MOD003319 Business Finance
Task 1
Discussion of the nature and financing of the company
In this report, “Unilever Plc” company has been chosen as a limited company in the United Kingdom. Now the nature and financing position of the company has been explained.
Nature of the company
Unilever Plc can be called a producer or manufacturer and supplier of “Fast moving consumer goods” which is fast moving basis. The product portfolio of the company includes various types of food products, various types of beauty products, beverages, vitamins, supplements, and products related to personal care and home care. The Unilever Plc Company is a British-Dutch multinational company of consumer goods that has headquarters in London, England. The company can be said to be only one of the biggest “fast-moving consumer goods” (FMCG) companies in the whole world. This company has made some significant brands of the global as Dove, Lynx, B&J, and Magnum. Unilever can take care of the complete chain of supply of the products from making development to production along with marketing and distribution. Unilever has a minimum of 165000 employees all over the world and those brands have been sold in 190 countries. The “Enterprise & Technology Solutions Support” can be said as the unit of world business which can be able to manage the business service of the share of the company along with the service of technology, the service of innovations of new things and solutions. The identical program of the company can include a program of personalized generalists along with insight support about cross-functional services like supply chain, management of the project, and resources of the human (Palombo, 2019, pg. 04). According to the research based on the year 2021, it has been known that Unilever is the most valuable and significant brand in the United Kingdom. In this company, the segment of beauty and personal care products can be able to generate higher revenue along with the segment of food and refreshment products. The main goal of the Unilever Company is to make the size double of the organization during the reduction of natural or environmental impact with enhancing social positivity. Even the main mission of the company is to create a common place in which sustainability can be able to make their living.
Financing of the company
The successful and significant performance of the accounting analyst needs the presence of complete related skills and experiences. The financial analysis can also be able to apply to make the mission of hard assessment of the internal nature of the firm and the summary of present chances along with business challenges. Moreover, the outcomes of the financial analysis can also be made to apply to make identification about the risk in the future and various types of challenges in developing the position of the company. Now the paper has also summarized the results of the financial position of the company of Unilever. From the financial report, it has also been seen that the turnover has increased from 14.5% to €60.1 billion which has also included the impact of the currency. It has been shown from the financial report that the total revenue of the company is 67.29%, operating margin shows as 21.54%. The revenue of Unilever from selling the products in September was 16.07%. Unilever can use its funds taken from directly the capital markets of global debt. Basically, this company has been made more successful day by day because of its dynamic factors of evolving the management issue which has permitted the organization to stray with this.
It can be observed through the annual report of Unilever that the company basically acquires the fund for itself from the debt capital market globally. There are several issuers for the company such as “Unilever Plc, Unilever Capital Corporation, Unilever finance Netherlands BV, etc.”. The Unilever finance Netherlands BV are generally bond issuers who generates funds through bonds. The more dependency on debt capital by Unilever indicates that the firm has sound profitability and solvency position and it can easily payoff the obligatory debt payment out of its profits. Moreover, its expansion in global market to various market segments also reflects a healthy financial position for the company as well as the sound strategic management. The overall analysis reveals that the firm is performing well financially which results in sustainable profit generation for the firm.
Task 2
Discussion misunderstanding regarding equity issues
Equity can be said as the amount of money that the owner of the company can make put into the organization or the owner. On the balance sheet of the company, there can be seen a difference between the total assets and total liabilities. It has shown how much amount of equity has been left to the company. The figure of equity can be listed under the “Total Liabilities and Stockholders’ Equity” or “Total Liabilities & Owner’s Equity”. Basically, equity can be said an asset from the viewpoint of the shareholders but in the actual view, it can be assumed as under the liability side of the balance sheet. That’s why equity can be considered a significant type of liability which has represented funds owned by the organization to the owners or the shareholders (Crosman, et al. 2022, pg. 05). Equity can be computed by subtracting the total liabilities from the total assets. Now the equity must be put under the liabilities list because from the viewpoint of technical assumption the owner’s equity can be considered as an asset of the owner of the business but not the organization itself. Assets of the business are the items or factors of value which has owned by the whole company and therefore equity of the owner can be considered as more like the liability to the business.
