INTRODUCTION –

Financial Statement Analysis is a method of reviewing and analysing a

company’s accounting reports (financial statements) in order to gauge its past,
present or projected future performance. This process of reviewing the
financial statements allows for better economic decision making.

FINANCIAL ANALYSIS OF HUL LTD. –

Hindustan Unilever (HUL) Ltd is India`s largest fast moving consumer goods
company, with leadership in Home & Personal Care Products and Foods &
Beverages.HUL`s brands - like Lifebuoy, Lux, Surf Excel, Rin, Wheel, Fair &
Lovely, Pond`s, Sunsilk, Clinic, Pepsodent, Close-up, Lakme, Brooke Bond,
Kissan, Knorr-Annapurna, Kwality Wall`s are household names across the
country and span many categories - soaps, detergents, personal products, tea,
coffee, branded staples, ice cream and culinary products. The company`s
product portfolio includes Home & Personal care-Personal wash-
Lux,Breeze,Lifebuoy,Dove,Liril,Pears,Hamam & Rexona.Laundry-Surf
Excel,Rin,Wheel& Sunliight .Hair care.Deodorant-Axe &Rexona.Ayurvedic
Personal & Health Care-Ayush.Skin Care-Fair &
Lovely,Pond`s,Vaseline,&Aviance.Oral Care-Pepsodent &Closeup.Colour
Cosmetic-Lakme.Foods-Tea-Brooke Bond & Lipton, Coffee-Brooke Bond
Bru.Foods-Kissan, Annapurna&Knorr, Ice Cream-Kwality Wall`s. The company
also engagged in the business of Beverages, Packaged Foods, Other
Operations, Personal Products, Soaps & Detergents. HUL launched a slew of
new business initiatives in the early part of 2000’s. Project Shakti was started
in 2001. It is a rural initiative that targets small villages populated by less than
5000 individuals. It is a unique win-win initiative that catalyses rural affluence
even as it benefits business. Currently, there are over 45,000 Shakti
entrepreneurs covering over 100,000 villages across 15 states and reaching to
over 3 million homes.
 HORIZONTAL ANALYSIS –
BALANCE SHEET ANALYSIS –
ASSETS
Hindustan Unilever       HORIZONTAL ANALYSIS
Balance Sheet ------------------- in Rs. Cr. --------------    
  Mar 20 Mar-19 Mar-18 Change(%) Change(%) 2019-
2020-2019 2018
12 mths 12 mths 12 mths    

ASSETS        
NON-CURRENT ASSETS        
Tangible Assets 4,625.00 3,907.00 3,776.00 18.38% 3.47%
Intangible Assets 431 436 366 -1.15% 19.13%
Capital Work-In-Progress 513 373 430 37.53% -13.26%
Fixed Assets 5,569.00 4,716.00 4,572.00 18.09% 3.15%
Non-Current Investments 252 256 256 -1.56% 0.00%
Deferred Tax Assets [Net] 261 339 255 -23.01% 32.94%
Long Term Loans And Advances 453 396 404 14.39% -1.98%
Other Non-Current Assets 1,159.00 784 523 47.83% 49.90%
Total Non-Current Assets 7,694.00 6,491.00 6,010.00 18.53% 8.00%
CURRENT ASSETS        
Current Investments 1,248.00 2,693.00 2,855.00 -53.66% -5.67%
Inventories 2,636.00 2,422.00 2,359.00 8.84% 2.67%
Trade Receivables 1,046.00 1,673.00 1,147.00 -37.48% 45.86%
Cash And Cash Equivalents 5,017.00 3,688.00 3,373.00 36.04% 9.34%
Other Current Assets 1,961.00 898 1,405.00 118.37% -36.09%
Total Current Assets 11,908.00 11,374.00 11,139.00 4.69% 2.11%
Total Assets 19,602.00 17,865.00 17,149.00 9.72% 4.18%

To look at the performance level of the HUL Company, one can watch the asset growth. We
are firstly doing the horizontal analysis.

