RATIO ANALYSIS OF HINDUSTAN UNILEVER LTD.
Presented By: VIVEK
Company Profile: Hindustan Unilever Limited (HUL) is India's largest Fast Moving Consumer Goods Company with a heritage of over 80 years in India and touches the lives of two out of three Indians. HUL works to create a better future every day and helps people feel good, look good and get more out of life with brands and services that are good for them and good for others. With over 35 brands spanning 20 distinct categories such as soaps, detergents, shampoos, skin care, toothpastes, deodorants, cosmetics, tea, coffee, packaged foods, ice cream, and water purifiers, the Company is a part of the everyday life of millions of consumers across India. Its portfolio includes leading household brands such as Lux, Lifebuoy, Surf Excel, Rin, Wheel, Fair & Lovely, Pond’s, etc. The Company has over 18,000 employees and has an annual turnover of INR 31,425 crores (financial year 2015 – 16). HUL is a subsidiary of Unilever, one of the world’s leading suppliers of fast moving consumer goods with strong local roots in more than 100 countries across the globe with annual sales of €53.3 billion in 2015. Unilever has 67.2% shareholding in HUL.
Ratio analysis: The analysis and interpretation of financial statements with the help of ‘ratios’ is termed as ‘Ratio analysis’. A ‘Ratio’ is a mathematical relationship between two items expressed in a quantitative form. Ratios can be defined as “Relationships expressed in quantitative terms, between figures which cause and relationships of or which are connected with each other in some, manner or the other.” The essence of ratio is putting together of two figures to study their relationship. It helps in understanding of financial strengths and weakness of the firm. With the use of ratio analysis one can measure the financial conditions of a firm and can point out whether it is strong, good, questionable or poor. The conclusion can also be drawn as to whether the performance of the firm is improving or deteriorating.
Importance of ratio analysis: Ratio analysis is relevant in assessing the performance of a firm in respect of the following aspects: It helps the management to gauze the efficiency of performance and assess the financial health of the business. It is essential tool for checking the efficiency with which the working capital is being used and managed. Page | 2
Where ratios are based on analysis and scrutiny of past results, they assist the management to formulate policy to arrive at correct decisions, to prepare budgets and to plan for future. Similarly, comparative ratio analysis injects trend analysis. The improvement or deterioration of a business is clearly disclosed by ratio analysis. Moneylenders and creditors can ascertain whether a business will be a desirable debtor or a potential investment zone. It is an integral part for introduction of standard costing and budgetary control. There are different types of ratios which are as follows: Current ratio: This also known as working capital ratio, also called as short-term solvency ratio. This establishes the relationship between the current assets and current liabilities. It indicates the ability of the business to meet its current maturing obligations. Current asset Current ratio = ------------------Current liability Where, current assets include cash in hand, cash at bank, sundry debtors, inventory, bills receivables and items which are easily convertible into cash. Current liabilities include raw materials, sundry creditors, bills payable, outstanding expenses, bank overdraft, short term loans and the like. Quick ratio: This ratio is also known as liquid ratio or acid ratio test ratio. This establishes the relationship between quick assets and current liabilities. Quick assets include all the current assets except stock and prepaid expenses. Quick asset Quick ratio = --------------------Current liability This ratio is significant for the short-term lenders and also as also how quickly they can be paid off. The standard liquid ratio is 1:1. If the quick assets of a business are equal to its current liabilities, it indicates the good solvency of the business. Stock turnover ratio: This ratio is also called stock velocity ratio. It is calculated to ascertain the efficiency of inventory management in terms of capital investment. It shows the relationship between the cost of goods sold and the amount of average inventory. This ratio is helpful in evaluating and review of inventory policy. Cost of goods sold Page | 3
