This report paper has been prepared to evaluate the financial position, financial performance, competitor position and the investment opportunity of Unilever plc. Financial evaluation over an organization is significant as it assists the company to make better decision about the position and the performance of the company. This report explains that it becomes easier for the company and the stakeholders of the company to evaluate the position of the organization and make better conclusion about the position, investment opportunity and performance of the company. Further, it explains that the financial performance of the company could be analyzed on the basis of annual report, financial statements of the company, stock price of the company, competitor position of the company and the worth of the company.
For this report, financial data of Unilever plc of last 5 years have been analyzed and the ratio study has been conducted. Further, the competitors financial performance has been compare with the financial performance of Uniliver plc and lastly, the stock performance and the investment opportunity of the company has been evaluated.
Unilever plc is one of the fastest growing organizations in consumer goods market. This company operates its business through foods, home care, personal care refreshment segment etc. The company has diversified its market among 112 countries and the market share of the company is huge. Personal segment of the company provides hair care and skincare products, oral care products and deodorants. Food segment provides sauces, soup, mayonnaise, margarines, salad dressings, spreads etc. the company has been founded in 1885. Headquarter of the company is in London, UK (Home, 2018). The financial performance and the position expresses about various positive and impressive changes into the organization.
Financial performance and financial position of an organization could be evaluated and measured through the financial statement and the market worth of the company. Basically, it is a process in which the results of an organization are measured through identifying the policies and the activities of the company in monetary terms (Davies and Crawford, 2011). The study of financial performance and position of the Unilever plc is as follows:
Profitability ratio of the company has been evaluated firstly to identify the financial performance and position of the company. Profitability ratios are the measurement of profit position of the company. This explains about the profitability capacity of the company. Following is the calculations of profitability ratio of the company:
|
Description |
Formula |
Unilever Plc |
||||
|
2017 |
2016 |
2015 |
2014 |
2013 |
||
|
Profitability |
||||||
|
Return on shareholder funds |
NPAT/ Total equity |
31.70% |
31.80% |
37.88% |
33.76% |
29.55% |
|
Operating net profit / Sales |
100.00% |
100.00% |
100.00% |
100.00% |
100.00% |
|
|
Gross Profit Margin |
Gross Profit / Sales |
50.00% |
50.00% |
50.00% |
50.00% |
50.00% |
(Breuer, Rieger and Soypak, 2014)
Return on shareholder ratios explain about the total return which could be get by the shareholder of the company. It is calculated on the basis of net profit after tax and the total shareholder equity of the company. The current shareholder return explains that the current return to the shareholders is 31.70% which has been lower from 31.80% and 37.88% in 2016 and 2015.
|
Description |
Formula |
Unilever |
P&G |
PepsiCo |
||
|
2017 |
2016 |
2015 |
2017 |
2017 |
||
|
Net profit |
0 |
5184000000 |
4909000000 |
5171000000 |
5217000 |
6329000 |
|
Equity |
0 |
16354000000 |
15439000000 |
13651000000 |
55184000 |
55184000 |
|
Return on shareholder funds |
NPAT/ Total equity |
31.70% |
31.80% |
37.88% |
9.45% |
11.47% |
Figure 1: return on shareholders’ Fund
The return on shareholder of its competitive company, P&G and PepsiCo have been evaluated and it has been found that the return on capital employed position of both the companies are 9.45% and 56.28% which explains that the current position of the company is quite competitive and it is according to the industry rules. It explains that the profitability position of the company is quite better (Bodie, 2013).
