Strategic and Financial Analysis of Unilever Company

This report provides a strategic and financial analysis of Unilever company, including profitability, liquidity, efficiency, and investor performance ratios. It also includes a strategic analysis based on SWOT analysis and provides advice for potential investors.

ACCOUNTANCY AND
FINANCE

Table of Contents
INTRODUCTION...........................................................................................................................3
MAIN BODY...................................................................................................................................3
a) Unilever Company..................................................................................................................3
b). Ratios of Unilever Group.......................................................................................................4
c). Interpretation of Financial Ratio Analysis...........................................................................11
d) Strategic Analysis of Unilever Company.............................................................................13
e) Reasons to invest in Unilever................................................................................................16
CONCLUSION..............................................................................................................................18
REFERENCES..............................................................................................................................20
Appendix........................................................................................................................................21

INTRODUCTION
This report shall highlight the strategic and financial analysis of Unilever company, a
multinational consumer goods company which is headquartered in London. It shall be describing
brief details about the Unilever and the industry in which it operates. It shall be demonstrating
the financial and performance ratios of the company based on the data of two consecutive year's
financial statements of Unilever company. Financial analysis of the performance and position of
the company shall be done on the basis of the calculations of profitability, liquidity, gearing,
efficiency and investor performance ratios. Apart from this the other part of the project shall be
including the strategic analysis of the company which shall be based on the management model
of SWOT analysis. Such analysis shall be reflecting the strengths, weaknesses, opportunities and
threats as posed by the external environment of the business. Lastly advice shall be given to the
rationale investors regarding whether they should invest in the Unilever company or not by
giving appropriate reasons for the choice.
MAIN BODY
a) Unilever Company
It is a British multinational fast moving consumer goods company which is headquartered in
London, England. It operates in the FMCG industry and provides a range of goods from food and
refreshment, beauty and personal care and home care products. The company was founded in
1929 and the current CEO of the company is Alan Jope. It is operating globally in about 190
countries with unique and innovated products, and they believe that the purpose should not be
kept ahead of profits but the purpose should be one that drives the profits. They want their brand
to perform well for the consumers so that they stay satisfied and get a feel good and look good
experience (Grant, 2016).
It is the resulting company after the merger of a Dutch company Margarine and the British soap
maker Lever Brothers. It has been the second highest company in terms of packed consumer
goods and third highest food company.
The Unilever company has also strongly focused on generating a positive social impact by
fulfilling their corporate social responsibility. For doing this they have launched programs of
sustainable living wherein they concentrate on long term growth prospects of the company by

presently reducing the environmental footprint (Hall, and et.al. 2016). They are constantly trying
to improve the health conditions of their customers and by this they are upgrading the standards
of living and providing better livelihood.
It is operating with more than 400 brands of Unilever and some of the famous ones generating
the highest revenues for the company are Lipton, Knorr, Dove, Hellman's, Rexona etc. It has
conquered a huge market share with the help of these famous brands of beauty and skincare and
food.
Its major competitors operating in the FMCG industry are Procter and Gamble, Johnson &
Johnson, Kimberley Clark, Nestle etc. There is a cut-throat competition in all these companies
and so proper financial and strategic analysis is required to survive the competition.
b). Ratios of Unilever Group
Profitability ratios
Profitability ratios are used to assess the business ability to generate earnings relative to
its revenue, operating cost, balance sheet, over a specific period (Unilever Annual report and
accounts, 2019). It shows how well a company utilizes its assets to create profits. There are
various profitability ratios which helps analyst to determine its probability level of Unilever
group (Kadim, Sunardi and Husain, 2020 ).
Particulars Formula 2018 2019
Operating Profit 12369 8708
Sales 50982 51980
Operating Profit
Ratio
Operating profit
/sales×100
24.26 16.75

Particulars Formula 2018 2019
Net income 9788 6026
Sales 50982 51980
Net Profit Ratio Net income/ sales
*100
19.2 11.59
Liquidity Ratios
Operating Profit Ratio
0
5
10
15
20
25
30
24.26
16.75
2018
2019
Net Profit Ratio
0
5
10
15
20
25
19.2
11.59 2018
2019

liquidity ratio is used to determine debtors current ability to pay debt obligation without
raising any outside external liability. It is essential accounting tool used to find current debt
repaying ability of borrowers. It helps company's analyst and other investors to find its ability of
paying debt of company (Linares-Mustarós, Coenders, and Vives-Mestres, 2018).
Particulars Formula 2018 2019
Current Assets 15478 16430
Current Liability 20150 20978
Current ratio Current Assets /Current
Liability
0.77 0.78