Stock turnover ratio = -------------------Average stock Debtors’ turnover ratio: It is also called ‘Receivables turnover ratio’. Debtors’ turnover ratio measures the number of times the receivables are rotated in a year in terms of sales. This ratio also indicates the efficiency of credit collection and efficiency of credit policy. The ratio is helpful in determining the operational efficiency of a business concern and the effectiveness of its credit policy. It is important to maintain a reasonable quantitative relationship between receivables and sales. Net sales Debtor’s turnover ratio = ----------------Receivables Working capital turnover ratio: This is also known as working capital leverage ratio. This ratio indicates whether or not working capital has been effectively utilized in making sales. In case a company can achieve higher volume of sales with relatively small amount of working capital, it is an indication of the operating efficiency of the company. A higher ratio is the indication of lower investment of working capital and more profit. Net sales Working capital turnover ratio = -----------------------Net working capital
Particulars Net sales Net working capital Working capital T.O Ratio
March’08
March’09
March’10
March’11
March’12
33019.01
31785.72
29066.1
26881.24
23311.35
494.88
776.91
490.88
110.14
1548.78
66.72
40.91
59.21
244.06
15.05
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Consolidated Balance Sheet of Hindustan Unilever Mar '16
Mar '15
Mar '14
Mar '13
Mar '12
EQUITIES AND LIABILITIES SHAREHOLDER'S FUNDS Equity Share Capital Total Share Capital Revaluation Reserves Reserves and Surplus Total Reserves and Surplus Total Shareholders Funds Minority Interest NON-CURRENT LIABILITIES Long Term Borrowings Deferred Tax Liabilities [Net] Other Long Term Liabilities Long Term Provisions Total Non-Current Liabilities CURRENT LIABILITIES Short Term Borrowings Trade Payables Other Current Liabilities Short Term Provisions Total Current Liabilities Total Capital And Liabilities ASSETS NON-CURRENT ASSETS
216.39 216.39 0.67 3754.6 5 3755.3 2 3971.7 1 25.05 42 0 221.71 1156.9 9 1420.7 212.78 5727.6 5 891.65 2915.3 1 9747.3 9 15164. 85
216.3 5 216.27 216.25 216.15 216.3 5 216.27 216.25 216.15 0.67 0.67 0.67 0.67 3804. 3320.3 2647.8 3464.2 62 5 5 6 3805. 3321.0 2648.5 3464.9 29 2 2 3 4021. 3537.2 2864.7 3681.0 64 9 7 8 24.8 22.28 20.86 18.3 7 0.37 178.2 4 993.5 6 1179. 17 36.04 5507. 31 952.7 7 2709. 07 9205. 19 14430 .8
8.44 0
8.44 0
0 0
287.46
482.12
331.67
845.21 1141.1 1
710.13 1200.6 9
674.3 1005.9 7
37.14 5964.8 9
16.3 5341.7 4
0 4843.8 7
939.28 2127.3 2 9068.6 3 13769. 31
659.11 1988.3 7 8005.5 2 12091. 84
564.36 1293.6 7 6701.9 11407. 25
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3207.3 8 12 427.33
2717. 8 22.03 516.3
2640.9 4 24.12 364.9
2395.3 2 36.11 212.1
2232.9 1 29.95 217.32
7.7 3037.6 6 380.19
10.32 2653.8 5 395.32
2490.5 70.25
Deferred Tax Assets [Net]
233.32
179.55
208.52
209.91
Long Term Loans And Advances Other Non-Current Assets
636.17 0.2 4922.5 8
0 3256. 13 323.9 199.7 9 587.2 4 0.46 4448. 7
10.32
Fixed Assets Non-Current Investments
0 3646.7 1 325
530.52 0.7
421.64 296.85 3976.1 8
385.91 0 3156.5 7
2701. 18 2848. 79 1011. 18 2689. 49 646.7 9 84.67 9982. 1 14430 .8
2457.9 5 2939.8 3 1031.0 9 2516.0 3
1857.0 2 2705.9 7
2251.9 1 2667.3 7
996.53 1900.7 1
856.74 1996.4 3
534.52 80.09 9559.5 1 13769. 31
581.98 73.45 8115.6 6 12091. 84
441.02 37.21 8250.6 8 11407. 25
Tangible Assets Intangible Assets Capital Work-In-Progress Intangible Assets Under Development
Total Non-Current Assets CURRENT ASSETS Current Investments Inventories Trade Receivables Cash And Cash Equivalents Short Term Loans And Advances Other Current Assets Total Current Assets Total Assets
2422.4 2 2752.1 3 1268.5 1 3027.8 4 668.69 102.68 10242. 27 15164. 85
4209.8
Consolidated Profit & Loss account Mar '16
Mar '15
Mar '14
Mar '13
Mar '12
35462. 74 2443.7 3 33019. 01
33716. 67 1930.9 5 31785. 72 1432.3 4 -57.04 33161.
30629. 51 1563.4 1 29066. 1
28364. 51 1483.2 7 26881. 24
24381. 42 1070.0 7 23311. 35
976.9 172.47 30215.
1260.5 26 28167.
498.29 -95.15 23714.
Income Sales Turnover Excise Duty Net Sales Other Income Stock Adjustments Total Income
533.5 -88.28 33464.
