Unilever PLC: Financial Analysis And Investment Insights

Overview of Unilever PLC

The report provides information regarding the overall operations of Unilever PLC for the period of 5 years from 2015 to 2019. The report adequately evaluates the current business environment of the organization and detects whether there is an investment opportunity in the company, which the investors can take advantage of to generate higher returns in the long run. Further analysis is based on identifying relevant trends regarding the current financial statements of the organization with the detection of profitability directly related to share price conditions. Moreover with adequate financial analysis capital structure evaluation is also conducted to detect the financial viability of the company and understand whether the company utilizers additional debts in comparison to equity to support its operations. The evaluation of the oral performance from 2015 to 2019 eventually allows investors to determine different levels of investment opportunities present within the organization, which can reduce risk from exposure to the capital market.

The FTSE industry in which Unilever Plc is situated in Consumer Staples, while the FTSE sector is in Personal Care, Drug and Grocery Stores with the FTSE subsector in Personal Products. Therefore, from the oral analysis of the FTSE industry, it is detected that Unilever PLC falls in the consumer’s staples industry, which is currently in turmoil due to the changes in current market conditions. The pandemic of 2020 was one of the mean factors that negatively affected the operations of Unilever PLC, as there were massive lockdowns and the seals of the products mainly from online platforms while the actual retail sales from shops diminish rapidly. The overall indications of the current business environment show that with the continuous locked downs and hindrance in the supply chain of consumer staple companies Unilever PLC is not able to maintain the highest level of productivity due to the lack of adequate materials from its suppliers (Unilever.com, 2022). Moreover, the current changes in the market trends were also triggered by the crisis in Ukraine where the relevant market has been halted due to the war currently being conducted in Europe. Consequently, it could be understood that with the levels of highest changes in the supply chain and the current crisis the overall operations of Unilever PLC are at threat. The current alterations in the sector have directly prompted the organization to take appropriate levels of measures in which it could increase its market reach and utilize innovative ways to maximize oral revenue from operations. Hence, it is understood that the impending crisis and problems would not stay long and eventually they would be solutions to such trivial conditions. This would provide the companies situated in consumers stable in the industry with ample levels of opportunity to maximize returns and improve their reach to customers.

The information presented in the above table directly indicates the level of trend in the current financial statements of Unilever PLC over the period of 2015 to 2019. This detection of the overall trend directly indicates about the adequate performance of the company, which can enable investors to understand the level of different measures that are being deployed by the company to maximize returns in the long run. The calculations provided in the above table directly indicate about a trend in the gross profit margin of Unilever PLC from 2015 to 2019. Hence, the overall trend of gross profit margin is inclining over the period of 5 years where the values have increased from 42.17% to 44.01%. This increment in the levels of gross profit margin directly in the kids that the organization has minimized the cost of goods sold values of the company in contracts to the overall seals of the organization. The reduction in the levels of cost of goods sold directly suggests the levels of reduction in the production process the company are conducting to minimize the level of expenses and efficiently utilize the resources available for its operations. Titman, Keown and Martin (2018) indicated that companies having more current assets than current liabilities have greater firm’s liquidity. The gross profit margin of Procter and Gamble has slightly increased over the period of 5 years, indicating that the management is not able to reduce the cost of goods sold expenses.

Analysis of the FTSE Industry

Further analysis of the overall calculations directly indicates about the changes in the value of the net profit margin over the period of five years. This change directly indicates that the performance of the organization has improved over the period of 5 years where a slight decline in the net profit margin was seen in 2019 in comparison to 2018. Thus, in the overall 5-year trend the profit margin conditions of the company have improved, whereas analysing the two your trend from 2018 to 2019 a drastic fall in the net profit margin of the company is seen. The improvement in net profits is mainly due to the levels of reduction in administrative expenses and other financial obligations that the company needs to support for continuing its overall operations. The drastic decline in net profits during 2019 was seen, while there was an increment in gross profits, which directly indicated that the administrative expenses of the company skyrocketed during the period. Hull (1999) stated that firm’s industry average book value of debt to market-based equity ratio is a valid proxy for an optimal leverage ratio. This increment directly reduced the actual net profit of the company for the year. The net profit margin of Procter and Gamble has declined over the 5-year period, as administrative expense increased, which was not the case for Unilever Global.

The analysis of the organization also helps in identifying the profitability ratios such as return on total assets and return on equity over the period of 5 years. The oral analysis of both the ratios directly indicates that the performance of the company has improved over the period of time only on the basis of equity returns whereas total asset returns have declined in a similar period. The analysis directly indicates that the return on equity of the organization was relatively increasing when compared for only a 5-year period where there were minute changes in the trend over some financial years. The return on equity declined from 2015 to 2019 whereas both the gross profit and net profit increased in a similar period, which states that equity increased in 2016, which nullifies the gains that were made from gross profit and net profit of the company. Similar basis the overall exponential growth in return on equity was seen during 2018, whereas the overall increment in net profits was above average. Therefore, the overall trend in the company in comparison to total equity was increasing due to the increment and net profits of the organization. However, the return on total assets has a different picture altogether due to the increment in the level of assets during the period between 2016 and 2017. According to Biais and Casamatta (1999), leverage-ratio states about debt levels, where it measures the share of debt in the capital structure of the firm. Hence, it is determined that with the increment in the level of levels of net profit and total assets the overall return on total assets of the company declined during the period of 2015 to 2019. Furthermore, a drastic decline in return on total assets of Procter and Gamble is witnessed over the period of 5 years, where in case of Unilever Global the decline was small.

