We are presenting here the financial ratio analysis of Hindustan Unilever Limited that has been touted as India’ largest fast moving consumer goods (FMCG) company with dominance of over 90 years in the country. With over 50+ brands across 16 FMCG sectors, the company is a household name through its loyal customer base for brands such as Lux, Lakme, Brooke Bond, Kwality Wall’s. The financial ratio analysis of the Profit and Loss account of the company over the past 10 years reveals the financial health and the unruffled growth of the company in light of the competition from other large companies as well as fresh brands.
Financial Ratio Analysis – Sales Growth
As we have discussed above, Hindustan Unilever Limited is India’s largest FMCG company and thus a major portion of the volume of the sales in the FMCG sector of the country is being achieved by the company. There was a significant drop in the sales growth in the COVID affected year but since then the company has been reporting YOY increase in the revenue from operations. This is on account of better distribution centres and improved marketing and branding strategies amongst other reasons.
Financial Ratio Analysis – COGS% of Sales
COGS i.e. Cost of Goods sold is the aggregate of all direct costs incurred in the production process of the goods that the company is selling. It includes raw material costs, labour costs and overhead expenses. Every business strives to maintain a lower COGS percentage of sales to bolster profitability. Hindustan Unilever Limited’s consistent COGS percentage amidst fluctuating market conditions implies a commendable efficiency in production. Despite challenges such as fluctuating raw material supplies, their ability to control direct costs contributes to sustained profitability year-over-year.
Financial Ratio Analysis – Gross Margin
Gross margin is a key metric in indicating the efficiency of a company’s operations in generating profits from its sales revenue. Hindustan Unilever Limited has been recording consistent gross margins even amidst fluctuating market conditions implies a commendable efficiency in production. Despite challenges such as fluctuating raw material supplies, their ability to control direct costs contributes to sustained profitability year-over-year.
Financial Ratio Analysis – Other Expenses % of Sales
The percentage of other expenses in relation to sales is a pivotal metric shedding light on a company’s efficacy in handling non-production costs vis-à-vis its revenue. This metric serves as a cornerstone in the company’s cost management analysis, allowing scrutiny of any disproportionate or sudden spikes in expenses unrelated to sales. Hindustan Unilever Limited’s adept cost management practices are evident in the consistent decline of other expenses relative to sales. This underscores the company’s commitment to maintaining financial prudence and operational efficiency.
Financial Ratio Analysis – EBITDA Margin
Earnings before interest, tax, depreciation and amortization (EBITDA) margin is used to evaluate a company’s operating profitability by measuring its ability to generate earnings from its core business operating activities excluding certain non-operating expenses. It is often used by investors and analysts to evaluate a company’s financial health and performance. The EBITDA margin of Hindustan Unilever Limited is consistently being maintained by the company.
Financial Ratio Analysis – Interest % of Sales
Interest% of sales measures the proportion of sales revenue that is used to cover interest expenses. It reflects on the effective debt management strategies of the company and is important for the risk profile of the company. The interest% of sales has been declining in the last 4 years in the accounts of Hindustan Unilever Limited and is an excellent sign of effective debt management of the company.
Financial Ratio Analysis – Depreciation % of Sales
The depreciation % of sales is a significant metric that offers insights into how effectively a company manages its depreciation expenses in relation to its sales revenue. This metric is crucial for analysing the company’s asset management efficiency and its impact on profitability. Hindustan Unilever Limited demonstrates sound financial management by maintaining a steady or decreasing depreciation percentage relative to sales over time. This indicates prudent asset utilization and effective capital expenditure planning.
Financial Ratio Analysis – EBT Margins
EBT margins, or Earnings before Taxes margins, are a key financial metric used to assess a company’s profitability before accounting for taxes. It represents the proportion of earnings generated from operations relative to total revenue, excluding taxes. A higher EBT margin indicates better operational efficiency and profitability, as it shows that the company is able to generate more earnings from its core business activities. The EBT margin of Hindustan Unilever Limited is consistently being maintained by the company.
Financial Ratio Analysis – Net Profit Margins
Net profit margins, indicating the net income derived from operations as a percentage of sales, serve as a vital metric for assessing financial health. Ideally, as sales grow, maintaining or improving net profit margins signifies effective cost management. Hindustan Unilever Limited’s consistent net profit margins not only bolster investor and analyst confidence but also contribute to the company’s reserve strength, affirming its robust operational performance.
Financial Ratio Analysis – EPS Growth
Earnings per share i.e. EPS is a very crucial ratio that is often used by the investors and analysts in determining the share price growth. It is an important indicator of a company’s financial performance and growth trajectory. In the case of Hindustan Unilever Limited, we are witnessing positive EPS growth YOY which is a very good indicator of the company’s profitability.
Dividend Per Share (DPS)
Dividend per share (DPS) is a measure of the total dividends distributed by a company to its shareholders on a per-share basis. It’s calculated by dividing the total dividends paid out by the total number of outstanding shares. Investors often use DPS as an indicator of a company’s profitability and its commitment to rewarding shareholders. Hindustan Unilever Limited has announced dividends every year since the past 10 years and has been consistent in the payout ratio as well.
Retained Earnings %
Retained earnings as a percentage is a measure that indicates the proportion of a company’s net income that is retained and reinvested back into the business rather than distributed as dividends to shareholders. Over the past 4 years, Hindustan Unilever Limited has significantly reduced its retained earnings ratio which is an indicator that is pertinent since a higher percentage of retained earnings suggests that the company is retaining more of its profits for future growth opportunities rather than distributing them to shareholders and thus a lower percentage of retained earnings YOY suggests otherwise.
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