Project: Ratio Analysis on Unilever Pakistan

SUBMITTED TO:
Prof. Ch. MUZHAR HUSSAIN

SUBMITTED BY:
Sagheer Abbas Awan (Reg. No. 4090)

Taskeen Haider Khan (Reg. No. 4070)

Nasir Wali Muhammad (Reg. No. 4089)

FACULTY OF MANAGEMENT SCIENCES

INTERNATIONAL ISLAMIC UNIVERISTY
ISLAMABAD
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Sr.N Table of Contents Page No
o
1 Acknowledgement 03

2 Introduction to Unilever 04

3 Vision 05

4 History of Unilever 06

5 Unilever Pakistan 08

6 Financial Ratio Review 08

7 Types of Ratio 09

8 Ratio Analysis 10

9 Caclculation of Ratio of Unilever 14

10 Ratios of Unilever for Four Years 18

11 Competitor’s(Colgate Palmolive) Financial Ratio 19

12 Internal Analysis 20

13 Comparision 24

14 External Analysis 26

15 Common Size Analysis 32

16 Index Analysis 36

17 Conclusion 37

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 Acknowledgement

Our deepest thanks to Prof. Ch Muzhar Hussain in the Guide of the

project for guiding and correcting various problems of us with attention and
care. He has taken pain to go through the project and make necessary
correction as
and when needed. We have spent many of days working on it. We have put
a bit of "heart and soul" into it. Therefore, We hope that you will very much
enjoy this work as well as find it immensely educative!

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Introduction to Unilever
160 million times a day, someone somewhere chooses a Unilever product. From feeding your
family to keeping your home clean and fresh, our brands are part of everyday life.

With 400 brands spanning 14 categories of home, personal care and foods products, no other
company touches so many people's lives in so many different ways.

Our brand portfolio has made us leaders in every field in which we work. It ranges from much-
loved world favorites including Lipton, Knorr, Dove and Omo, to trusted local brands such as
Blue Band and Suave.

From comforting soups to warm a winter's day, to sensuous soaps that make you feel fabulous,
our products help people get more out of life.

We're constantly enhancing our brands to deliver more intense, rewarding product experiences.
We invest nearly €1 billion every year in cutting-edge research and development, and have five
laboratories around the world that explore new thinking and techniques to help develop our
products.

Continuous development
Consumer research plays a vital role in our brands' development. We're constantly developing
new products and developing tried and tested brands to meet changing tastes, lifestyles and
expectations. And our strong roots in local markets also mean we can respond to consumers at
a local level.

By helping improve people's diets and daily lives, we can help them keep healthier for longer,
look good and give their children the best start in life.

We also believe that the very business of conducting business in a responsible way has a
positive social impact. We create and share wealth, invest in local economies and develop
people's skills – both inside our organisation and in the communities around us.

Today Unilever employs 163 000 people, sells products in 170 countries worldwide, and
supports the jobs of many thousands of distributors, contractors and suppliers.

Our vision

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Unilever products touch the lives of over 2 billion people every day – whether that's through
feeling great because they've got shiny hair and a brilliant smile, keeping their homes fresh and
clean, or by enjoying a great cup of tea, satisfying meal or healthy snack.

A clear direction
The four pillars of our vision set out the long term direction for the company – where we want to
go and how we are going to get there:

• We work to create a better future every day

• We help people feel good, look good and get more out of life with brands and services
that are good for them and good for others.

• We will inspire people to take small everyday actions that can add up to a big difference
for the world.

• We will develop new ways of doing business with the aim of doubling the size of our
company while reducing our environmental impact.

We've always believed in the power of our brands to improve the quality of people’s lives and in
doing the right thing. As our business grows, so do our responsibilities. We recognise that
global challenges such as climate change concern us all. Considering the wider impact of our
actions is embedded in our values and is a fundamental part of who we are.

Purpose & principles

Our corporate purpose states that to succeed requires "the highest standards of corporate
behavior towards everyone we work with, the communities we touch, and the environment on
which we have an impact."

Always working with integrity

Conducting our operations with integrity and with respect for the many people, organisations
and environments our business touches has always been at the heart of our corporate
responsibility.

Positive impact
We aim to make a positive impact in many ways: through our brands, our commercial
operations and relationships, through voluntary contributions, and through the various other
ways in which we engage with society.

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Continuous commitment
We're also committed to continuously improving the way we manage our environmental impacts
and are working towards our longer-term goal of developing a sustainable business.

Setting out our aspirations

Our corporate purpose sets out our aspirations in running our business. It's underpinned by our
code of business Principles which describes the operational standards that everyone at
Unilever follows, wherever they are in the world. The code also supports our approach to
governance and corporate responsibility.

Working with others

We want to work with suppliers who have values similar to our own and work to the same
standards we do. Our Business partner code, aligned to our own Code of business principles,
comprises ten principles covering business integrity and responsibilities relating to employees,
consumers and the environment.

Our history
Unilever's corporate mission – to add vitality to life – shows how clearly the business
understands 21st century-consumers and their lives. But the spirit of this mission forms a
thread that runs throughout our history.