Operating profit margin ratios explain about the total return which could be got by the company after its operating expenses. It is calculated on the basis of operating profit and the total revenue of the company. The current operating profit margin ratio explains that the current operating profit position of the company is quite similar from last few years. It explains that the operating profit margin of the company is 100% from last 3 years.
|
Description |
Formula |
Unilever |
P&G |
PepsiCo |
||
|
2017 |
2016 |
2015 |
2017 |
2017 |
||
|
Operating profit margin |
52713000000 |
53272000000 |
48436000000 |
1,39,55,000 |
97,85,000 |
|
|
Sales |
52713000000 |
53272000000 |
48436000000 |
6,50,58,000 |
28209000 |
|
|
Operating profit margin |
Operating net profit / Sales |
100.00% |
100.00% |
100.00% |
21.45% |
34.69% |
Figure 2: Operating profit margin
The operating profit position of company has been evaluated with its competitive company, P&G and PepsiCo and it has been found that the operating profit margin position of both the companies are 21.45% and 15.58% which explains that the current position of the company is quite competitive and quite higher than all the competitive companies. It explains that the profitability position of the company is quite better.
Gross profit margin ratios explain about the total return which could be got by the company after its cost of goods sold. It is calculated on the basis of gross profit and the total revenue of the company (Brealey, Myers and Marcus, 2007). The current gross profit margin ratio explains that the current gross profit position of the company is quite similar from last few years. It explains that the operating profit margin of the company is 50% from last 3 years.
|
Description |
Formula |
Unilever |
P&G |
PepsiCo |
||
|
2017 |
2016 |
2015 |
2017 |
2017 |
||
|
Gross profit |
26356500000 |
26636000000 |
24218000000 |
3,25,23,000 |
34590000 |
|
|
Sales |
52713000000 |
53272000000 |
48436000000 |
65058000 |
28209000 |
|
|
Gross Profit Margin |
Gross Profit / Sales |
50.00% |
50.00% |
50.00% |
49.99% |
122.62% |
Figure 3: Gross Profit margin
The gross profit position of company has been evaluated with its competitive company, P&G and PepsiCo and it has been found that the gross profit margin position of both the companies are 49.99% and 55.08% which explains that the current position of the company is quite competitive (Barman, 2008). It explains that the profitability position of the company is quite better and company is managing all its activities in better manner.
Liquidity ratio of the company has been evaluated further to identify the financial performance and stability position of the company. Liquidity ratios are the measurement of short term debt obligation of the company. This explains about the capacity of the company to repay all the current borrowings. Following is the calculations of liquidity ratio of the company:
|
Liquidity |
2017 |
2016 |
2015 |
2014 |
2013 |
|
|
Current ratio |
Current assets/current liabilities |
0.68 |
0.63 |
0.63 |
0.70 |
0.77 |
|
Acid test ratios |
Current assets-Inventory/current liabilities |
0.47 |
0.63 |
0.63 |
0.47 |
0.49 |
(Morningstar, 2018)
Current ratios explain about the total stability position and debt obligation position of the company. It is calculated on the basis of current assets and the current liabilities of the company. The current liquidity ratio explains that the current liquidity position of the company is 0.68 which is higher than 0.63 and 0.63 in 2016 and 2015. It explains that the assets level has been improved by the company.
|
Description |
Formula |
Unilever |
P&G |
PepsiCo |
||
|
2017 |
2016 |
2015 |
2017 |
2017 |
||
|
Current Assets |
13884000000 |
12686000000 |
12347000000 |
2,64,94,000 |
27089000 |
|
|
Current Liabilities |
20556000000 |
20019000000 |
19642000000 |
3,02,10,000 |
21135000 |
|
|
Current ratio |
Current assets/current liabilities |
67.54% |
63.37% |
62.86% |
87.70% |
128.17% |
(Bradford, Chen and Zhu, 2013)
Figure 4: Current ratio
The current liquid position of company has been evaluated with its competitive company, P&G and PepsiCo and it has been found that the current liquid position of both the companies are 0.88 and 1.28 which explains that the current position of the company is required to be changed. It explains that the liquidity position of the company is not at all good.