We see that total assets were up by 9.72 per cent in 2020-2019 year, while the increase
was only 4.18 per cent in 2019-2018. While non-current assets increased by 18.53 per
cent, in which tangible assets and capital work-in-progress have a great role of 18.38 per
cent and 37.53 per cent respectively, while intangible assets was decreased by 1.15 per
cent. So, we can say that the HUL Company is expanding its capacity as capital work-in-
progress is increased by 37.53 per cent in 2020-2019 which was decreased by 13.26 per
cent in 2019-2018. The decrease of Intangible assets by 1.15 per cent is because of less
products acquired. Non-current investments are almost flat which is only decreased by 1.56
per cent in 2020-2019 and it was flat in 2019-2018. There is a rise in inventory by 8.84% may
be because of better inventory management.
        
EQUITIES AND LIABILITIES
SHAREHOLDER'S FUNDS Mar Mar 19  Mar 18  CHANGE(%) in 2020- CHANGE(%) in 2019-
20 2019  2018 
Equity Share Capital 216 216 216 0.00% 0.00%
Total Share Capital 216 216 216 0.00% 0.00%
Reserves and Surplus 7,815.00 7,443.00 6,859.00 5.00% 8.51%
Total Reserves and Surplus 7,815.00 7,443.00 6,859.00 5.00% 8.51%
Total Shareholder’s Funds 8,031.00 7,659.00 7,075.00 4.86% 8.25%
NON-CURRENT LIABILITIES        
Other Long Term Liabilities 1,269.00 804 666 57.84% 20.72%
Long Term Provisions 1,198.00 1,049.00 772 14.20% 35.88%
Total Non-Current Liabilities 2,467.00 1,853.00 1,438.00 33.14% 28.86%
CURRENT LIABILITIES        
Trade Payables 7,399.00 7,070.00 7,013.00 4.65% 0.81%
Other Current Liabilities 1,287.00 782 972 64.58% -19.55%
Short Term Provisions 418 501 651 -16.57% -23.04%
Total Current Liabilities 9,104.00 8,353.00 8,636.00 8.99% -3.28%
Total Capital And Liabilities 19,602.00 17,865.00 17,149.00 9.72% 4.18%
CAPITAL AND LIABILITIES

Financial statements present comparative information for at least two years.

Horizontal analysis calculates the amount and percentage changes from the
previous year to the current year. It is simple but useful. While an amount
change in itself may mean something, converting it to percentage is more
useful in appreciating the magnitude of the change.

Total capital and liabilities have increased by 9.72% in 2020-2019. Whereas

total current liability has been increased by 8.99%, indicating that the
company is doing well with their creditors. But other current liabilities has
been increased by 64.58 per cent which is not showing positive significance. As
the short term provision decreased by 16.57% showing that the company has a
very less short term debt. We can see that total share capital is flat for the last
3 years and no improvement in share capital.
TREND ANALYSIS OF BALANCE SHEET

Trend analysis is a technique used in technical analysis that attempts to predict

the future stock price movements based on recently observed trend
data. Trend analysis is the widespread practice of collecting information and
attempting to spot a pattern. Trend Analysis is a statistical technique that tries
to determine future movements of a given variable by analysing historical
trends. Trend analysis is based on the idea that what has happened in the past
gives traders an idea of what will happen in the future. Trend analysis involves
studying changes in financial statement items for many years. Here we can see
in the chart that total assets, total shareholder’s funds and total capital and
liabilities is increasing from 2018 to 2020 appropriately. Whereas, total current
liabilities is decreasing and then increasing from 2018-2019 and 2019-2020
respectively.