Helping people get more out of life

In the 1890s, William Hesketh Lever, founder of Lever Bros, wrote down his ideas for Sunlight
Soap – his revolutionary new product that helped popularise cleanliness and hygiene in
Victorian England. It was 'to make cleanliness commonplace; to lessen work for women; to
foster health and contribute to personal attractiveness, that life may be more enjoyable and
rewarding for the people who use our products'.

This was long before the phrase 'Corporate Mission' had been invented, but these ideas have
stayed at the heart of our business. Even if their language - and the notion of only women doing
housework – has become outdated.

In a history that now crosses three centuries, Unilever's success has been influenced by the
major events of the day – economic boom, depression, world wars, changing consumer
lifestyles and advances in technology. And throughout we've created products that help people

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get more out of life – cutting the time spent on household chores, improving nutrition, enabling
people to enjoy food and take care of their homes, their clothes and themselves.

Balancing profit with responsible corporate behaviour

In the late 19th century the businesses that would later become Unilever were among the most
philanthropic of their time. They set up projects to improve the lot of their workers and created
products with a positive social impact, making hygiene and personal care commonplace and
improving nutrition through adding vitamins to foods that were already daily staples.

Today, Unilever still believes that success means acting with the highest standards of corporate
behaviour towards our employees, consumers and the societies and world in which we
live. Over the years we've launched or participated in an ever-growing range of initiatives to
source sustainable supplies of raw materials, protect environments, support local communities
and much more.

Through this timeline you'll see how our brand portfolio has evolved. At the beginning of the
21st century, our Path to Growth strategy focused us on global high-potential brands and our
Vitality mission is taking us into a new phase of development. More than ever, our brands are
helping people feel good, look good and get more out of life – a sentiment close to Lord
Leverhulme's heart over a hundred years ago.

UNILEVER PAKISTAN
Unilever Pakistan limited is a largest consumer products company in Pakistan. It was born
out of dream to Set-up in Pakistan an industry of excellence in 1948 as Lever Brothers
Pakistan Limited. Unilever Pakistan Limited is Manufacturing & Marketing its Detergents,
Personal Products, Tea, SCC Products & Ice Cream over 50 brands.

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In line with global alignment strategy and in order to leverage the synergies of Unilever’s
International brand strength, market edge and corporate image, Lever Brothers Pakistan
Limited has change its name to Unilever Pakistan Limited, in August 2002.

Financial Ratio Review

Financial ratio analysis is the calculation and comparison of ratios which are derived from
the information in a company's financial statements. The level and historical trends of these
ratios can be used to make inferences about a company's financial condition, its operations
and attractiveness as an investment.

Any successful business owner is constantly evaluating the performance of his or her company,
comparing it with the company's historical figures, with its industry competitors, and even with
successful businesses from other industries. To complete a thorough examination of your
company's effectiveness, however, you need to look at more than just easily attainable
numbers like sales, profits, and total assets. You must be able to read between the lines of your
financial statements and make the seemingly inconsequential numbers accessible and
comprehensible.

Financial ratios are calculated from one or more pieces of information from a company's
financial statements. For example, the "gross margin" is the gross profit from operations divided
by the total sales or revenues of a company, expressed in percentage terms. In isolation, a
financial ratio is a useless piece of information. In context, however, a financial ratio can give a
financial analyst an excellent picture of a company's situation and the trends that are
developing.

TYPE OF RATIOS

• Leverage Ratios which show the extent that debt is used in a company's capital
structure.

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 • Liquidity Ratios which give a picture of a company's short term financial situation or
solvency.

• Operational Ratios which use turnover measures to show how efficient a company is in
its operations and use of assets.

• Profitability Ratios which use margin analysis and show the return on sales and capital
employed.

• Solvency Ratios which give a picture of a company's ability to generate cash flow and
pay it financial obligations.

Year of analysis:

We take four year financial statements of Unilever & Colgate palmolive. The year begin
from 2006 & ends in year 2009.

Sources of Data:

We have taken the data from the annual reports of Unilever from the website of Unilever
Pakistan. Then we take the financial statements for the annual reports. We also take the
financial statements Colgate Palmolive.

Assumptions:

We assume Sales as net Sales and credit sales. Then we assume other receivables
taken from Balance Sheet as Account Receivable. Non-current liabilities are assumed as Long
term debts.

Ratio Analysis:

Liquidity Ratios.

Liquidity ratios measure the firms ability to meet current obligations; i.e. the ability to pay its

10
obligations as and when they become due. They show whether the firm can pay its short term
obligations out of short term resources or not. They establish a relationship between cash and
other current assets to current liabilities. If a firm has sufficient net working capital it is assumed
to have enough liquidity. The most common ratios which indicate the extent of liquidity are
current ratio and quick ratio.

Current Ratio:

It is calculated by dividing the Current Assets by Current Liabilities.

Current Asset
Current ratio =
Current Liabilities.

