Accounting And Finance For Decision Making Assignment Sample

Table of Contents

Introduction of Accounting And Finance For Decision Making Assignment
2.1. Critically analyse the purpose of an investment that helps to make growth in long term
3.2. Calculation of NPV and IRR
4. Critically discussing the “risk and return” and its potential impact on its “financial performance”

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Introduction of Accounting And Finance For Decision Making Assignment

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1. Executive Summary

1.1. Introduction of the company

Unilever is the leading retailer of the UK that deals in driving superior performance which are purpose-led and future fit businesses. The company aims at developing sustainable growth through transformational strategy and enhancing people’s lives with their products. Thus the company’s main aim is to focus on skin care, hygiene, beauty and plant-based foods.

1.2. Purpose of the report

The purpose of the report is to recommend Unilever to diversify the business risks and evaluate investment procedures in order to develop a long term and sustainable growth by analysing the risks the company is facing. Thus, the main aim of the report is to evaluate various investment opportunities available to the company along with analysing financial performance of the company.

1.3. Conclusion from your analysis and discussion

It is concluded that in order to improve financial performance of Unilever, change in supply chain and innovative practice is needed. Further, it is also concluded that since the company provided 1 billion during covid it also faced funds which induces the need of long-term investment by the company.

1.4. Recommendations on how the company should proceed with the investment

It is recommended that the company must use the initial investment process through the NPV method and identify a lower payback period which can help the company to develop long term sustainability and growth. Thus, it is also suggested to develop more innovative practices and an effective supply chain in order to develop sustainable growth.

2. Motivation of the proposed investment

2.1. Critically analyse the purpose of an investment that helps to make growth in long term

Long term investment helps a company to identify the volatility of a market in a particular period. Further, since Unilever needs to diversify its business risks in order to gain sustainable growth, long term investment will be effective. The emerging market of Unilever declined to 1.8% in the first quarter of 2020 (Unilever, 2022). Thus, the funds of the company decreased since the company donated 1 billion in relief funds during the COVID period, which induces the company to develop a long term investment strategy.

2.1.1. Purpose of investment

Identification of real problem

One of the major problems faced by the company is maintaining prices and margins, which has caused problems in demand for the product.

Importance of resolving problem

The stated problem is required to be solved as this has caused an effect on demand and sales of the company. Further the company is also facing material issues due to which business and its performance are experiencing 11 sustainability issues.

2.1.2. Process

Cause of problem

There has been disruption in the direct-to-consumer services, which is due to lack of sustainable supply chain.

Drivers of problem change

Climate change and behavioural change among consumers have been considered as the most influencing drivers of change (Unilever, 2022).

2.1.3. Proposition

Capabilities enabling necessary change in drivers

Their engagement with stakeholders and their innovative practices are the capabilities that can enable the company to make necessary changes during climate change and behavioural change in Unlver.

Specific deliverables providing capabilities

Improvement in supply chain and innovation practices is some of the deliverables that can help in provision of capabilities during the change.

3. Conduct investment appraisal using both quantitative and qualitative information

3.1. Analysing the Payback

The payback period is conducted for analysing the time period of the company that helps in dealing with the investment. At the same time, the research on Unilever Plc helps to understand that Payback period method helps in providing opportunity while conducting the decision on investment (Gorshkov et al. 2018). Therefore, the Payback period is calculated for the 10 years [refer to appendix 1].

3.2. Calculation of NPV and IRR

Net Present Value (NPV)

NPV is used for calculating the budgeting investment that is conducted by the respective company. At the same time, NPV helps in conducting the “current values for future payments in the ways of investments” respectively. Therefore, the value of NPV is 202% which is done by calculating the NPV is conducted below

NPV	*Discount factor (a)*	*Amount in Million (b)*	*Discounted Cash Flow (ab)**
Cost of ferry	1	£ 80.00	£ 80.00
10% Discount Rate Table	Cash Flow	£ 80.00
Cash inflows for five years:	a	a	a*b
Year 1	0.909	£ 14.00	£ 12.73
Year 2	0.826	£ 17.50	£ 14.46
Year 3	0.751	£ 21.88	£ 16.43
Year 4	0.683	£ 27.34	£ 18.68
Year 5	0.621	£ 34.18	£ 21.23
Year 6	0.564	£ 42.72	£ 24.10
Year 7	0.513	£ 53.41	£ 27.40
Year 8	0.467	£ 66.76	£ 31.18
Year 9	0.424	£ 83.45	£ 35.38
Year 10	0.386	£ 104.31	£ 40.26
*Discounted cash inflow*	*£ 241.82*

