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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, Ponds, 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 worlds 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.

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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
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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
Debtors 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 March08 March09 March10 March11 March12


Net sales 33019.01 31785.72 29066.1 26881.24 23311.35
Net working capital 494.88 776.91 490.88 110.14 1548.78
Working capital T.O Ratio 66.72 40.91 59.21 244.06 15.05

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Consolidated Balance Sheet of Hindustan
Unilever
Mar Mar Mar Mar Mar
'16 '15 '14 '13 '12
EQUITIES AND LIABILITIES

SHAREHOLDER'S FUNDS
216.3
Equity Share Capital 216.39 5 216.27 216.25 216.15
216.3
Total Share Capital 216.39 5 216.27 216.25 216.15
Revaluation Reserves 0.67 0.67 0.67 0.67 0.67
3754.6 3804. 3320.3 2647.8 3464.2
Reserves and Surplus 5 62 5 5 6
3755.3 3805. 3321.0 2648.5 3464.9
Total Reserves and Surplus 2 29 2 2 3
3971.7 4021. 3537.2 2864.7 3681.0
Total Shareholders Funds 1 64 9 7 8
Minority Interest 25.05 24.8 22.28 20.86 18.3
NON-CURRENT LIABILITIES
Long Term Borrowings 42 7 8.44 8.44 0
Deferred Tax Liabilities [Net] 0 0.37 0 0 0
178.2
Other Long Term Liabilities 221.71 4 287.46 482.12 331.67
1156.9 993.5
Long Term Provisions 9 6 845.21 710.13 674.3
1179. 1141.1 1200.6 1005.9
Total Non-Current Liabilities 1420.7 17 1 9 7
CURRENT LIABILITIES
Short Term Borrowings 212.78 36.04 37.14 16.3 0
5727.6 5507. 5964.8 5341.7 4843.8
Trade Payables 5 31 9 4 7
952.7
Other Current Liabilities 891.65 7 939.28 659.11 564.36
2915.3 2709. 2127.3 1988.3 1293.6
Short Term Provisions 1 07 2 7 7
9747.3 9205. 9068.6 8005.5
Total Current Liabilities 9 19 3 2 6701.9
15164. 14430 13769. 12091. 11407.
Total Capital And Liabilities 85 .8 31 84 25
ASSETS
NON-CURRENT ASSETS
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3207.3 2717. 2640.9 2395.3 2232.9
Tangible Assets 8 8 4 2 1
Intangible Assets 12 22.03 24.12 36.11 29.95
Capital Work-In-Progress 427.33 516.3 364.9 212.1 217.32
Intangible Assets Under
Development 0 0 7.7 10.32 10.32
3646.7 3256. 3037.6 2653.8
Fixed Assets 1 13 6 5 2490.5
Non-Current Investments 325 323.9 380.19 395.32 70.25
199.7
Deferred Tax Assets [Net] 233.32 9 179.55 208.52 209.91
587.2
Long Term Loans And Advances 636.17 4 530.52 421.64 385.91
Other Non-Current Assets 0.2 0.46 0.7 296.85 0
4922.5 4448. 3976.1 3156.5
Total Non-Current Assets 8 7 4209.8 8 7
CURRENT ASSETS
2422.4 2701. 2457.9 1857.0 2251.9
Current Investments 2 18 5 2 1
2752.1 2848. 2939.8 2705.9 2667.3
Inventories 3 79 3 7 7
1268.5 1011. 1031.0
Trade Receivables 1 18 9 996.53 856.74
3027.8 2689. 2516.0 1900.7 1996.4
Cash And Cash Equivalents 4 49 3 1 3
646.7
Short Term Loans And Advances 668.69 9 534.52 581.98 441.02
Other Current Assets 102.68 84.67 80.09 73.45 37.21
10242. 9982. 9559.5 8115.6 8250.6
Total Current Assets 27 1 1 6 8
15164. 14430 13769. 12091. 11407.
Total Assets 85 .8 31 84 25