Current assets include cash, securities, debtors B/R, stock etc and current liabilities include
creditors/P, accrued expense, short term loan etc. Current ratio is a measure of the firm’s short
term solvency. It indicates the availability of a current asset in rupees for every one rupee of
current liability. A ratio greater than1 means that the firm has more current assets than current
claims against them.
Quick Ratio (Acid Test Ratio):
This ratio establishes a relationship between quick or liquid assets and current liabilities. An
asset is liquid, if it can be converted in to cash immediately or reasonably soon without a loss of
value. Cash is the most Liquid asset. QA also include debtors, B/R and securities. Inventories
are considered less liquid. They normally require some time for realizing in to cash.

Quick assets
Quick Ratio =
Current Liabilities.
.
Quick assets = Current Assets – Inventories or stock
Generally a QR of 1:1 is considered to represent satisfactory current financial position.

Financial Leverage / debt Ratio:

Debt Equity Ratio:

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The relationship between borrowed funds and owners capital is a popular measure of the long
term
Financial solvency of the firm. This relationship is shown by the debt equity ratio.

Debt
Debt Equity Ratio =
Equity

The term debt refers to the total outside liabilities. It includes all current liabilities and other
outside liabilities
Like loan debenture etc. The term equity refers to net worth or shareholders fund.

Debt-Asset Ratio:

Total Liabilities
=
Total Assets

Indicates what proportions of the company’s assets are being financed through debt.

• This ratio is very similar to the debt-equity ratio.

• A ratio under 1 means a majority of assets are financed through equity,

above 1 means they are financed more by debt. Furthermore you can
interpret a high ratio as a "highly debt leveraged firm".

Long-Term Debt to Capitalization Ratio:

A ratio showing the financial leverage of a firm, calculated by dividing long-term debt by the
amount of capital available:

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A variation of the traditional debt-to-equity ratio, this value computes the proportion of a
company's long-term debt compared to its available capital. By using this ratio, investors can
identify the amount of leverage utilized by a specific company and compare it to others to help
analyze the company's risk exposure. Generally, companies that finance a greater portion of
their capital via debt are considered riskier than those with lower leverage ratios.

Receivables Turnover Ratio:

An accounting measure used to quantify a firm's effectiveness in extending credit as well as
collecting debts. The receivables turnover ratio is an activity ratio, measuring how efficiently a
firm uses its assets.

Some companies' reports will only show sales - this can affect the ratio depending on the size
of cash sales.

By maintaining accounts receivable, firms are indirectly extending interest-free loans to their
clients. A high ratio implies either that a company operates on a cash basis or that its extension
of credit and collection of accounts receivable is efficient.

A low ratio implies the company should re-assess its credit policies in order to ensure the timely
collection of imparted credit that is not earning interest for the firm.

Accounts Payable Turnover Ratio:

Account Payable Turnover = Net Credit Purchase / Account Payable

A short-term liquidity measure used to quantify the rate at which a company pays off its

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suppliers. Accounts payable turnover ratio is calculated by taking the total purchases made
from suppliers and dividing it by the average accounts payable amount during the same period.

If the turnover ratio is falling from one period to another, this is a sign that the company is taking
longer to pay off its suppliers than it was before. The opposite is true when the turnover ratio is
increasing, which means that the company is paying of suppliers at a faster rate.

Inventory Turnover:
A ratio showing how many times a company's inventory is sold and replaced over a period.
Inventory Turnover = Cost of Goods Sold
Inventory
This ratio should be compared against industry averages. A low turnover implies poor sales
and, therefore, excess inventory. A high ratio implies either strong sales or ineffective buying.

Asset Turnover

Revenue
=
Total Assets
Indicates the relationship between assets and revenue.

• Companies with low profit margins tend to have high asset turnover,
those with high profit margins have low asset turnover - it indicates
pricing strategy.

• This ratio is more useful for growth companies to check if in fact they
are growing revenue in proportion to sales.

Profit Margin :

Net Income
=
Revenue

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Indicates what portions of sales contribute to the income of a company.

• This ratio is not useful for companies losing money, since they have no
profit.

• A low profit margin can indicate pricing strategy and/or the impact
competition has on margins.

CALUCATION OF RATIOS OF UNILEVER FOR THE YEAR OF

2009

Liquidity Ratio:
Current Ratio = Current Assets / Current Liabilities

= 5912394 / 7101678

= 0.83253

Interpretation:

A generally acceptable current ratio is 2 to 1. But whether or not a specific ratio is satisfactory
depends on the nature of the business and the characteristics of its current assets and
liabilities. The minimum acceptable current ratio is obviously 1:1, but this ratio is low than 1
which is .83 so current assets of unlived is lesser than current liabilities.

Quick Ratio = Current Assets-inventory / Current Liabilities

= 5912394-3649070 / 7101678

= 0.318702

Interpretation:

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A 1:1 ratio is usually considered to be satisfactory but the asset test ratio of unlevel is
unsatisfactory because the company immediate cash resources are not sufficient to meet its
current obligation. The ratio is particularly important for bank.

