,839 30,956,839

Ratio in % 9.06 7.45 7.28 6.41 9.87


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Return on Investment Ratio

Return on Investment Ratio = Net Profit after Taxes

Total Assets

Return on Investment Ratio2005 2006 2007 2008 2009

Profit AfterTaxation 1,601,560 1,564,610 1,698,519 1,984,326 3,055,740Total assets 5,806,667 6,444,010 8,107,889 11,386,418 11,425,715

Ratio in % 27.58 24.29 20.95 17.43 26.74

0

5

10

15

20

25

30

2005 2006 2007 2008 2009

R

a

t

i

o

Year

Return On Investment Ratio %


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Return on Equity Ratio

Return on Equity Ratio = Net Profit after Taxes

Shareholders equity

Return on Equity Ratio2005 2006 2007 2008 2009

Profit AfterTaxation 1,601,560 1,564,610 1,698,519 1,984,326 3,055,740Stockholder'sequity 1,862,741 1,855,202 816,902 2,229,371 3,304,085

Ratio in % 85.98 84.34 207.92 89.01 92.48

0

50

100

150

200

250

2005 2006 2007 2008 2009

R

a

t

i

o

Year

Return On Equity Ratio %


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Ratios important from Investors point of view for2005, 2006, 2007, 2008 & 2009

Earnings per Share

Earnings per Share = Earnings available for common stockNo. of shares of common stock

0

50

100

150

200

250

2005 2006 2007 2008 2009

R

a

ti

o

Year

Earnings Per Share

Earnings Per Share

2005 2006 2007 2008 2009Profit After Taxation 1,601,560 1,564,610 1,698,519 1,984,326 3,055,740less: Preference Dividend oncumulative preference shares 239 239 239 239 239

Profit after taxes attributable toordinary share holders 1,601,321 1,564,371 1,698,280 1,984,087 3,055,501

Divide: Weighted Average No.of shares in issue during theyear 13,294 13,294 13,294 13,294 13,294

Ratio 120 118 128 149 230


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Price earning ratio

Price earning ratio = Market price per shareEarnings per share

0

2

4

6

8

10

12

14

16

18

20

2005 2006 2007 2008 2009

R

a

t

i

o

Year

Price Earning Ratio

Price Earning Ratio

2005 2006 2007 2008 2009

Market Price per share 1,775 2,000 2,280 1,808 2,300

Divide: Earning per share 120 118 128 149 230

Ratio (times) 14.79 16.95 17.81 12.13 10.00


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Financial Analysis from Ratios Calculated

LIQUIDITY RATIOS measure the ability of a firm to satisfy its short-term

obligations as they come due. Liquidity refers to the solvency of the firmsoverall financial position, the ease with which it can pay its bills.

Current Ratio:The company was in a satisfactory liquidity position in 2005. For the next twoyears, the current ratio declined (it was 0.89:1 in 2006 & 0.75:1 in 2007) whichshows the problems in the liquidity position. It continued to decline till 2008(reaching 0.65) but then showed an increase in 2009 becoming 0.73.However, this problem can be avoided if some necessary steps are taken by

the management.

Quick Ratio:The analysis of the companys liquidity position through quick ratio indicatesthat current assets excluding inventory i.e. Stock in trade and store & spareswere not quite sufficient against the current liabilities. Due to this, the quickratio declined in 2006 & 2007. It further declined greatly becoming as low as0.16 in 2008 but then showed an increase in 2009 becoming 0.24 which is stillnot satisfactory. Thus attention should be given on this aspect by themanagement to avoid further decline.

ACTIVITY RATIOS measure the speed with which various accounts areconverted into sales or cash, inflows or outflows. This ratio also measures theefficiency with which the resources are used.

Inventory turnover ratio:

Inventory turnover (ITO) ratio depicts how quickly the company is able to selloff its inventory turnover ratio is not quite good, a little stabilize in the year2007 but again rose to 6.29 in 2009. Serious consideration is required tolower this value. This shows that Unilever's efficiency in turning its inventory tosales is on the decline, but still it is in reasonable trend.

Average Age of Inventory:Slightly declining in 2006, it has been increasing in 2007 and 2008 (54 & 63respectively), however showing a decrease in 2009 (58). It shows thataverage inventory age has shown a recent decrease. This parameter needs

to be managed.


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Fixed asset turnover ratio:Fixed asset turnover ratio has decreased in the years 2005-2007 from 10.03to 6.64 which is not a good sign as the fixed assets are contributing less andless in the sales. However it began to rise in 2008 and rose up to 8.06 in 2009

showing slight improvement.

Total asset turnover ratio:Total Assets Turnover ratio of Unilever has been on a slightly declining trendover the years. This ratio was good in 2006. It was 3.26:1 indicating that from1 unit of total assets, net sales of 3.26 units were generated. However itstarted falling since then and became 2.72 in 2008. But then the situationimproved again but showing an increase to 3.34 in 2009 showing that nowfrom 1 unit of total assets, company was generating net sales of 3.26 units.

DEBT RATIOS:the debt position of a firm indicates the amount of otherpeoples money being used to generate profits.

