Performance Measurement Techniques and Zero-Based Budgeting

The assignment provided is a comprehensive document that covers two main topics: Performance Measurement Techniques and Zero-Based Budgeting. The first part of the assignment delves into performance measurement techniques, including return on capital employed (ROCE), operating profit margin (OP margin), gearing ratio, interest coverage ratio, gross profit margin (GP margin), and earnings before interest and tax (EBIT). It provides detailed calculations for Unilever Plc, Colgate Plc, and Nestle in 2015 and 2016. The second part of the assignment focuses on zero-based budgeting, including its stages, advantages, and disadvantages. It also references performance measurement techniques and provides a link to a relevant document from Kaplan.co.uk. Overall, this assignment is a valuable resource for students looking to understand these important financial concepts.

MANAGING FINANCIAL
PERFORMANCE

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
PART 1............................................................................................................................................2
PART 2............................................................................................................................................7
Critically discussion of budgetary techniques which useful for Unilever Plc........................7
PART 3..........................................................................................................................................14
Critically explanation of different performance measurement tools along with their
appropriateness.....................................................................................................................14
PART 4..........................................................................................................................................22
Issues should consider for making expenditure decisions....................................................22
CONCLUSION..............................................................................................................................23
REFERENCES..............................................................................................................................24
APPENDIX....................................................................................................................................30

INTRODUCTION
To enhance financial efficiency of a firm there is need to adopt various techniques such
as measurements of financial statements, analysis of reports which will help in gaining adequate
knowledge related to entities ability to meet debts. Hence, in the present assessment there will be
calculations based on the financial ratios of Unilever plc with compare to Colgate Palmolive co.
Ltd. Thus, such analysis of both the organisation will be compared and the profitability of such
companies will be analysed. Hence, there will be discussion based on various techniques
budgetary control as well as performance measurement techniques. However, the financial ratios'
analysis of Unilever and Colgate will facilitate the users of such informations in making
adequate investments decisions which will result in the growth of company's capital structure.
Thus, such disclosure of informations helps firm in having large numbers of stakeholders or
investors as well as also improves the operational performance of entity. Hence, the analysis will
be based on various financial ratios of the organisation such as Return on capital employed, GP
margin, Gearing ratio, interest coverage ratios and OP margin. Besides these, there will be
discussion based on Budgetary techniques used in to improve the operational performance of the
organisation. Thus, budgets are prepared as to meet the cost of manufacturing or any other
operational expenses which will be by fixing a Quota for such tasks. However, in this study there
will be discussion over various performance measurements techniques which will enhance the
working efficiency of organisation in meeting the operational goals.
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PART 1
Introduction:
The present part will describe the analysis of various ratios and comparison between
financial ability of the Unilever plc to its peer companies Colgate and Nestle. Such determination
will help stakeholders in analysing the growth and profitability of these firms and their ability to
meet the long term and short term debts.
Financial ability or efficiency of a firm is based on the overall growth of the entity which
indicates that business or operational activities are going on good phase. Hence, there will be
comparison between Unilever, Colgate and Nestle on the basis of various financial ratios which
indicates the profitability and debt efficiency of such companies. Thus, it will also help various
stakeholders or users of such informations in having adequate informations or knowledge about
profitability of such firms (Li and et.al., 2016). It helps them in making effective decisions in
context with enhancing the work performance as well as profit earning of such entities. These
organisations have huge differences in their operational earnings due to variations in their
products or services. Unilever has the wide range of product lines such as Cosmetics, food
articles etc. but Colgate mainly deals in the selling of household products such toothpaste. Thus,
it can be said that, there will be differences in their earning capacity as well as market values. On
the other side, Nestle has the wide range of food articles and also covering the whole world with
its trade practices.
Hence, comparison of these companies can be based on the analysis of 5 ratios such as
Return on capital employed, OP margin, Gearing ratio, Interest coverage ratio and GP margin.
Thus, such comparison of ratios will help professional in the organisation in making adequate
operational decisions as well as it will help in enchaining the efficiency of the firm (Liang and
et.al., 2016). However, the analysis of these firms in relation with financial ratios are listed
below in the table shown in Appendix.
Interpretation: On the basis of above mentioned financial ratios of firms Unilever,
Colgate and Nestle. It can be said that they have variations in their operating efficiency. Hence,
the return on capital employed indicates that Unilever has favourable gains as compare to
Colgate as it shows the positive balance as well as the equivalent result in both the year such as
0.58. Thus, Colgate has the negatively growing ratios in both years such as -11.19 and -17.82
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respectively. It indicates that the firm has low capital employed in 2015 as well as 2016 such as -
299 and -243 which results in having the negative ratios. However, Nestle has 24.83% in 2015
and in 2016 it is 25.08%. Hence, it can be said that Unilever has good strength in meeting the
debts, while Colgate is weaker in this context but Nestle has the good operational efficiency. It
indicates Colgate is weaker in paying the dividends to its shareholders thus, it can be said the
investing in this organisation will not be fruitful for the investors as it the ratio in negative state
is continuously growing (Return on Capital Employed, 2015).
