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Common Size Financial Statements Analysis

This document provides an overview of Unilever Pakistan and common size financial statements. It discusses Unilever's vision, purpose, and people. It then defines common size financial statements and provides examples of a common size income statement and balance sheet. The advantages of allowing comparison between companies and time periods for a company are discussed. The document concludes with an analysis of Unilever Pakistan's income statement and balance sheet using common size statements.

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Mahi Salman Thawer
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617 views12 pages

Common Size Financial Statements Analysis

This document provides an overview of Unilever Pakistan and common size financial statements. It discusses Unilever's vision, purpose, and people. It then defines common size financial statements and provides examples of a common size income statement and balance sheet. The advantages of allowing comparison between companies and time periods for a company are discussed. The document concludes with an analysis of Unilever Pakistan's income statement and balance sheet using common size statements.

Uploaded by

Mahi Salman Thawer
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
  • Introduction: (Unilever)
  • Our People
  • Our Vision
  • Unilever Corporate Purpose
  • Purpose and Principles
  • Common Size Financial Statements
  • Analysis
  • Balance Sheet
  • Assets
  • Liabilities
  • Equity
  • Conclusion

Pakistan Air force Karachi Institute of Economics and Technology Fall2012

Page 1

Contents
INTRODUCTION: (UNILEVER) ............................................................................................... 3 Our Vision: ........................................................................................................................... 4 Our People: .......................................................................................................................... 4 Unilever Corporate Purpose: ............................................................................................... 5 Purpose and Principles: ....................................................................................................... 5 Common Size Financial Statements: ................................................................................... 6 Types of Common Size Financial Statement: ................................................................... 6 Common Size Income Statement: ....................................................................................... 6 Common Size Balance Sheet: .............................................................................................. 7 Advantages And Disadvantages of Common Size Statement: ............................................ 7 Disadvantages of Common Size Statement: .................................................................... 7 Analysis: ............................................................................................................................... 8 Income Statement: ........................................................................................................... 8 Net Profit:...................................................................................................................... 8 The companys net profit in 2010 as in the comparison of 2009 but slant decrement in 2011. ......................................................................................................................... 8 Balance Sheet: ..................................................................................................................... 8
Assets: ......................................................................................................................................... 8 Liabilities:................................................................................................................................... 10 Equity:........................................................................................................................................ 11 Conclusion: .................................................................................................................................... 12

Pakistan Air force Karachi Institute of Economics and Technology Fall2012


Page 2

INTRODUCTION: (UNILEVER)
No matter who you are, or where in the world you are, the chances are that our products are a familiar part of your daily routine. Every day, around the world, people reach for Unilever products Unilever Pakistan (70.4% Unilever equity) is the largest FMCG Company in Pakistan, as well as one of the largest multinationals operating in the country. Unilever Pakistan began its operations in 1948, the Company has been closely connected to the Pakistani people and its brands have been a fundamental feature in their daily lives. In fact, the nature of our business enables our brands to be the pulse and heartbeat of the 164 million people in Pakistan. Unilever is one of the worlds leading suppliers of fast-moving consumer goods. We aim to provide people the world over with products that are good for them and good for others.

Pakistan Air force Karachi Institute of Economics and Technology Fall2012


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Our Vision:
1. We work to create a better

Executive come from six different countries.

future every day. 2. 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. 3. We will inspire people to take small everyday actions that can add up to a big difference for the world. 4. We will develop new ways of doing business that will allow us to double the size of our company while reducing our environmental impact.

Our People:
People are the heart of our business.

We aim to create an environment


in which all employees can fulfil their potential. Unilever is one of the worlds most culturally diverse companies. Our Board is made up of six nationalities and the nine members of the Unilever Pakistan Air force Karachi Institute of Economics and Technology Fall2012
Page 4

Unilever Corporate Purpose:


Our deep roots in local cultures and markets around the world give us our strong relationship with consumers and are the foundation for our future growth. We will bring our wealth of knowledge and international expertise to the service of local consumers a truly multi-local multinational. Our long-term success requires a total commitment to exceptional standards of performance and productivity, to working together effectively, and to a willingness to embrace new ideas and learn continuously. To succeed also requires, we believe, the highest standards of corporate behaviour towards everyone we work with, the communities we touch, and the environment on which we have an impact. This is our road to sustainable, profitable growth, creating long-term value for our shareholders, our people, and our business partners.

