Finanacial Evaluation of Unilever
Introduction
When evaluating a company important is to know the company’s history, operations, and the nature of the business in which it operates. On the other hand by reviewing the company’s financial statements, operational practices we can evaluate its performance and compare it with the previous years or with the key competitors. By analyzing its financial indicators we can assess how profitable and sound the company is. This research paper will give a brief description of Unilever, its main divisions and products, its management structure, and the financial performance evaluation, with an aim to highlight the best practices and the growth drivers.
Profile of the company, its divisions, products, and supply chain Unilever is a multinational corporation and is one of the worlds fast-moving consumer goods companies with a host of well-known brands. The company operates through four segments: Personal Care, Foods, Refreshment, and Home Care. Unilever is a joint venture of two companies that date back from the late nineteenth century. It was formed by two Dutch families, Jurgens and Van den Bergh, butter merchants who later started producing margarine and by the British soap producer William Hesketh Lever. Since the early nineteenth century the two companies were concentrated on acquisitions and in early 1929 they signed an agreement to create Unilever. Unilever over the last two decades acquired the meat business Zwanenberg’s at Oss, Lipton International, Brooke Bond, Naarden, Calvin Klein, and Elizabeth Arden/Faberge, Brayer’s ice cream, Kibon ice cream, Bestfoods, Slim-Fast Foods, Ben & Jerry’s and the Amora-Maille. In 1992 Unilever entered the Czech Republic and Hungary and established UniRus in Russia, also enters in India and other parts of the world.
V. operates as a fast-moving consumer goods company in Asia, Africa, the Middle East, Turkey, Europe, and the Americas Unilever possesses a portfolio of more than 400 brands, from nutritionally balanced foods to indulgent ice creams, affordable soaps, luxurious shampoos, and everyday household care products. Their products are sold in more than 190 countries, generating sales of €51 billion in 2012. In the 21st century, they launched growth strategies, in order to transform the business, leading to more acquisitions, rationalization of manufacturing and production sites to form centers of excellence. Unilever is responding quickly to rapid shifts in consumer behavior by investing in Research and Development and changing market conditions. Unilever sells its product across 170 countries and its procurement teams are purchasing from a network of around 160,000 suppliers worldwide. For the same reason, its suppliers’ materials and services are an integral part of their commercial operations. Unilever has an integrated supply management information system that helps their local, regional, and global supply managers to make appropriate sourcing decisions, allowing them to analyze information quickly and easily.
Through this system, they can negotiate with their suppliers in a more transparent and efficient way. Unilever’s largest international competitors are Procter & Gamble and Nestle. While the competition in local markets or specific product ranges from numerous companies, including Beiersdorf, ConAgra, Danone, Henkel, Mars, Pepsico, and others (Unilever) Management Structure Maintaining good governance is one of the essentials factors for the long-term success of the company. For the same reason, Unilever is engaged in conducting its operations in accordance with internationally accepted principles of good corporate governance. The success of Unilever is due to a combination of structural formality and managerial flexibility. Being a company that is present for more than a century, that operated in changing and transitional environment, is evidence of a flexible management structure that made Unilever successful. Learning through a trial and error Unilever has focused on two reliable and related practices to strengthen all structural changes: recruitment and training of high-quality managers and the importance of linking decentralized units through common corporate culture. Unilever’s companies maintain formal processes to inform, consult, and involve employees. They recognize collective bargaining on a number of sites and engage with employees. Their usage of site tools such as Total Productive Maintenance relies heavily on employee involvement, contribution, and commitment. The profitable growth that Unilever accomplishes is mainly due and is achieved through the right people working in an organization that is fit to win and with a culture in which performance is aligned with values.
