Unilever's Financial Strategy

2430 Words 10 Pages
Table of Contents Page

1. INTRODUCTION…………………………………………………………………………………………….2
2. THE EVALUATION OF UNILEVER’S CAIPTAL STRUCTURE………………………………3
2.1 Why do Unilever use debt as the main source of finance over equity?...............3
2.2 The disadvantage of using debt that affects Unilever’s financial strategy…….4
2.3 Evaluation on financial instruments…………………………………………………………..4
3. THE EVALUATION OF COMPANY’S DIVIDEND POLICY……………………….……………5
3.1 Unilever’s dividend policy…………………………………………………………………………5
3.2 Signalling effect………………………………………………………………………………………...5
3.3 Unilever’s preferences of dividend payments…………………………………………….6
4. RECOMMENDATIONS……..………………………………………………………………………………7
5. CONCLUSION………………………………………………………………………………………………….8
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This report focuses on Unilever’s financial strategy through the evaluation of the company’s capital structure, dividend policy and providing the recommendation an appropriate financial strategy for Unilever over the next three years.

2. EVALUATION OF UNILEVER’S CAPITAL STRUCTURE
How to effectively finance the company has always been a question to every party in making a strategic financial decision. According to Watson and Head (2010), there are many ways either internal or external to raise the finance but raising funds by using debt and equity, which are two main external sources of finances, can be seen as the most common methods and how to portion between debt and equity is the key importance to corporate finance.
2.1 Why do Unilever use debt as the main choice of source of finance over equity?
By looking at Unilever’s annual reports from the past three years from 2010 – 2012, it is obvious that Unilever is continuously using more debt than equity. The company’s total liabilities have always been approximately double its total equity as shown in the statement of financial position (SFP) as calculated in table 2. With a mature company like Unilever, using debt as a main source of finance seems to be reasonable due to many disadvantages that exist in equity finance.
First of all, the cost of using debt is less expensive than equity due to the advantage of tax deduction.
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