The benefits can be seen in operational performance of such organisation which shows
the gains for these entities. It indicates that, these firms satisfying their consumers with their
products as well as able to meet cost of manufacturing or delivering such article with earning the
adequate gains. However, the operating profit of Unilever in both years is 14.11 and 14.8 which
says that, the entity has better economic stability as well as it is able to manage all the categories
of product lines. Nestle has the operating margin in the year 2015 as 13.54% and in 2016 it is
14.36%. There has been increment in the current year's operating margin, so the peer company of
Unilever is making the adequate growth as well as facilitating the better earnings. Thus, income
generated through such articles are sufficient in meeting the operational expenses such as salaries
to employees, purchasing of raw material as well as expenses incurred in the production. On the
other side Colgate has OP margin in both the years such as 17.4 and 25.3 respectively which
indicates that, income generated through operational performances is profitable for such
organisation. Thus, Colgate is being able to met the expenses such as remuneration to workforce,
manufacturing costs and other relevant operational expenses are covered by acquiring gains on
them. Hence, Colgate has better capital gains as compared to Unilever and Nestle because of the
low range of products so it will result in low operating costs because, the company will purchase
raw material in manufacturing a unit to single or few suppliers as well as has fewer plants to
manufacturing such products. However, this is the reason on with this firm has better operating
margin.
On the basis of gearing ratios of such organisations, it can be said that Unilever is better
in meeting the debts of firm because it has better market strength as well as favourable gains.
The firm is able to pay the shareholders in consideration of dividends. Hence, the Gearing ratio
or debts equity of Unilever in 22015 and 2016 is 0.64 and 0.68 which is growing. Thus, it
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indicates that the firm is able to pay the shareholders with its annual turnover. Nestle has the
gearing ratio for 37.89 in 2015 and in 2016 it is 37.99. Hence, it can be said the firm satisfying
shareholders with its annual financial reports and the marketing techniques which helps in
gathering better revenue in the financial years. However, on the other side, Colgate has nil
balance in Gearing ratio which indicates that the organisation is not able satisfy the shareholders
as well as it is not able to pay dividends to them. Thus, it can be said, Colgate is not having
profitable turnover which will lead them in fetching attraction of shareholders as well as paying
them the favourable amount of dividends.
In accordance with the interest coverage ratios of Unilever and Colgate which indicates
that these organisations have variations in their Interest coverage. Thus, in 2015 Unilever has nil
balance and in 2016 it has 14.15 of ratio so as Nestle has the ratio of -1.26 and -2.7. Hence, it
indicates that, the company has started the better interest coverage techniques which in turn
indicates that the firm has developed the ability to easily meet the interest expenses. On the other
side nestle has the negative impact in such ratio as according to the negative net finance costs.
Thus, loans taken from banks or any other financial institutions will be paid by the organisation.
Hence, it is also known as the debt ratio of firm. On the other side, Colgate has better Interest
coverage ability which can be seen in both the years such as 21.77 and 26.09. Thus, it can be said
that, this organisation is capable of paying the interest expenses over outstanding debts. Hence,
Colgate is better in Compare with Unilever in context with meeting the interest expenses. Thus,
it can be said that Mangers of Unilever need to make adequate strategies that will help
organisation in overcoming such expenses easily.
As per the Gross profit margin of both the industries which indicates that Unilever has
revenue or Cost of manufacturing such products are equal so it produces no changes in the profit
earning of the organisation. Thus, in respect with that, this organisation has nil ratios in both the
years. Hence, Colgate has Gross margin for 58.6 and 60 which indicates that, this business is
able gather favourable revue as compared to the cost of manufacturing such units. Thus, it can be
said that, due to lower ranges or variates of products Colgate has lower costs on manufacturing
such article such as production expense, workforce wages, supplier charges as well as time
utilise to make the favourable dealings. Thus, it can be said that, due to low cost incurred in
producing a unit there will be favourable income gathering from market.
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However, the differences in the financial strength of both the companies differs due to
changes in their operating style and product ranges. Hence, Colgate is challenging Unilever in
context with producing the cosmetic product such as toothpastes and has acquired good brand
image throughout world markets. Thus, due to low range of manufacturing the articles or limited
product line Colgate is powerful in having less cost or expenses in producing a unit while
Unilever deals in various categorise of products such as food, household products so it has large
numbers of expenses. If the ranges of products are more so there will be requirement of large
numbers of workforce to obtain such operational activities like purchase material from suppliers.