Consolidated Profit & Loss account


Mar Mar Mar Mar Mar
'16 '15 '14 '13 '12

Income
35462. 33716. 30629. 28364. 24381.
Sales Turnover 74 67 51 51 42
2443.7 1930.9 1563.4 1483.2 1070.0
Excise Duty 3 5 1 7 7
Net Sales 33019. 31785. 29066. 26881. 23311.
01 72 1 24 35
1432.3
Other Income 533.5 4 976.9 1260.5 498.29
Stock Adjustments -88.28 -57.04 172.47 26 -95.15
Total Income 33464. 33161. 30215. 28167. 23714.
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23 02 47 74 49
Expenditure
15754. 16151. 15057. 14162. 12446.
Raw Materials 77 57 48 33 82
Power & Fuel Cost 309.21 346.97 362.76 335.94 299.63
1742.2 1723.8 1575.7 1412.6 1200.9
Employee Cost 4 7 9 8 4
9349.6 8279.0 7668.0 6913.7 5910.2
Miscellaneous Expenses 3 1 4 2 3
27155. 26501. 24664. 22824. 19857.
Total Expenses 85 42 07 67 62
Mar Mar Mar Mar Mar
'16 '15 '14 '13 '12
5774.8 5227.2 4082.5 3358.5
Operating Profit 8 6 4574.5 7 8
PBDIT 6308.3 5343.0 3856.8
8 6659.6 5551.4 7 7
Interest 4.54 17.7 40.68 25.72 1.65
6303.8 5510.7 5317.3 3855.2
PBDT 4 6641.9 2 5 2
Depreciation 357.28 322.39 295.54 251.32 233.54
5946.5 6319.5 5215.1 5066.0 3621.6
Profit Before Tax 6 1 8 3 8
5946.5 6319.5 5215.1 5066.0 3621.6
PBT (Post Extra-ord Items) 6 1 8 3 8
1852.4 1259.4 1226.6
Tax 8 1944 4 6 821.54
4094.0 4375.5 3955.7 3839.3 2800.1
Reported Net Profit 8 1 4 7 4
Minority Interest 11.66 12.43 10.17 10.39 9.48
Net P/L After Minority Interest & Share Of 4120.9 3683.8 3706.8 3223.2 2676.9
Associates 5 6 3 6 7
11401. 10349. 9606.5 8662.3
Total Value Addition 08 85 9 4 7410.8
3462.2 3245.3 2811.4 3999.9 1620.9
Equity Dividend 6 2 3 9 4
Corporate Dividend Tax 695.57 646.09 470.13 665.4 262.96
Per share data (annualised)
21639. 21634. 21626. 21624. 21615.
Shares in issue (lakhs) 37 65 96 72 12
Earning Per Share (Rs) 18.92 20.22 18.29 17.75 12.95
Book Value (Rs) 18.35 18.59 16.35 13.24 17.03

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Data analysis and interpretation

Current ratio:
Current asset
Current ratio = -------------------
Current liability (Rs. Crores)

March08 March09 March10 March11 March12


Current 10242. 9982. 9559. 8115. 8250.
Asset 27 1 51 66 68
Current 9747.3 9205. 9068. 8005. 6701.
Liabilities 9 19 63 52 9
Current Ratio 1.05 1.08 1.05 1.01 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
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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 March March March March
08 09 10 11 12
Quick Asset 1535.47 1865.68 2469.3 2151.91 2565.43
Current Liability 2541.72 2475.37 3371.37 3995.59 5334.35

Quick Ratio 0.60 0.75 0.73 0.54 0.48


(Rs. Crores)

Quick Ratio

0.8
0.7
0.6
0.5 Quick Ratio
0.4
0.3
0.2
0.1
0
2008 2009 2010 2011 2012

Inference: 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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March08 March09 March10 March11 March12
COGS 9062.17 6844.51 7583.9 11272.12 14717.01
Average stock 1147.11 1276.96 1484.13 1923.57 2219.76
Stock T.O. Ratio 7.90 5.36 5.11 5.86 6.63

Stock Turnover Ratio


8
7
6
Stock Turnover Ratio
5
4
3
2
1
0
2008 2009 2010 2011 2012

Inference: 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 companys inventory management technique is less efficient as compare to last year.

Debtors turnover ratio:


Net sales
Debtors turnover ratio = -----------------
Receivables

(Rs. Crores)

Column1 March08 March09 March10 March11 March12


Net sales 33019.01 31785.72 29066.1 26881.24 23311.35
Receivables 1268.51 1011.18 1031.09 996.53 856.74
DebtorsT.O.Ratio 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 Debtor's turnover ratio
10
8
6
4
2
0
2008 2009 2010 2011 2012

Inference: The receivable turnover ratio (debtors 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

March0 March0 March1 March1 March1


Particulars 8 9 0 1 2

Net sales 33019.01 31785.72 29066.1 26881.24 23311.35

Net working capital 494.88 776.91 490.88 110.14 1548.78

Working capital T.O Ratio 66.72 40.91 59.21 244.06 15.05

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Working capital turnover ratio
40
35
30 Working capital
25 turnover ratio
20
15
10
5
0
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 companys current ratio is not met during any of the years from 2008 to 2012.
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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

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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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