Evaluation of Unilever: Financial Statement Analysis and Ratios

This report evaluates the financial performance of Unilever through the analysis of its annual reports and various ratios. It discusses the company's business model, segment information, financial statement analysis, Gartner Data Analytics maturity model stages, and more. The report provides insights into the profitability, liquidity, efficiency, and capital structure of Unilever. It also highlights the company's integrated reporting practices and offers solutions to the identified problems.

Business Research &
Analysis

EXECUTIVE SUMMARY
The project summaries the evaluation of Unilever company by analysing annual report of
last two years. Different kind of ratios such as liquidity, profitability, capital structure, efficiency
and investors KPI ratios are discussed that determine the overall productivity of company within
these years. Four levels of garner's analytics sophistication will demonstrate the relationship
between interest and output complexities. An integrated business activity with Unilever
background is addressed to evaluate important corporate business capitals. The report also
summaries the proper finding and solution to problem faced by respective company.

Contents
EXECUTIVE SUMMARY.............................................................................................................2
INTRODUCTION...........................................................................................................................4
Overview of company............................................................................................................4
TASK...............................................................................................................................................4
A) Business model and segment information.........................................................................4
B) Financial statement analysis with different ratios.............................................................5
C) Gartner Data Analytics maturity model stages to interpret ratios.....................................8
D. Main limitation of financial statement analysis...............................................................11
E) Company integrated reporting practices..........................................................................11
CONCLUSION..............................................................................................................................13
REEFRENCES..............................................................................................................................14

INTRODUCTION
Business analysis is indeed a research method in which market requirements are
established and business issues solved (Anwar and Hasnu, 2016). Alternatives often have a
technology aspect in operating applications, but can also comprise in process management,
systemic reform or planning and management as well as policy development. To understand the
importance of business analysis Unilever have been selected.
In this report, company business model, financial statement analysis, Gartner Data
Analytics maturity model stages is discussed. In addition, company's Integrated reporting
practices is also elaborated in this report.
Overview of company.
Unilever is really a multinational consumer products and its headquartered is in London,
UK and Rotterdam, Netherlands. The company products involve food and drinks, goods for
cooking and items for home care. Unilever Products includes variety of Tea, Farm Gem, Wall
Icecream, Surf Cleaning Cream, Ponds Jelly, Vaseline, Rexona, Lux, Dove, and Soap,
Toothpaste, Sunsilk Conditioner etc. This is an older company and capable of controlling the
market; and is consider to be the second biggest on the FTSE 100 London stock exchange
(Unilever Annual Report and Accounts, 2019-20).
TASK
A) Business model and segment information
Unilever introduced several improvements to the rewards system by eliminating the
admission charge and termination charge for the employees or sales staff to make their work
smoother. Company is at the top and responsible for implementation of the
direct selling business model (Unilever Financial Report and Reports 2019-20). Moreover, the
work must proceed contrary to all regulations which deliver higher results. Unilever's business
model is described below:
Customer segments Value Propositions Channels Customer
Relationships
 Wide marketplace
 Differentiated
product range
 USLP key to
business plan to
offer a wide variety
 Mass media
 POS
 Social and
digital software.
 Brand
awareness
 Quality
assurance

of initiatives in a
sustainable manner.
 Make standard and
healthy living
condition
 Understanding
consumers' unique
needs
 Customer
satisfaction
 Campaigns and
Promotions
Revenue Streams Key Activities Key Resources Cost structure
Sales
Fruits and vegetables,
drinks, hygiene products
and nursing care goods
Marketing, advertising,
promotion, production,
processing, storage, sales,
R&D.
Unilever goods
are purchased by
2.5 billion
individuals;
Unilever employs
169,000
individuals; 46%
of the company's
executives are
female and 57%
of the operations
are in developing
markets.
Advertising,
production,
delivery,
branding,
labelling,
rewards,
advertisement,
taxes and
installations.
B) Financial statement analysis with different ratios.
(i) Profitability ratios: Profitability ratios are a set of accounting measures used to measure
the capacity of a company to achieve profits attributable to losses generated over a given
time and other related costs (Bahl, 2015). This actually includes the GP ratio, Net Profit
ratio, operating margin etc. which define the profitability of company in respective year.
Some of these ratios are discussed in the context of Unilever:
Gross profit margin: = Gross profit / net sales
2019 = €22,878 M / €51,980 M = 44%
2018 = €22,279 M / €50,982 M= 43%

