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UNILEVER PAKISTAN LIMITED

PART - I EVALUATING RATIOS 1. Comments on Liquidity Ratio 2011 Current Ratio Quick Ratio a. b. 0.31x 2010 2009

0.79x 0.83x 0.83x 0.40x 0.32x

Current Ratio for the year 2011 indicates that the liabilities of the firm have increased as compared to the previous two years. Liquidity ratio is weak which indicates that the firm had difficulty to repay short-term creditors out of its total cash.

2.

Comments on Inventory Turn Over 2011 Inventory Turn Over a. b. c. 2010 2009

10.0x 11.5x 10.5x

Unilever had poor control over its inventory in year 2011. It had old inventory due to which it could not retain turn over power as compared to previous two years. With better control, firm can improve the turn over in year 2012.

3.

Appraisal of DSO 2011 DSO a. 1.0 2010 0.6 2009 0.8

Unlike western countries, Pakistan companies do not rely on crediting their sales. Therefore their accounts receivable remain within their manageable range.

b. c.

This not only benefits in keeping their cash flow higher but also helps to reduce their outstanding dues. Above figures clearly indicate the Unilevers motto to run the ready cash business. That is why the company is able to receive the amount against the sold goods in lesser than one day time.

Analysis of Annual Report Unilever

2 d. However, owing to business limitations their receivables increased during year 2011 due to which their DSO rose up to one day which was lower in 2009 and 2010 respectively. e. f. 4. However, the figure is not alarming and is within the manageable range. Unilever has an excellent credit policy. 2011 FATO TATO a. b. 7.1x 3.2x 2010 7.4x 3.3x 2009 6.9x 3.3x Evaluating the FATO and TATO

Unilever had good turn over of its fixed assets in year 2010. However, same has reduced in 2011. Though the company had higher sales in comparison to last two years but still it had higher number of net fixed assets. Due to which its Fixed Assets Turn Over remained below the expectations. Which could have been higher owing to number of increased fixed assets.

c.

In a similar fashion, companys sales increased but it did not match the number of total assets it had for running the business. Therefore, its Total Assets Turn Over remained below as compared to last two years turn over.

d. 5.

Company needs to dish out its excessive current assets.

Appraisal of Debt Ratio and Times Earned Interest Ratio 2011 D/A TIE a. b. c. d. 68.5 % 27.4 x 2010 73.5 % 26.2x 2009 71.1 % 11.6x

Unilever had lowered its debt in 2011, therefore its debt ratio has decreased. This is a positive sign towards companys uplift. Still it needs to lower its debt to a point where its debt ratio should not get higher that 50%. Since the interest is within the manageable range therefore the factor of interest is negligible. Company has prospered due to its commercial paper deeds or the lowering of interest through banks.

Analysis of Annual Report Unilever

3 6. Appraising Profitability with Operating Margin, Profit Margin and Basic Earning Power 2011 Operating Margin Profit Margin Basic Earning Power a. b. to higher earning. Owing to financial crunch all over the country, the halt on business due to countries involvement in war on terror and the normal lower business trend has lowered the Unilevers operating margin which was very good in year 2009. c. Though the overall business had its ups and downs in year 2011 but still company managed to withstand its ranking in local market due to its policies and the higher profit margin. d. e. 7. This shows that the despite higher profit margin, company could manage to have higher number of sales due to its good reputation. Though the basic earning power has increased in year 2011 but it is still lacking the bench mark which it set in year 2009. Evaluating the P/E and M/B Ratios 2011 P/E M/B a. 8. 5.6x 5.5x to 2010. The Effect of DuPont Equation PM 2011 2010 2009 a. 7.9 % 7.3 % 8.0 % TATO 3.2 3.3 3.3 EM 3.8 3.8 3.5 ROE 98.1% 91.9 % 92.8 % 2010 4.5x 4.1x 2009 5.7x 5.3x 11.9 % 7.9 % 38.5 % 2010 11.1 % 7.3 % 36.8 % 2009 12.9 % 8.0 % 43.3 %

Companys operating margin has increased as compared to 2011 due

This shows that investors were willing to pay high in 2011 as compared

The above given figures of ROE indicate that the net income is closer to the value of equity. Therefore, company is maintaining a standard which is rear in other company profiles.