Equity cannot be said to an asset because equity and asset have major differences equity can be said to anything in the company which has been invested by the owner whereas an asset can be said to those that the company can make own to provide the benefits or advantages of the economy in the time of future. The equity of the stockholder can be referred to as the assets which have remained in the organization when all liabilities have been made as settled. Basically, the investors have brought in cash in exchange for the given shares and can be able to buy the equity shares of the organization. This has been done because the owner of the share has contributed to the business capital in contrast with some withdrawals. Therefore, the equity cannot be put at the side of assets, it must be put at the side of liabilities in the statement of the balance sheet.
Task 3
Users of Accounting Information of a University
Accounting information is the processed data of any organization’s financial transactions. The data are summarized at the year-end in the form of accounting information to prepare reports known as financial statements. The users of accounting information can be bifurcated into two categories: internal and external users. The internal users of a university can be recognized as the staff or employees, teachers or professors, owners, and students. The external users can be identified as investors, creditors, the public or society, and the government.
Need for Accounting Information by Different User Groups
Internal Users
Employees: The accounting information is required by the employees in order to know about the monetary benefits such as Salary hikes, bonuses, increments, etc. Their interest lies in the income statement of the university.
Owners: The owner has an interest in knowing whether the financial position of the university is enhancing or not (Rahmayati, 2021, p 9). As the financial position of the university increases, it increases the wealth of the owners.
Professors: Professors also want to evaluate the hike in their income from the university’s profit. They also want to access the quality of their service deliverables that results in profit generation for the University.
Students: Students after analyzing the financial information can evaluate whether the university is enhancing and expanding in the market and maintaining goodwill.
External Users
Investors: The investors focus on the accounting information in order to estimate the profitability and solvency aspects of the organization. If the accounting information for the university reveals profitability, it attracts more investors to invest. The existing investors also know from the accounting information that their return will be paid without any delays.
Creditors: The creditors or the suppliers of various assets of the university have an interest in the accounting information to get to know about their payments. They also get to know about their future orders if they know from the accounting information that the university is expanding in the market.
General public: Sound financial information reflects that the university is performing well in society. The enhancement in the value of goodwill indicates that the university is ethically operating in society which increases the trust and confidence of the general public and the popularity of the university will be enhanced. The CSR activities performed by the university such as environmental protection, tree plantation, and cleanliness programs serve the interest of the general public.
Government: The interest of the government lies in the tax accumulation from the universities. Also, they want to be sure whether the university is operating within the set norms and legislations made. The financial statement and the annual report of the university reveal the true and fair view of the financial performance of the university for the given accounting period based on which accurate tax computation is being made.
Difference between the ways in the use of Accounting Information by University and private sector Business
Ethically universities are considered non-profit organizations whereas private sector businesses are profit organizations. The major difference in the preparation of accounting information by both organizations is that Universities generally used “fund-based accounting” and private sector businesses use profitability accounting. The financial statements of private sector businesses are strictly based on FASB and GAAP guidelines; however, no such set of guidelines is mandatorily applicable to educational institutions (Laallam,et al. 2020, p 5). The income statement of the universities basically involves the preparation of an Income and Expenditure account which merely reflects cash inflows and cash outflows, and their differences reveal their income for the year. On the other hand, the income statement of the company involves the preparation of trading and profit and loss account that reflects the profit for the business. The objective behind the use of accounting information is different for different organizations.
Task 4
A. Computation of expenses based on future estimates
The given statement indicates the accrual basis of accounting which signifies that business revenue and expenses should be matched and recorded when they are generated or incurred not when the cash is received. There is no denying the fact that accounting is based on historical data. Accounting itself is the process of identifying, classifying, summarizing, and recording financial transactions already made. Thus, the financial information is prepared based on historical data or past achievements. However, certain transactions can be observed where the computation of certain expenses involves the estimation of the future also such as outstanding expenses or prepaid expenses.