Thus, for manufacturing the different goods there will be requirement of several material from
various suppliers so here the organisation need to identify the best suitable suppliers as well as
bargaining power of them. However, the profitability of Unilever is more than Colgate which
indicates that the organisation is able to provide satisfactory goods or services to its clients.
There are many brands which are adopted by this firm in context with having better profit margin
in compare with other rivalry firms. Hence, it can be said that, professionals at Unilever need to
make changes in operational strategies and pay attention over lowering down the costs of
manufacturing or purchasing such article. They need to make better distributional channels
which will help them in having promptness in delivering the products from one place to another.
On the basis of Interest coverage ratios of both the organisations, there has been huge
variations which indicates the ability of firms in meeting the interest costs. A firm has low rate
over the debt ratio which indicates that, they will be under the burden or having large numbers of
debts over them. They will not being able to make payments to their debt expenses such as
paying debenture to shareholders or payments to suppliers. Thus, it can be said the Unilever as
poor debt management as well as they will not be better than in meeting the debt expenses.
However, the ratio in 2016 which explains that the managers has developed techniques to solve
such problems and the organisation is 14.15% able to meet the debt expenses. Unilever will be
beneficial if the professional take some serious changes in operational activities. They need to
attract wide numbers of stakeholders which in turn helps the organisation in gathering better
capital revenues. Thus, with the help of adequate storage of capital the firm will be able to
enhance the operations held in premises as well as bring the innovative products in market. The
workers at such company will be paid in accordance with their talent and the level of duties
performed by them. Hence, it can be said that, satisfying stakeholders will result in better
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revenue gathering. Thus, Colgate has favourable strength in having profitability because of low
cost of producing an article but it has poor capital strength that, this organisation is not capable
of meeting expenses of paying dividends to share holders.
A part from the financial strength of both the organisations there are variations in the
macro economics of them as well. Thus, Unilever and Nestle has good strength in the world
market because of various brands and product lines. The firm has favourable goodwill power so
it has retained the large numbers of shareholders or investors so the capital structure is better in
compare with other rivalry firms. Thus, it can be said the business is able to satisfy its
stakeholders with the help of annual turnover in each financial year.
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PART 2
Critically discussion of budgetary techniques which useful for Unilever Plc
Introduction
Budget is one of pivotal aspect for an organisation whether it operates at national or
global level in the industry. The reason is that it helps to forecast financial data for the next year
using base to the past financial statements. On the basis of this tool, wide range of information
can be estimated which include revenue, cost, cash position, direct labour cost, variable overhead
expenses, material purchase, production etc (Jones, 2013). In order to frame such budgets, there
are different techniques involved like incremental, zero based and flexed budgeting which are
evaluated in the present part.
Incremental budgeting
As per the opinions of Ekholm and Wallin (2000) a method in which the company
increases financials with specific percentages in the next year using past data and prepare budget
is known as incremental budgeting. Percentages for enhancing or making change in the financial
information are as per the market conditions and convenience of the management. Further, costs
increase by firm with the lower rate as compared to incomes (de Campos and Rodrigues, 2016).
It encourages to the firm and management for reducing total expenses incurred in the workplace
of a large global company and enhance total revenue (Abor, 2017). In the global business it helps
to meet desired objectives which are framed related to financials while entering in international
market. Moreover, it's some benefits and disadvantages are mentioned below:
Advantages:
 Key benefit of incremental budgeting method is that, it is very simple and appropriate
tool for the businesses. Further, it is easily understandable by each and every employee of
the Unilever Plc which helps to accomplish targets in proper way (Willett, Andrew and
Rudisill, 2016).
 It is useful for the selected global company in order to make changes gradually in the
industry which is one of the effective for entity. It helps to the firm for changing in
positive direction or growing gradually in consumer goods industry (Dyson, 2010).
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Therefore, purposes can be easily fulfilled or achieved by those firms which operate
globally (Goddard and Simm, 2017).
 Apart from this, incremental budgeting method is highly flexed through which monthly
budget can be made easily (Walsh, 2016). Further, change which arisen after
implementation and execution of new policy or budget can be seen quickly as well as
appropriately.
 In the working environment of global businesses, conflicts or disputes arise between
departments or regions. In order to resolve such kinds of conflicts the incremental
budgeting is highly supportive for firm (Mahmoud and Neale, 2016). Managers of the entity can operate departments and whole unit with continuous basis
properly with the help of this stated budgeting technique (Proctor, 2010).
Disadvantages:
 When the global firms prepare budgets considering incremental method then it has been
estimated that business will continue in same direction as compared to previous. Further,
if the activities will go adverse to the firm then not useful or profitable technique to frame
required budgets in organisation (Mahler, 2016).