TREND ANALYSIS OF BALANCE SHEET

19,602.00 19,602.00
17,865.00
17,149.00 17,865.00
17,149.00

9,104.00 8,636.00
8,031.00
7,659.00 8,353.00
7,075.00

2,467.00
1,853.00
1,438.00
Total Assets Total Shareholders Total Non-Current Total Current Total Capital And
Funds Liabilities Liabilities Liabilities
VERTICAL ANALYSIS OF BALANCE SHEET

VERTICAL ANALYSIS
  Mar 20 Mar-19 Mar-18
ASSETS      
NON-CURRENT ASSETS      
Tangible Assets 23.59% 21.87% 22.02%
Intangible Assets 2.20% 2.44% 2.13%
Capital Work-In-Progress 2.62% 2.09% 2.51%
Fixed Assets 28.41% 26.40% 26.66%
Non-Current Investments 1.29% 1.43% 1.49%
Deferred Tax Assets [Net] 1.33% 1.90% 1.49%
Long Term Loans And
Advances 2.31% 2.22% 2.36%
Other Non-Current Assets 5.91% 4.39% 3.05%
Total Non-Current Assets 39.25% 36.33% 35.05%
CURRENT ASSETS
Current Investments 6.37% 15.07% 16.65%
Inventories 13.45% 13.56% 13.76%
Trade Receivables 5.34% 9.36% 6.69%
Cash And Cash Equivalents 25.59% 20.64% 19.67%
Other Current Assets 10.00% 5.03% 8.19%
Total Current Assets 60.75% 63.67% 64.95%
100.00
Total Assets
100.00% 100.00% %

EQUITIES AND LIABILITIES      

SHAREHOLDER'S FUNDS      
Equity Share Capital 1.10% 1.21% 1.26%
Total Share Capital 1.10% 1.21% 1.26%
Reserves and Surplus 39.87% 41.66% 40.00%
Total Reserves and Surplus 39.87% 41.66% 40.00%
Total Shareholder’s Funds 40.97% 42.87% 41.26%
NON-CURRENT LIABILITIES 0.00% 0.00% 0.00%
Other Long Term Liabilities 6.47% 4.50% 3.88%
Long Term Provisions 6.11% 5.87% 4.50%
Total Non-Current Liabilities 12.59% 10.37% 8.39%
CURRENT LIABILITIES 0.00% 0.00% 0.00%
Trade Payables 37.75% 39.57% 40.89%
Other Current Liabilities 6.57% 4.38% 5.67%
Short Term Provisions 2.13% 2.80% 3.80%
Total Current Liabilities 46.44% 46.76% 50.36%
100.00
Total Capital And Liabilities
100.00% 100.00% %
Vertical analysis is a method of analysing financial statements that list each line
item as a percentage of a base figure within the statement. The first line of the
statement always shows the base figure at 100%, with each following line item
representing a percentage of the whole. It is conventional to express items in
the statement of balance sheet items as percentage of the total equity and
liabilities or total assets.

A little decrease in Intangible assets indicate no expansion and acquisitions.

The decrease in inventories and receivables suggest better management of
working capital. Assets mainly comprises of tangible assets, inventories and
cash and cash equivalent. On the financing side, trade payables is decreased
and even total shareholder’s funds is decreased. Non-current liabilities has
been increased as they may have taken some loan. Common-size statements
are especially useful in presentations to highlight key changes.
 HORIZONTAL ANALYSIS –
INCOME STATEMENT ANALYSIS –

Hindustan Unilever       HORIZONTAL ANALYSIS

Standalone Profit & Loss account ------------------- in Rs. Cr.    
-------------------
  Mar-20 Mar-19 Mar-18 Change(%) 2020- Change(%) 2019-
2019 2018
12 mths 12 mths 12 mths    

