Financial Management Association

Running head: FINANCIAL MANAGEMENT
Financial Management
Name of the Student
Name of theUniversity
Author note

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Executive Summary
The aim of this report is to perform a financial analysis of Unilever Plc for the company's
shareholders. The financial analysis will help shareholders in deciding whether to buy or to sell
the shares of the company. The financial analysis will be performed by evaluating its return and
by comparing it with the market return, by evaluating its capital structure and studying the
financial statements. It helps in assessing the financial growth and performance of the company.
The report discusses the strength, weaknesses, and opportunities of the company through various
analyses.

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Table of Contents
Introduction:....................................................................................................................................3
Discussion:.......................................................................................................................................3
Part A: Analysis of Share price behaviour of Unilever...............................................................3
Part B: Investigation of Capital structure and Cost of Capital....................................................5
Part C: Concluding Remark.......................................................................................................11
Appendix:..................................................................................................................................13

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Introduction:
Unilever Plc is a multinational dual-listed company with its headquarters being situated
in Rotterdam and London. It operates as a single business unit with four main divisions- foods,
beauty and personal care, refreshments, and home care. Unilever Plcis listed on the London
Stock Exchange and is a constituent of the FTSE 100 Index(Unilever.com, 2020). The financial
management of the company is necessary for the performance of the company and to perform
proper management and utilization of resources and funds(Londonstockexchange.com, 2020). It
helps in performing portfolio management, capital management, ratio analysis, distribution of
dividends, and security analysis. The discussion is in three parts to conduct a full performance
analysis of the company. The report aims to analyse the company’s growth over the short term
and long term period.
Discussion:
Part A: Analysis of Share pricebehaviour of Unilever
This part consists of analyzing the price behavior of the company by computing its
return, standard deviation, and variance. For evaluating its current situation, the comparison is
being conducted with the market return for the last five years.
(i) Expected monthly returns: The monthly return of the company is calculated by
computing the difference between the opening price and closing price of the shares(Lee
& So, 2017). The expected monthly returns of an investment is the probability
distribution of the possible returns that is been provided to the investors(Bali & Zhou,
2016). The expected return of Unilever Plc based on five-year data (sixty-one months) is

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0.83%. The monthly return for the period 2014-2018 is shown in table 1 (Appendix 1),
along with the company’s monthly share prices.
(ii) Standard Deviation on monthly returns: The standard deviationis often used to measure
the risk of the stock or portfolio(Ball et al., 2020). The more the stock return varies from
the average return of the stock, the higher the volatility.The annualized monthly standard
deviation will help in the approximation of the standard deviation annually(Hamid &
Habib, 2017). The standard deviation of monthly returns of Unilever is 4.86%, and
shown in table 1 in Appendix 1.
(iii) Correlation of monthly returns: The average market return is 0.02%, and the monthly
return is calculated based on the difference between monthly prices (Carroll et al., 2017).
The correlation refers to the strength of the linear relationship between the two variables,
and it comes to 0.484 between the company’s return and FTSE-100 index returns (Hamid
& Habib, 2017). The relation can be a perfectly positive correlation, moderate positive
correlation, and perfect negative correlation. The stock with the lowest correlation will
result in the maximum benefit of diversification in the form of risk reduction (Dimic et
al., 2016). The monthly return computation is shown in Table 2 (Appendix 1)
(iv) Portfolio: A portfolio is constructed with the company’s shares and FTSE-100 index in
different propositions.
Requirement 1: The portfolio is constructed by taking company shares, and FTSE-
100 in every possible different proportion and chart is constructed based on the return
and standard deviation of the portfolio(Heaton, Polson & Witte, 2017).

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Requirement 2: The efficient portfolio is the portfolio which provides a higher return at
lower risk compared to the other inefficient portfolio(Drake, Kleindorfer & Van 2016). In the
portfolio sets made above, the efficient portfolio will start from the set of 45% of company stock
and 55% of FTSE-100, where the return is .38%, and the standard deviation is 2.85% till the set
of 99% company stock and 1% FTSE-100 stock (Wadhwa, Phelps & Kotha, 2016). The
inefficient portfolios are those which consists of entirely market stock since it provides the
highest risk and those which entirely of company stocks since they provide the lowest return at
considerable risk. The portfolio is provided in table 3 (Appendix 2)
Part B: Investigation of Capital structure and Cost of Capital
(i) Estimation of Systematic risk: Systematic risk is the type of business risk thatis caused by
external factors and cannot be diversified away by holding several securities, and thus it
cannot be avoided entirely. The external factors are such as social, political, and
economic factors, and it can be measured through computing sensitivity of company
return and market return(Pham, 2020). The systematic risk does include the market risk,
purchasing power risk, interest rate risk and exchange rate risk. The systematic risk is