1.

1 Introduction

fINANCIAL ANALYSIS:

Financial analysis is the process of evaluating businesses, projects, budgets and other finance-related
entities to determine their performance and suitability. Typically, financial analysis is used to analyze
whether an entity is stable, solvent, liquid or profitable enough to warrant a monetary investment.
When looking at a specific company, a financial analyst conducts analysis by focusing on the income
statement, balance sheet, and cash flow statement.

We know business is mainly concerned with the financial activities. In order

to ascertain the financial status of the business every enterprise prepares
certain statements, known as financial statements. Financial statements are
mainly prepared for decision making purposes. But the information as is
provided in the financial statements is not adequately helpful in drawing
a meaningful conclusion. Thus, an effective analysis and interpretation of
financial statements is required

Analysis means establishing a meaningful relationship between various

items of the two financial statements with each other in such a way that
a conclusion is drawn. By financial statements we mean two statements :
(i) Profit and loss Account or Income Statement
(ii) Balance Sheet or Position Statement
These are prepared at the end of a given period of time. They are the
indicators of profitability and financial soundness of the business concern.
The term financial analysis is also known as analysis and interpretation of
financial statements. It refers to the establishing meaningful relationship
between various items of the two financial statements i.e. Income statement
and position statement. It determines financial strength and weaknesses of
the firm.
Analysis of financial statements is an attempt to assess the efficiency and
performance of an enterprise. Thus, the analysis and interpretation of
financial statements is very essential to measure the efficiency, profitability,
financial soundness and future prospects of the business units
Financial analysis is the examination of a business from a variety of perspectives in order to fully
understand the greater financial situation and determine how best to strengthen the business.A
financial analysis looks at many aspects of a business from its profitability and stability to its
solvency and liquidity. For example, these elements are typically reviewed in a financial
analysis:

 Profitability: The business needs to review the levels of current and past profitability and
decide what they need to do to increase profitability in the future.
 Solvency: Businesses are also concerned with making sure that they do not fold because
they are in debt. A financial analysis will highlight the debts they owe, and help create a
pay-off plan.
 Liquidity: A business needs to understand its cash position and make sure that it has the
ability to maintain a positive cash flow, while still being able to pay for what they need
immediately.
 Stability: The business also wants to make sure that it is financially stable, and does not
have components that could cause it to fold. They are thinking long term about the future
of the company. They want to make sure they do not get into financial trouble.

It is performed by professionals who prepare reports using ratios that make use of information
taken from financial statements and other reports. These reports are usually presented to top
management as one of their bases in making business decisions. Financial analysis may
determine if a business will:

 Continue or discontinue its main operation or part of its business;

 Make or purchase certain materials in the manufacture of its product;
 Acquire or rent/lease certain machineries and equipment in the production of its goods;
 Issue stocks or negotiate for a bank loan to increase its working capital;
 Make decisions regarding investing or lending capital;
 Make other decisions that allow management to make an informed selection on various
alternatives in the conduct of its business.

definitions
Financial analysis is largely a study of relationship among the various financial factors in a
business as disclosed by a single set of statements, and a study of the trend of these factors as
shown in a series of statements”.

By establishing a strategic relationship between the items of a balance sheet and income
statement and other operative data, the financial analysis [as -it is simply called] explains the
meaning and significance of such items.

The terms ‘analysis’ and ‘interpretation’ are complimentary to each other, though sometimes
they are used distinctively.

While analysis is used to mean the simplification of data by methodical classification of data
given in the financial statements, the term interpretation means explaining the meaning and
significance of the data so simplified. However, analysis is useless without interpretation, and
interpretation becomes difficult without analysis.

Objective
Different parties are interested in the financial statements for different purposes and look at them
from different angles. For example, the debenture-holders analyze the statements in order to
ascertain the ability of companies to make regular periodical interest payments and final payment
of principal amount on maturity.

The prospective shareholders would like to know whether the business is profitable and is
progressing on sound lines. Above all, the management is interested in the operational efficiency
as well as the financial position of the business.