Financial Leverage / Debt Ratio:

Debt to Equity Ratio = Total Debt / Shareholder Equity

= 1019952 /3291120

= 0.31

Interpretation:

In this ratio we find how much amount is debt is covered by shareholder equity. In this we can
find that if 100 is taken as loan then 31 is covered by shareholder and remaining is taken from
debts.

Debt to Total Assets = Total Debt / Total Assets

= 1019952 / 11425715

= 0.08926

Interpretation:

This ratio is an indicator of the financial stability of the enterprise. The lower is the debt ratio
more comfortable the creditor will feel as regards security of their debts. Too excessive debt to
total may expose an entity to insolvency. The debt to assets ratio is very lower so there is no
risk of insolvency of the company.

Long Term Debt Ratio = Long term Debt / Capitalization

= 1019952 /4311072

= 0.2365

Interpretation:

This value computes the proportion of a company's long-term debt compared to its available
capital. Companies that finance a greater portion of their capital via debt are considered riskier
than those with lower leverage ratios.

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Activity Ratio:
Receivables Turnover = Net Credit Sale / Account Receivables

= 38187582 / 82141

= 464.9028

Average Collection Period = Days in Year / Receivables Turnover

= 365 / 464.9028

= 78 days

Interpretation:

The lower the average collection period the higher will be return on investment. It depends
upon the credit policy of the company.

Payable Turnover = Net credit Purchase / Account Payable

= 20593398/5785776

= 3.56

Payable Turnover in Days = Days in Year / Payable Turnover

= 365 /3.56

= 102 days

Interpretation:

In this ratio we find in how many days they pay to creditors. The unilever
company pays back the creditor in 102 days the amount they lend. These days are extended
due to financial crises in the world.

Inventory Turnover Ratio:

Inventory Turnover = Cost of Goods Sold / Inventory

= 24852625 / 3649070

= 6.81067

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Inventory Turnover in Days = Days in Year / Inventory Turnover

= 365 / 6.81067

= 53 days

Interpretation:

In this ratio we find in how many days company order the inventory. The unilever company
gives order for inventory in 53 days.

Asset Turnover = Total Sales / Total Asset

= 38187582 / 11425715

= 3.34224

Interpretation:

Asset turnover ratio has a significant impact on return on investment. In this ratio sales is
greater than assets and the ratio is 3.3. this is the basic ratio to measure profitability.

Gross Profit Margin = Gross Profit / Net Sale

= 13334957 / 38187582

= 0.34919 or 34.919%

Interpretation:

The ratio indicates the margin of safety as to reduction of selling price of products of a company
without incurring loss. The ratio of gross profit margin is increase little bit from previous year
which is .33 %.

Net Profit Margin = Net Income after Tax / Net Credit Sale

= 3055740 / 38187582

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 = 8.00 %

Interpretation:

The ratio indicates the effectiveness and efficiency with which the entity’s resources have been
used by the management. No norms can be set. The profit margin of company is 8 %.

Return on Investment or Earning Power = Net Income after Tax / Total Assets

= 3055740 / 11425715

= 26.74 %

Interpretation:

In this ratio we find return on investment. The company gets 26.74% return on investment.

Return on Equity = Net Income after Tax / Shareholder Equity

= 3055740 / 3291120

= 93%

Interpretation:

In this ratio how much they earn from shareholder’s investment. The unilever gets 93% from the
shareholder investment.

Ratios of Unilever for Last Four Years

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Particulars 2009 2008 2007 2006

Current Ratio 0.83253 0.70714 0.73235 0.86989

Quick Ratio 0.318702 0.205163 0.244477 0.36094

Debt to Equity 0.03099 0.03099 0.2537 0.1899

Ratio

Debt to Total 0.08926 0.060315 0.06215 0.05407

Asset

Long term Debt 0.2365 0.2366 0.2024 0.1596

Ratio

Average 78 days 26 days 39 days 16 days

Collection
Period

Payable 102 days 97 days 145 days 127 days

turnover in
Days

Inventory 53 days 76 days 70 days 59 days

turnover in
Days

Asset Turnover 3.34 2.72 2.88 3.26

Gross Profit 34.9% 34.7% 38.9% 36.9%

Margin

Net Profit 8% 6% 7% 7%
Margin

Return on .27 .17 .21 .25

Investment

Return on 0.89 0.85 0.89 0.93

Equity

Competitor’s(Colgate Palmolive) financial ratios

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Particulars 2009 2008 2007 2006

Current Ratio 2.521 2.564 2.139 1.911

Quick Ratio 1.469 1.357 1.189 1.033

Debt to Equity 0.062 0.095 0.096 0.087

Ratio

Debt to Total 0.043 0.052 0.047 0.053

Asset

Long term Debt 0.058 0.087 0.490 0.079

Ratio

Average 0.396 days 1.966 days 1.886 days 0.792 days

Collection
Period

Payable 242.04 325.31

turnover in
Days
- -
Inventory 48 days 73 days 70 days 66 days
turnover in
Days

Asset Turnover 2.839 2.275 2.239 2.371

Gross Profit 24.16% 29.37% 31.67% 32.23%

Margin

Net Profit 6.71% 9.51% 10.19% 9.17%

Margin

Return on 0.190 0.121 0.228 0.217

Investment

Return on 0.278 0.398 0.466 0.353

Equity

INTERNAL ANALYSIS:

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Particulars 2009 2008 2007 2006

Current Ratio 0.83253 0.70714 0.73235 0.86989

Analysis:

Unilever Pakistan Company has weak current ratio to meet short term obligations. Performance
of the company is not consistent as compared to the last four year rations. Unilever should
improve his policies to improve the current ratio to meet its short term obligations. The current
liabilities increases 84% in comparison to 2008.Increase in current liabilities tends to decrease
the current ratio. So the increase in current assets is less than the increase in current liabilities.