 Jensen (2001) states that there are new ideas generated for growing the business in
industry of consumer goods. Behind this, any kind of incentives are not incurred in the
global firm which is major loophole of the used technique along with create financial
burden.
 In addition to this, costs and expenses are reduced in the incremental budgeting whereas
incomes enhanced (Szűcsné Markovics, 2016). Under this also incentives are not
generated which is one kind of financial burden on a large global company.
 Budget framed using the incremental budgeting method can be go out of date and due to
which not relates with activity level in the firm. Further, any kind of work which needs to
accomplish, sometimes carried out for next year or cancelled (Incremental Budgeting –
Meaning, Advantages and Disadvantages, 2017).
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 Priority of the resources allocated in the firm can be change which is also a drawback of
this considered technique of budget preparation (de Campos and Rodrigues, 2016).
Zero based budgeting
A budget when prepares in the company taking base to the zero value and avoiding past
financial information is considered as zero based budgeting method. In this, each and every item
of cash flow account are revalued as well as all the expenses are justified in proper manner. The
reason behind this is that, all the costs which can be came into consideration in a large global
company will be analysed (Fourie, 2016). Further, all the receipts and payments are to be started
from zero in the selected global business. Actual costs and incomes which can be arisen in the
firm are used by the management for preparing budget statement using zero based method
(Mahler, 2016). It is highly used by the global enterprises because of having nature of justifying
all the business activities and evaluate incomes which will be generated in the past (MATURI,
2009). Moreover, it has some pros and cons which are such as follows:
Merits:
 It is one of the highly supportive method for those kinds of organisations which have
huge presence in non-profit as well as the service industry. The reason is that, they
always want to improve total quality of products and services (Parikh, 2017).
 With the help of zero based budgeting costs and expenses incurred in the inefficient
departments or operations can be saved in the organisation. Therefore, financial
performance of the business emphasis in consumer goods industry properly (Meixner,
Story and Smith, 2016).
 It helps to the make an effective planning of the financials due to which agreed objectives
of maximising profitability can be achieved (Abor, 2017).
 Under the zero based budgeting method, resource allocation is done on the basis of cost
benefits. Therefore, all the allocated resources to each department or division are to be
utilised in highly optimum direction (Clark, Menifield and Stewart, 2017).
 When the enterprise incorporating zero based budgeting then management executives
take huge participation in the budget preparation process (Zero based budgeting | Stages |
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Advantages | Disadvantages, 2017). Due to involvement of all the executives and
managers, an effective plan can be made in the workplace of cited global company.
 Through zero based budgeting technique, operational efficiency can be enhanced or
promoted in the business (Mahmoud and Neale, 2016). However, there is a condition is
that company not consider the above stated approach i.e. incremental.
 Besides these all, any kind of losses and inefficiency of the past accounting period is not
carried out in the present year. It directly helps to generate high profit and accomplish the
targeted goals related to financials in proper way (Fourie, 2016). Further, it shows clear outline of the availability of cash in the workplace along with
reasons for raising capital from either internal or external financing sources (Atrill and
Mclaney, 2012).
Demerits:
 The zero based budgeting method takes huge time for preparing required budget
statements in the global businesses. Therefore, it is time consuming method which reduce
efficiency of the management (Vesty and Brooks, 2017).
 In the businesses of large scale or global, wide range if business decisions are required to
prepare and made in an effective condition. Due to which higher cost and expenses
imposed on the enterprise (Abor, 2017). Hence, it is expensive budgetary technique as
compared to other mentioned.
 According to Libby and Lindsey (2010) in the procedure of preparing budgets using zero
based budgeting, more paper work is associated which is little tough in comparison to
considering computerised system (Schaltegger and Wagner, eds., 2017).
 Sometimes managers of a large global company business can develop fear which is
another loophole of this technique. Along with this, managers can oppose to the new
opinions as well as changes incurred in the budget preparation procedure (Porter, Larsson
and Lee, 2016).
 At the time of ranking to the decisions in terms of priority, issue of personal bias can be
arisen in the working environment of organisation (Anckaert and et.al., 2016).
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 Apart from such all drawbacks, administrating as well as communicating the zero based
budgeting method in global firms can create wide range of critical issues (Surroca, Tribó
and Waddock, 2010). Therefore, the employees unable to understand objectives framed
while preparing budgets and achieve the targets.
Flexed budgeting
Apart from the incremental and zero based budgeting, another technique considered by
global companies is flexed budgeting in accounting concept. Under this approach, management
prepares budget in accordance to their convenience and market conditions. Further, there is not
any specific condition or parameter is involved (Aisha, 2016). Due to this particular kind of
nature flexed budgeting known as flexed also in accounting systems. This budgetary technique
allows to a large global company for increasing and cutting incomes and expenditures
respectively as per the situations of enterprise as well as market (Jones, Woods and Guillaume,
2016). Further, its benefits and drawbacks are explained below:
Benefits:
 The flexed budgetary method is highly supportive for enterprises in order to reduce as
well as eliminate those expenses which are over and unproductive in the workplace (de
Campos and Rodrigues, 2016).