Purpose and 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 Positive impact Continuous commitment Setting out our aspirations Working with others

Pakistan Air force Karachi Institute of Economics and Technology Fall2012


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Common Size Financial Statements:


Companys financial statement, which displays all items as percentages of a common base figure. This type of financial statement allows for easy analysis between companies or between time periods of a company. The values on the common size statement are expressed as percentages of a statement component such as revenue. While most firms don't report their statements in common size, it is beneficial to compute if you want to analyze two or more companies of differing size against each other. Formatting financial statements in this way reduces the bias that can occur when analyzing companies of differing sizes. It also allows for the analysis of a company over various time periods, revealing, for example, what percentage of sales is cost of goods sold and how that value has changed over time.

Types of Common Size Financial Statement:


(1)Common Size Balance Sheet (2)Common Size Income Statement:

Common Size Income Statement:


An income statement in which each account is expressed as a percentage of the value of sales. This type of financial statement can be used to allow for easy analysis between companies or between time periods of a company.

Common size income statement analysis allows an analyst to determine how the various components of the income statement affect a company's profit.

Pakistan Air force Karachi Institute of Economics and Technology Fall2012


Page 6

Common Size Balance Sheet:


A company balance sheet that displays all items as percentages of a common base figure. This type of financial statement can be used to allow for easy analysis between companies or between time periods of a company.

The image above illustrates the difference between a regular balance sheet and a common size balance sheet. In the normal balance sheet, account values are expressed in dollar terms, while in the common size one, each value is listed as a percentage of total assets. This is also done for liabilities, where each liability account is a percentage of total liabilities.

Advantages And Disadvantages of Common Size Statement:


Advantages of Common Size statement: It reveals Sources and Application of Funds in a nutshell which help in taking decision. If common size statements of 2 or more years are compared it indicate the changing proportion of various components of Assets, Liabilities, Cost, Net Sale & Profit. When Inter Firm Comparison is made with the help of Common size statement it helps in doing corporate evaluation and Ranking. Disadvantages of Common Size Statement: No Established Standard Proportion: Common Size Statements are regarded as useless as there is no established standard proportion of an asset to the total asset or an item of expense to the net sales. Pakistan Air force Karachi Institute of Economics and Technology Fall2012
Page 7

Consistency Required: If Financial Statement of a Particular business organization are not prepared year after year on a consistent basis comparative study of common size statement will be misleading.

Analysis:
Income Statement:
A financial statement that measures a company's financial performance over a specific accounting period. Financial performance is assessed by giving a summary of how the business incurs its revenues and expenses through both operating and non-operating activities. It also shows the net profit or loss incurred over a specific accounting period, typically over a fiscal quarter or year. It is also known as the "profit and loss statement" or "statement of revenue and expense".

Net Profit:
In business, what remains after subtracting all the costs (namely business, depreciation, interest, and taxes) from a company's revenues? Net income is sometimes called the bottom line. It is also called earnings or net profit. For an individual, gross income minus taxes, allowances, and deductions. An individual's net income is used to determine how much income tax is owed.

The companys net profit in 2010 as in the comparison of 2009 but slant decrement in 2011.

Balance Sheet:
Assets:
Non - Current Assets: Noncurrent assets are capitalized rather than expensed,
meaning that the company allocates the cost of the asset over the number of years for which the asset will be in use, instead of allocating the entire cost to the accounting year in which the asset was purchased.

Current Assets: A balance sheet item which equals the sum of cash and cash
equivalents, accounts receivable, inventory, marketable securities, prepaid expenses, and other assets that could be converted to cash in less than one year.