Acid test ratios explain about the total stability position and debt obligation position of the company. It is calculated on the basis of quick assets and the current liabilities of the company. The acid test liquidity ratio explains that the quick liquidity position of the company is 0.47 which is higher than 0.63 and 0.63 in 2016 and 2015. It explains that the quick assets level has been decreased by the company (Baker and Weigand, 2015).
|
Description |
Formula |
Unilever |
P&G |
PepsiCo |
||
|
2017 |
2016 |
2015 |
2017 |
2017 |
||
|
Current Assets |
13884000000 |
12686000000 |
12347000000 |
2,64,94,000 |
2,70,89,000 |
|
|
inventory |
4278000000 |
0 |
0 |
46,24,000 |
27,23,000 |
|
|
Current liabilities |
20556000000 |
20019000000 |
19642000000 |
3,02,10,000 |
2,11,35,000 |
|
|
Acid test ratios |
Current assets-Inventory/current liabilities |
20.81% |
0.00% |
0.00% |
15.31% |
12.88% |
Figure 5: Acid Test Ratio
The quick liquid position of company has been evaluated with its competitive company, P&G and PepsiCo and it has been found that the current liquid position of both the companies are 0.72 and 1.15 which explains that the quick position of the company is required to be changed (Schlichting, 2013). It explains that the liquidity position of the company is not at all good
Efficiency ratio of the company has been evaluated further to identify the financial performance and working capital management of the company. Efficiency ratios measure the total working capital and capital turnover of the company. This explains about the capacity of the company to manage its operations. Following is the calculations of efficiency ratio of the company:
|
Efficiency |
2017 |
2016 |
2015 |
2014 |
2013 |
|
|
Receivables collection period |
Receivables/ Total sales*365 |
23.05 |
32.92 |
37.90 |
35.41 |
31.55 |
|
Payables collection period |
Payables/ Cost of sales*365 |
7.87 |
– |
5.77 |
7.33 |
7.48 |
|
Inventory days |
Inventory/ cost of goods sold *365 |
59.24 |
– |
– |
57.71 |
63.09 |
Receivable collection period is calculated on the total accounting receivable and the total sales of the company. The receivable collection period ratio explains that the collection period of the company is 23.05 days which is lower than 32.92 days and 37.90 days in 2016 and 2015. Further, the collection period of P&G and PepsiCo is 25.77 days and 33.18 days. It explains that cash turnover of the company is lower and explains that less cash is required for the company to invest for daily activities (Phillips and Stawarski, 2016).
|
Description |
Formula |
Unilever |
P&G |
PepsiCo |
||
|
2017 |
2016 |
2015 |
2017 |
2017 |
||
|
Receivable |
3329000000 |
4804000000 |
5029000000 |
45,94,000 |
5709000 |
|
|
Total Sales |
52713000000 |
53272000000 |
48436000000 |
65058000 |
28209000 |
|
|
Receivables collection period |
Receivables/ Total sales*365 |
23.05 |
32.92 |
37.90 |
25.77 |
33.18 |
Figure 6: Receivable collection period
Payable payment period is calculated on the basis of total accounting payable and the total sales of the company. The Payable payment period ratio explains that the payment period of the company is 7.87days which is higher than 0 days and 0 days in 2016 and 2015. Further, the payment period of P&G and PepsiCo is 5.22 days and 17.36 days. It explains that cash turnover of the company is higher and explains that huge cash is required for the company to invest for daily activities (Palicka, 2011).
|
Description |
Formula |
Unilever |
P&G |
PepsiCo |
||
|
2017 |
2016 |
2015 |
2017 |
2017 |
||
|
Payables |
568000000 |
0 |
383000000 |
4,65,000 |
1342000 |
|
|
COGS |
26356500000 |
26636000000 |
24218000000 |
3,25,35,000 |
28209000 |
|
|
Payables collection period |
Payables/ Cost of sales*365 |
7.87 |
0.00 |
5.77 |
5.22 |
17.36 |
Figure 7: Payable collection period
Further, inventory days of the company has been evaluated. Inventory turnover period is calculated on the basis of total inventory and the cost of goods sold of the company. The inventory day’s ratio explains that the inventory turnover of the company is 59.27days which is higher than 0 days and 0 days in 2016 and 2015. Further, the turnover period of P&G and PepsiCo is 51.88 days and 35.23 days. It explains that inventory turnover of the company is quite competitive (Madhura, 2014).