       
INCOME
Revenue From Operations [Gross] 38,273.00 37,660.00 34,619.00 1.63% 8.78%
Less: Excise/Service Tax/Other Levies 0 0 693 0.00% -100.00%
Revenue From Operations [Net] 38,273.00 37,660.00 33,926.00 1.63% 11.01%
Other Operating Revenues 512 564 599 -9.22% -5.84%
Total Operating Revenues 38,785.00 38,224.00 34,525.00 1.47% 10.71%
Other Income 733 664 569 10.39% 16.70%
Total Revenue 39,518.00 38,888.00 35,094.00 1.62% 10.81%
EXPENSES        
Cost Of Materials Consumed 11,572.00 13,240.00 12,491.00 -12.60% 6.00%
Purchase Of Stock-In Trade 6,342.00 4,708.00 3,812.00 34.71% 23.50%
Changes In Inventories Of FG,WIP And Stock- -121 12 -71 -1108.33% -116.90%
In Trade
Employee Benefit Expenses 1,691.00 1,747.00 1,745.00 -3.21% 0.11%
Finance Costs 106 28 20 278.57% 40.00%
Depreciation And Amortisation Expenses 938 524 478 79.01% 9.62%
Other Expenses 9,701.00 9,880.00 9,272.00 -1.81% 6.56%
Total Expenses 30,229.00 30,139.00 27,747.00 0.30% 8.62%
     
  Mar-19 Mar-18    
Mar-20
  12 mths 12 mths 12 mths    
9,289.00 8,749.00 7,347.00 6.17% 19.08%
Profit/Loss Before Exceptional,
Extra Ordinary Items And Tax
Exceptional Items -197 -227 -62 -13.22% 266.13%
Profit/Loss Before Tax 9,092.00 8,522.00 7,285.00 6.69% 16.98%
Tax Expenses-Continued Operations        
Current Tax 2,202.00 2,565.00 2,148.00 -14.15% 19.41%
Deferred Tax 152 -79 -100 -292.41% -21.00%
Total Tax Expenses 2,354.00 2,486.00 2,048.00 -5.31% 21.39%
Profit/Loss After Tax And Before Extra- 6,738.00 6,036.00 5,237.00 11.63% 15.26%
Ordinary Items
Profit/Loss From Continuing Operations 6,738.00 6,036.00 5,237.00 11.63% 15.26%
Profit/Loss For The Period 6,738.00 6,036.00 5,237.00 11.63% 15.26%
Financial statements present comparative information for at least two years.
Horizontal analysis calculates the amount and percentage changes from the
previous year to the current year. It is simple but useful. While an amount
change in itself may mean something, converting it to percentage is more
useful in appreciating the magnitude of the change.

In 2020, revenue from operations was up by only 1.63% whereas in 2019 it was
up by 8.78%, while total expenses rose only by 0.30% in 2020 or less than half
of the revenue growth rate whereas total expenses rose by 8.62% in 2019
which is almost equal to the revenue change so, this time HUL company is
doing well compare to last year in relation to revenue and expenses. Further,
total tax has been decreased by 5.31%. So, profit has been increased by
11.63% which is a great work done by company. Compared to last 3 years
company is making slight growth in every subsequent years.
TREND ANALYSIS OF INCOME STATEMENT

Trend analysis is a technique used in technical analysis that attempts to predict

the future stock price movements based on recently observed trend
data. Trend analysis is the widespread practice of collecting information and
attempting to spot a pattern. Trend Analysis is a statistical technique that tries
to determine future movements of a given variable by analysing historical
trends. Trend analysis is based on the idea that what has happened in the past
gives traders an idea of what will happen in the future. Trend analysis involves
studying changes in financial statement items for many years. Here we can see
in the chart that total revenue, profit/loss before tax and profit/loss for the
period is increasing from 2018 to 2020 appropriately. Whereas, total expenses
is constant from 2019-2020 but it was increasing from 2018-2019 as we can
see in the graph shown below.

TREND ANALYSIS OF INCOME STATEMENT

39,518.00
38,888.00
35,094.00

30,229.00
30,139.00
27,747.00

9,092.008,522.00
7,285.00 6,738.006,036.00
5,237.00

Total Revenue Total Expenses Profit/Loss Before Tax Profit/Loss For The Period
 VERTICAL ANALYSIS –
INCOME STATEMENT ANALYSIS –