Measures of Indebtedness

Debt ratio:The company is facing critical debt problem. The total assets are less than the

total liabilities. This ratio increased from 0.68 to 0.80 from 2005 2008. Thisindicates an alarming situation. The amount of total assets should be greaterthan the total liabilities. However the situation improved in 2009 with adecrease in the ratio, then becoming 0.71.

Debt Equity ratio:The debt-equity ratio of the company indicates a consistent increasing trendtill 2007 (increasing from 0.01 to 0.08) and then fell to 0.03 in 2009. Overallthe debtequity ratio is satisfactory.

Debt-to-Total-Assets RatioThis ratio has shown a consistent increase from 2005 to 2007 (from 0.004 to0.009) then remained constant till 2008 and then fell to 0.007 in 2009.

COVERAGE RATIOS: The ability to pay off debt

Times interest EarnedThe Times interest earned ratio has a very fluctuating pattern for Unilever

Pakistan. Times earned ratio shows the ability of the firm to payoff its debts; itbasically shows how many times a firm can pay it interests over. For Unilever


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is it very good in 2005 but is declining onwards in 2006 and especially in 2007it has declined to 99.94 and then showing a continuous and rapid decrease itbecame 20.39 which is a critical situation for Unilever and management needsto take notice of this decrease

PROFITABILITY RATIOS: There are many measures of profitability.Without profits, a firm could not attract outside capital. Owners, creditors andmanagement pay close attention to boosting profits because of the greatimportance placed on earning in the marketplace.

Gross Profit Margin:The gross profit margin % of the company is quite satisfactory which showsthe operations of the company are quite profitable. This ratio is quite good forthe 2005 to 2007 but it showed a slight decrease in the following years fallingto 34.92 in 2009 while it was 38.79 in 2005.

Operating Profit Margin:The operating profit margin % of the company is satisfactory. But thecompany should improve its earning before interest and taxes (EBIT) byreduction of expenses. This ratio can then be improved. the ratio has showeda steady decrease from 14.48 in 2005 to 12.94 in 2009.

Net Profit Margin:The net profit margin % of the company exhibited a declining trend. The netprofit margin declined sharply from 9.06% to 6.41% during 2005 2007.However the situation improved in 2009 with an increase in the percentagereaching 9.87 in 2009. Attention should be directed on this aspect to preventthe value from falling too low.

INVESTMENT DECISIONS:

Return on Investment RatioThe return on investment ratio showed slightly unpleasant pattern from 2005to 2008 falling from 27.58 to 17.43. However situation became quite satisfyingin 2009 with a healthy increase in 2009 to 26.74.

Return on Equity RatioThis ratio showed a fluctuating pattern. Being 85.98 in 2005 it increased toafairly high value of 207.92 in 2007 but then again set to a decrease becoming92.48 in the year 2009.


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Earnings per Share:The company is quite attractive from investment point of view as it has strongamount of Earnings per share (EPS). The company has a strong marketstanding. The EPS was 128 in 2007 which fairly increased to 149 in 2008 and

then became as high as 230 in 2009. The EPS for Unilever Foods has beenon an upward march since 2003. After the loss faced by the company in 2003,it has not lowered its EPS yet. Any change in EPS is caused by the profitsearned by the company as number of shares has been the same for 5 years.

Price earning ratio:The price earning ratio of the company has been quite well from 2005-2007reaching 17.81 in 2007 This served as an incentive for the investors.But since then there has been a decrease and it has been calculated to be10.00 in 2009. This seriously needs to be taken care of.


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INDEX ANALYSIS


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COMMON SIZE ANALYSIS


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SWOT Analysis

Strengths:

The profitability position of the company is satisfactory. As aresult, good investment opportunities are present.

Unilever has the biggest market share in consumer products asa result it has a high volume of sales. In the year 2007, theHome and Personal Care business delivered impressiveturnover growth of 25% mainly attributable to higher volumesand prices in fabric cleaning, hair and skin categories. Newlaunches, innovations and market activations were impressivelysuccessful in generating volume and value. Unilever has marketleadership in laundry detergent powders, hair and personalwash categories. However, higher material costs specially that

of palm oil & tallow and higher advertising costs restricted profitgrowth to 15%.

Unilevers closest competitor is Proctor & Gamble (P&G) but it isnot as versatile as Unilever due to its limited range of productlines.

Resources which Unilever owns are surely its strength. Withoutsufficient resources none of the organization can survive forsuch a long time. However Unilever is doing tremendous andhave plenty of resources to carry for more centuries.

Inventory turnover ratio is good which indicates that customers

are willing to purchase its products. UPL has a strong regional network leveraging scale for sourcing

raw materials and finished products.

Unilever has a strong competitive edge of continuousinnovation, delivering cost advantages and deep local roots; onecan hope that it will be able to reflect positively.

Weaknesses:

The current ratio and quick ratios are low showing that thecompany is facing problem in fulfilling its obligations.Unfortunately, the company is unable to get the ratio of 1:1.

Fixed assets ratio is declining sharply. As a result, fixed assetsare contributing less in sales.

Debt conditions are to be focused upon. The debt position wasgood in 2005 but for the next two years i.e. 2006 & 2007 itworsened.