Unilever has built an employer brand development tool which leverages best practice and adapts recruitment models to reach the best people worldwide. The better recruitment, family-friendly working conditions, a culture of accountability, initiatives, and remuneration represent one of the crucial factors for the success which it achieves. Ability to earn income Unilever’s ability to earn an income has increased due to the increase in revenue. In 2012 their ability to earn an income has increased by 8. % compared with 2011, and with no changes from 2010 to 2011. The raw materials and consumables from 2010 to 2011 decreased by 1% and in 2012 by 1. 3%. On the other hand, the finished goods and goods for resale increased by 8. 5 in 2011 and a decrease of 3. 35% in 2012. This change in the finished goods and goods for resale was charged to the income statement for damaged, obsolete, and lost inventories. Reliance on debt financing The net debt position in 2011 was 8. 781 billion or €2. 1 billion higher than the last year, in part due to the acquisition of Alberto Culver. In 2012 the net debt was 7. 355 billion, or 1. 4 billion lower than in 2011.
The cash outflow from acquisitions, dividends, tax, net capital expenditure, and interest, and the negative impact of foreign exchange rates exceeded the cash inflow from operating activities and business disposals. The leverage ratio reveals that 32% of the financing it’s covered by debt. Key indicators for 2011 and 2012 The sales growth of Unilever in 2011 increased by 6. 5% and volume growth by 1. 6%. Emerging markets delivered 11. 5% underlying sales growth and turnover of 5% compared to 2010 (Annual Report 2011, p. 9). In 2012 the sale growth increased by 6. % and volume growth increase of 3. 4%. Emerging markets represented 55% of the turnover or 11. 6% of sales and turnover of 10. 5% compared to 2011. The profitability of various product lines and geographical regions The region with the highest turnover, sales, and volume growth in 2011 and 2012 in Asia, Africa, and Central & Eastern Europe with over €20. 5 billion of turnover in 2012 and €18. 9 in 2011. Followed by Americas €17.
FINANCIAL RATIOS FOR UNILEVER
- Operational analysis Formula
- Formula
- Average inventory2010 =3942.
- Average inventory2011 =4454
- Average inventory2012=4518.
- Inventory turnover ratio2010 =6. 57
A number of days receivables outstanding2011 =21. 3days Receivables Turnover 2012 =14 Av. Number of days receivables outstanding2012 =26days. Conclusion: In the year 2010 the UN has performed better. Higher the ratio, better it is. This means that in 2010 it required 20 days to collect its receivables from customers. Formula Working Capital Turnover2012 = -14. Conclusion: In the year 2012, the UN has performed better. Higher the ratio, better it is. This means that in 2012 the UN had more efficient utilization of the working capital, needed for maintaining a certain level of sales, and even though it is negative we can see a sharp decrease during the precedent years.
- Current Ratio 2010 = 0. 92
- Current Ratio 2011 = 0. 79.
- Current Ratio 2012 = 0. 76
Conclusion:
In year 2010 UN has higher ratio. A commonly acceptable current ratio is 1. 5-2. This level of ratio may show than the UN cannot meet its short-term financial obligations. Formula 2. 2 Quick Ratio2010 = 0. 36 Quick Ratio2011 =0. 37 Quick Ratio2012 =0. 46. Conclusion: In the year 2012 the UN has a higher ratio. This means that in 2012 the UN was more financially secure to meet its short-term financial obligations.
The purpose of this paper was to reveal the financial performance of Unilever and to make an evaluation and assessment of the firm’s management structure and what contributes to the success they achieve and key figures and ratios. The financial position of Unilever for 2012 was admirable, due to the fact that had increased revenues, sales, and volume growth of its divisions worldwide and decreased net debt. They compared data for 2010,2011, and 2012 show continuous improvement and an increase of their financial position.
References
- Unilever site www. unilever. com
- Annual Report 2012, Available at: http://www.unilever.com/images/ir_Unilever_AR12_tcm13-348376. pdf [Accessed date 05/03/2012]
- Annual Report 2011, Available at: http://www.unilever.com/images/Unilever_AR11_tcm13-282960_tcm13-348380.pdf
- [Accessed date 07/03/2012} Floris M. (1992), Inside Unilever: The Evolving Transnational Company, Harvard Business Review; Vol. 70 Issue 5, p46-52, EBSCO Host http://web. ebscohost. com/ehost/detail?vid=4=8aace911-769a-43f3-9949-b4364f9185cf%40sessionmgr111=124=JnNpdGU9ZWhvc3QtbGl2ZQ%3d%3d#db=bth=9301105365 [Accessed date 09/03/2012]