VERTICAL ANALYSIS
  Mar-20 Mar-19 Mar-18
Total Revenue 100.00% 100.00% 100.00%
EXPENSES      
Cost Of Materials Consumed 29.28% 34.05% 35.59%
Purchase Of Stock-In Trade 16.05% 12.11% 10.86%
Changes In Inventories Of FG,WIP And Stock-In -0.31% 0.03% -0.20%
Trade
Employee Benefit Expenses 4.28% 4.49% 4.97%
Finance Costs 0.27% 0.07% 0.06%
Depreciation And Amortisation Expenses 2.37% 1.35% 1.36%
Other Expenses 24.55% 25.41% 26.42%
Total Expenses 76.49% 77.50% 79.06%
Net Income 23.51% 22.50% 20.94%

Vertical analysis is the expression of the amounts of financial statement items

as percentages of the statement total. The results of vertical analysis are
presented in the form of communize statements in which the items within
each statement are expressed in percentage of some common number and
always add up to 100. It is conventional to express items in the statement of
balance sheet items as percentage of the total equity and liabilities or total
assets. Vertical analysis helps in comparing companies that differ in size since
the financial statements are expressed in comparable common-size format.
Further it helps in detecting the important changes which a company may do
in its field.
The HUL Company made savings in expenses as it is decreased from 77.50% to
76.49% also savings from taxes. With this continuation the company gets net
income of 23.51% which was 22.50% last year i.e. 2019 and 20.94% in 2018.
So, we can say that company is making profit compare to last 2 years.
RATIO ANALYSIS

Ratio analysis is a quantitative method of gaining insight into a company's

liquidity, operational efficiency, and profitability by studying its financial
statements such as the balance sheet and income statement. Ratio analysis is a
cornerstone of fundamental equity analysis. Ratio analysis compares line-item
data from a company's financial statements to reveal insights regarding
profitability, liquidity, operational efficiency, and solvency.

Ratio analysis comprises of 5 different ratios –

1. Short Term Solvency Ratio

2. Long Term Solvency Ratio
3. Profitability Ratio
4. Efficiency Ratio/Turn Over Ratio
5. Market Based/Investment Ratio

Short Term Solvency Ratio –

SHORT TERM SOLVENCY RATIO 2020 2019 2018

CURRENT RATIO 1.31 1.36 1.29

QUICK RATIO 1.02 1.07 1.02
ABSOLUTE RATIO 0.55 0.44 0.39

Current Ratio is the ratio of current assets to current liabilities. It is a widely

used indicator of a company’s ability to pay its obligations in the short-term. It
shows the amount of current assets a company has per rupee of current
liabilities. A current ratio of more than one means that a business has more
current assets per rupee of current liabilities, implying that it can pay its
current liabilities using its current assets.
Quick Ratio or acid test ratio is computed as a supplement to the current ratio.
This ratio considers relatively more liquid current assets, usually current assets
less inventories, to current liabilities. The current ratio is expected to be at
least 2:1 and the quick ratio at least 1:1. We have our quick ratio as 1.02 which
means that a firm must have at least as much liquid assets as its current
obligations so that it will have no difficulty in paying those obligations.
Absolute Ratio is also known as absolute quick ratio, cash ratio or liquid ratio. It
is a very liquid asset in which we consider only cash in hand, cash at bank and
short term marketable securities with current liability.
Long Term Solvency Ratio –

LONG TERM SOLVENCY RATIO 2020 2019 2018

DEBT-EQUITY RATIO 5.88 3.72 3.08

DEBT RATIO 0.06 0.05 0.04
SHAREHOLDERS EQUITY RATIO 1.74 1.96 1.87
INTEREST COVERAGE RATIO 87.63 312.46 367.35
FIXED CHARGE COVERAGE RATIO 87.63 312.46 367.35