 Under this particular tool, management sets expenses and incomes as per marketplace,
business situations and convenience in the firm. Due to which the zero based technique is
helpful in order to react on the chances or opportunities available with them for
enhancing financial performance (Uotila and et.al., 2009).
 In order to make proper adjustments of costs, expenses, margins and profits which will
incur in the Company, this method is highly beneficial (Willett, Andrew and Rudisill,
2016).
 The explained method of budgetary relies on the present or current financial information
which comes into consideration in the workplace of organisation. If new data becomes
available in the company then under the zero based tool, the new one taken into account
(Mahmoud and Neale, 2016).
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 Apart from these all, through the current stated budgetary method the firm becomes
helpful for generating irregular incomes along with declining those expenses which are
seasonal (Goddard and Simm, 2017). In order to adapt changes and fluctuations which arisen in the cited global enterprise
along with controlling as well as evaluating them the zero based is highly effectual
method (Ashe-Edmunds, 2016).
Limitations:
 In the zero based budgeting, more and high level of planning is required for tracking
current costs and incomes. Due to which it creates confusion between the managers of
departments and employee who prepare budgets (Walsh, 2016).
 When a large global company entity considers this budgetary method then monitoring as
well as evaluation is required on continuous basis which is another issue associated with
zero based budgeting (Szűcsné Markovics, 2016).
 As above discussed benefits, it always uses the current data and in the global business
sales and costing fluctuates consistently. Due to this, proper and accurate adjustments of
the financial transactions cannot to be made by management in budgets (Vaivio, 2008).
 The flexed budget tool uses highly relevant as well as appropriate information. In this
condition, it is quite typical and difficult for owners and employees to obtain relevant
data up to the larger extent (Mahler, 2016).
 Furthermore, to frame the budgets by considering flexed method it is mandatory to
segregate all costs like fixed, direct, variable, indirect etc. Therefore, it is highly typical
and complex budgetary technique (Fourie, 2016).
Conclusion
It can be concluded that there are several kinds of budgetary techniques available with the
company which help to prepare budgets in proper direction. Basically three methods are highly
better and effectual which are such as zero based, incremental as well as flexible budgeting.
These all have some benefits along with specific limitations which applying at the workplace of
a large global company.
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13

PART 3
Critically explanation of different performance measurement tools along with their
appropriateness
Introduction
At the time of operating a business in specific market or industry and generating profits,
it is highly essential to assess performance. In order to measure that company performs in which
way in the market, there are wide range of techniques and tools are considered. When the
Unilever enterprise considers these kinds of techniques in the workplace then able to know that
in global market up to which extent it performs well (Schaltegger and Wagner, eds., 2017).
Along with this, it easily able to frame strategies which help to boost up performance in
consumer goods industry. Moreover, performance measurement tools like BSC, Ratio analysis,
Economic Value Added, quality management and critical success factors are evaluated criticised
in the current part of the project.
Performance measurement techniques:
There has been various performance measurement techniques which are need to be
analysed by the professionals in Unilever, in context with enhancing the operational ability of the
firm. Therefore, these includes:
Illustration 1: Performance measurement techniques
Source :(Performance measurement techniques, 2017)
By considering the above mentioned diagram there has been various performance
measurement techniques which will be useful tool to Unilever as to enhance the operational
performance of the entity (Jones, Woods and Guillaume, 2016).
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Financial:
In consideration with the financial measurement of firm which will be beneficial in terms
of analysing the financial statements such as profit and loss, cash flow statement, balance sheet
as well as ratio analysis (Phillips and Phillips, 2016). Therefore, it will help in analysing the
revenue, sales, purchase as well as expenditure of the Unilever. It will help in measuring the
ability of firm in context with meeting such costs as well as having the appropriate earning
(Anckaert and et.al., 2016).
Non financial:
The non financial measurements usually relate to the operational activities held in the
business which are mainly analysed with the help of various tools such as balance score card,
benchmarking etc.(Jung and et.al., 2016) that will be beneficial tools in terms of motivating the
staff in context with achieving the operational goals of Unilever (D’Innocenzo, Mathieu and
Kukenberger, 2016).
Benchmarking:
It id the technique which is used in setting the small aims and objectives such as
milestone of performance (Houle and McCrory, 2017). Therefore, there will be need of having
such techniques in the consideration which in turn helpful for Unilever in terms of securing the
maximum costs, reducing wastage as well as provoking workforce to make efforts (Aad and
et.al., 2016).