Pakistan Air force Karachi Institute of Economics and Technology Fall2012


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A company's creditors will often be interested in how much that company has in current assets, since these assets can be easily liquidated in case the company goes bankrupt.

Assets
80.00% 70.00% 60.00% 50.00% 40.00% 30.00% 20.00% 10.00% 0.00% Non- current Assets Current Asset years 2010 years 2011

The non-current asset in 2010 was 69.56% as it increases to 69.92% in 2011. The element in balance sheet which increases and decreases in the balance sheet of 2011 the companys intangible assets increases by 2.41% in 2011, deferred tax assets which decreases by 0.58%, Property, plant and equipment decreases by 0.61%, the companys goodwill also decreases in year 2011 by 0.57% and its financial assets also decreases by in 2011 by 0.23%. Thus above mention all the fundamentals increases in the year 2011 which decreases the current assets of the company. In current assets fundamentals also fluctuate in year 2011 as inventories decreases by 0.78%, the cash and cash equivalents increases in 2011 and its other financial assets also increases.

Pakistan Air force Karachi Institute of Economics and Technology Fall2012


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Liabilities:
40.00% 35.00% 30.00% 25.00% 20.00% 15.00% 10.00% 5.00% 0.00% Non-Current Liablities Current Liabilities years 2011 years 2010

Liabilities

Current liabilities: A balance sheet item which equals the sum of all money owed by a company and due within one year also called payables or current debt. Non current liabilities: Debt not due to be paid within the next year. The non-current liabilities increases in 2011 by 0.53% and the current liabilities are increases by 4.69% because the companys current financial debts are increased by 6.76% in 2011.

Pakistan Air force Karachi Institute of Economics and Technology Fall2012


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Equity:
38.00% 37.00% 36.00% 35.00% 34.00% 33.00% 32.00% 31.00% 30.00% 29.00% 28.00% 2011 2010 2011 2010

Equity is the residual claim or interest of the most junior class of investors in assets, after all liabilities are paid. If liability exceeds assets, negative equity exists. In an accounting context, Shareholders' equity (or stockholders' equity, shareholders' funds, shareholders' capital or similar terms) represents the remaining interest in assets of a company, spread among individual shareholders of common or preferred stock. The companys equity decreases by 5.22% in the year 2011, because the companys shareholder equity decreases.

Pakistan Air force Karachi Institute of Economics and Technology Fall2012


Page 11

Conclusion:
The common size statement helps to do the analysis of the company, at what position the company stands on the basis of shareholders performance and its profit oriented area. As unilever is the multinational company, which makes so, many brands, above we have done the analysis that at what stage company stands.

Pakistan Air force Karachi Institute of Economics and Technology Fall2012


Page 12

Common questions

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A common size balance sheet highlights the proportional distribution of assets, liabilities, and equity, facilitating insights into a company's financial health, such as liquidity and capital structure. Advantages include clear inter-firm comparisons by neutralizing size differences and intuitive year-over-year analyses on internal changes. However, disadvantages arise from the lack of established benchmarks for proportions, potentially leading to misleading conclusions without context-specific thresholds, and inconsistencies in financial statement preparations across years can also hinder effective comparative analyses .

Common size financial statements express each line item as a percentage of a base figure, such as total sales for an income statement or total assets for a balance sheet. This format allows for easy comparison between companies of different sizes and periods within the same company by removing size biases and highlighting proportional relationships, such as cost structures and asset distribution changes, aiding in more effective comparative analysis .

Unilever's deep roots in local cultures and markets establish strong consumer relationships, which are crucial to its growth strategy. This localization enables the company to tailor products to consumer preferences and practices, fostering brand loyalty and market penetration. Additionally, it supports Unilever's strategy as a 'multi-local multinational,' leveraging global expertise to meet local needs, thereby enhancing its capability for sustainable market expansion and maintaining a competitive edge .