Particulars 2009 2008 2007 2006

Quick Ratio 0.318702 0.205163 0.244477 0.36094

Analysis:

Unilever Pakistan quick ratio or acid-test ratio is very poor in last four years. The ratio has
increased from 2007 to 2009 is 77%. But this increase is not sufficient as should be as compare
to 1:1. The decrease in quick ratio for year 2007 & 2006 was due to increase in the inventory
levels. This tends to decrease the quick ratio for the company.

Particulars 2009 2008 2007 2006

Debt to Equity 0.043 0.052 0.047 0.053

Ratio

Analysis:

In 2009 the ratio of debt to equity is 0.043 which is the least in last three years. This ratio give
the information about how much amount is taken from debt and how much is taken from
shareholders. Unilever take 43% from shareholder and 47% from debts in 2009. The ratio of
debt is greater from year 2006 to 2008. The increase in debt is 34% from year 2006 to 2009.

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The company has to reduce its debt to increase its profit. Because these debts also increases
the interest expense which they have to pay.

Particulars 2009 2008 2007 2006

Debt to Total 0.08926 0.060315 0.06215 0.05407

Asset

Analysis:

Indicates what proportions of the company’s assets are being financed through debt. Debt-to
asset is the important ratio and the Unilever Pakistan continually works for the improvement of
this ratio as from the previous ones. The trend of this ratio is increasing and has benefits for the
company. The company increases the property plant and equipment by 94% as compare to
2008 in 2009. The total asset of the company has increased 99% as compare to 2008. But the
Debt of the company is increases as well, which contribute to increase the debt ratio of the
company.

Particulars 2009 2008 2007 2006

Long term Debt 0.058 0.087 0.490 0.079

Ratio

Analysis

This value computes the proportion of a company's long-term debt compared to its available
capital. By using this ratio, investors can identify the amount of leverage utilized by a specific
company and compare it to others to help analyze the company's risk exposure. Generally,
companies that finance a greater portion of their capital via debt are considered riskier than
those with lower leverage ratios. In this ratio the company has lower ratio so it is lesser risky.

Particulars 2009 2008 2007 2006

Average 78 days 26 days 39 days 16 days

Collection

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Period

Analysis:

This ratio shows the quality of the firm receivables and how successful the firm is in its
collections. This ratio shows the number of times receivables turn into cash. The collection
period for the company is 16 days in 2006 but this rate is increases from 16 days to 39 days.
This rate decreases in 2008 from 39 to 26 days as compare to 2007. But this rate has
increases from 26 days to 78 days due to financial problems of the dealers. So after the sale of
the goods they have to wait 78 days to collect the amount.

Particulars 2009 2008 2007 2006

Inventory 53 days 76 days 70 days 59 days

turnover in
Days

Analysis:

The inventory turnover in days in how many days, on average, before inventory is turned into
accounts receivable through sales. In this case Unilever Pakistan trend of inventory turn over is
increasing from 59 days to 70 days which tends the efficiency of the company increases. This
trend further increases from 70 days to 76 days as compare to 2007 to 2008. But this trend
decreases from 76 days to 53 days. This shows that company progress is very well in the
recent year as compare to previous years.

Particulars 2009 2008 2007 2006

Asset Turnover 3.34 2.72 2.88 3.26

Analysis:

This ratio shows how many times you are getting sales on your assets, the higher the ratio the
higher sales you are generating on your assets. In this case Unilever Pakistan has high asset
turnover ratio that is 3.34 times. They are generating 3.34 times sales on their assets. Trend of
this was good in 2006. But this trend decreases in 2007 & 2008 because sales of the company
decrease due to financial crises in the world. But this matter is settling so the trend of the

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company is again becoming better and their sales in 2009 has increased this cause the
company to increase the assets turnover ratio for year 2009.

Particulars 2009 2008 2007 2006

Gross Profit 34.9% 34.7% 38.9% 36.9%

Margin

Analysis:

This ratio shows how much gross profit is earned on sales. The higher the ratio the higher the
gross profit. This ratio also shows the efficiency of the firm. In this case Unilever Pakistan has
gross profit margin 34.9% then the last years 2007 that is 34.7%. The last four year trend
shows mixed trend in the company gross profit margin. The Company made significant
progress in sales in 2009 which increases 81% as compare to 2008. The company made good
progress in gross profit margin in 2007 which has value of 38.9%. This is due to lesser cost of
good sold which help the company to make good progress in 2007.