Balanced scorecard
A system which seeks for providing balanced as well as comprehensive kind of
framework to the management to judge its business performance is known as balanced scorecard
(BSC). In this specific approach, there are major four perspectives included which help to know
performance in accordance to that. Further, such four perspectives include financial, customer,
internal business and learning and growth (Balanced Business Scorecard, 2016). It helps to the
Unilever enterprise for assessing profitability position using financial perspective and customer
satisfaction level as well as quality of goods with the help of customer aspect (Tan, Zhang and
Khodaverdi, 2017). It is one of the appropriate technique through which overall performance can
be easily measured in its operated market.
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Illustration 2: Balanced Scorecard
(Source: Balanced Business Scorecard, 2016)
According to Kalpan and Norton (1992) the balanced scorecard approach gives clear and
effective structure about the strategies which are required to achieve business goals and
objectives (Rao and Sreelakshmi, 2017). It helps to consider highly effectual kind of
communication strategies for meeting purposes which are desired. When alignment of business
departments as well as divisions is required to be done then BSC is useful for the cited global
organisation (Sreelakshmi and Rao, 2017). In addition to this, it is supportive for workers for
linking individual goals with the organisational tactics as well as strategies implemented
(D’Innocenzo, Mathieu and Kukenberger, 2016). On the basis of these all it can be said that, to
measure business performance of Unilever in proper direction, BSC is an appropriate approach
as compared to others.
However, it can be criticised that it may be one kind of overwhelming framework for the
companies in some specific circumstances (Almohtaseb, Almahameed and Shaheen, 2017). Due
to this, management cannot implement this tool properly and assessment of performance hamper
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up to the certain level. It is not possible to copy this technique precisely from various provided
illustrations (Smith and et.al., 2017). In order to make successful the cited approach and execute
properly strong leadership is required on the business and team members (Jackson, 2017). Along
with this, it is very typical in order to keep all the terms and perspectives on a particular single
page. Due to which, the management or stakeholder unable to analyse business performance
clearly (Liao and et.al., 2016). At the very sometime, procedure of using balanced scorecard
creates confusion which lead to affect proper performance analysis (Phillips and Phillips, 2016).
Further, there is nature if rigid at the time of managing this approach comes into consideration
which is another issue associated with BSC.
In accordance with evaluating the performance of Unilever there is need to introduce
such performance appraisals which helps in enhancing the efficiency of business as well as
presenting the fruitful operational analysis (O’Neill, Sohal and Teng, 2016). In this technique the
managers of firm make the chart which contains all the details relevant with products, sales and
the costs which are invested in the firm (Kee and Tang, 2016). Thus, it will be fruitful for
business in terms of having the adequate record of all the transactions. Therefore, it will be
beneficial in terms of making the adequate efforts and motivate workforces to enhance the
quality of operations.
Ratio analysis
Another technique through which financial performance of the company is analysed is
known as ratio analysis. Under this, wide range of financial data taken into consideration which
derived from different financial statements of the Unilever Plc organisation (Bems and Johnson,
2017). It shows that, cited entity is up to which extent able to generate sales and margin in each
accounting period. Apart from this, efficiency in terms of gaining revenue with the help of
various assets is also measured in proper way. In the ratio analysis measurement technique some
ratios involved which are like profitability, efficiency, liquidity, gearing, solvency etc (Robinson
and et.al., 2015). On the basis of this tool, effectual business strategies are also prepared which
support to achieve financial goals to Unilever enterprise (Chen and et.al., 2016). In order to
measure financial performance, it is one of the pivotal technique which considered at the global
level.
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The financial ratio analysis is helpful for assessing business performance and on the basis
of this, future trend of cost, revenue, profit etc. is forecasted (Smart and et.al., 2017). Apart from
this, it supports to prepare an effective financial plan for the upcoming business activities and
accomplish the desired goals (Shields, 2015). For preparing sales budget statement of Unilever
enterprise for the next fiscal period, the ratio analysis is one of the useful method. When
operating efficiency of the cited firm is required to measure in consumer goods market then also
ratio analysis is taken into account by organisation (Heizer, 2016). It gives outline of the
expenses incurred in the business for producing products and operating in the market in
exchange to incomes (O’Neill, Sohal and Teng, 2016). On the basis of this, overall strategies are
to be employed like cost management, proper utilisation of resources, sales increasing, waste
management etc. If the Unilever wants to go for making comparison with rival businesses then
also the ratio analysis is highly effectual technique (Aad and et.al., 2016). It indicates liquidity or
cash condition of the global firm and on the basis of that decision for raising capital from internal
or external source is undertaken.
In addition to the above benefits, the performance measurement tool i.e. ratio analysis
helps to Unilever management for determining long-term solvency condition of the firm in
operating industry (Herman and et.al., 2017). Further, for measuring overall profitability of the
organisation, the profitability ratio analysis is taken into consideration by the firm (Pant, 2016.).
