Financial Decision Making Unilever Plc

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FinancialDecision Making: Unilever Plc

FinancialDecision Making: Unilever Plc

Unileveris a multinational company based in Britain and focused on theproduction consumer goods. Unilever was founded in the year 1929 andhas operations in about 190 countries (Unilever, 2013, p. 2). Itsrange of products includes beverages, foods, personal care products,and cleaning agents (Unilever, 2015, p. 1). Currently, Unilever isthe third largest producer of consumer goods in the world, and theleading producer of food spreads. This paper includes the financialanalysis of Unilever and a decision on whether Unilever is a viableinvestment opportunity.

Profitability

Profitabilityratios indicate the company’s ability to make returns using theavailable resources.

Returnon assets = net income / average total assets

Averagetotal assets = (45,513 + 46,189) / 2

=€ 4,851

ROA= 5,263 / 4,851

=1.08

Thisimplies that each Euro of the assets yields 1.08 Euros.

Returnon capital employed

ROCE= EBIT / Employed Capital

=7,011 / 33,391

=0.21

Theratio means that Unilever generates 21 cents for every euro ofinvested capital.

Liquidity

Quickratio = (current assets – inventory) / current liabilities

=(12,122 – 3,937) / 17,382

=0.47

Thequick ratio of 0.47 is less than one, which means that Unilever mightface some difficulties meeting its short-term obligations.

Currentratio = current assets / current liabilities

=12,122/ 17,382

=0.697

=0.7

Acurrent ratio of 0.7 means that Unilever will find it difficultmeeting its current liabilities.

Efficiency

Assetsturnover ratio = Sales turnover / total assets

=49,797 / 45,513

=1.09

Theratio of 1.09 implies that Unilever is able to make a revenue of euro1.09 for every dollar value of assets.

Inventoryturnover = Sales / inventory

=47,797 /3,937

=12.14

Theturnover rate of 12.14 is reasonable and indicates that Unilever isable to turnover its stock about 12 times within a single financialyear.

Financingstructure

Thefinancing structure comprises of the equity capital, short-termloans, long-term loans, long-term liabilities, and short-termliabilities as opposed to the capital structure that comprises oflong-term liabilities and equity. In the case of Unilever, financingstructure is as follows

Equity= € 14,815,000 (32.28 %)

Long-termliabilities =€ 13,698,000 (29.85 %)

Short-termliabilities = € 17,382,000 (37.87 %)

Thesecalculations indicate that the short-term liabilities take thelargest proportion of Unilever’s financing structure followed byequity, then the long-term liabilities.

Investors’specific perspective

Currently,Unilever is profitable, but the ROCE ratio of 0.21 is quite low. Inaddition, the liquidity ratios indicate that Unilever has lost itsability to meet its short-term liabilities. However, the efficiencyratios considered in this paper indicate a considerable level ofefficiency, suggests that Unilever has the capacity to utilize itsassets to increase revenue and sell its inventory several times (bout12 times) in a single financial year. The proportions of long-termand long-term liabilities in the financing structure are higher thanequity. This means that Unilever has been financing its operationsusing more debt and other liabilities than the shareholders` funds.This might subject the company to a difficult situation in case itfails to meet these obligations. Equity is among the safest methodsof financing company operations because the company does not have topay dividends if it makes a loss in a given financial year(Kokemuller, 2014, p. 1). This is unlike debt and other obligationsthat have to be met irrespective of whether the company makes a lossor profit. From investors’ perspective, Unilever may not be aviable investment opportunity.

Listof references

Kokemuller,N., 2014. Theadvantages and disadvantages of debt and equity financing.Santa Monica: Demand Media.

Unilever,2013. Annualreport and accounts 2013: Making sustainable living commonplace.London: Unilever.

Unilever,2015. Brand with a purpose. Unilever.Available at: &lt http://www.unilever.com/&gt[Accessed 23 June 2015].