Accounting And Managerial Finance Assessment

Your Task

Question 1 of the individual assignment is to perform a detailed financial analysis of Unilever Plc using key financial ratios and analysis of company financial statements. A critical evaluation of the financial health of the company, including vertical analysis and assessment of the company’s capital structure, should also be submitted.

Question 2 of the individual assignment is to prepare a report for the investment board of Unilever Plc that appraises an investment project that will be evaluated based on the information provided below for Question 2. Important: The two components of this assessment are independent of each other.

Question 1 – 50%

Using the following link: https://www.unilever.com/investor-relations/annual report-and-accounts/archive-of-annual-report-and-accounts/ Download the group annual reports of Unilever for the past three years and provide a critical analysis of the financial health of the company. Under the financial statements section, you will find the group’s consolidated financial statements and the notes to them. (This report should be a minimum of 2,500 of the word count.)

Required:

1. Briefly introduce the company and present its current mid-term (5 years) outlook. Make sure you also include an analysis of the company’s share price to the present. (Maximum of 300 words.) [5 marks]
2. Calculate Unilever’s key financial ratios (for at least the 3 most recent years) and present them in the report in table or chart format. Key ratios must cover all ratio categories: profitability, liquidity, efficiency, investment, and gearing (leverage) ratios. [15 marks]
3. Interpret the financial ratios and analyse Unilever’s financial performance in the most recent year (the newest annual report) in comparison to its previous years as well as its competitor/industry. Make sure you justify any significant differences (trends) you observe here. [20 marks]
4. Support the above analysis with vertical analysis of Unilever’s consolidated income statement and balance sheet and then critically assess the company’s capital structure. [10 marks]

Notes:

The accompanying analysis should be detailed and provide reasons for any changes. Utilise both internal and external (financial and non financial) information to support your analysis. Simply stating that a certain ratio has changed and by how much is not sufficient for analysis at this level.

All equations and findings must be included in the report.

[Total Q1: 50 marks]

Question 2 – 50%

Unilever is currently evaluating a new project (called ‘Stay Healthy’) to produce organic and vegan food. The project will require an initial outlay of €65m and is expected to have a three-year life span. The projected cash flows associated with the project are displayed in the below table:

The project has a debt capacity of 50% of the cost of the project, with an annual interest charge of 5%. The company currently has €10m of retainedearnings available for this project, and the remainder would potentially be financed with a rights issue. The rights issue incurs additional costs of 2% of the amount raised, and the debt issuance is a bit cheaper, costing 1%, where both issue costs are tax deductible.

You will need to research the other values needed to complete Table 2 above.

Required:

The company believes it will be a successful project and will help to distinguish them from their competitors. However, they would like you to evaluate the project using different methods and present a proposal to the investment committee in order for them to approve it.

1. Unilever is considering financing the project with 50?bt. Using the Internal Rate of Return (IRR) and Net Present Value (NPV), appraise the project. Hint: calculate the free cash flow of the project and use CAPM to compute the discount rate. [12 marks]
2. Evaluate the project using Adjusted Present Value (APV). [12 marks]
3. Assuming the market risk of the project is similar to the overall market risk of the firm, revise the project’s NPV using the Weighted Average Cost of Capital (WACC). Contrast the answer to part a). [12 marks] Note: Assume the same level of debt is held until the end of the project. Do not consider the repayment of the debt principal in any of the above valuations in parts a) to c).
4. Compare the methods used and give a final recommendation to investment committee. Make sure you critically evaluate all methods and discuss other risk factors that were not included in the analysis. [14 marks] [Total Q2: 50 marks]

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