|
Description |
Formula |
Unilever |
P&G |
PepsiCo |
||
|
2017 |
2016 |
2015 |
2017 |
2017 |
||
|
Inventory |
4278000000 |
0 |
0 |
4624000 |
2723000 |
|
|
COGS |
26356500000 |
26636000000 |
24218000000 |
32535000 |
28209000 |
|
|
Inventory days |
Inventory/ cost of goods sold *365 |
59.24 |
0.00 |
0.00 |
51.88 |
35.23 |
Figure 8: Inventory days
Gearing ratio of the company has been evaluated further to identify the financial performance and working capital management of the company. Gearing ratios measure the total debt and equity of the company. This explains about the capital structure position of the company. Following is the calculations of gearing ratio of the company:
|
Gearing Ratios |
2017 |
2016 |
2015 |
2014 |
2013 |
|
|
Gearing |
Noncurrent interest bearing debt / noncurrent interest bearing debt + equity |
0.40 |
0.39 |
0.34 |
0.34 |
0.33 |
Further, gearing ratio of the company has been evaluated. Gearing ratio is calculated on the basis of debt and equity of the company. The gearing ratio explains that the current capital structure of the company is 0.40 which is lesser than 0.39 and 0.34 in 2016 and 2015. Further, the gearing ratio of P&G and PepsiCo is 0.25 and 0.73. It explains that gearing ratio of the company is quite competitive (Ackert and Deaves, 2009).
|
Description |
Formula |
Unilever |
P&G |
PepsiCo |
||
|
2017 |
2016 |
2015 |
2017 |
2017 |
||
|
Noncurrent interesting debt |
10933000000 |
9854000000 |
7186000000 |
1,80,38,000 |
30053000 |
|
|
Equity |
16354000000 |
15439000000 |
13651000000 |
5,51,84,000 |
11246000 |
|
|
Gearing |
Noncurrent interest bearing debt / noncurrent interest bearing debt + equity |
40.07% |
38.96% |
34.49% |
24.63% |
72.77% |
Figure 9: Gearing ratio
Investment ratio of the company has been evaluated further to identify the financial performance and working capital management of the company. Investment ratios measure the net profit, market stock price, total outstanding shares etc of the company. This explains about the investment position of the company (Kruth, 2013). Following is the calculations of investment ratio of the company:
|
Investment ratio |
2017 |
2016 |
2015 |
2014 |
2013 |
|
|
Earnings per share |
NPAT/ Number of ordinary shares |
1.83 |
1.73 |
1.82 |
1.71 |
1.58 |
|
Price earnings ratio |
Market price per share / earnings per share |
31.68 |
(Morningstar, 2018)
Further, earnings per share of the company have been evaluated. EPS is calculated on the basis of NPAT and number of ordinary shares of the company. The EPS ratio explains that the current investment position of the company which is 1.83 that is higher than 1.73 and 1.82 in 2016 and 2015. Further, the gearing ratio of P&G and PepsiCo is 2.01 and 4.36. It explains that investment position of the company has been better and still, the company is required to enhance the earnings level.
|
Description |
Formula |
Unilever |
P&G |
PepsiCo |
||
|
2017 |
2016 |
2015 |
2017 |
2017 |
||
|
NPAT |
5184000000 |
4909000000 |
5171000000 |
5217000 |
6329000 |
|
|
Num of ordinary shares |
2840200000 |
2837572254 |
2841208791 |
25,98,100 |
1439000 |
|
|
Earnings per share |
NPAT/ Number of ordinary shares |
182.52% |
173.00% |
182.00% |
200.80% |
439.82% |
Figure 10: Earnings per share
Further, price earnings ratio of the company has been evaluated. P/E ratio is calculated on the basis of market stock and earnings of the company. The P/E ratio explains that the current investment position of the company is 131.86. Further, the P/E ratio of P&G and PepsiCo is 3.64 and 7.53 (Baker and Nofsinger, 2010). It explains that investment position of the company is required to alter to make better investment opportunity in the company.