Table 1: Calculator of NPV

(Source: Created by learner)

Internal Rate of Return (IRR)

The calculation of IRR is conducted by the company to “analysis of the financial statement to estimate the profitability” structure of the respected company. At the same time, here the IRR is calculated of Unilever Plc that is valuing of 33% respectively.

IRR	*Amount in Million*
Year 0	-£ 80.00
Year 1	£ 14.00
Year 2	£ 17.50
Year 3	£ 21.88
Year 4	£ 27.34
Year 5	£ 34.18
Year 6	£ 42.72
Year 7	£ 53.41
Year 8	£ 66.76
Year 9	£ 83.45
Year 10	£ 104.31
IRR	33%

Table 2: Calculator of IRR

(Source: Created by learner)

3.3. PESTLE and SWOT analysis for the investment

PESTLE analysis of Unilever Plc for the investment

Political

Economic

Social

Technological

Environmental

Legal

? Dealing with European and American Laws

? Competition is ready

? Inflation rate

Customer Whims

? Cultural influencing

? Health

? Issues faced by the environmental factors

? Helping women

? Automotivation key

? Technological changes

? Negative cash flow

? Environmental policies

? Climate change

? Sustainable growth

? Laws

? product safety laws

? Safety of employee laws

Table 3: PESTLE Analysis

(Source: Created by learner)

Political: The political factors that Unilever Plc is dealing with different types of business policies. At the same time, the dealing with European and American Laws helps Unilever Plc to face legal issues and mitigate risks (Pestle analysis, 2022).

Economic: The economical factors that are deal by the Unilever Plc helps to give a tough competition to the rivals. At the same time, the interest rate is being changed due to the Covid 19 pandemic. The rate of inflation helps to deal with the disposable income, unemployment rate and economic growth pattern (libguides, 2021).

Social: The social aspects that Unilever plc Company is dealing with workers and the social; culture that are necessary to maintain the working diversity (libguides, 2021).

Technology: The technological support helps to conduct with the innovative features that help company to make progress those are technological development, automation, technological support and many more.

Legal: At the same time, it is necessary for the company to deal with the legal authorities as it helps to improve the supply chain. Therefore, Unilever Plc is dealing with the employment laws, protection laws for consumer and many more.

Environmental: The environmental factors that company is dealing with are climatic change, environmental offset and weather respectively. This helps in managing the entire urban planning system by the company. (libguides, 2021).

SWOT analysis

Strength

? Maintain the prominence in the consumer goods industry (Unilever, 2022)

? Strong brand portfolio

? Global Preference

Weakness

? Supply Continuity

? Product Relevance

? IT infrastructure

Opportunities

? eB2B Platform

? Customer Relationship

Threats

? Impact of Covid 19 pandemic

? Government regulation

Table 4: SWOT Analysis

(Source: Created by learner)

Strength: The strength of the company is deal with the development structure of the organisation. At the same time, the company is dealing strong brand portfolio that helps in managing the business position of Unilever Plc respectively.

Weakness: The weakness of the Unilever Plc is mostly faced at the time of Covid 19 pandemic.

Opportunities: Opportunities helps in managing the requirement of the company. At the same time, the supply chain management is dealing with the Covid 19 situation to achieve the market in the domestic area.

Threats: The threat is to “Unilever’s eB2B platform Shirker helps 300,000 stores procure its products” respectively.