 Measuring the profitability

The main objective of a business is to earn a satisfactory return on the

funds invested in it. Financial analysis helps in ascertaining whether
adequate profits are being earned on the capital invested in the business
or not. It also helps in knowing the capacity to pay the interest and
dividend.
 Indicating the trend of Achievements
Financial statements of the previous years can be compared and the
trend regarding various expenses, purchases, sales, gross profits and net
profit etc. can be ascertained. Value of assets and liabilities can be
compared and the future prospects of the business can be envisaged.

 Assessing the growth potential of the business

The trend and other analysis of the business provides sufficient
information indicating the growth potential of the business.

 Comparative position in relation to other firms

The purpose of financial statements analysis is to help the management
to make a comparative study of the profitability of various firms
engaged in similar businesses. Such comparison also helps the
management to study the position of their firm in respect of sales,
expenses, profitability and utilising capital, etc.
 Assess overall financial strength
The purpose of financial analysis is to assess the financial strength of
the business. Analysis also helps in taking decisions, whether funds
required for the purchase of new machines and equipments are provided
from internal sources of the business or not if yes, how much? And also
to assess how much funds have been received from external sources.
 Assess solvency of the firm
The different tools of an analysis tell us whether the firm has sufficient
funds to meet its short term and long term liabilities or not.

hence, the main objective of financial analysis is to make a detailed study about the cause and effect of
the profitability and financial condition of the firm.

PARTIES INTERESTED
Analysis of financial statements has become very significant due to
widespread interest of various parties in the financial results of a business
unit. The various parties interested in the analysis of financial statements
are :
(i)
Investors :
Shareholders or proprietors of the business are interested
in the well being of the business. They like to know the earning
capacity of the business and its prospects of future growth.
(ii)
Management :
The management is interested in the financial position
and performance of the enterprise as a whole and of its various
divisions. It helps them in preparing budgets and assessing the
performance of various departmental heads.
(iii)
Trade unions :
They are interested in financial statements for
negotiating the wages or salaries or bonus agreement with the
management.
(iv)
Lenders :
Lenders to the business like debenture holders, suppliers
of loans and lease are interested to know short term as well as long
term solvency position of the entity.
(v)
Suppliers and trade creditors :
The suppliers and other creditors are
interested to know about the solvency of the business i.e. the ability
of the company to meet the debts as and when they fall due.

vi)
Tax authorities :
Tax authorities are interested in financial statements
for determining the tax liability.
(vii)
Researchers :
They are interested in financial statements in undertaking
research work in business affairs and practices.
(viii)
Employees :
They are interested to know the growth of profit. As a
result of which they can demand better remuneration and congenial
working environment.
(ix)
Government and their agencies :
Government and their agencies
need financial information to regulate the activities of the enterprises/
industries and determine taxation policy. They suggest measures to
formulate policies and and regulations.
(x)
Stock exchange :
The stock exchange members take interest in
financial statements for the purpose of analysis because they provide
useful financial information about companies

types of Financial Analysis:

Financial analysis may be classified into different categories depending upon:

(i) The materials used, and

(ii) The method of operation followed in the analysis.

(i) Based on the material used or people interested in the analysis, it may be classified as
External vs. Internal Analysis.

External Analysis:

People outside the firm do external analysis. In the matter of financial statement analysis,
investors, credit agencies, government agencies, shareholders, etc., are outsiders/external parties
to the firm.

An external analyst usually has only the published information to rely upon. His position has
been improved in recent times due to increased governmental regulations requiring business
concerns to provide detailed information to the public through audited accounts.

Internal Analysis:
Analysis for management purposes is the internal type of analysis. It is done by the Company’s
finance and accounting departments and is more detailed than external analysis. Executives and
employees of the organization also conduct it.

Officers appointed by the governmental or court agencies under regulatory and other
jurisdictional powers vested in them over the business also conduct the analysis.