|
Description |
Formula |
Unilever |
P&G |
PepsiCo |
||
|
2017 |
2016 |
2015 |
2017 |
2017 |
||
|
Market [ricer per share |
57.83 |
7.30 |
32.83 |
|||
|
Eps |
182.52% |
200.80% |
439.82% |
|||
|
Price earnings ratio |
Market price per share / earnings per share |
31.68 |
3.64 |
7.46 |
The above analysis on the financial position and the performance of the company states that the company is performing well in the market. Still, the competitive position of the company is required to be changed in concern with the ratio analysis study of the company. Following are few changes which must be done by the company:
|
Description |
Initiatives |
|
Profitability |
|
|
Return on shareholder funds |
Return on shareholder ratio of the company explains that the current performance of the company is enough competitive and the company is required to maintain this level. |
|
Operating profit margin |
Operating profit margin ratio of the company explains that the current performance of the company is better and the company is suggested to manage the same level. |
|
Gross Profit Margin |
Gross profit margin ratio of the company explains that the current performance of the company is enough competitive and the company is required to maintain this level (Elton et al, 2009). |
|
Liquidity |
|
|
Current ratio |
Current ratio of the company explains that the liquidity position of the company is not at all good. It showcases about the bad position of the company and depicts that the company would not be able to pay its entire short term debt obligation at any time. |
|
Acid test ratios |
Acid test ratio of the company explains that the liquidity position of the company is not at all good. It showcases about the bad position of the company and depicts that the company would not be able to pay its entire short term debt obligation at any time. |
|
Efficiency |
|
|
Receivables collection period |
Receivable collection period of the company explains that the receivable turnover of the company is quite less and thus it is quite good for the company. |
|
Payables collection period |
Payable payment period of the company explains that the payable turnover of the company is quite less and thus it is required by the company to reduce the payment turnover. |
|
Inventory days |
Inventory days of the company explain that the inventory turnover of the company is quite less and thus it is quite good for the company. |
|
Gearing Ratios |
|
|
Gearing |
Gearing ratio of the company explains that the debt and equity level of the company is not appropriate and the debt level of the company must be changed for the optimal capital structure of the company. |
|
Investment ratio |
|
|
Earnings per share |
Earnings per share of the company explain that the current earnings of the company are quite attractive and thus no changes are required to be done (Krantz, 2016). |
|
Price earring ratio |
Price earnings ratio of the company explains about the competitive position of the company. |
Further, the stock performance of the company has been evaluated to identify the performance and the position of the company in the market. The case explains that the competitive organization of the company wants to buy 15% stock of the company and for that the valuation of the stock of the company has been done through PE multiple model and Dividend discount model. The calculations are as follows:
|
PE Multiple Model |
|
|
Industry PE ratio |
16.18 |
|
EPS |
1.83 |
|
Intrinsic Value |
29.53 |
|
Share Price |
57.83 |
|
Overvalued |
|
Dividend Discount Model |
|
|
Dividend expected |
1.83 |
|
Growth rate |
3.00% |
|
Discount rate |
8.00% |
|
Intrinsic Value |
36.60 |
|
Share Price |
57.83 |
|
Overvalued |
|
Market to book value ratio |
|
|
Market price |
57.83 |
|
Number of shares |
2840200000 |
|
Book value |
30 |
|
Market capitalixzation / Book value |
1.928 |
Both of these valuation models explains that the stock price of the company is overvalued and thus this is not the right time for the competitive company to buy the stocks of the company. The stocks must be bought by the company when the stock position of the company is undervalued. PE multiple model of the company explains that the intrinsic value of the stock should be $ 29.53 which is quite lower than the actual market price of the company $ 57.83 so this is not the right time to buy the stock (Kruth, 2013).