Debt-to-Equity Ratio is a mix of debt and equity which can increase the return
on equity for two reasons one is that debt is generally cheaper than equity,
while the other one is interest expense is tax-deductible. It measures the
relationship of the capital provided by creditors to the amount provided by
shareholders. A high debt equity ratio indicates the aggressive use of leverage,
and a highly leveraged company is more risky for creditors.
Shareholder’s Equity Ratio is defined as the ratio of total shareholder’s equity
to total assets which must be tangible assets mainly as intangible assets may
get zero and it does not show accurate ratio by including intangible assets.
Shareholder’s ratio shows that 1.74 proportion of tangible assets comes from
or procured from equity.
Interest Coverage Ratio is a ratio of earnings before income tax to interest
expense and this ratio shows how easily a company can pay its interest and
higher it is the better it is and is able to get out from interest expense. It shows
that company is doing well as the ratio is 87.63 and can pay the interest 87.63
times.
Fixed Charge Coverage Ratio is a ratio of EBIT to interest expense with
preference dividend. It is same to interest coverage ratio as there is no
preferred dividend. So, it shows that company is doing well as the ratio is
87.63 and can pay the interest 87.63 times.
Profitability Ratio –
Profitability ratios measure the degree of operating success of a business.
Investors finance a firm in the hope of getting a reasonable return in the form
of capital gain and dividends. Therefore, they are keen to learn about the
firm’s ability to earn revenues in excess of expenses. Higher it is better it is.
PROFITABILITY RATIO 2020 2019 2018

GROSS PROFIT MARGIN 23.44 22.29 21.10

NET PROFIT RATIO 17.37 15.79 15.17
ROCE 88.48 91.98 86.30
ROSF 83.90 78.81 74.02
ROE 83.90 78.81 74.02
ROI 539.9 224.14 183.43
0
EPS 31.13 27.89 24.20
DIVIDEND PER SHARE 24.01 21.00 18.00
DIVIDEND PAYOUT RATIO 0.77 0.75 0.74
RETENTION RATIO 0.23 0.25 0.26
DIVIDEND YIELD 0.01 0.01 0.01

Gross Profit Margin is the ratio of gross profit to sales and it should be in per
cent. Profit margin rose by 23.44 per cent in 2020 from 22.29 per cent in 2019.
It provides some indication of the cushion available in the event of an expected
increase in costs or drop in selling prices, because of recession or greater
competition.
Net profit ratio is the ratio between net profit and sales. It also shows the same
profit margin in the ratios which is increasing from 15.79 per cent in 2019 to
17.37 per cent in 2020.
ROCE, ROSF, ROE are the measure of profitability from the shareholder’s
standpoint. It measures the efficiency in the use of shareholder’s funds. In
order to moderate the influence of share issue and buyback and change in
retained earnings, analyst generally use the average of beginning and ending
amounts for the year. It is 83.90 per cent in 2020 from 78.81 per cent in 2019.
Dividend Ratio is between dividend declared and number of shares
outstanding and Earnings per share is between profit after tax and numbers of
shares outstanding and it is an important measure of profitability. For HUL
Company it is increased from 27.89% in 2019 to 31.13% in 2020. It means
company has done a great work on the whole. But we should look other
ratios too before concluding it finally.

Efficiency Ratio/Turn-Over Ratio –

EFFICIENCY RATIOS/TURNOVER RATIO 2020 2019 2018

INVENTORY TURNOVER RATIO 14.71 15.78 14.64

INVENTORY CONVERSION PERIOD 24.81 23.13 24.94
DEBTORS TURNOVER RATIO 28.53 27.11 33.28
DEBTORS CONVERSION RATIO 12.79 13.46 10.97
TOTAL ASSETS TURNOVER RATIO 197.8 213.96 201.32
6
FIXED ASSET TURNOVER RATIO 6.96 8.11 7.55
CURRENT ASSETS TURNOVER RATIO 3.26 3.36 3.10
WORKING CAPITAL TURNOVER RATIO 179.5 176.96 159.84
6
OPERATING EXPENSES RATIO 76.49 77.50 79.06