Particulars 2009 2008 2007 2006

Net Profit 8% 6% 7% 7%
Margin

Analysis:

This ratio shows how much Net profit is earned on sales. The higher the ratio the higher the net
profit. This ratio also shows the efficiency of the firm. In this case Unilever Pakistan has high
net profit margin shows the more net profit of the company in 2009. Which improves the
position of the company and its share, values in the market? There is decreasing trend in net
profit margin as compared to previous performances of the company in 2008. The Company
made significant progress in volume growth during 2009 delivering a record sales volume of 3.8
billion, an increase of 81% in comparison to 2008.

Particulars 2009 2008 2007 2006

Return on 27% 17% 21% 25%

25
Investment

Analysis:

This ratio shows how much return is earned on investment. The return on investment in 2006 is
25% which has decreases to 21% in 2007. The decrease in return on investment in 2007 &
2008 is due to decrease in net profit of the company. The total asset of the company is
increases which cause them to decrease the return on investment. The return on investment is
increases in 2009 as compare to 2008. Return on investment is 27% which is increase of 63 %
in 2009. This is due to increase in net profit after tax and total asset decreases which cause
them to increase in ROI.

Particulars 2009 2008 2007 2006

Return on 89% 85% 89% 93%

Equity

Analysis:

This ratio shows the declining trend also in this ratio and return on equity was declined through
the year 2006 and improved in the last year that is 2009. This ratio shows the company
shareholders equity return with every year’s sale. The company returns on equity declining as
compared to the last four years performance of the company. The return on equity in 2009 is
89% which is better than last year performance.

YEAR WISE COMPARSION OF U.P & C.P

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 Ratios 2009 2008 2007 2006

Unilever Colgate Unilever Colgate Unilever Colgate Unilever Colgate

Pakistan Palmolive Pakistan Palmolive Pakistan Palmolive Pakistan Palmolive

Current 0.832 2.521 0.707 2.564 0.732 2.139 0.869 1.911

Acid 0.318 1.469 0.205 1.357 0.244 1.189 0.360 1.033

Test

Debt to 0.08926 0.062 0.0603 0.095 0.06215 0.096 0.0540 0.087

equity

Debt to 0.089 0.043 0.060 0.052 0.062 0.047 0.054 0.053

Asset

Long 0.2365 0.058 0.2366 0.087 0.2024 0.490 0.1596 0.079

term
Debt

Average 78 days 0.396 26 days 1.966 39 days 1.886 16days 0.792

Collectio days days days days
n Period

Payable 127 days 242.04 145 days 325.31 97 days 235.53 102 days 305.76
turnover

Inventor 53 days 48 days 76 days 73 days 70 days 70 days 59days 66 days

y Turn
Over

Total 3.34 2.839 2.72 2.275 2.88 2.239 3.26 2.371

Asset
turn
Over

G.P 34.9% 24.16% 34.7% 29.37% 38.9% 31.67% 36.9% 32.23%

Margin
%

N.P 8% 6.71% 6% 9.51% 7% 10.19% 7% 9.17%

Margin
%

ROI 27% 19% 17% 12.1% 21% 22.8% 25% 21.7%

Ratio %

ROE 89% 27.8% 85% 39.8% 89% 46.6% 93% 35.3%

Ratio %

27
 EXTERNAL ANALYSIS
1. Current Ratio:

Comparison:

Current ratio is used to see the company’s ability to meet the short term obligations. By doing
the comparison Between Unilever Pakistan and Colgate Palmolive Company, the current ratio
of Unilever Pakistan is better than the Colgate Palmolive for the year 2009, 2007 & to 2006.

2. Acid Test Ratio:

Comparison:

The comparison between U.P & C.P is that the C.P has the better ratio of quick acid
ratio. The ratio of U.P is not better than the C.P.

3. Debt to equity:

Comparison:

28
 The debt to equity ratio of U.P is better than C.P for the year 2009. But for
previous 3 years the debt to equity rati of C.P is better than U.P. this ratio shows how
much is financed by a company with debt as compare to shareholder equity.

4. Debt to Asset:

Comparison:
This ratio gives the idea about how much debt can be recovered by total assets. The U.P
ratio for year 2009 is better than C.P. this ratio was also good in year 2008 & 2007. In the
year 2006 C.P has better ratio then U.P.

5. Long term Debt:

Comparison:

The long term debt ratio is better for C.P. because it is lesser than U.P.
This ratio gives the information about the debts of the company and relation of
shareholder’s equity.

6. Average Collection Period:

Comparison:

The lesser the average collection period the better will be the position of the
company in this ratio. But it depends upon the industry average. In this comparison the U.P
collection Period remains greater than C.P in three years except in year 2008 when it was lower
than C.P.

7. Payable turnover:

29
Comparison:

The payable turnover for U.P remains lesser than the C.P. This show that U.P
pays the amount to their creditors earlier than C.P. in this respect lender has more
confidence on U.P

8. Inventory Turn Over:

Comparison:

The inventory turnover ratio is almost same to the compare company C.P. in inventory
turnover companies found after how many days they place they order.