Particulars Formula 2018 2019
Liquid Assets 11177 12266
Current Liability 20150 20978
Quick ratio Liquid Assets / current
liability 0.555 0.59
Current ratio
0.764
0.766
0.768
0.77
0.772
0.774
0.776
0.778
0.78
0.782
0.77
0.78
2018
2019

Efficiency Ratios
This ratios are used by company to measure the performance of short term or current
performance (Myšková and Hájek, 2017). It also uses to analyse company's ability to use its
assets and manage its liability effectively in current time.
Particulars Formula 2018 2019
Revenue 50982 51980
total Assets 61111 64806
Assets Turnover Revenue / total Assets 0.83 0.8

Particulars Formula 2018 2019
Revenue 50982 51980
Fixed Assets 16140 17347
Fixed Assets
Turnover
Revenue / Fixed
Assets
3.15 2.99
Assets Turnover
0.785
0.79
0.795
0.8
0.805
0.81
0.815
0.82
0.825
0.83
0.835
0.83
0.8
2018
2019

Gearing Ratios
These ratios compare the owner's equity to debt or funds borrowed by the company.
Gearing means its the measurement of entity's financial leverage. It shows the financial activities
of business funded by shareholder's fund creditors fund (Restianti, and Agustina, 2018).
Particulars Formula 2018 2019
Total debt 48994 50920
Total equity 12117 13886
Gearing Ratios Total debt/ total
equity*100
40.40% 36.60%
Fixed Assets Turnover
2.9
2.95
3
3.05
3.1
3.15
3.2
3.15
2.99
2018
2019

Gearing Ratios
0.34
0.35
0.36
0.37
0.38
0.39
0.4
0.41 40.40%
36.60%
2018
2019

Particulars Formula 2018 2019
EBITDA 12360 8289
Interest expenses 419 401
Interest Coverage
Ratio
EBITDA/ Interest
expenses
29.49 20.67
Investment Ratio
Investment ratios are used in order to evaluate the company's ability to generate the return
for their investment. It determines company's efficiency in return on investment. It shows how
investment will be profitable.
Particulars Formula 2018 2019
Net income 9788 6026
shareholders equity 12117 13886
Return on equity Net income /
shareholders equity
80.77 43.39
Interest Coverage Ratio
0
5
10
15
20
25
30
35
29.49
20.67
2018
2019

*100
c). Interpretation of Financial Ratio Analysis
Profitability ratios of Unilever company
Finding company's profitability ratios more competitive in industry is a positive sign.
Operating profit reflects profitability of Unilever company that company has produces from its
operation of business activities. Operating profit ratio of 2018 of company is 24.26 which is
showing good growth of company as the ideal operating ratio can be above 10% and in the 2019
year the ratio has fallen from 24.26 to 16.75 which is representing adverse effect of increased
cost because of that factor the company's operating profit has been reduced and there are many
other factors also available that can affect the operating profit margin of Unilever group. The
company should analyse its financial statements and should take major actions for improving the
same (Hosaka, 2019).
Net profit ratio of any company represents the profit after all production cost,
administration, and financing expenses that are deducted from sales. The ideal net profit ratio can
be considered as 10% average and 20% as a good profitability sign. The ideal net profit margin
can differ from company to company. As it helps the investor to find out the ability of company
in earning profit from its company's sales. In 2018 the net profit ratio was 19.2% and in the year
2019 it became 11.59% so it can be interpreted that net profit has decreased for 8%
Return on equity
0
10
20
30
40
50
60
70
80
90
80.77
43.39 2018
2019