4. Critically discussing the “risk and return” and its potential impact on its “financial performance”

4.1. Compute a Sensitivity analysis for the risk and return

Discount Flow risk

£ 161.82	£ 141.82	£ 191.82	£ 241.82	£ 291.82	£ 341.82
Discounted cash outflow	£ 20.00	161.8241957	161.824196	161.824196	161.8241957	161.8241957
	£ 50.00	161.8241957	161.824196	161.824196	161.8241957	161.8241957
	£ 80.00	161.8241957	161.824196	161.824196	161.8241957	161.8241957
	£ 110.00	161.8241957	161.824196	161.824196	161.8241957	161.8241957
	£ 140.00	161.8241957	161.824196	161.824196	161.8241957	161.8241957

Table 5: Calculation of Sensitivity analysis for the risk and return

(Source: Created by learner)

4.2. Focusing on the risk of Cost of capital, Cost and Benefits

*Cost of Capital*
Cost of capital is based on the weighted average of the cost of debt and the cost of equity.
*In this formula:*
*Cost of Equity ( Re )*	*Cost of Debt (Rd)*
Cost of Equity ( Re ) is calculated using the CAPM Model.	Cost of Debt (Rd) can Calculated, the cost of debt using the following formula
*CAMP (cost of equity ) = Rf+B(Rm-Rf)*	*4.15%*	**Cost of Debt = (Risk Free Rate + Credit Spread) (1 – Tax Rate)***	*4.09536*
Risk Free Rate (Rf)	5.00%	Credit Spread	5
Risk Premium (Rm)	10%	Risk Free Rate (Rf)	5.60%
Beta of the stock is (B)	1.2	Corporation Tax Rate	19.00%
*WACC Calculation*	*Million Euros*
**WACC = (E/VRe)+(D/VRd)(1-Tc)***	0.0415
1. E = the market value of the firm's equity.	80000000
2. D = the market value of the firm's debt.	0
3. V = the sum of E and D.	80000000
4. Re = the cost of equity.	4.15%
5. Rd = the cost of debt.	4.09536
6. Tc = the income tax rate.	19%

Table 6: Cost of capital

The cost of capital helps to understand the actual capital required for conducting the business. At the same time, the research calculation helps to understand about the cost of capital. The cost of debt is 4.09536, on the other hand the cost of equity is 4.15% that helps in managing the cost and the benefits of the company.

4.3. Analyze the return on NPV

The return on NPV helps to state that the amount of the Net Present Value that is got from calculating present value of cash inflow and present value of cash outflow respectively. Therefore, the value of NPV of Unilever Plc is 161.82 respectively.

*Formula of Net Present Value*	*(Discounted cash inflow-Discounted cash outflow)*
Discounted cash inflow	£ 241.82
Discounted cash outflow	£ 80.00
*Net Present Value*	*£ 161.82*	202%

Table 7: NPV

Evaluate the risk and return by commenting on the Discounted Payback Period

The discounted payback period of the Unilever Plc Company is helping to represent the amount that is used for calculating the risk and return from the financial aspects. At the same time, after conducting the calculation the value of discounted payback period is for 3 years and 11.7 months respectively [refer to appendix].

4.4. Critical analysis on the risk and return to potential impacts on the company’s “financial performance”

The financial performance of the company is total dependent up on the company performance. At the same time, the Unilever Plc Company is dealing with the positive aspects that are analyses by conduction financial calculations respectively. Since, current ratio of the company is 0.70, which is lower than 1 indicates that the company has current assets in order to meet its obligations.

References

Crespo Chacón, M., Rodríguez Díaz, J.A., García Morillo, J. and McNabola, A., 2019. Pump-as-turbine selection methodology for energy recovery in irrigation networks: Minimising the payback period. Water, 11(1), p.149.

Gorshkov, A.S., Vatin, N.I., Rymkevich, P.P. and Kydrevich, O.O., 2018. Payback period of investments in energy saving. Magazine of Civil Engineering, (2).

libguides, (2021), Company, industry and country information: PESTLE Analysis, Available at:https://libguides.library.usyd.edu.au/market_intelligence/PESTLE [Accessed on: 07/05/2022]

Pestle analysis, (2022), PESTLE Analysis of Unilever, Available at: https://pestleanalysis.com/pestle-analysis-of-unilever/ [Accessed on: 07/05/2022]

unilever 2022. Our material issues. Available at: https://www.unilever.com/planet-and-society/sustainability-reporting-centre/our-material-issues/. (Accessed on: May 7, 2022)

Unilever 2022. Q1 results: flat sales reflect unprecedented impact of Covid-19. Available at: https://www.unilever.com/news/press-and-media/press-releases/2020/q1-results-flat-sales-reflect-unprecedented-impact-of-covid-19/. (Accessed on: May 7, 2022)