According to this analysis, if it has been seen that profit declines from last year then corrective
actions are taken. Therefore, it acts as one kind of financial decision making tool up to the
certain level for cited company (Yin and et.al., 2016). At the last, it supports to the organisation
for simplifying all the financial statements like profit and loss, balance sheet, cash flow etc.
On the other side, financial ratio analysis tool has some limitations which are criticised in
the present section. Key issue associated is regarding to the adequate financial information which
not available under the final accounts at many times (Petruzzo and et.al., 2015). Due to this,
Unilever enterprise cannot make an effective as well as proper measurement of the business
performance. Further, it is based on the historical or past information where present data ignored
totally (Smith and et.al., 2017). In the global market, all the organisations consider different
accounting rules, standards and policies which hamper to the comparison between two or more
competitors. It not takes any kind of analysis which relied under quantitative nature. Besides
18

these all, if the management not considered cause and effect relationship in the financial
statements then application of ratio analysis is not possible (Macintosh and Quattrone, 2010).
Therefore, it can be assessed that ratio analysis is highly pivotal and effectual tool to measure
financial performance of the Unilever company in comparison to others techniques (Liao and
et.al., 2016.).
Economic value added
Kilhn (2007) articulates that, the measurement tool which reflects excess sum of money
which left in the working place after charging capital invested in the company is considered as
economic value added (EVA). One the basis of this, decisions for making investment in either
business project or any other alternative is properly taken into consideration. It is calculated
using specific formula which is: EVA = NOPAT – C * Capital. In this formula, NOPAT stands
for net operating profit after tax and C refers to weighted average cost of capital (O’Neill, Sohal
and Teng, 2016). Further, the EVA comprises with basically three components which involve
NOPAT, cost of capital as well as capital employed in the Unilever company (Chen and et.al.,
2016). It is an important tool for measuring business value which is linked with the shareholders
of the organisation. Apart from this, when the management wants to communicate with investors
or shareholders then EVA is useful technique. Through this, the management can take reviews
about the satisfaction of investors (Tucker and D. Lowe, 2014). Therefore, performance can be
assessed of Unilever in exchange to the shareholders in an effective direction. Apart from these
all benefits, accounting information transformed into the economic quality using EVA tool. Due
to this thing, those managers or employees who not belong from financial background, can also
measure its performance in proper manner (D’Innocenzo, Mathieu and Kukenberger, 2016). For
making an appropriate valuation of business on the basis of goodwill as well as shares also EVA
is applied in the working environment.
In contrary to this, EVA model consists with some calculations where numerical
information needs to obtain from proper source. Apart from this, performing its computation can
be done by financial employee or manager only (Kee and Tang, 2016). Beside this, level of
calculation of EVA is little typical which consumes extra time and create inverse impact on
efficiency.
Quality management
19

According to this mentioned performance measurement tool, quality of the products and
services is to be analysed. Under this, standard and wastage level of the consumers goods are
evaluated in the operation department (Bems and Johnson, 2017). During this particular position,
if Unilever entity finds that quality improved from last year then commented that business
performs well (O’Neill, Sohal and Teng, 2016). However, if the resources are not utilised
properly by the production staff along with wastage goods increase then quality of items will
decline up to the larger extent (Fullerton, Kennedy and Widener, 2013). Further, it is essential
tool for measuring quality of consumer products and business performance as well.
Critical success factors
Apart from the above stated performance measurement ways, one of the essential
technique is critical success factors (CSFs). By employing this method, the Unilever can assess
its performance in highly appropriate direction in the industry where it operates (Herman and
et.al., 2017). At the time of using this specific tool, management of cited enterprise go through
some elements which are like competitiveness, utilisation of resources, service quality,
satisfaction level of consumers, innovation in products, flexibility, standard of output etc
(Performance measurement techniques, 2015). Along with this, to measure such factors some
key performance indicators are considered.
Key performance Indicators (KPIs)
In addition to above all the stated kinds of performance measurement methods, another
essential technique is KPI or key performance indicators (Phillips and Phillips, 2016). It is
supportive to determine two kinds of performances of the selected company i.e. Unilever Plc
which include financial and non-financial both (Yin and et.al., 2016). Indicators used for
financial performance are like net profit, cost, incomes, return on investment, expenditures etc.
Apart from this, the non-financial performance is to be measured with the help of efficiency,
productivity, market share, customer's satisfaction level etc. It is also highly effectual and
appropriate method which can be easily used by non-financial type of employees as well
(Herman and et.al., 2017).
Conclusion
20

Considering to the above analysis it can be concluded that there are various tools
available with Unilever for measuring business performance. Among them some of the important
techniques are such as balanced scorecard, ratio analysis, economic value added, quality
manageable etc. Other than these all, critical success factors as well as key performance
indicators are also supportive tool for measuring business performance of selected business.
