The report is about a multinational organization, Unilever. This report analyses the management accounting practices and financial information. A detailed analysis of the budgeting processes, costing system, capital decision making, capital acquisition and cost of capital is carried out.
A detailed study on management accounting system is also carried out. The report also includes the evaluation of various accounting practices followed by Unilever and capital structure of the organization.
There is about a growth of 4% (Web 02) which clearly shows the efficiency of the organization. It is clear that Unilever has a potent management account system and financials. This improved the financial position of Unilever.
Introduction
The management accounting practices and financials of an organization plays a crucial role in improving the financial position. An efficient and effective management accounting system increases the efficiency of employees and there by the organization.
In Unilever the management accounting practices and financials is quiet strong, it enabled the organization to overcome various unfavourable conditions in market and to utilize various market opportunities.
Organization Profile
Unilever has become the part of most of lives. It has 400 brands with 14 categories of products. The product range includes home, personal care, food etc. (Web 01). Unilever provides high quality and wide range of products which differentiates it from its competitors and it made Unilever to obtain majority market share thus making it a market leader in FMCG sector.
Lipton, Knorr, Dove and Omo is having majority market share as it is more favorites of many. Blue Band and Suave is found to be best local brands (Web 01). These products are meant for its quality. The well developed research and development team always improved the market position of the organization. It is one of the strength of the organization.
It improves the lives of many by providing high quality products. This increased the demand of their products, thus increased market share, profitability etc. It has 163,000 employees and has its presence in 170 countries worldwide (Web 01). It is supported by various distribution channels. This made them easy to make available their products in all over the world.
Budgeting process
Unilever has a comprehensive budgeting system (Web 04). Various factors are involved in forming a comprehensive budget. It involves the use of techniques, staffs and organization long term goals. Proper observation is done, and analysis is carried out.
Based on organizations’ long term goals supposals are made which helps Unilever in forming a budget plan. This is a proactive glide path that helps Unilever to overcome various unlooked circumstances. Unilever sets the target to be achieved in following month or quarter or year based on the vision and mission of the organization. This increases the effectiveness of the budget and helps in coming up with effective budget.
Then future requirements is analysed in terms of expense, asset, finance etc. Proper coordination is the key factor behind forming an effective budget. Thus a detailed and well structured budget is prepared by proper coordination with employees and management. The targeted profit is determined by top management (Morlidge Steve, 2005).Then analysis is carried out followed by documentation.
This will improve the efficiency of budget system and profitability of the organization. Earlier the organization followed fixed budget process, but has changed later (Morlidge Steve, 2005). Unilever now also gives prime importance to variable cost incurred by the organization.
The budgetary process followed in Unilever is different from others which helped the organization to come up with an efficient budget. An efficient budget can motivate the employees in the organization (Rusth and B Douglass, 1994). Through an effective budget the productivity of employees can be improved and there by profitability of the organization. It helps to overcome the uncertainty persisting in the internal and external environment (Rusth and B Douglass, 1994).
Management accounting information system
Increase in demand lead to mass production which ultimately increased the accounting data. This made difficult for Unilever to totally depend on man power and has developed management accounting information system.
As the production increases the size and volume of the organization increases directly and it affect the work of accounting also. The task of the department increases proportionately. This also makes difficulty to top management to take or make proper decisions.
The basic structure of Management accounting information system is as follows:
Analysis & Feedback
Accounting reports, financial statements, Summaries etc.
Processing of acquired data -includes editing, classifying and tabulating
Collection of data and entry if data to the system
Source: Gupta Shashi K and Sharma R. K, 2005
A management accounting information system collects data from both external and internal sources. This is then properly processed and reports are generated. This is utilized by top management for decision making.
A management accounting information system is supported by six components. They are the people: who collect information and enter it into the system or end users, methodology, information, software, infrastructure of this system and internal controls.