By innovating business methods to double its size while reducing environmental impact, Unilever addresses the growing demand for corporate environmental responsibility, securing consumer trust and regulatory favor. This dual focus on growth and sustainability implies investments in eco-efficient technologies and processes, fostering long-term brand equity and operational cost efficiencies. Such strategic alignment facilitates differentiation in competitive markets sensitive to environmental standards, supporting Unilever's sustainable growth trajectory .

Unilever's vision, which focuses on creating a better future, helping people feel good, and developing sustainable business practices, aligns closely with its corporate purpose of maintaining high standards of corporate behavior and achieving sustainable, profitable growth. By aiming to double the size of the company while reducing environmental impact, Unilever reflects its commitment to integrating social, environmental, and economic goals, indicating a strategic focus on long-term growth through sustainability and corporate responsibility .

Unilever's strategy of integrating international expertise with local consumer service enhances its market leadership by providing products that resonate with diverse needs while benefiting from global knowledge in areas like R&D and supply chain efficiency. This approach ensures rapid adaptability to local market dynamics, maintaining competitive pricing and innovation leadership, crucial for sustaining consumer loyalty and expanding market share globally .

Unilever's emphasis on cultural diversity among employees and a globally diverse board aims to enhance business adaptability and innovation. This strategic focus leverages diverse perspectives to better understand varied consumer needs worldwide, enabling more tailored marketing strategies and product development. It also supports talent acquisitions that foster inclusive decision-making cultures, vital for driving performance in different global markets efficiently and sustainably .

In 2011, Unilever's non-current assets increased from 69.56% to 69.92%, while intangible assets and deferred tax assets saw opposing changes, indicating adjustments in long-term asset management and tax strategy. Conversely, the decrease in current assets, including fluctuations in inventory and increases in cash equivalents, suggests a strategic transition towards more liquid asset management to support operational agility and financial stability. Such shifts indicate Unilever's focus on optimizing asset utilization for enhanced financial health and operational efficiency in a fluctuating market environment .

The 5.22% decrease in Unilever’s equity in 2011, primarily due to a reduction in shareholder equity, signifies challenges in maintaining investor confidence or dividend payouts. This could reflect adjustments in funding strategies, possibly through increased debt financing or reinvestment initiatives aimed at long-term value creation rather than immediate shareholder returns, indicating a strategic pivot towards more robust, long-term growth policies that may affect short-term share performance .

The 4.69% increase in Unilever’s current liabilities in 2011, driven by rising current financial debts, indicates more immediate obligations that could affect liquidity management. As a result, Unilever might need to refine its cash flow management to ensure it can meet short-term obligations efficiently, possibly affecting its capital allocation strategies and investment plans. This requires enhanced cost controls, revenue predictability improvements, and potentially leveraging more flexible financial instruments to maintain its financial stability and support robust strategic investments .

Pakistan Air force – Karachi Institute of Economics and Technology – Fall’2012 Page 1
Pakistan Air force – Karachi Institute of Economics and Technology – Fall’2012 Page 2 “Contents” INTRODUCTION: (UNIL
Pakistan Air force – Karachi Institute of Economics and Technology – Fall’2012 Page 3 INTRODUCTION: (UNILEVER) “No m
Pakistan Air force – Karachi Institute of Economics and Technology – Fall’2012 Page 4 Our Vision: 1. We work to crea
Pakistan Air force – Karachi Institute of Economics and Technology – Fall’2012 Page 5 Unilever Corporate Purpose: Ou
Pakistan Air force – Karachi Institute of Economics and Technology – Fall’2012 Page 6 Common Size Financial Statement
Pakistan Air force – Karachi Institute of Economics and Technology – Fall’2012 Page 7 Common Size Balance Sheet: A c
Pakistan Air force – Karachi Institute of Economics and Technology – Fall’2012 Page 8  Consistency Required: If Fin
Pakistan Air force – Karachi Institute of Economics and Technology – Fall’2012 Page 9 A company's (http://www.invest
Pakistan Air force – Karachi Institute of Economics and Technology – Fall’2012 Page 10 Liabilities: Current li

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