Financial Management and Analysis

FINANCIAL
MANAGEMENT AND
ANALYSIS

TABLE OF CONTENTS
INTRODUCTION...............................................................................................................................3
MAIN BODY.......................................................................................................................................3
Task 1................................................................................................................................................3
1) Critical analysis of Unilever’s financial performance and health based on past two years
performance and position..................................................................................................................3
Task 2................................................................................................................................................4
Task 3................................................................................................................................................6
Task 4................................................................................................................................................7
Task 5................................................................................................................................................9
CONCLUSION..................................................................................................................................11
REFERENCES..................................................................................................................................12

INTRODUCTION
Financial management can be defined as the strategic planning, organisation, direction
and controlling of the financial assets of the organization in order to operate with great level
of efficiency and ensure smooth functioning of the business. It can be defined also as the
application of general principles of management on the financial resources of the business
with the basic aim of maximising profits and minimising costs of the business (Brigham and
Houston, 2021). Financial management generally has three elements which includes
investment decision, financing decision and dividend decision. In this report, there will be
five different tasks where the first task includes the financial analysis of any company listed
on London stock exchange which will be taken here as Unilever. The second task will be
related to investment decision making and third one is related to valuing right issues. The
fourth task will be related to the valuation of the company in different circumstances and in
the fifth task various factors associated with the stock market will be discussed.
MAIN BODY
Task 1
1) Critical analysis of Unilever’s financial performance and health based on past two years
performance and position
The analysis here would be done based on the ratio’s calculation. The various ratios
indicating liquidity, profitability, efficiency, capital structure and stock market performance
will be calculated in order to analyse the company’s financial performance and health.
Unilever PLCULVR. 2021
Liquidity ratio of Unilever Plc
Ratios 2019 2020
Current ratio 0.78 0.79
Quick ratio 0.56 0.55
The ideal current and quick ratios are 2 and 1 respectively. Unilever has current ratio below 2
in past two years which indicates inadequacy of liquid assets in order to meet its short term
obligations and also its quick ratio is below 1 in both the years above indicating weak
liquidity position of Unilever.
Profitability ratios
Ratios 2019 2020
Operating margin 19% 19%
Net profit margin 10.82% 11%
Operating margin indicates that proportion of revenue which remains after paying for
operating expenses while net profit margin is the profit that remains after paying for non-
operating expenses. Here, Unilever has quite stable profitability ratios indicating its stability
of financial performance.
Efficiency ratio
Ratios 2019 2020
Inventory turnover ratio 6.88 6.65
Asset turnover ratio 0.84 0.77

Efficiency ratio indicates the efficiency of company in managing its and liabilities in the short
run to generate revenue for the business. The inventory turnover ratio indicates how
efficiently a concern can liquidate its inventory to generate revenue. So, Unilever has
experiences reduction in its efficiency in generating revenue which can be seen from its
reduced efficiency ratios.
Capital structure
Ratios 2019 2020
Debt to equity ratio 1.96 1.63
Debt to equity ratio indicates the proportion of debt capital and equity component in the total
capital of the company. Here, it can be interpreted from the above stated ratio that the
company is reducing its debt and moving towards equity financing which can be beneficial
for a business to reduce its financial costs and risks.
Stock market performance
Ratios 2019 2020
Price / earnings ratio 14.51 21.63
The increasing price / earning ratio indicates that due to growth potential in the company, the
investors are willing to pay more for buying company’s share. A higher ratio means higher
market price over the earning on each share.
2) Problems or limitations of ratio analysis
 The problem with the ratio analysis is that it does not indicate or guarantee any future
perspective about the concern as it is built on historic data (Brigham and Houston,
2021).
 The external environmental factors are not considered while deriving the performance
of the concern and even many internal factors such as human resource quality of the
company is not taken into consideration.
3) Recommendations for the improvements
 The above analysis can be improved through including soft factors such as the
considerable impact of economic and political factors on the financial performance of
the company.
 Also, by avoiding window dressing act while preparing financial statements can be
helpful in enhancing the reliability and relevancy of the financial ratio analysis
(Illmeyer and et.al., 2017).
Task 2
The investment manager in order to decide upon which choice should be adopted by
analysing each based on various techniques of investment decisions as follows:
(a) Calculation of payback period for three choices