On the other hand, dividend discount model of the company explains that the intrinsic value of the stock is $ 36.60 which is quite lower than the actual market price of the company $ 57.83 so this is not the right time to buy the stock. The market price of the stock of the company is $ 57.83 which is quite higher then the book value of the stock of the company. It explains that the market position of the company is quite strong. Further, market book ratio also explains that the position and the performance of the company is way better in the market.
Further, the study has been done on the risk and return of the company to evaluate the investment decision in the company. Through the analysis on the stock price and the risk of the company, it has been evaluated that the total systematic risk of the company is 0.99 which explains about the lower risk of the company and explains that stock of the company would not volatile much and the AORD stock would not drive it.
Further, the return of the stock of the company is 6.03% which explains about a good return from the company. Thus i would suggest my relative to invest into the stock of Uniliver as here, the risk of the stock of the company is lower and the return of the stock of the company is higher. Following table explains about the risk and return of the company and explains that the investment opportunity for the relative is quite good in the company:
|
Calculation of cost of equity (CAPM) |
|
|
RF |
6.08% (Reuters, 2018) |
|
RM |
6.00% (market risk premia, 2018) |
|
Beta |
0.99 (Yahoo Finance, 2018) |
|
Required rate of return |
6.03% |
References
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Baker, H.K. and Weigand, R., 2015. 777777. Managerial Finance, 41(2), pp.126-144.
Barman, G.P., 2008. An evaluation of how dividend policies impact on the share value of selected companies. McGraw-Hill.
Bodie, Z., 2013. Investments. McGraw-Hill.
Bradford, W., Chen, C. and Zhu, S., 2013. Cash dividend policy, corporate pyramids, and ownership structure: Evidence from China. International Review of Economics & Finance, 27, pp.445-464.
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Breuer, W., Rieger, M.O. and Soypak, K.C., 2014. The behavioral foundations of corporate dividend policy a cross-country analysis. Journal of Banking & Finance, 42, pp.247-265.
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Home. 2018. Unilever plc. Viewed 7 Fe 2018, https://www.unilever.com/
Kinsky, R. 2011. Charting Made Simple: A Beginner’s Guide to Technical Analysis. John Wiley & Sons.
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Kurth, S. 2013. Critical Review about Implications of the Efficient Market Hypothesis. GRIN Verlag.
Madura, J. 2014. Financial Markets and Institutions. Cengage Learning.
Market risk Premia. 2018. IMRP. Viewed 7 Feb 2018, https://www.market-risk-premia.com/gb.html
Morningstar. 2018. Pepsico Plc. Viewed 7 Feb 2018, https://financials.morningstar.com/income-statement/is.html?t=PEP
Morningstar. 2018. Proctor and Gamble Plc. Viewed 7 Feb 2018, https://financials.morningstar.com/ratios/r.html?t=PG
Morningstar. 2018. Unilever Plc. Viewed 7 Feb 2018, https://financials.morningstar.com/cash-flow/cf.html?t=UL®ion=usa&culture=en-US
Palicka, V.J. 2011. Fusion Analysis: Merging Fundamental and Technical Analysis for Risk-Adjusted Excess Returns. McGraw Hill Professional.
Phillips, P.P. and Stawarski, C.A. 2016. Data Collection: Planning for and Collecting All Types of Data. John Wiley & Sons.
Reuters. 2018. Unilever Plc. Viewed 7 Feb 2018, https://www.reuters.com/finance/stocks/overview/ULVR.L
Schlichting, T. 2013. Fundamental Analysis, Behavioral Finance and Technical Analysis on the Stock Market. GRIN Verlag.
Yahoo Finance. 2018. Unilever Plc. Viewed 7 Feb 2018, https://au.finance.yahoo.com/quote/UN/history?p=UN
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