This can be explained better with examples. Suppose the rent for the organization is supposed to be £12000, out of which only £8000 has been paid in the accounting year 2022-2023. Thus, the remaining balance is recorded in the income statement as outstanding rent of £4000 which will be paid in the next accounting period of 2023-2024. Similarly, suppose the firm pays a 10% sales commission to its sales agents on the 10th of every month and the sales are made to be £50000 for the month of December which is estimated at the end of the month. To calculate the sale commission on the 10th, an estimated sales figure for the future needs to be made to record the expenses in the future. There are also other examples like the computation of depreciation where the expenses are recorded in the income statement after distributing the loss from the fixed assets through the estimated life of the asset. In this scenario, the estimated life itself indicates the pre-assumed running period of the assets or how many years the assets will operate in the future and later be discarded as scrap. In the computation of depreciation expenses, future estimates are required. All sorts of provisions like the provision for doubtful debts, provision for tax,etc. are some expenses charged in the profit and loss statement that requires future estimates. Thus, examples of provisions and commissions are considered as some expenses which are computed based on future estimates and are charged in the income statement of the organization. Instead of being based on past experiences, certain expenses as mentioned above requires future estimations.
B. Depreciation: Allocation not Valuation
Depreciation is a non-cash transaction that indicates the distribution of the cost of tangible fixed assets over the estimated useful life of the asset which is computed by eliminating salvage or scarp value from the book value of the assets. It is considered a process of allocation and not valuation. The value of the depreciated asset which is shown on the asset side of the balance sheet is a portion of the original cost. It cannot be allocated as a periodic expense. As depreciation is the process of allocating the book value of the assets or acquisition cost of the asset over the estimated useful life of the process, it cannot be considered as the actual value or market value of the asset (Babich, et al. 2020, p 2). Depreciation indicates how much the value of the asset has been used in the accounting year. It is the process of writing off the book value of the asset over its entire useful life. Thus, depreciation is said to be a process of allocation not valuation. For example, suppose a firm acquires machinery worth £100000 in Jan 2023. The accounting period for the firm ends in December.
It is estimated that the machine successfully operates for 10 years and later becomes obsolete. Thus, the firm charges £10000 (£100000/10) every year as depreciation for 10 consecutive years to cover the cost of the machine. It is known as depreciation written off. It means that the entire cost of the machine which is £100000 is allocated equally for 10 years which is equal to £10000 per year. It does not mean that it is the valuation of the asset where the accumulated cost is charged in one accounting period. The basic emphasis made on depreciation is the computation of periodic charges as an expense to be recorded in the income statement. It does not mean any physical deterioration of the asset’s condition or decline in the market value of the asset over the period. If depreciation is considered as valuation, then there might be a reduction in the market value of the asset due to physical damage which can be maintained through periodic repairs and maintenance policies. But this is not so in the case of depreciation.
References
Babich, I., Sheludchenkova, A., Borkovska, V., Tsegelnik, N. and Grytsay, О., 2020. Accounting and analysis of equipment overhaul costs. Studies of Applied Economics, 38(4).
Crosman, K.M., Allison, E.H., Ota, Y., Cisneros-Montemayor, A.M., Singh, G.G., Swartz, W., Bailey, M., Barclay, K.M., Blume, G., Colléter, M. and Fabinyi, M., 2022. Social equity is key to sustainable ocean governance. npj Ocean Sustainability, 1(1), p.4.
Laallam, A., Kassim, S., Engku Ali, E.R.A. and Saiti, B., 2020. Intellectual capital in non-profit organisations: lessons learnt for waqf institutions. ISRA International Journal of Islamic Finance, 12(1), pp.27-48.
Palombo, D., 2019. The duty of care of the parent company: A comparison between French law, UK precedents and the Swiss proposals. Business and Human Rights Journal, 4(2), pp.265-286.
Rahmayati, R., 2021, August. Accelerate Ecosystem Development Financial Services Sector. In Annual Conference OfIhtifaz: Islamic Economics, Finance, And Banking (Vol. 2, No. 2, pp. 235-243).
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