The efficiency ratio is typically used to analyse how well a company uses its
assets and liabilities internally. An efficiency ratio can calculate the turnover of
receivables, the repayment of liabilities, the quantity and usage of equity, and
the general use of inventory and machinery. This ratio can also be used to
track and analyse the performance of commercial and investment banks.
Inventory turnover ratio is the ratio of sales to average inventory. It states that
14.71 times HUL Company’s inventory is converted into sales or sold. The
company is using its inventory very nicely and efficiently. Total assets turnover
ratio is 197.86 and it is higher means company is utilizing its total assets
efficiently. So, higher it is better it is. But the asset ratio has been decreasing
from the last 2 years as it was 213.96 in 2019 which is not a good sign.
Company is optimally utilizing its fixed assets but compared to past years it is
decreasing a little so company should focus on it a little. Working capital has
converted into sales many time in a year which shows a good idea that
company is doing great in selling its products. Operating Ratio is the ratio
between operating expenses and net sales. HUL Company is managing its
operating expenses with respect to net sales very nicely as the ratio is 76.49.
Market Based/Investment Ratio –

MARKET BASED RATIO/INVESTMENT RATIOS 2020 2019 2018

EPS 31.13 27.89 24.20

ROCE 88.48 91.98 86.30
ROE 83.90 78.81 74.02
PRICE TO EARNING RATIO(P/E RATIO) 67.46 68.20 75.22
MARKET VALUE TO BOOK VALUE(MV TO BV) 56.60 53.75 55.67

Stock investing requires careful analysis of financial data to find out the
company's true worth. This is generally done by examining the company's
profit and loss account, balance sheet and cash flow statement. Owners,
investors, prospective investors, competitors, researchers and brokerages are
interested in this ratio. The price-to-earnings, or P/E, ratio shows how much
stock investors are paying for each rupee of earnings. It shows if the market is
overvaluing or undervaluing the company. In this P/E ratio is high which means
the investor is very confident about the future prospects interns of sales/
profitability/ ROCE/ ROE/ Growth/ value creation. It also means that the stock
is overvalued and it is better to sell. Ratio should not be studied in isolation.
The market value-to-book value (MV/BV) ratio is used to compare a company's
market price to its book value. Book value, in simple terms, is the amount that
will remain if the company liquidates its assets and repays all its liabilities.
MV/BV ratio values shares of companies with large tangible assets on their
balance sheets. A MV/BV ratio of less than one shows the stock is undervalued
(value of assets on the company's books is more than the value the market is
assigning to the company). It indicates a company's inherent value and is
useful in valuing companies whose assets are mostly liquid, for instance, banks
and financial institutions. Higher is the market capitalization, the company is
very good and growing. The company is overvalued and it is better to buy.
DuPont Analysis –

A DuPont analysis is used to evaluate the component parts of a company's

return on equity (ROE). This allows an investor to determine what financial
activities are contributing the most to the changes in ROE. An investor can use
analysis like this to compare the operational efficiency of two similar firms. We
noticed that in the year 2020 and 2019 the ROE was higher than the ROA,
implying that the company earned more per rupee of shareholders’ funds than
per rupee of assets. One reason for better return to HUL’s shareholders is the
use of debt financing. When the ROA is more than the interest rate on debt,
shareholders benefit. Leveraging or trading on the equity, is the use of debt
finance to acquire assets in order to earn a higher ROE. The flip side of
financing is that, when ROA falls below the interest rate, shareholders lose.

3 STEP DUPONT ANALYSIS

NET PROFIT MARGIN 17.0505

ASSET TURNOVER RATIO 2.01602

FINANCIAL LEVERAGE 2.44079

Net Profit Margin –

The net profit margin is the ratio of bottom line profits compared to total
revenue or total sales. This is one of the most basic measures of profitability.
Profit margin is the ratio of net income and revenue which is shown in the
table as 17.05%. It means that the owner’s profit margin is 17%. The profit
margin can be improved if costs for the owner were reduced or if prices were
raised, which can have a large impact on ROE.
Asset Turnover Ratio –

The asset turnover ratio measures how efficiently a company uses its assets to
generate revenue. It is calculated as revenue per average asset. It shows 2.01
as the asset turnover ratio. The ratio can be helpful when comparing two
companies that are very similar.