Net profit margin= net profit / net sales
2019 = €6,026 M / €51,980 M = 11.59%
2018 = €9,788 M / €50,982 M = 19.20%
Operating profit margin: = Operating profit / net sales
2019 = €8.708 M / €51,980 M=16.75%
2018 = €12,639 M / €50,982 M = 24.79%
(ii) Liquidity ratios: Liquidity is the amount of cash that can be easily obtained for both business
and profit. It includes currency, treasury notes, checks and bonds, which is easy to sell to some
other provider. Capital is the amount available for trading or investment by individuals. It
includes highly liquid assets such as cash and credit. It also includes non-liquid assets such as
stocks, real estate, high-interest loans (Beugelsdijk, Maseland and Van Hoorn, 2015). The reason
is that large financial institutions that invest mostly do, prefer to use borrowed money. Some
liquidity ratios are calculated underneath for Unilever:
Current ratio: = current assets / current liabilities
2019 = €16,430 M / €20,978 M
= 0.78
2018 = €15,478 M / €20,150 M
= 0.76
Quick ratio: = (Current assets – Inventory) / Current liabilities
2019 = (€16,430 - €4,164) M / €20,978 M
= 0.58
2018 = (€15,478 - €4,301) M / €20,150 M
= 0.55
(iii) Efficiency ratio: Is widely used to assess how effectively an organization efficiently
manages its assets and liabilities. An efficiency ratio will measure receivables turnover, debt
redemption, equity volume and utilization including stock and equipment. Is widely used to
assess how effectively Unilever efficiently manages its assets and liabilities. An efficiency ratio
will measure receivables turnover, debt redemption, equity volume and utilization including
stock and equipment.
Inventory turnover ratio: = Cost of sales / average inventory
(Average inventory = Opening inventory + closing inventory / 2)

2019 = €29,102 M / €4,232 M
= 6.87
2018 = €28,703 M / €4,131 M
= 6.94
Total assets turnover =Revenue / average total assets
2019 = €51,980 M / €64,806 M
= 0.80
2018 = €50,982 M / €61,111 M
= 0.83
Return on investment = Net profit before tax / net worth
2019 = €8,289 M / €13,886 M
= 60%
2018 = €12,360 M / €12,117 M
= 107%
(iv) Capital structure ratios: The calculation of the percentage of the origins of different
capital income to an enterprise's overall long-term resources is termed capital structure. A
combination of such shares and debentures provided by a business company is then considered
the optimum capital structure, because it implies a low value of the company as well as the
valuation of the stock can be retained to a limit (Chen, Cheung and Tan, 2018). In the context of
Unilever the respective capital structure ratio is calculated below:
Debt equity ratio: = Debt / equity
2019 = €23,566 M / €6,162 M
= 3.82
2018 = €23,125 M / €8,210 M
= 2.81
(v) Investors KPI: Many investors select stocks centred on value of ratios like ratio PE or
ratio PB. This approach is called Investing in money. There are also several stakeholders that are
playing stakes on the stocks of these companies where they see good opportunities for success.
That strategy is named investment based on production. Such investor-led practices are focused
on review of primary Investor success metrics related to the company's annual reports (Fink,
Yogev and Even, 2017).

Return on equity: = Net Income / Average equity
2019 = €6,569 M / €13,886 M
= 47%
2018 = €8,617 M / €12,117 M
= 71%
Dividend cover: = Net Income / Dividend
2019 = €6,569 M / €4,223 M
= 1.55
2018 = €8,617 M / €4,081 M
= 2.11
C) Gartner Data Analytics maturity model stages to interpret ratios.
The Gartner describes BI systems as offering 12 features for business applications,
grouped into three specific categories: knowledge delivery; unity; analysis. Computer technology
is a study field and is very complex. As part of that, company use the intelligence system (TO)
always evolve extremely gradually. The model has been discussed with the calculation of
different ratios for Unilever in 2019-20.
Diagnostic stage
1. Change in profitability and return ratios:
GP margin: While evaluating the gross profit ratio in each of these years; it has been
observed that the overall performance of the business is improved by 1% as Unilever has
regulated the cost of products sold despite an improvement in net income in both years. The
GP margin of Unilever climbed from 2018 to 2019. Therefore no diagnosis is needed (King and
Brooks, 2016).
NP margin: Unilever has seen increases in gross revenue; but from 2018 its net profit
margin is declining by 8 per cent; this suggests the company's weak results. From 2018 to 2019,
Unilever's net profit margin decreased; the cause for this is higher revenue and operating costs
over the year which need to be assessed by the management.
OP margin: Like the net income margin, the operating profit also decreased by 8%
between 2018 and 2019, indicating weak financial results. This proportion has also decreased
since 2018; with almost the same explanation for higher manufacturing and administrative costs
and dissociative criteria.