approximately it might be due to lack of sales of products of Unilever company. The company
should take required steps to increase sale of the organisation.
Interpretation of Liquidity Ratio
Liquidity ratios are determined to measure company's ability to pay short term obligation
and cash flow (Nuriatullah, 2020). A good liquidity ratios are always greater than 1 which
indicates good financial health of company and anything less than 1 represents that firm is likely
to financial hardship. It is used by investors, creditor's and analyst to see the company capacity
to handle current debts. Current ratio determines the relation between current assets and current
liability of Unilever company, the ratio in 2018 was 0.77 which less than good current ratio
which lies between 1.5-2 ad in 2019 it was 0.78 which more than 2018 but still less than the ideal
ratio. Company can increase the ratio by reducing unnecessary expenses and investing in
currents assets
Quick Ratio is more conservative than current ratio. Higher the ratio better the company's
financial health and lower the ratio more likely the company will struggle with paying debt.
Quick assets refers to those assets that can be converted into cash within 90 days. In 2018 the
ratio was 0.55 which is less than 1 and in 2019 the ratio was 0.59 which has increased from 2018
but still require changes in its strategies to deal with assets.
Efficiency Ratios
Efficiency ratios are those ratios that are used by financial analyst to measure its
company its efficiency in using its current assets and current liability. The Unilever company
uses various ratios to measure performance of company. It uses efficiency ratios to measure its
efficiency of using resources of organization , it includes ratios like assets turnover ratio and
fixed asset turnover ratio, the total assets turnover ratio measures how well a company is using
its assets to produce sales (Khoja, Chipulu and Jayasekera, 2019). The ideal ratio is 0.25-0.5, In
2018 the ratio was 0.83 which more than ideal ratio that is indicating that uni liver group is using
its assets efficiently and in 2019 it has decreased from 0.83-0.8, but it is good according to ideal
ratio. it can improve its efficiency of assets turnover ratio by focusing on more training and
development of skilled employees so that the assets can be used properly to produce more and
more revenue from sales.
Fixed assets turnover ratio helps company to measure efficiency of its fixed assets that
how much its FA are contributing to sales revenue. There is no ideal benchmark that can be set

for fixed assets of any industry. In 2018 the ratio 3.15 and in 2019 it decreased from 3.15 to 2.99,
which has fallen less than half percent. And does not affect company to great extent.
Gearing Ratio
Gearing ratio indicates financial risk associated with company. The company can fall into
financial distress if it has too much of debt. A high gearing ratio shows high proportion of debt to
equity and low gearing shows the opposite. A gearing ratio is less than 25% is considered as low
risky by creditor's and lenders and if its high than 50% it is highly geared. In 2018 the ratio was
40.4% and in 2019 the ratio was 36.6% which is decreasing as compared to previous year. And
indicating the less 50% but showing well-established company in industry.
Interest coverage ratio is used by company to determine how easily the Unilever
company can pay interest on outstanding debt. The lower the ratio the more the company is
under pressured and its debt paying ability can be questioned when its less than 1.5, in the year
2018 the ratio was 29.49 and in the year 2019 it became 20.67 which has fallen as compared to
2018 but still its a good ratio as compared to ideal ratio. Creditors can use this ratio to define that
it will be suitable for them to lend money to firm on the basis of interest coverage ratio.
Investment Ratio Interpretation
This ratio indicates that how much investors are willing to pay in comparison of return of
that investment. The higher the ratio, investors are more willing to spend and vice versa. In the
2018 the ratio was 80.77 and in the year 2019 it was 43.39 which has decreased as compared to
previous year. So according to previous year the ratio has been fallen and investors interest in
investing in Unilever company can be decreased. The company can take needed actions to
improve the return on equity ratio it will only help the company to improve its goodwill as well
as funds and organisation can done this by reducing the cost and increasing profit (Kristanti and
Herwany, 2017).
d) Strategic Analysis of Unilever Company
The strategic analysis of Unilever involves studying the business environment within which it
carries out the operations. It includes both the internal and the external environment within
which it is functioning, and they are required to be analysed to facilitate the strategic planning
and decision-making for the smooth conduct of the business. Strategic planning proves to be
very essential in the fulfilment of the goals and objectives of the company (Jurietti, Mandelli and
Fudurić, 2017).

