Ratio Analysis Unilever U.K.

2017 2018

A) Investor returns
return on investment ratio net profit/ total assets 0.11 0.16
net profit £6,486 £9,808
total assets £60,285 £59,456
B) Performance ratio
gross profit ratio gross profit/net sales 0.43 0.44
gross profit £23,168 £22,213
net sales £53,715 £50,982

net profit ratio net profit/net sales 0.12 0.19

net profit £6,486 £9,808
net sales £53,715 £50,982
C) Liquidity and working capital
management

Quick ratio (Acid test) Liquid assets/current 0.37 0.49

liabilities
Liquid assets £8,539.0 £9,715.0
0 0
current liabilities £23,177. £19,772.
00 00

Working Capital Ratio Current Assets/Current 0.73 0.78

Liabilities
Current Assets £16,983 £15,481
Current Liabilities £23,177 £19,772

D) Gearing
Debt ratio Total Liabilities/Total Assets 0.76 0.79
total liabilities £45,898 £47,164
total assets £60,285 £59,456

Debt to equity ratio Total Liabilities/Shareholders 8 5

Equity
Total Liabilities £45,898. £47,164.
00 00
shareholder equity £6,053.0 £9,389.0
0 0

INTERPRETATION:
A) Investor returns:

Return on Investment ratio- The return on investment ratio is a profitability measure which helps us
calculate the potential return the firm gives us. This ratio helps the shareholders as to whether they
should invest in the business or not. The ROI ratio of 2017 was 0.11 which got increased to 0.16 in
2018 which means that the shareholders got more return on their investment in 2018, but they still
would not be happy with their return and the company should increase their net profit to address
this problem. There are various ways to increase the net profit such as: they can decrease the
operating costs of making a product which would thus increase the profits, they can implement
effective marketing strategies to increase brand awareness of their product, if more consumers buy
their product it will help in increasing their net profits.

B) Performance ratio:

1) Gross Profit ratio- This ratio is calculated by dividing the gross profit by the net sales of the
organisation in a particular financial year. Gross profit is calculated by subtracting net sales by cost
of goods sold and net sales is computed by subtracting total gross sales by return inward and
discount allowed. This ratio is generally computed to find out the operational efficiency of the firm.
According to the analysis done above the gross profit ratio of 2017 was 0.43 which got increased to
0.44 in 2018, which is profitable for the firm but they still would look to increase this ratio by
increasing their gross profit as well as net sales. For a firm to improve their gross profit ratio they
would need to increase their gross profit which they can do by implementing effective marketing
strategies to increase their sales which would in turn increase their gross profit.

2) Net Profit ratio- This ratio is calculated by dividing net profit by net sales of the organisation. The
only difference between this and the gross profit ratio is that net profit ratio states the profits after
taxes have been deducted and the gross profit does not show taxes. This ratio shows the profit after
all expenses and cost of production has been deducted from the sales. This ratio is also known as
profit margin. The net profit ratio of 2017 was 0.12 which got increased to 0.19 in 2018, which
means company’s net profit increased in one year, that is profitable for the firm but still the firm will
look to increase their net profit in the coming year. The techniques to improve net profits of the year
are same as to gross profit because net profit is calculated through gross profit after deducting taxes
from it.

C) Liquidity and Working Capital Management:

1) Quick ratio- This ratio is generally computed by dividing the liquid assets by current liabilities of
the firm and is calculated to find out whether the firm can pay off its current liabilities through their
liquid assets. Liquid assets are those which can be easily transferred into cash or can be termed as
cash in hand. All those assets which cannot be converted into cash prior to 90 days can’t be termed
as quick assets. Cash, cash equivalents, market securities which can be converted into cash prior to
90 days, short term investments all come under liquid or quick assets. The ratio in 2017 was 0.37
that got substantially increased to 0.49 in 2018 which is good for the firm as the liquid assets in 2018
increased i.e. the firm has more cash in hand and they would look to increase it more in the coming
year.
2) Working Capital Ratio- This ratio which is also called as current ratio is calculated by dividing the
current assets of an organisation to its current liabilities for a particular financial year. Working
capital ratio is generally computed to see whether the firm can pay its obligations with the current
assets that they possess. Current ratio of more than 2 is a strong and positive indicator for the firm
that if necessary they can pay off their current liabilities with their current assets and if the ratio is
less than 1 then it is a negative indicator for the firm and that they should think of improving this
ratio through different techniques. This ratio keeps on changing after every year as the firm’s current
assets and liabilities keeps on changing with every passing time. In 2017 the working capital ratio
was 0.73 which got increased to 0.78 which is profitable for the firm as their current liabilities
decreased from 23177 in 2017 to 19772 in 2018.

D) Gearing:

1) Debt Ratio-This is a solvency ratio which is calculated by dividing company’s total liabilities to its
total assets. Debt ratio is generally calculated b to assess the firm’s position and whether in the case
of emergency they can pay off their liabilities through their total assets. The main objective of
calculating this ratio is to know how many assets does the firm has to sell to pay off their liabilities, if
the assets are less the it is profitable for the firm. This ratio also shows the firms position in the
market and is a good indicator for investors to whether they should invest in the company or not.
The debt ratio in 2017 was 0.76 which got increased to 0.79 in 2018 which is not good for the
organisation as their total liabilities increased substantially and their total assets decreased. So the
firm should make sure to decrease their liabilities and to increase their total assets.

2) Debt to equity ratio- This ratio is calculated by dividing the total liabilities off the firm by the
shareholders equity. It is generally done to see how much is the firm financing through debts and
how much through wholly owned funds. It is also an important tool for the investors to see whether
they should invest in the organisation or not. A low debt to equity ratio means that the firm is
operating more through their funds and a higher ratio means that the firm is operating more
through shareholders funds which increase the risk of the shareholders. The debt to equity ratio in
2017 was 8 which got reduces to 5 in 2018 which is profitable for the firm as their shareholders
equity increased from 6053 in 2017 to 9389 in 2018 i.e. the shareholders increased their investment
in the organisation.