2. Liquidity ratios:
Current ratio: The current ratio of Unilever is even smaller than the optimal level of 2:1;
this indicates a high probability of liquidation in situations where business is faced with
recession and becomes impossible to sell on the marketplace. Unilever saw no change in 2019;
as the new ratio is up 0.02.
Quick ratio: The ideal quick ratio is 1:1; Unilever have about quarter of this perfect ratio
in both years, as well as being close to the possibility of liquidation.
Both current and quick ratios rates are very far from the optimal ratio of 2:1 and 1:1; thus
Unilever needs policies to either decrease liabilities or boost current assets to manage these gaps.
3. Efficiency ratio
Inventory turnover ratio: After evaluating the inventory ratio of both years; it has been
observed that the capacity of Unilever to translate to sales has dropped with a small gap in 2019.
Business has productivity in turning the median stock to revenue approx. 6 times each year.
Total assets turnover Review: The total turnover percentage of assets was dropped 0.03
pts from 2018. That demonstrates market inefficiency of the company in turning its assets
within cash or credit sales. However the company seems to have a capacity of 80 per cent to turn
capital assets into sales; this is still beyond ideal proportion (Kostova and Hult, 2016).
Return on investment: Unilever reported much better results in 2018; because it’s return
on investment reached higher than 100% in 2019; business decreased by 40 % suddenly; which
suggests the firm's high incompetence in generating reasonable returns on its net value.
The results of Unilever’s actual year on the framework of a productivity level are not
decent; owing to a decline in net income from 2018 to 2019. Enhancing net income will help to
assess productivity and performance ratios.
4. Capital structure ratios:
Debt equity ratio: There is no perfect formula to hold business for debt equity value.
However, more than 2 suggests a significant risk of being unprofitable if the company struggles
to sustain daily sales or failure incidence throughout the year. Interest is the daily benefit costs
which must be charged by the company thus it faces losses. The debt-equity ratio is not optimal.
The increasing of funds with even more debt further decreases the total average capital expense,
owing gain of taxes. The debt-equity ratio of Unilever has been raised by 1 % from 2018 to

2019. This suggests greater vulnerability to being unprofitable if the company struggles to
produce daily sales.
5. Investors KPI
Return on equity: The overall return on equity results of Unilever shows 47 % dividend
yield of investors but, since contrasting it with the past year, this was observed that the financial
results of the firm has declined and may have an effect on stakeholders to reconsider investment
in shares of Unilever.
Dividend Cover: The optimal proportion is 2 times; Unilever's profit cover ratio was 2 times
its profits in 2018 but decreased to 1.55 times in 2019, suggesting bad results by Unilever. This
ratio is often correlated with Unilever's revenue efficiency, and can therefore be sustained by
concentrating on increasing net earnings.
Predictive Stage
Depending on the above ratio analysis; Unilever has indeed been considered to have
strong potential growth; as its operating volume has been improved by 20 % compared to the
prior year. This is really a high option for the company (Montibeller and Von Winterfeldt, 2015).
Government spending in large retail shops and decent facilities for producers as well as other
low-level suppliers would help companies procure lower quality manufactured goods. The
sustainable climate initiative of Unilever may also aid a lot in growing the company's reputation
and racial principalities. This is because after technological innovation of every commodity
digitally there is tremendous growth potential for the FMCG market. The business aims to
introduce multi-level campaigns for further product profitability.
Prescriptive Stage
Depending on detailed and predictive assessment; this can be inferred that Unilever needs
significant strategic measures to maximize its market revenues and, in particular, to reduce total
operational costs; revenues and administration to boost the profitability in the coming year. Firm
still wanted to raise revenue from its revenues but never at the risk of further operating costs.
Depending on detailed and predictive assessment; this can be inferred that Unilever needs
significant strategic measures to maximize its market revenues and, in particular, to reduce total
operational costs; revenues and administration to boost the profitability in the coming year. Firm
still wanted to raise revenue from its revenues but never at the risk of further operating costs
(Sunderland and Denny, 2016).