Moreover, these tools are helpful to measure financial and non-financial both kinds of the
performance of the organisation.
21

PART 4
Issues should consider for making expenditure decisions
Introduction
In the global businesses, managing director receives different kinds of information from
each and every division like financial, human resource, research and development, innovation,
technology etc. The present study comprises with financials where the director of Unilever Plc
firm receives financial proposal of one division where he or she has to take decisions of
expenses. Furthermore, issues and factors which need to consider the director at the time of
taking judgements related to expenses are analysed in the present part.
At the time of taking this kind of decision, very critical issue the managing director
should consider is related to the market situation. The reason is that, covering costing amount
and generating profit these both are depends on the demand of products and services (Chenhall
and Moers, 2015). For example: if the managing director of Unilever Plc receives proposal
regarding to the production division where it has to determine that specific expense should be
made or not. Under this, if the director considers market demand and takes decisions to make
expenditures then it will be beneficial.
However, Proctor (2012) states that if the same will ignore to market situation and
continue production then may affect in either positive or negative direction. Apart from this,
another thing which required to consider is related to the bad debts. It is sum of money which
cannot be recovered by the businesses from credit purchasers. In the past as well as present year,
the cited firm has more bad debt amount then will reduce expenses in the workplace for
producing and selling goods and services. On the other side, when level of bad debt is lower in
the enterprise then director will decide for making more expenditures.
Besides these, as per the views of McLaney (2012) past financial performance is also
considered by the authorisation person who make expense decisions in the various divisions.
Reason behind using this particular factor is that, in the past if Unilever generated more profit or
income, then high level of expenses will be made. In opposite to this, if the business incurs loss
or gain very low margin then director will refuse to make high expenditures in the division.
Moreover, at the time of taking expense decisions, financial and selling performance of the
division of at least five years is needed to consider. On the basis of this, director able to know
22

that expenses made in this division will be whether profitable or not in the industry (Kaplan and
Atkinson, 2015).
Apart from this, the management of company must consider level of competition in the
market. The reason is that, when competition is at the higher level within market then firm is
going to try for gaining competitive benefits. Therefore, it needs sum of money for fulfilling
such kinds of the aspects. On the another side, if competition is high the for gaining competitive
advantages it not needs amount. Due to this, easily able to become capable for making expenses
within workplace in an appropriate direction. Therefore, at the time of taking decisions for
expenditure making then it is necessary to keep in mind competition level in the market.
CONCLUSION
It can be analysed from the present project that, measure the financial performance of any
company if it operates at national or international level is one of the essential part for firm. The
reason is that, it provides clear outline of the business performance and on the basis of that
fruitful business decisions can be made. Further, at the end of fiscal period 2016 the Unilever Plc
enterprise performs well in terms of financials in comparison to accounting year 2017. When
looking at the comparison of Unilever with Colgate Palmolive firm then previous one has better
performance in the consumer goods sector. However, in terms of debt equity ratio the Unilever
firm has lower performance where it should boost up profitability condition. Moreover, there are
basically three types of budgetary techniques available through which Unilever can make
effectual financial plans. Such tools include incremental, zero based as well as flexed or flexible
budgeting. It can be articulated from the third part of analysis that, wide range of performance
measurement tools and techniques are available there. These methods are like balanced
scorecard, quality management, critical success factors, economic value added, key performance
indicators, financial ratio analysis etc.
23

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29

APPENDIX
Unil
ever
Plc
Colgat
e Plc Nestle
Return on
capital
employed
2015
(mill
ions)
Rati
os
(%)
2016
(Millio
ns)
Rati
os
(%)
2015(
million
s)
Ratio
s (%)
2016
(Millio
ns)
Rati
os
(%)
2015(
millio
ns)
Ratio
s (%)
2016
(Milli
ons)
Rat
ios
(%
)
EBIT 8885 0.58 9501 0.58 3345
-
11.19 4330
-
17.8
2 15479
24.83
% 16201
25.
08
%
Capital
Employed
1543
9 16354 -299 -243 62338 64590
OP margin
Operating
profit 7515
14.11
% 7801
14.8
0% 2789
17.39
% 3837
25.2
5% 12024
13.54
% 12846
14.
36
%
net sales
5327
2 52713 16034 15195 88785 89469
Gearing ratio
Total long
term liabilities 9854 0.64 10933 0.67 6269
-
20.97 6520
-
26.8
3 23622
37.89
% 24538
37.
99
%
total equity
1543
9 16354 -299 -243 62338 64590
Interest
coverage
ratio
EBIT 8885 1 9501 14.0
0%
3345 21.77
%
4330 26.0
9%
15479 -1.27 16201.
00
-
2.6
30