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Opportunities:

Investments should be done on advertising and R&D to further expandthe market of its brands. Surf games masti, life buoy germs buster.Home and personal care gave an impressive turnover growth of 25%.

Walls grew by 8%. This was lower than planned because of weatherand production problems. More Cold storages should be leased. Ashigher distribution costs impacted the profits.

Needs to diversify into new tastes.

Expand market, to cover rural areas; this would cope with usage ofsmuggled products.

Threats: High inflation during the current years has affected several sectors in

Pakistan. As a result Unilever has also suffered. Due to increasedprices, sales have declined.

There is a decrease in the purchasing power of customers. Being aconsumer products manufacturer it has survived up till now but theupcoming era is difficult.

Its low current ratio can lead to bankruptcy.

Strict government regulations imposed on Multinational Companiespose a severe threat to the company.

Competitor pricing is also a threat which can take away the marketshare.

Uncontrollable fraud by the local producers is also a great threatwhich also hurts the company reputation

Unstable Political Conditions in Pakistan is a great threat to thecompany.

Unilever's status as a large multinational has attracted a variety ofcriticisms from political activists. For example, it has been criticized forcausing Environmental Pollution by Greenpeace, for testing productson animals by PETA, and for making use of Child Labor, among others.

Political instability, terrorism and threats to MNCs by local pressuregroups can pose a serious threat to the companys performance.

Increase in the price of imported raw materials due to the devaluation

of Pakistani Rupee can inevitably cause the company to increase theprices of its products.

Edible oil prices have hit a record high. They have resticted profit

growth by 15%.

Beverage sales declines by 5%. On factor is the use of smuggledtea in rural ares.


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Conclusion

UPL has a strong competitive edge of continuous innovation, global and localscale delivering cost advantages and deep local roots. Hence one canforesee an overall positive outlook for the company.Using the financial reports for three consecutive years of Unilever, we havediscussed the four key aspects of the companys performance__ liquidity,activity, debt and profitability.

LiquidityThe overall liquidity of Unilever is not noteworthy. In most of the places itsshort-term obligations are in excess of its short-term assets. This shows thatcompany's current liabilities are rising far more than its current assets,

reflecting a decline in Company's ability to pay off its short-term obligations.

ActivityUnilevers inventory appears to be in an average shape. Its inventorymanagement seems to have improved, and in year 2006 it performed at alevel above than in year 2005. But it has decreased in 2007. In 2008 ih hasagain decreased but in 2009, it has increased again. The company might befacing some problem with its accounts receivable. It should encourage itsdebtors to make early payment of their debts.

Debt

Unilevers indebtedness increased over 2005-2008 periods. But in 2009 it hasdecreased. As a result, this increase in the debt ratio could be an alarm forthe firms ability to meet interest and fixed payment obligations.

ProfitabilityThe companys profitability seems to exhibit a reasonably stable and a minordownward trend. However the earnings per share and price earning ratioincreased over the three years.

Recommendations The company should try to improve its overall debt position in order to

avoid the risk of running bankrupt.

Liquidity position should be improved in order to be able to pay offupcoming liabilities.

It is important that UPL maintains product affordability for itsconsumers. Currently both the crude oil prices and raw materials forsoap are on the increase. Social disruptions make markets nervous;disrupt the Trade and shakes local consumer and internationalconfidence.


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Glossary:

Activity Ratios: measures the speed with which various accounts areconverted into sales or cash.Average age of inventory: average number of days sales in inventoryBalance sheet: It is thesummary statement of the firms financial position ata given point in time.Blue Chips: shares having a high market price and high trade in the stockmarket.Current assets: short-term assets expected to be converted into cash withinone year or less.Current liabilities: short-term liabilities expected to be paid within one year or

less.Current ratio: a measure of liquidity calculated by dividing the firms currentassets with its current liabilities.Debt ratio: measures the proportion of total assets financed by the firmscreditors.Inventory turnover: Inventory Turnover (ITO) ratio depicts how quickly thecompany is able to sell off its inventory.Liquidity: A firms ability to satisfy its short-term obligations as they comedue.Long term debt: debts for which payment is not due in the current year.Multinational Corporations: A company which owns or controls production

or service facilities outside the country in which it is based.Price earning ratio: The (P/E) ratio shows how much investors are willing topay per rupee of the reported profits, depends on the company's price pershare and its earnings per share (EPS).Ratio analysis: involves methods of calculating and interpreting financialratios to analyze and monitor the firms performance.SWOT analysis: An overall evaluation of the companys strengths(S),weaknesses (W), opportunities (O) & threats (T).Times Interest Earned Ratio: Measures the firms ability to make contractualinterest payments.Total assets turnover: indicates the efficiency with which the firm uses its

assets to generate net sales.


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ANNEXURES


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Bibliography:

1. Gitman, Lawrence J. (2005).Principles of Managerial Finance

2. www.unilever.pk

3. Financial & Managerial Accounting by Williams Haka Bettner
http://www.unilever.pk/http://www.unilever.pk/http://www.unilever.pk/

Date post:	07-Apr-2018
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