Analysis of Annual Report Unilever

4 PART - II VERTICAL ANALYSIS Assets 1. Company has to get tax refunds which are 2.5 % of total assets. Company has to expedite its efforts to get back the amount deposited in surplus as tax before the end of financial year. 2. 3. Over all company has to reduce its receivables, trade debts and loans and must convert these into cash/ bank deposits. The vertical analysis show that the liability in 2011 was almost 74% of the total Equity and Liability. Company has to reduce its current liabilities which is at an alarming figure of 68% of total equity and liabilities. This may be done while estimating the year 2012. Total Equity and Liability 4. Stock in trade has increased as compared to previous years. For year 2011 it is almost 33 % of the total assets. This figure is higher as this naturally blocks the cash flow and company has to wait for clearance to go ahead. Net Income 5. 6. by:a. Inventing machinery down time. b. 4. Stop manufacturing of higher cost goods vis--vis lower sold goods for may be one or two odd months. Net income is only 7.9 % of sales which is much as less as compared to the investments made in running the huge business. This may be estimated to at least 10% for year 2012. new methods to reduce the cost of manufacturing either by buying modern machinery or by reducing the Unilever is only giving 0.4% interest on its loans which is well within the range of managing its debts. The COGS seems here as this ultimately lowers the net income. Company needs to lower the cost of goods sold. This may be done

Analysis of Annual Report Unilever

5 PART - III HORIZOTAL ANALYSIS 1. a. b. In comparison to year 2010, company has successfully increased its total assets by 15%. Following is high lighted in this regard:Company has purchased new plant, machinery and equipment. Companys intangible assets have increased by 36.4%, therefore representatives of company had been successful in negotiating trade terms with its major customers. c. d. e. figure. f. Positively company has increased its bank balance by above 80 % which is a good sign. Though company should invest it in year 2013 and may not keep it in bank for longer time. 2. Its total equity and liability has increased by 15 % as compared to year 2010. This demands cautionary measures while estimating year 2012. 3. Net income has increased by 20% in year 2011 which speaks of companys commitment towards its goal. 4. Handsome dividend has been paid which is almost 20 % higher then the year 2010. 5. Stock price has increased by 35.4 % as compared to year 2010 which indicates Unilevers unique reputation among its competitors. Unilever has gone into some agreement and its long term investments have increased. This may reap profit in years to come. Stock in trade has increased by 25% as compared to year 2010 which is not a positive sign to cash flow. Companys receivables have increased by 50% which is an alarming

Analysis of Annual Report Unilever

6 PART - IV BRIEF SUMMARY OF RATIO ANALYSIS 1. Unilever had been able to increase its assets, however on the other hand its liabilities increased as well. Situation resulted in decrease of current ratio, therefore company has to reduce its liabilities in order to coup up with the performance parameter of current ratio ie 8.3x set in last two years. 2. With the expansion of business and introduction of new products like few cub brands of walls ice cream and launching of shampoo product in 2011 led to held up of its inventory/ increase in stock in trade. It is natural that with the introduction of new product the receivables increase as few retailers first check the out come of customer response before they pay full payment. Else transit time of trade results in increase. Therefore, Unilever either had overstocking, obsolescence, or deficiencies in the product line or marketing effort due to which its inventory turnover is lesser than previous two years. 3. With the expansion of business and launching of new products the Daily Sales Outstanding have increased to a single day. However, this is still within the manageable range due to on spot sales policy of the company. 4. FATO has reduced as compared to year 2010 which is an indication that the business is over-invested in plant, equipment, or other fixed assets. 5. Unilevers efficiency in use of its assets has declined ie TATO is less then last two years. This reflects that company has to reduce its profit margin in order to have higher turn over of it total assets. 6. Companys debt ratio has decreased as compared to last two years which shows that risk associated with firms operation has lowered. However, ratio is still high it should be lower than 50%. A ratio greater that 50% indicates that most of the company's assets are financed through debt. 7. EBIT of Unilever has increased, therefore it had either better sales or it was able to generate revenues through its assets rather that relying on bank financed business. 8. Unilevers performance in the areas of operating margin, profit margin and basic earning power has increase as compared to year 2010. Earning of higher profit with little sales is good for the companys standing but still its earning power needs to touch the bench mark it set in year 2009. Analysis of Annual Report Unilever

7 9. Regarding P/E ratio, Price was commensurate with the earnings and company had higher earnings vis--vis the stock price as compared to 2010. 10. Market to book value increased considerably in 2011. This shows that despite reduced amount that investors paid for one rupee earning in 2010. Company managed to hold back and re-evaluated its goals which helped in to draw more investors who were willing to pay higher for their earning. 11. Result has shown that the return on equity (ROE) was higher in year 2011 as compared to previous two years. This was only possible with the efforts put in to standardize the policies and sticking on to good repute of handwork for maximization of shareholders wealth.

Analysis of Annual Report Unilever