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23
02
47
74
49
Expenditure Raw Materials Power & Fuel Cost Employee Cost Miscellaneous Expenses Total Expenses
Operating Profit PBDIT Interest PBDT Depreciation Profit Before Tax PBT (Post Extra-ord Items) Tax Reported Net Profit Minority Interest Net P/L After Minority Interest & Share Of Associates Total Value Addition Equity Dividend Corporate Dividend Tax Per share data (annualised) Shares in issue (lakhs) Earning Per Share (Rs) Book Value (Rs)
15754. 16151. 15057. 14162. 12446. 77 57 48 33 82 309.21 346.97 362.76 335.94 299.63 1742.2 1723.8 1575.7 1412.6 1200.9 4 7 9 8 4 9349.6 8279.0 7668.0 6913.7 5910.2 3 1 4 2 3 27155. 26501. 24664. 22824. 19857. 85 42 07 67 62 Mar Mar Mar Mar Mar '16 '15 '14 '13 '12 5774.8 5227.2 4082.5 3358.5 8 6 4574.5 7 8 6308.3 5343.0 3856.8 8 6659.6 5551.4 7 7 4.54 17.7 40.68 25.72 1.65 6303.8 5510.7 5317.3 3855.2 4 6641.9 2 5 2 357.28 322.39 295.54 251.32 233.54 5946.5 6319.5 5215.1 5066.0 3621.6 6 1 8 3 8 5946.5 6319.5 5215.1 5066.0 3621.6 6 1 8 3 8 1852.4 1259.4 1226.6 8 1944 4 6 821.54 4094.0 4375.5 3955.7 3839.3 2800.1 8 1 4 7 4 11.66 12.43 10.17 10.39 9.48 4120.9 3683.8 3706.8 3223.2 2676.9 5 6 3 6 7 11401. 10349. 9606.5 8662.3 08 85 9 4 7410.8 3462.2 3245.3 2811.4 3999.9 1620.9 6 2 3 9 4 695.57 646.09 470.13 665.4 262.96 21639. 37 18.92 18.35
21634. 65 20.22 18.59
21626. 96 18.29 16.35
21624. 72 17.75 13.24
21615. 12 12.95 17.03
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Data analysis and interpretation Current ratio: Current asset Current ratio = ------------------Current liability March’08 Current Asset Current Liabilities Current Ratio
(Rs. Crores) March’09
10242. 27 9747.3 9 1.05
March’10
9982. 1 9205. 19 1.08
March’11
9559. 51 9068. 63 1.05
8115. 66 8005. 52 1.01
March’12 8250. 68 6701. 9 1.23
Current Ratio 1.3 1.25 1.2
Current Ratio
1.15 1.1 1.05 1 0.95 2008
2009
2010
2011
2012
Inference: The ideal ratio is 2:1. In the year 2008 it was found the current ratio was 1.0:1 which is below the standard of 2:1. It is due to decrease in the total assets from the previous year to the current year. Similarly, the current ratio for the year 2009,2010,2011 and 2012 was 1.29,1.22,1.09,and0.88 respectively. In each year the ratios were below the standard 2:1 because of the decrease in current assets from the previous Page | 8
year and increase in current liabilities in the current year. This is not a good indication as the firm will not be able to meet its short term obligations.
Quick ratio: Quick asset Quick ratio = --------------------Current liability March’ 08
March’ 09
March’ 10
March’ 11
March’ 12
Quick Asset Current Liability
1535.47 2541.72
1865.68 2475.37
2469.3 3371.37
2151.91 3995.59
Quick Ratio
0.60
0.75
0.73
0.54
2565.43 5334.35 0.48 (Rs. Crores)
Quick Ratio 0.8 0.7 0.6 Quick Ratio
0.5 0.4 0.3 0.2 0.1 0 2008
Inference:
2009
2010
2011
2012
The traditional rule of thumb of this ratio has been 1:1. The quick ratio gradually decreases
from 0.60 in the year 2008 to 0.48 in the year 2012. The ideal ratio is not met during any of the years from 2008 to 2012. The ideal ratio is met once the inventories are sold and converted into debtors or cash.
Stock turnover ratio:
Cost of goods sold Average stock
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COGS Average stock Stock T.O. Ratio
March’08 9062.17 1147.11 7.90
March’09 6844.51 1276.96 5.36
March’10 7583.9 1484.13 5.11
March’11 11272.12 1923.57 5.86
March’12 14717.01 2219.76 6.63
Stock Turnover Ratio 8 7 6 5 4 3 2 1 0
Stock Turnover Ratio
2008
Inference:
2009
2010
2011
2012
This ratio indicates efficiency of the firm in selling its product. For Ashok Leyland Company
the highest recorded was in the year 2008 as 7.90 and then it went on decreasing in the following years. This shows that the company’s inventory management technique is less efficient as compare to last year.
