Financial Management and Analysis

FINANCIAL
MANAGEMENT AND
ANALYSIS

Table of Contents
INTRODUCTION..........................................................................................................................4
Task 1..........................................................................................................................................4
1) Critical analysis of Unilever’s financial performance and health based on past two years
performance and position ...........................................................................................................4
2) Problems or limitations of analysis.........................................................................................5
3) Recommendations over areas of improvement.......................................................................5
Task 2..............................................................................................................................................6
(a) Calculation of payback period for three choices...................................................................6
(b) calculation of NPV for three choices....................................................................................6
(c) Calculation of IRR for three choices.....................................................................................6
d) Recommendations over choosing method..............................................................................7
Task 3..............................................................................................................................................8
(a) Calculation of TERP .............................................................................................................8
(b) Value of rights = TERP – issue price of rights.....................................................................8
(c) Effect on shareholder’s wealth..............................................................................................8
Task 4..............................................................................................................................................9
(a) Market capitalisation of Amsterdam plc...............................................................................9
(b) Net asset value of Amsterdam plc.........................................................................................9
(c) Value of Amsterdam plc from P/E ratio method...................................................................9
(d) Calculating historical dividend growth rates.........................................................................9
(e) Advice over the buying decision.........................................................................................10
Task 5............................................................................................................................................10
(a)Systematic and Unsystematic risk........................................................................................10
(b) Capital Market and Money Market.....................................................................................11
(c) Difference between risk and uncertainty.............................................................................12
(d) Bank overdraft option feasibility.........................................................................................13
REFERENCES.............................................................................................................................14

INTRODUCTION
The file is on Financial management and analysis. It gives an insight into the financial terms
used, the ratio analysis and interpretation for organisations, the tools used in investment analysis
like NPV and IRR and shareholder rights and other related issues. The file discusses share
market instruments and factors influencing risk and uncertainty. It emphasises on the factors
which influence shareholder decisions in investing in different instruments.
Task 1
1) Critical analysis of Unilever’s financial performance and health based on past two years
performance and position
Ratio analysis is the most suitable technique to evaluate the financial performance of the
business entity. Ratios include liquidity, profitability, efficiency, capital structure and stock
market performance that strategically define the overall performance of the business entity.
Liquidity ratio of Unilever Plc
Ratios 2019 2020
Current ratio 0.78 0.79
Quick ratio 0.56 0.55
Current ratio of the Unilever Company is .78 and .79 for the financial years 2019 and
2020. The idle ratio is 2 which reflect that Unilever Company is far behind the optimum level of
management regarding current assets and current liabilities of the company. Quick ratio is also
not close with the idle as it is 1 which further indicate company need to manage its liquidity
prioperly.
Profitability ratios
Ratios 2019 2020
Operating margin 19% 19%
Net profit margin 10.82% 11%
Operating profit margin of Unilever Company has been managed at the same rate of 19%
for both the financial years. Net profit of company could go up from 10.82% to 11% that is a
positive sign for the company.

Efficiency ratio
Ratios 2019 2020
Inventory turnover ratio 6.88 6.65
Asset turnover ratio 0.84 0.77
Efficiency ratio is all about the efficiency of the business entity. Inventory turnover is all
about how manually company is capable to convert its inventory into liquidity. Unilever
Company is seeing experiences related to reduction in its efficiency in generating revenue that
can be addressed through its reduced efficiency ratios.
Capital structure
Ratios 2019 2020
Debt to equity ratio 1.96 1.63
Debt to equity ratio reflect about the proportion of debt capital and equity in the total
capital of the business entity. The above mentioned evaluation clearly define that company is
switching towards managing equity and reducing its debt that is beneficial for the Unilever
Company in long run.
Stock market performance
Ratios 2019 2020
Price / earnings ratio 14.51 21.63
Price earning ratio has increased from 14.51 to 21.63 in the year 2019. The increased
price / earning ratio clearly define that due to increased growth of company investors are ready
to pay more against buying company’s share.
2) Problems or limitations of analysis
The above mentioned analysis reflect only the factor related to the reporting in company
books. There are plenty of other elements that are indirect like competition in business
environment, price level changes in market and many more that create impact over the business
performance of organisation. The above projected aspect only demonstrate the financial aspects
influence the performance of the organisation (Pianezze and et.al., 2019). Any conclusion drawn
based on the above mentioned projection would not be feasible in respect to the business entity.
When it comes to assessing the performance of business entity other elements associated with
business environment must also be considered by the organisation.