(ii) Based on the methods of analysis, it may be classified as horizontal vs. vertical analysis.

Horizontal Analysis:

It refers to the comparison of the trend of each item in the financial statement over a period of
years, or that of companies. The figures for this type of analysis are presented horizontally over a
number of columns.

Such a column represents a year or a company. This type of analysis is also called as Dynamic
Analysis as it is based on data from year to year, rather than on data of any one year.

Vertical Analysis:

It is also called as Static Analysis. In vertical analysis the figures relating to a financial statement
are presented vertically, i.e., a figure from a year’s statement is compared with a base selected
from the same statement.

This type of analysis is mainly used to study through ratios the quantitative relationship of
various items in the financial statement on a particular data, or for one accounting period.

It is useful to understand the performance of several companies in the same group, or many
divisions or departments in the same company.

However this type of analysis is not very conducive to a proper analysis of a company’s financial
position, for it depends on the data for one time period. In order to make it more effective, it
could be conducted both vertically as well as horizontally.

Problems with financial analysis

Financial analysis is a brilliant tool to gauge the past performance of a company and predict
future performance, but there are several issues that one should be aware of before using the
financial statement analysis results blindly, as these issues can interfere with how the results are
interpreted. Some of the issues are:

Comparability between Companies

 This is a big issue for analysts because they can seemingly compare financial statement analyses
between different companies on the basis of ratios used, but in reality it may not paint an
accurate picture. The financial ratios of two different companies may be compared to see how
they match up against each other, but each company may aggregate all their information
different from each other in order to draw up their accounting statements. This may lead to
incorrect conclusions drawn about a company in relation to other companies in the industry.

Comparability between Periods

The change in accounts where financial information is stored may skew the results of the
financial statement analysis, from one period to the next. For example, if a company records an
expense in one period as cost of goods sold, while in another period, it is recorded as a selling
and distribution expense, the analysis between those two periods would not be comparable.

Operational Information

. Analysts do not take into account operational information of a company, as only financial information is
analyzed and reviewed. There may be several indicators in operational information of the company
which may be predictors of future performance, for example, the number of backlogged orders, any
changes in licenses or warranty claims submitted to the company or even changes in the culture and
work environment. Therefore, analysis of financial information may only relay half the story.

Company profile

Hindustan Unilever Limited (HUL) is India's largest fast-moving Consumer Goods company with a
heritage of over 80 years in India. On any given day, nine out of ten Indian households use their
products.

HUL works to create a better future every day and helps people feel good, look and get more out
of life with brands and services that are good for others.
With over 35 brands spanning 20 distinct categories such as soaps, detergents, shampoos,
skincare, toothpaste, deodorants, tea, cosmetics, coffee, packaged foods, ice-creams, and water
purifiers, the company is a part of the everyday life of millions of consumers across India. It’s
portfolio includes leading household brands such as Lux, Life boy, Surf excel, Rin, Wheel, Fair
& Lovely, Dove, Brooke Bond, Brue, Quality Wall’s and Pure it.

History

Hindustan Unilever (HUL) is India's largest fast moving consumer goods company, with
leadership in Home & Personal Care Products and Foods & Beverages. HUL's brands, spread
across 20 distinct consumer categories, touch the lives of two out of three Indians. In the summer
of 1888, visitors to the Kolkata harbour noticed crates full of Sunlight soap bars, embossed with
the words 'Made in England by Lever Brothers'. With it, began an era of marketing branded Fast
Moving Consumer Goods (FMCG).Soon after followed Lifebuoy in 1895 and other famous
brands like Pears, Lux and Vim. Vanaspati was launched in 1918 and the famous Dalda brand
came to the market in 1937.

In 1931, Unilever set up its first Indian subsidiary, Hindustan Vanaspati Manufacturing
Company, followed by Lever Brothers India Limited (1933) and United Traders Limited (1935).
These three companies merged to form HUL in November 1956; HUL offered 10% of its equity
to the Indian public, being the first among the foreign subsidiaries to do so. Unilever now holds
52.10% equity in the company. The rest of the shareholding is distributed among about 360,675
individual shareholders and financial institutions.