Debtor’s turnover ratio: Net sales Debtor’s turnover ratio = ----------------Receivables (Rs. Crores)
Column1 Net sales Receivables Debtor’sT.O.Ratio
March’08
March’09
March’10
March’11
March’12
33019.01
31785.72
29066.1
26881.24
23311.35
1268.51
1011.18
1031.09
996.53
856.74
28.97
31.13
28.67
29.01
25.62
Table no.4
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Debtor's turnover ratio 18 16 14 12 10 8 6 4 2
Debtor's turnover ratio
0 2008
2009
2010
2011
2012
Inference: The receivable turnover ratio (debtor’s turnover ratio, accounts receivable turnover ratio) indicates the velocity of a company's debt collection, the number of times average receivables are turned over during a year. The higher the values of debtors turnover, the more efficient is the management of credit. But in the company the debtor turnover ratio is decreasing year to year from 17.74 in 2008 to 11.02 in 2012.This shows that company is not utilizing its debtors efficiently. Now their credit policy has become liberal as compare to previous year.
Working capital turnover ratio: Net sales Working capital ratio = -------------------------Net working Capital
Particulars Net sales Net working capital Working capital T.O Ratio
March’0 8
March’0 9
March’1 0
March’1 1
March’1 2
33019.01
31785.72
29066.1
26881.24
23311.35
494.88
776.91
490.88
110.14
1548.78
66.72
40.91
59.21
244.06
15.05
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Working capital turnover ratio 40 35 30 25 20 15 10 5 0
Working capital turnover ratio
2008
2009
2010
2011
2012
(Rs. Crores)
Table no.5 Inference:
The working capital turnover ratio is fluctuating year to year that was high in the year 2008,
36.63 times; there was a huge fall in the ratio in the year 2009, 8.56 times. Again it started increasing in the year 2010 by 10.10 times, 2011 by31.23 times and 2012 by 24.72 times. This shows that the company is utilizing its working capital efficiently.
Overall Inference: Inventories have gone up in each year from 2008 to 2012.This is due to the increase in activity levels, robust demand in export market and launch of new products and also due to increase in consumption of raw materials. Sundry debtors of every year have increased due to increase in credit sales level. But the increase in debtors and inventory is less than proportionate to the activity increase. Cash & Bank balance has decreased by 146.97 crores in the year 2012 due to utilization of funds inwarded last year and also due to increased investment in capacity expansion or upgradation. Whereas in other years it has increased due to deposit of funds in banks. Current liabilities have increased due to higher bills payable. The has been an increase in net working capital during the year 2008 with respect to 2009 by 719.81 crores and in the year 2010 with respect to 2011 by 221.84 crores. This is due to the inwarding of funds during the respective years and also for higher inventory levels. Again, there has been a decrease in net working capital in the year 2009 with respect to 2010 by 321.08 crores and 1412.23 in the year 2011 with respect to 2012 which has occurred due to utilization of funds. The company’s current ratio is not met during any of the years from 2008 to 2012. Page | 12
Quick ratio is also not satisfied as it below the standard of 1:1 in every year. Lowest being recorded in the year 2012 as 0.48. Stock turnover ratio was highly recorded in the year 2008 as 7.90 times and it went on decreasing in the following years. Again there was a slight increase during the year 2012 as 6.63 times from 5.86 times in the year 2011. Due to the inefficiency in utilizing the debtors, the debtors’ turnover ratio has kept on decreasing from 2008 to 2010. It has slightly increased during the year 2011 and 2012. The current position is 11.02, a slight increase than the previous year. Working capital turnover ratio is satisfactory in the current year by 24.72 times; though in the year 2008 in had reached its maximum by 36.63 times. Positive working capital during the year 2008-09 and 2010-11 indicates that company has the ability of payments of short terms liabilities. In the year 2009-10 and 2011-12 working capital decreased because increased of expenses as manufacturing expenses and increase the price of raw materials.
Suggestions The current ratio and quick ratio did not meet the standard requirement that is 2:1. The company has to increase its current ratio to meet its standard requirement otherwise it will not be able to meet the short term Page | 13
obligations. In the year 2012 the current ratio was 0.88 which indicates insolvency of the firm. For meeting the current ratio standard requirement the company has to increase its current assets. A high stock turnover ratio stands foe even movement of stock. A low ratio hints at excessive stock level. In the above analysis it is seen the movement is slow that invites higher storage cost, higher exposure to risks of wastage, etc. The company should take steps like quality control to improve the movement. A high working capital turnover ratio indicates efficient utilization of working capital and a low ratio indicates otherwise as in the year 2009 and 2010. But a very high working capital turnover ratio may also mean lack of sufficient working capital which is not a good situation. In the year 2012 the working capital turnover ratio was 24.72 which is quite satisfactory compared to other years.
Conclusion Through the project study, practical exposure of the business was understood. The theory was so simple and with lot of assumption in the book. But there are so many issues which are so practical and could not be learnt theoretically and that was possible in the project study. With the help of ratio analysis, a business understanding was possible and was able to reason out the movement in the various elements. It also gave ideas for better analysis with the use of statistical tools like correlation analysis. The company is able to demonstrate and exercise significant control reduction in working capital where in the sale revenue has doubled during the review period.
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