Profitability Ratios of Unilever PLC

Hence, it could be understood that the overall financial performance of the company improved over the period of 5 years, which is directly supported by the increment in the market price of shares of the company over a similar period (Londonstockexchange.com, 2022). Adequate levels of the market price of shares are depicted in the above table, which indicates about the levels of changes in the value of shares due to the alterations in assets profits and equity of the company. Therefore, it can be seen that even with the increment in net profits and gross profit, the overall value of the market share price declined in 2016, which was directly fuelled by the return on total assets and equity of the company. Moreover, the decline in return of all total assets further reduced the value of shares in 2017 and continued until 2019. Thus, the overall trend of the share price for Unilever has been incremental over the period of 5 years, which is directly supported by the profitability ratios of the company. The return on equity of Procter and Gamble declined due to the fall in net profits, while Unilever Global witnessed increment in their equity returns.

The above table directly represents the overall capital structure of the organization during the period of 5 years. The analysis directly indicates that the debt composition of the company increased over the period of 5 years whereas the equity composition declined in a similar way. Due to the alterations and changes in the levels of operations, the company started to increase its debt composition. It could be seen that the capital structure of the company was mainly increased in debt capital in comparison to equity capital in the financial years of the 5 year period. Increment in the levels of depth is a major concern for the organization, as it would force the company to increase their will of interest payments and create problems that can lead to insolvency in the long run. Titman, Keown and Martin (2018) stated that debt equity relationship is essential for lenders and investors, where it helps in detecting the capital position of the company. However, the overall analysis of the capital structure directly indicates that the debt level is lower than 0.7 of the overall capital maintained by the company. These levels are relevant alarming but do not pose any kind of threat regarding insolvency as operations of Unilever PLC are adequate and generate high levels of revenues in the process. Moreover, the debt exposure of Procter and Gamble for the period of 5 years has been adjusted to increase the debt exposure, while increasing equity capital for the organisation is declining. Hence, the competitor’s debt exposure is less than Unilever Global debt exposure, as depicted in the above table.

The above figure directly provides information regarding the financial liabilities of the organization during the period 2019 and 2018. Henceforth, it could be understood that the organisation mainly utilises financial liabilities such as bank loans, Bank overdrafts, bonds, other loans, lease liabilities, derivatives and other financial liabilities to support its overall exposure in the debt segment. The organization utilizes these debt measures to ensure that its overall operations are improving in total while reducing the exposure to equity capital. Vogt (1997) mentioned that financially distressed firms exhibit greater dependency on cash flow to finance capital spending, which is not same for non-financially distressed firms. The above figure further indicates that among the different financial liabilities of the organization the focus of the company is mainly on bonds and other loans that are accumulated by the company as non-current liabilities (Unilever.com, 2022). These bones and loans mainly provide the maximum level of depth exposure for the organization as seen in the above figure.

The above figure indicates about the different levels of financial instrument that is used by the organisation to support its depth of exposure. It is detected that maximum of the financial liabilities of the company is directly coming from notes and bonds. Therefore, the overall financial statement of the company states that the capital structure of the company in recent years is mainly focused on debt capital to support its operation, which has benefits, as well as limitations for the management.

Conclusion:

The report evaluates the overall performance of Unilever Plc for the period of 5 years, where the analysis allows the investors to detect the financial position and current investment opportunity in the company. The total analysis of the financial ratios, share performance and capital structure directly indicates that investment in the company would be a fruitful endeavour for the investor, as it would allow them to maximise the returns from investment. The exposure of Unilever plc in debt is high, which is controllable, as the company’s overall reputation and revenues are superfluous. Thus, investing in the company would allow the investor to minimise the level of risk from the exposure in the capital market while generating continuous levels of returns in form of dividends and share price growth. Hence, it could be indicated that performance of Unilever Global is better in comparison to its peer Procter and Gamble.

References:

Biais, B., & Casamatta, C. (1999). Optimal leverage and aggregate investment. The Journal of Finance, 54(4), pp. 1291-1323. https://doi.org/10.1111/0022-1082.00147

Hull, R. M. (1999). Leverage ratios, industry norms, and stock price reaction: An empirical investigation of stock-for-Debt transactions. Financial Management, 28(2), pp. 32-45. https://doi.org/10.2307/3666193

Londonstockexchange.com. (2022). Retrieved 31 March 2022, from https://www.londonstockexchange.com/stock/ULVR/unilever-plc/our-story

Titman, S., Keown, A. J., & Martin, J. H. (2018). Financial management: Principles and applications (13th ed.). © Pearson Education Limited.

Unilever.com 2022. Retrieved 8 April 2022, from https://assets.unilever.com/files/92ui5egz/production/1e37dec387a6647bd6bd1c8d1bc8a86cd0135ed7.pdf

Vogt, S. C. (1997). Cash flow and capital spending: Evidence from capital expenditure announcements. Financial Management, 26(2), pp. 44-57. https://doi.org/10.2307/3666166

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