SWOT Analysis:- The internal strategic analysis of Unilever is done by taking the management
model of SWOT analysis which shall elaborate the strengths, weaknesses, opportunities and the
threats that are posed on the company. Based on these the performance of the company can be
analysed and further what plans are required to be formed to meet the goals of the company.
Strengths- Strengths of the company represents the internal strategic factors showing the various
resources and its optimal utilization by the company. Some strengths are namely:
 Unilever has a broad product mix with diversified portfolio of brands unique and
innovative from one another. These can be used to cater to the changing needs and
preferences of the consumer.
 It has global footprint by carrying out the operations in 190 countries of the world and
strong awareness of its brand which helps it generate better revenues.
 Over the years' goodwill of Unilever has been developed, and they are able to position
their products in the minds of the people such that it becomes their first preference
(Morden, 2016).
 Research and development is also one of its major strengths where huge funds are
invested in researching which helps them develop the most innovative products in line
with the changing trends and consumer preferences.
 Unilever takes the benefit by leveraging the economies of scale by the breadth of its
productions. It also enjoys synergies in various manufacturing facilities.
 Flexible pricing of its products is also a strength of Unilever which has helped it gain a
distinct competitive advantage over the closest competitor Procter and Gamble.
 Optimal channels of distribution that are spread across borders also helps it cover each
nook and corner of the globe.
 By fulfilling the required corporate social responsibilities and ethical conduct of the
business, Unilever has been successful in creating a positive social image.
 It creates a perfect mix of both the local and the global strategies such that while forming
the strategies to serve the global people the products have local taste and culture.
 Efficient use of the promotional tools have also helped it generate brand awareness
amongst the target audience of the company.
 One of the positives for the company is the efficient workforce that it has which leads to
building operational efficiency in the business.

Weaknesses:- Weakness of any company represents the factors that limits the growth and
profitability of that company. Despite having a large market share Unilever has certain barriers
to its organizational success. Some of such weaknesses are highlighted below:
 The most prominent weakness of Unilever company is that its products are of imitable
nature and can be easily copied by the existing competitors and the new entrants in the
market.
 Despite having a broad product mix the company faces weakness because of limited
business diversification. Apart from the consumer goods Unilever has limited diversity in
the product range that is offered (Murphy and Murphy, 2018).
 One of the shortcomings that the company suffers is the high dependency on the retail
channels used by them. Maintaining good public relations, resolving consumer problems
and good customer services are all in the hands of the retailers.
 Another weak point of Unilever is that it operates in highly competitive market where it
has to continuously battle to retain the market share. The competitors are also equally
putting efforts to acquire the stake of the company.
 The availability of the substitutes in the market with low switching cost is also a barrier
to company's growth prospects.
Opportunities:- Opportunities are the external strategic factors that are there in the external
environment which provides the scope for development and growth of the company. The
opportunities must be captured and capitalized before the competitors to generate the competitive
advantage for the business. Some major opportunities available are:
 Since Unilever has a strong presence only in the fast moving consumer goods so it has an
opportunity to widen its product range and diversify the portfolio to other products also
and create business resilience (Nwagwu, 2020).
 Another opportunity for the business is the innovation of products in the health care
sector. This sector is on the boom because of increased consciousness regarding health in
the customers.
 The business and its customers can also increase by focusing more on the environmental
conservation. As the company is more into CSR works they are more feasible of
capturing this opportunity.

 The era of globalization and Westernization has also consequently increased the target
audience of Unilever. With the change in the preferences of customers inspiring towards
western lifestyle the market share of the company is boosting.
 The highly populated markets of China and India are also advantageous for Unilever to
maximize their profitability.
 Digital marketing campaigns is another opportunity that the company can capitalize to
better promote the products among the potential customers of the company.
 The increasing standards of living of the population and the higher concern they show
towards beauty and skin care can also be an opportunity for Unilever company.
Threats:- Threats are the factors acting in the external environment which reduces the
performance and efficiency of the company. Some of them are:
 The biggest threat that is posed to Unilever is the competitive rivalry from all the
consumer good giants. To retain its market share it has to fight tough competition from
close brands like Procter and Gamble, Nestle etc.
 The increasing number of house brands and privately labelled brands are also posing risk
to the business of Unilever. The company is most affected by this because of its high
dependency of the retail channels to sell its products (Scrinis, 2016).
 The economic crisis that is going on due to covid -19 has also impacted the business a lot
since the disposable income of the consumers have decreased and simultaneously the
sales of the company.
 The products are imitable by the local markets and also the growing markets of Ayurveda
products also challenges the company.
e) Reasons to invest in Unilever
Financial Reasons:
From the above interpretation of financial ratios of Unilever company tit can be evaluated
that the company is growing rapidly but still it need to be improved in various specific areas so
that the company can grow more and increase its sales of the company by taking major actions
and modifying its strategies for achieving targets of the Unilever group (Hunter and et.al., 2020).
Profitability ratios shows that company's profit in 2018 was on peak but in 2019 it has
decreased from previous position the profits of company can be improved by lowering down
production and other expenses of company. The financial management of organization need to