Financial Leverage –

Financial leverage, or the equity multiplier, is an indirect analysis of a

company's use of debt to finance its assets.  If the company borrows more to
purchase assets, the ratio will continue to rise. It is calculated as the ratio of
average asset and average equity and in the table we can see that it is 2.44.
Most companies should use debt with equity to fund operations and growth.
Not using any leverage could put the company at a disadvantage compared
with its peers.

Five-Step DuPont

The five-step, or extended, DuPont equation breaks down net profit margin
further. From the three-step equation we saw that, in general, rises in the net
profit margin, asset turnover and leverage will increase ROE. The five-step
equation shows that increases in leverage don't always indicate an increase in
ROE.

The Five-Step Calculation –

Since the numerator of the net profit margin is net income, this can be made
into earnings before taxes (EBT) by multiplying the three-step equation by 1
minus the company's tax rate:

ROE = Tax Burden * Asset turnover * EM * Operating profit margin * Interest

Burden
CASH FLOW ANALYSIS –
The statement of cash flow shows how a company spends its money (cash
outflows) and from where a company receives its money (cash inflows). The
cash flow statement includes all cash inflows a company receives from its
ongoing operations and external investment sources, as well as all cash
outflows that pay for business activity and investments during a given quarter. 
Operating Activities –

This section reports the amount of cash from the income statement that was
originally reported on an accrual basis. A few of the items included in this
section are accounts receivable, accounts payable and income taxes payable. If
a client pays a receivable, it would be recorded as cash from
operations. Changes in current assets or current liabilities (items due in one
year or less) are recorded as cash flow from operations. In this operating cash
flow we can see that cash generated from operations is Rs.9770 in 2020 which
was only Rs.8413 in 2019 so, HUL Company had sell more inventories from the
previous year. The taxes has also decreased to Rs.2465 in 2020 from Rs.2685 in
2019. Just because of less taxes and more cash generated from operations we
have net cash generated as Rs.7305 in 2020 while it was only Rs.5728 in 2019
which shows that company is progressing in its selling products and reducing
taxes. HUL’s net cash flow from operations for the year 2020 is Rs.7305, which
is less than the sum of net profit and depreciation that equals Rs.9092. It
shows that the profit was not fully realized in cash because of accruals.
Therefore, the company’s earnings can’t be said to be of high quality.
However, the company converted receivables into cash rapidly. The increase in
inventory and trade receivables drained the cash generated from operations.
Investing Activities –

This section records the cash flow from sales and purchases of long-term

investments like fixed assets that include property, plant, and equipment.
Items included in this section are purchases of vehicles, furniture, buildings, or
land. Typically, investing transactions generate cash outflows, such as capital
expenditures for plant, property and equipment, business acquisitions, and the
purchase of investment securities. Cash inflows come from the sale of assets,
businesses, and securities. Investors typically monitor capital expenditures
used for the maintenance of, and additions to, a company's physical assets to
support the company's operation and competitiveness. In short, investors can
see how a company is investing in itself. Now, in the investing activities we can
see that net cash generated from investing activities is Rs.1926 in 2020 while it
was in negative as Rs.-264 in 2019. Sales of current investment has played a
major role in making the net cash positive and with the help of an increase in
redemption/maturity of term deposits (having original maturity of more than 3
months). So, in all we have a positive net cash generated from investing
activities.
Financing Activities –

Debt and equity transactions are reported in this section. Any cash flows that
include payment of dividends, the repurchase or sale of stocks, and bonds
would be considered cash flow financing activities. Cash received from taking
out a loan or cash used to pay down long-term debt would be recorded in this
section. For investors who prefer dividend-paying companies, this section is
important since it shows cash dividends paid since cash, not net income, is
used to pay dividends to shareholders. In financing activity net cash generated
is in negative Rs.-6676 in 2020 while it was in negative Rs.-5462 in 2019 so the
company is not performing well in terms of financing.
SUBMITTED TO:
SANGEETA MA’AM
FINANCIAL ACCOUNTING
SUBMITTED BY:
HARENDRA CHOUDHARY
80012020048