The erstwhile Brooke Bond's presence in India dates back to 1900. By 1903, the company had
launched Red Label tea in the country. In 1912, Brooke Bond & Co. India Limited was formed.
Brooke Bond joined the Unilever fold in 1984 through an international acquisition. The erstwhile
Lipton's links with India were forged in 1898. Unilever acquired Lipton in 1972, and in 1977
Lipton Tea (India) Limited was incorporated.

Pond's (India) Limited had been present in India since 1947. It joined the Unilever fold through
an international acquisition of Chesebrough Pond's USA in 1986.

Since the very early years, HUL has vigorously responded to the stimulus of economic growth.
The growth process has been accompanied by judicious diversification, always in line with
Indian opinions and aspirations.The 1990s also witnessed a string of crucial mergers,
acquisitions and alliances on the Foods and Beverages front. In 1992, the erstwhile Brooke Bond
acquired Kothari General Foods, with significant interests in Instant Coffee. In 1993, it acquired
the Kissan business from the UB Group and the Dollops Icecream business from Cadbury India.

As a measure of backward integration, Tea Estates and Doom Dooma, two plantation companies
of Unilever, were merged with Brooke Bond. Then in July 1993, Brooke Bond India and Lipton
India merged to form Brooke Bond Lipton India Limited (BBLIL), enabling greater focus and
ensuring synergy in the traditional Beverages business. 1994 witnessed BBLIL launching the
Wall's range of Frozen Desserts. By the end of the year, the company entered into a strategic
alliance with the Kwality Icecream Group families and in 1995 the Milkfood 100% Icecream
marketing and distribution rights too were acquired.

Finally, BBLIL merged with HUL, with effect from January 1, 1996. The internal restructuring
culminated in the merger of Pond's (India) Limited (PIL) with HUL in 1998. The two companies
had significant overlaps in Personal Products, Speciality Chemicals and Exports businesses,
besides a common distribution system since 1993 for Personal Products. The two also had a
common management pool and a technology base. The amalgamation was done to ensure for the
Group, benefits from scale economies both in domestic and export markets and enable it to fund
investments required for aggressively building new categories.

In January 2000, in a historic step, the government decided to award 74 per cent equity in
Modern Foods to HUL, thereby beginning the divestment of government equity in public sector
undertakings (PSU) to private sector partners. HUL's entry into Bread is a strategic extension of
the company's wheat business. In 2002, HUL acquired the government's remaining stake in
Modern Foods.

In 2003, HUL acquired the Cooked Shrimp and Pasteurised Crabmeat business of the Amalgam
Group of Companies, a leader in value added Marine Products exports.

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. They are manufactured
over 37 factories across India. The operations involve over 2,000 suppliers and associates. HUL's
distribution network, comprising about 2,500 redistribution stockists, covering 6.3 million retail
outlets reaching the entire urban population, and about 250 million rural consumers.

HUL has traditionally been a company, which incorporates latest technology in all its operations.
The Hindustan Unilever Research Centre (HURC) was set up in 1958, and now has facilities in
Mumbai and Bangalore. HURC and the Global Technology Centres in India have over 200
highly qualified scientists and technologists, many with post–doctoral experience acquired in the
US and Europe.

HUL is also running a rural health programme – Lifebuoy Swasthya Chetana. The programme
endeavours to induce adoption of hygienic practices among rural Indians and aims to bring down
the incidence of diarrhoea. It has already touched 120 million people in approximately 50, 676
villages across India. The vision is to make a billion Indians feel safe and secure.