focus on budgeting planning of Unilever company so that proper allocation of funds for expenses
can be evaluated to improve its profits. As profit is end result which decides the growth of
company in market. It also can be evaluated from interpretation that investors can invest in
company to gain profit as company have good market share.
Liquidity Ratios helps the company to not only evaluate its ability to convert its liquid
assets in cash but also decides its ability of managing its liquidate assets effectively. Its suggests
that the company need to keep enough cash and bank balance so that it can meet its short term
daily basis requirement without any struggle.
Efficiency of managing resources also need to be modified as compared to the
interpretation of statements (Salah, 2020). Making innovative ideas that can be useful for
Unilever company should be made by management teams so that Unilever company can grow, as
its efficiency ratio is good but still it has decreased from previous year so firm should spend
more time in detecting fraudulent activities of firm, cash flow and credit risk etc. for expansion
and for growth of existing branch. As the Unilever is multinational company it needs to make
plans for growth so that it can expand its growth more and more with changing business
circumstances. Any company like Unilever can use financial ratios and statements to check that
the company is going in right direction or not, it is taking enough time and resources to reach
that position so that the firm will be able to calculate the right structure and growth. Investors
check all these ratios and then analyse and take decisions for investment, through this analysis it
can be assumed that investors will invest in Unilever multinational company.
Strategic Reasons:
Based on the strategic analysis on the basis of SWOT of Unilever it can be inferred that the
company has better chances of profitability and future growth prospects. Using its major
strengths to capitalize the opportunities available in the external environment it can strengthen its
position and performance. A rationale investor shall be investing in a business which is growth
oriented and profitable in the future. There are certain reasons based on which Unilever can be
judged as a profitable venture.
 A good research and development team of Unilever can always be used to innovate the
products as per the demands of the customers. Also, while diversifying their product line
research would prove to be essential to excel in the new market.

 With the evolution of globalization and western culture the market of the company's
products can expand which clearly shows the possibilities of its growth.
 The positive social image of the company due to its high involvement in environmental
protection and meeting its corporate social responsibility is also helping the company in
building brand trustworthiness. Corresponding impact of all this is that it is boosting the
revenues and market share of the company.
 Unilever has already got an established brand and with it moving on to digital marketing
campaigns would further increase the brand awareness of the products. Social media
marketing shall pose loads of influence over the young customers thereby rising its
market.
 The increasing consciousness in the public regarding skin care, beauty, health, staying
clean etc. leads to better chances of growth for the company.
 It can become a choice of the rationale investor if it focuses on the main objective of
maximization of shareholders wealth and provide them with the desired results and
returns (Stewart and Niero, 2018).
 The history of the Unilever company shows that it has always been trend setter in the
industry and the major innovation has come from them only. This discloses that the
company is good at taking the first mover advantage in the consumer goods industry.
 One of the reason can be the untapped market segments that are available with the
company for expanding its business. There are certain niche markets also which the
company can capture and generate huge revenues.
So with the help of these reasons we can conclude that a rationale investor should invest in
Unilever company as it is seeming like a profitable business for the future and shall be capable
enough to provide the investors with the returns required.
CONCLUSION
From the present report it can be evaluated that Unilever company is British multinational
consumer goods company which operates in food and refreshments, home care, and beauty and
personal care. The reports also includes the various calculated ratios like profitability, liquidity,
efficiency, and investment ratios that shows company's financial position and also gives the
interpretation of those ratios with suggestions of improvements that company can take to

improve its drawback areas. Position of company in market is good as compared to its
competitors and have good liquidity with it, it perform good but require modification in
managing its current assets and liability and also require changing strategies to deal with its debt
paying. SWOT model has been used as to checks its strengths, weaknesses, opportunities and
threats. From the above analysis it can be seen that major strength of Unilever is that it has wide
market share so that the company can sell more and major weakness is that it has many
competitors that avail substitute in market. From the Report the financial and strategic analysis
of Unilever, it can be stated that investors will take interest in investing their fund into the
company for earning good profitability as it's a multinational company that has been in market
from long time and will be serve good competition in the industry in future as well.

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Online:
Unilever Annual report and accounts. 2019. [Online]. Available through:
<https://www.unilever.com/Images/unilever-annual-report-and-accounts-2019_tcm244-
547893_en.pdf>
Appendix