D. Main limitation of financial statement analysis
The concept 'financial analysis' is known as evaluation and understanding of financial
statements. This is further related with the method of evaluating the financial strength and
limitations of a company by creating a structural relation among the balance sheet, profit and loss
account as well as other operations. Several of the drawbacks of the review of the financial
statements are listed below:
1. This is simply an annual report review which does not consider external factors impacting
the performance of company
2. Financial reporting is based on quantitative details only, whereas non-monetary
considerations are overlooked.
3. The analysis does not really accept price level shifts which creates problem in fixing the
suitable prices of goods and services for the next year.
4. Although the financial statements are being updated on a continuing basis of interest, the
appropriate description is not issued. Accounting principles and inferences thus contribute to
extreme restrictions on financial performance.
5. Adjustments in a company's accounting process will also lead to deceptive financial results.
6. Assessment is just a method, and is not the last stage for company evaluation. The observer
must clarify his specific conclusions and interpret those observations (Strang, 2015).
E) Company integrated reporting practices.
Integrated reporting is an effective resource for enhancing awareness of the interaction
among financial and non-financial variables that influence the success of a business and how a
business can generate sustained value in the longer term. Thus, Investment Management
vigorously supports the implementation of consolidated reporting by mentioned companies.
Integrated accounting may be an activity which aims to talk a corporation's purpose through a
comprehensive picture integrating both financial and non-financial details. This method is in its
early stages, with some organizations uncertain how a full comprehensive report can be prepared
(Montibeller and Von Winterfeldt, 2015).
Unilever requires built-in database system that helps in making useful results for growth in
respective time frame. Company seems to have a range of product categories including; personal
care, cosmetics and fitness products. For such goods; organization retains combined statement of
profit and cash flows to display the effect on profit margin of various product categories.

Unilever also tracks the performance of each different product in net sales to learn which item is
doing well and also determine the category which needs further investment for improvement and
give better results. Through listing both financial and non-financial detail in the
annual document, Unilever conducts consolidated reporting framework. This also shows
potential plans and approaches for businesses to deliver the company by providing a cohesive
image that incorporates all of these details. It discusses various stakeholders’ interests through a
pie map and also introduces the commission hierarchy of directors, CEOs and other managers
and board of directors (Sunderland and Denny, 2016).
Importance of integrating reporting
 This must be ensured that the principle of the environment and social benefits are being
acknowledged in a better manner by the stakeholder of the company especially overall
customer base of Unilever. It simply means to make sure that the common pubic are at
the gain as an awareness of sustainable development.
 The integrated accounting system must be must be transfer within into the method that
will automatically consider the social, environmental and legal governance with Unilever.
 This reporting must be transfer through a large range of organisation such as small and
medium firm or Start-ups instead of large or public limited companies.
 The connection among the monetary and non-monetary information published with the
annual reports should be developed in effective manner and these relation must be made
accountable to the standard of the entire industry.
 This strategy showed the significance of maintaining that financial resources had to be
used to create intangible assets, including those that did not show as changes in the
balance sheet and affected short-term financial profits; nevertheless, failure to allow such
contributions to "non-financial property" would eventually affect the ability to produce
income and become crucial at some point.
 So the aim of integrated sustainability is to build an understanding of doing Unilever
business in accordance with global development values. It aims to ensure that respective
firm aim to generate long-term value for stakeholders and consider the needs of the
environment in which they work rather than their own needs (Strang, 2015).
Unilever group operates in fast moving customer goods (FMCG) all over the world.
Company has basically three segments; Personal and beauty care, foods and beverages; and

home care. Unilever home care segment has shown growth of 10.7% in its revenue; compared
with year 2018. In the other side; sales from the personal care sector experienced growth of 7.3
per cent and sales growth of 10.1 per cent from food and drinks. After an overall review of
product category data; this can be inferred that Home care goods have seen highest sales; fabric
solutions, home care items, including sanitary products underneath the brands Omo, Persil,
Domestos, Seventh Generation etc.
CONCLUSION
In the end of report, it has been concluded that calculation of various ratios are beneficial
in determining the overall profitability of business during an accounting year. Financial
assessment is a powerful tool for assessing a company's financial strengths and limitations. But,
the review is focused on the Financial Statements details. Consequently, financial reporting
suffers from serious weaknesses found in financial statements.

REEFRENCES
Books and Journals
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and challenges.
Fink, L., Yogev, N. and Even, A., 2017. Business intelligence and organizational learning: An
empirical investigation of value creation processes. Information & Management, 54(1),
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King, N. and Brooks, J. M., 2016. Template analysis for business and management students.
Sage.
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Strang, K. ed., 2015. The Palgrave handbook of research design in business and management.
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Sunderland, P. L. and Denny, R. M., 2016. Doing anthropology in consumer research.
Routledge.
Online
Unilever Annual Report and Accounts. 2019-20. [Online] Available through:
<https://www.unilever.com/Images/unilever-annual-report-and-accounts-2019_tcm244-
547893_en.pdf>.