9. Total Asset turn Over

Comparison:

The asset turnover ratio of U.P is better than the C.P. In these four year
comparisons U.P has the edge on asset turnover ratio on C.P.

10. G.P Margin %:

Comparison:

The gross profit margin of U.P is greater than the C.P. the reason is that they have
greater sales as compare to C.P in these years. The sale of C.P has decrease in 2009
as compare to 2006.

11. N.P Margin %:

30
Comparison:

The net profit margin of C.P is better than the U.P. In last 3 consecutive years
the net profit margin of C.P was greater than U.P. but in year 2009 the U.P show greater profit
than the C.P.

12. ROI Ratio %:

Comparison:

The return on investment of U.P is better than the C.P except the year 2008. In
2008 the return on investment of C.P was good than U.P.

13. ROE Ratio %:

Comparison:

The return on equity of U.P is good as compare to C.P. The Unilever get greater
return from the shareholder’s investment. These results are reflected in the graph above.

COMMON SIZE ANALYSIS

Common size analysis = Balance sheet items / total assets

Fixed Assets

B/s items 2009 2008 2007 2006

Property, plant 38.89 43.46 33.24

31
and equipment 4,736,619/11,425,715*100 = 41.45

Longterm 95,202/11,425,715*100 = 0.83 0.83 1.17 1.48

investment

Long term 98,117/11,425,715*100 = 0.85 1.05 1.43 1.49

loans

Long term 392,896/11,425,715*100 = 3.43 4.74 0.06 0.39

deposits and
prepayments

Retirement 188,054/11,425,715*100 =22.64= 1.80 3.10 5.79

benefits
..,,,433
prepayments

Intangibles 2,433/11,425,715*100 = 0.02 0.00064 0.0015 0.0026

Current Assets

B/s items 2009 2008 2007 2006

Stock-in-trade 3,649,070/11,425,715*100 = 0.3193 0.3734 0.3372 0.3354

Stores and 265,420/11,425,715*100 = 0.0232 0.0212 0.0223 0.0320

spares

Trade debts 506,357/11,425,715*100 = 0.0443 0.02009 0.0296 0.0272

Loans and 131,852/11,425,715*100 = 0.0115 0.0108 0.0150 0.0271

advances

Trade deposits 682,949/11,425,715*100 = 0.0597 0.0453 0.0292 0.0158

and short term
prepayments

32
Other 82,141/11,425,715*100 = 0.0071 0.0191 0.0308 0.1497
receivables

Cash and bank 239,553/11,425,715*100 = 0.0209 0.0093 0.0233 0.0911

balances

Tax refunds 355,052/11,425,715*100 = 0.0310 0.0265 0.0183 0.2897

due from
Government

Current Liabilities

B/s items 2009 2008 2007 2006

Accrued 28,892/11,425,715*100 = 0.0025 0.0056 0.0005 0.0002

interest / mark-
up

Short term 1,037,911/11,425,715*100 = 0.0939 0.2838 0.0524 0.0000

borrowings

Trade and other 5,785,776/11,425,715*100 = 0.5306 0.3994 0.588 0.6201

payables

Current maturity 28,419/11,425,715*100 = 0.0024 0.0028 0.0021 0.0181

of liabilities a

Provisions 220,680/11,425,715*100 = 0.0193 0.0521 0.0459 0.0171

Taxation less 0.0026 0.0187

provision - -

Share capital and reserves

33
 B/s items 2009 2008 2007 2006

Share capital 669,477/11,425,715*100 = 0.0585 0.0587 0.0828 0.1041

Reserves 2,621,643/11,425,715*100 = 0.2294 0.1358 0.1620 0.1805

Surplus on 12,965/11,425,715*100 = 0.0011 0.0011 0.0017 0.0023

revaluation of
fixed assets

Non-Current liability

B/s items 2009 2008 2007 2006

Liabilities against 56,762/11,425,715 *100 = 0.0049 0.0067 0.0064 0.0022

assets subject to
finance leases

Deferred taxation 636,130/11,425,715*100 = 0.0556 0.0324 0.0382 0.0316

Retirement 327,060/11,425,715*100 = 0.0286 0.0211 0.0173 0.0201

benefits
obligation

Income Statement Items

I/S Items 2009 2008 2007 2006

Sales 38187582/38187582*100 = 100 100 100 100

Cost of sales 24852625/38187582*100 = 65.08 65.31 61.07 63.10

Gross profit 13334957/38187582*100 = 34.92 34.68 38.93 36.89

Distribution cost 7179694/38187582*100 = 18.80 18.90 21.52 19.79

Admin. Cost 1030478/38187582*100 = 2.70 3.24 4.31 4.30

Other O.P. Exp 373785/38187582*100 = 0.98 0.798 1.00 1.09

34
Other O.P. 192313/38187582*100 = 0.50 0.78 0.82 0.97
Income

Restructuring 1.58 1.60 0.52

cost -
Profit from O.P 4943313/38187582 *100 = 12.94 10.95 11.31 12.15

Finance cost 427708/38187582*100 = 1.12 1.50 0.47 0.30

Profit before 4515605/38187582 *100 = 11.82 9.45 10.84 11.84

taxation

Taxation 1459865/38187582*100 = 3.82 3.04 3.61 4.06

Profit after 3055740/ 38187582*100 = 8.00 4.41 7.23 7.78

taxation

INDEX ANALYSIS
Index analysis = Current year / Base year
Fixed Assets

B/s items 2006 2007 2008 2009