FMCG major Hindustan Unilever (HUL) has received its board’s nod for divestment of 43.31%
stake in Hindustan Field Services (HFS) to Smollan Group 30 June 27, 2010. HFS is a joint
venture (JV) company between HUL and Smollan Holdings. It was incorporated for building
capabilities for 'in–store' execution in Modern Trade and operates as a dedicated venture with
processes, capability and culture of execution. Smollan Group currently holds 49% stake in HFS.
In 2012 HUL entered into an agreement with Unilever for manufacturing, marketing and
distributing the Brylcreem brand in India.

CHAPTER II

2.1 RESEARCH METHODLOGY

There is large no. of FMCG companies in the market, to find the defining strategies used in secondary
method.

2.2 Data Collection Method:

For this research study secondary data was collected.

Secondary data has collected from magazines, newspaper, company literature and websites’

2.3 Data analysis:

Analyzing the balance sheet and income statement of the company and finding the appropriate ratios
for the same.

HYPOTHESIS OF THESTUDY:.
Alternative Hypothesis (H1)

The alternative hypothesis states that a population parameter is smaller, greater, or different than
the hypothesized value in the null hypothesis. The alternative hypothesis is what you might believe to be
true or hope to prove true.

H1 : The applied research is used on the financial statement by using historical datas i.e. ratio analysis
which indicates calculation on the basis of past performance

H1: The hypothesis is applied to financial statements and ratio analysis are considered to
 be true.

LIMITATIONS OF THESTUDY:
1) The study is limited to the financial statements of the company.
2) The ratios are not matching with the company ratio in the website.
3) The analysis and interpretation are based on secondary data contained in the published
reports for the period which ever we want.
4) Some ratios are not been able to calculate due to missing information of data.

SCOPE OF THE STUDY

The scope of the present study is very wide and broad. The present study is limited to the
analysis of profitability through analysis of profitability ratios, analysis of liquidity through
analysis of liquidity ratios, short term financial strength through the analysis of the management
of financial statements and analysis of long-term financial strength through the analysis of
solvency ratios. The present study covers only monetary aspects. Non-monetary aspects which
may have a significant impact on the financial performance of the FMCG Sector and selected
FMCG companies have not been covered under the present study. The present study excludes
other financial problems like capital budgeting, impact of social, economic and political
environments on the FMCG Sector, impact of government policies regarding trade and
industry, etc. It is also important to mention here that it is not the intention of the present study
to ascertain the acceptance or rejection of the various theories of financial management. The
present study covers only those FMCG companies which are listed on Bombay Stock Exchange
and National Stock Exchange. It does not cover those FMCG companies which are not listed on
Bombay Stock Exchange and National Stock Exchange. The present study is restricted to the
analysis of the financial statement of the selected FMCG companies from the point of view of
the appraisal of profitability, liquidity, short term and long-term financial strength and overall
financial performance of the FMCG Sector as well as of the selected FMCG companies. The
study only discloses the reasonableness and adequacy of working capital, long term capital and
profitability in FMCG Sector and the selected FMCG companies understudy. The study is
mainly intended to concentrate on the issues relating to the financial performance of companies
of FMCG sector of India. Financial ratios like Current Ratios, Quick Ratio, PAT Margin ratio,
EBIT Margin, Return on Capital Employed, Return on Equity, Earnings Per share, Dividend
Payout Ratio, Total Debt Equity Ratio, Interest Cover Ratios, Inventory Turnover Ratios,
Debtors Turnover Ratios, Assets Turnover Ratios, Fixed Assets Turnover Ratios, have been
covered under the present study.

Advantages of the study

1. To increase the knowledge that how company is performing in its assets and liabilities.

2. The major advantage is consistency in finding the data of the company.

3. We can rely as financial statement gives true and fair view of the company.

4. Income statement can easily give the profitability of the company.

5. Balance sheet shows the owned and borrowed fund of the company so we can easily see
goodwill of the company outside.

Disadvantages of the company

1. It is limited to the extent of the financial statements of the company.
2. In some cases, data is missing it is unable to calculate ratio.

3. Some ratios are not been able to calculate due to missing information of data.

4. The study is limited to the financial statements of the company.

5. The ratios are not matching with the company ratio in the website.