Property, plant 164.38 207.18 221.61

and equipment
2137350/2137350 = 100.00

Long term 95202/95202 = 100.00 100.00 100.00 100.00

investment

35
Long term 96417/96417 = 100.00 119.67 125.02 101.76
loans

Long term 25357/25357 = 100.00 14.40 2129.69 1549.45

deposits and
prepayments

Retirement 372638/372638 = 100.00= 67.32 55.10 50.46

benefits
..,,,433
prepayments

Intangibles 17043/17043 = 100.00 71.42 42.85 14.27

Current Assets

B/s items 2006 2007 2008 2009

Stock-in-trade 2156472/2156472 = 100.00 126.41 197.16 169.21

Stores and 206021/206021 = 100.00 87.54 117.34 128.83

spares

Trade debts 174722/174722 = 100.00 136.96 130.93 289.81

Loans and 173960/173960 = 100.00 70.64 71.22 75.79

advances

Trade deposits 101680/101680 = 100.00 232.16 507.91 671.66

and short term
prepayments

Other 96232/96232 = 100.00 258.89 226.87 85.35

receivables

Cash and bank 585860/58586 = 100.00 32.20 18.22 40.88

balances

36
Tax refunds 186287/17 = 100.00 79.71 190.59 162.01
due from
Government

Current Liabilities

B/s items 2006 2007 2008 2009

Accrued 1898/1898 = 100.00 193.31 3375.92 1522.23

interest / mark-
up

Short term 200/200 = 100.00 211778.5 1616261.5 518955.5

borrowings

Trade and other 3987437/3987437 = 100.00 119.13 114.05 145.10

payables

Current maturity 16962/16962 = 100.00 101.83 190.55 167.54

of liabilities a

Provisions 110000/110000 = 100.00 337.30 539.59 200.62

Share capital and reserves

B/s items 2006 2007 2008 2009

37
Share capital 669477/669477 = 100.00 100.00 100.00 100.00

Reserves 1160685/1160685 = 100.00 112.90 133.22 225.87

Surplus on 14909/14909 = 100.00 95.65 91.31 86.55

revaluation of
fixed assets

Non-Current liability

B/s items 2006 2007 2008 2009

Liabilities against 14273/14273 =100.00 370.85 541.77 397.68

assets subject to
finance leases

Deferred taxation 203595/203595 =100.00 151.79 181.56 312.45

Retirement 129799/129799 =100.00 108.21 184.74 251.97

benefits
obligations

Income Statement Items

I/S Items 2006 2007 2008 2009

Sales 20987885/20987885 =100.00 111.16 147.49 181.95

Cost of sales 13244679/1344679 =100.00 107.57 152.65 187.64

Gross profit 7743206/7743206 =100.00 117.30 138.67 172.21

Distribution cost 4153147/4153147 =100.00 120.91 140.80 172.87

Admin. Cost 903646/903646 =100.00 111.50 110.91 114.03

Other O.P. Exp 229664/229664 =100.00 101.82 107.66 162.75

38
Other O.P. 202923/202923 =100.00 93.92 118.22 94.77
Income

Restructuring 110000/110000 =100.00 338.39 444.80 -

cost

Profit from O.P 2549672/2549672 =100.00 103.49 132.99 272.32

Finance cost 63946/63946 =100.00 170.78 728.99 668.85

Profit before 2485726/2485726 =100.00 101.76 117.66 181.66

taxation

Taxation 853242/853242 =100.00 98.71 110.22 1343.09

Profit after 1632484/1632484 =100.00 103.36 121.55 187.18

taxation

CONCLUSION
From the ratio analysis of the both companies (Unilever Pakistan and Colgate Palmolive) we
see that the increase in Current ratio of the U.P was not stronger than the previous four years
comparison and continually falling from the 2006 ratio. Acid test ratio is better than the last four
years data.. Net profit margin and return on investment as compared to previous years are
improved. Collection policy of the company is not good and there must be a better policy to
collect the receivables. The inventories turn over and payable turnover ratio increases as
compared to the last performances. C.P have good current and acid test ration as compared to
previous last four years performance. Financial leverage ratios are also good as compared to
the last year performance. Net profit margin and return on investment increases as compare to
last year. The cost of sales to net turnover ratio increases as compared to the last period which
reveals measures taken by the management to improve the efficiency in the business (2008-
2009). In 2009, the sale was Rs.38.1 billion as compared to 30.9 billion last year i.e. increase of
80% in comparison. In line with the increase in sales, the gross profit has also increased by
80% over last year. Due to a moderate increase in marketing and distribution, administrative
and other operating expenses the operating profit, profit before and after tax has increased by
64.93% over last year.

39
40