The management accounting system in Unilever is efficient and supports in decision making by generating reports, summaries etc. The strategic management accounting system is used in Unilever and has basically two types:
Management operating system
Management reporting system
Management operating system:
This system supports lower two strata of management, lower and middle. The system users feed the information to the system, it process data and make necessary changes. Here the information processing is fast and this reduces labour, time etc.
Management reporting system:
This supports the top management to make effective decisions. This system generates simple reports which reduce the complexities in decision making. It provides a complete report regarding all important areas of the organization.
The reports generated by the system consider all sorts of data i.e. financial and non-financial data. System processes the data and ejects unnecessary data. Based on this report, statements and summaries are generated by the system which is utilized by the organization in decision making.
The various advantages gained by implementing the management accounting information system includes real time decision making, reduction in labour, reduction in time, cost & money, improves the customer satisfaction, ultimately it has changed the business environment of Unilever. The efficiency of the system increased the profit earning capacity of Unilever.
JIT, TQM etc. has been introduced in unilever as part of this system, this also enhanced system efficiency (Ulric J. Gelinas, Steve G. Sutton and James E. Hunton, 2005) and customer satisfaction.
As said in earlier para, one of the main components of the management accounting information system is people, i.e. employees in an organization. The proper working of the system depends on the employees, which clearly show their participation and importance in decision making process (Nikolai, Bazley & Jones, 2009).
The system generates reports (Gelinas & Dull, 2009) whenever it is required; this helps the management to make real time decisions. It helps in planning, controlling and monitoring. This increases the effectiveness of the decision made by Unilever.
The system helps in generating cash flow plans, financing plans, capital expenditure plans, profitability plans, budgets etc., apart from this it will perform various analysis such as fund analysis, cash flow analysis, break even analysis, variance analysis and also statistical analysis.
Costing process
Costing can be defined as a process of analyzing all cast relating to a particular product and thus determining the cost of the product rendered by the organization. This is a very difficult task as it has to satisfy the organizations’ interest and also the customer interest. If proper costing is not carried out it might result in reduction in customer satisfaction there by affect the profitability of the organization.
The costing system of Unilever is so efficient that it helped to withstand the competition. Proper costing results in proper pricing of products, real examples are the health care products like dove, lux, axe etc. The market share of these products were so high that due to its quality and proper pricing.
Costing involves direct material cost, direct labour and manufacturing overhead etc. by controlling these factors; it is easy to control cost of the product. Thus Unilever is able to sell a product at a competitive price. This is why costing plays a crucial role in Unilever.
Surveys are conducted and analyses whether costing is a success or not. Thus the cost of the different products is set. This is the initial step in costing in Unilever which improves the costing process and able to set a price which increases customer satisfaction and thus profitability of the organizations.
Steps involved in costing process in Unilever are:
Determination of the competitive selling price via surveys
After setting the price of the product, cost analysis is carried out by the help of reports generated from the management accounting information system.
Based on analysis allocation of cost is carried out.
On behalf of step 3: material, labour, and machine hours are determined and production process is carried out.
This helps Unilever to perform costing process in an effective manner, ultimately it increases the profit as it control the cost of production in initial stages itself. Thus increases the effectiveness of costing.
The utilization of the management accounting information system helps management in performing an effective costing process which ultimately increased the profitability of Unilever.
Capital decisions
In Unilever majority task is carried out with the help of employees in organization, as mentioned earlier. This helps in increasing the Employee â€" Management corporation, in turn it motivates the employees and results in an increase in productivity of employees.
In capital decision making also the employee participation can be seen. Thus the management is able look into all areas of the organization and able to make effective decisions. Thus proper utilization of human resource is made.
Capital decision making is an important process as it directly effects the financial of the organization as it is one of the key pillars of an organization. Hence it has to be effective and efficient.
Capital decision involves three types of decision. They are investment decision, financing decision and dividend decisions (Web 03).
Investment decision:
In this decision is taken regarding the allocation of fund in project, asset, machine etc. The management decides whether fund has to be invested or not. If yes, how much has to be invested, and has to analyse what percentage of investment has to be made in different areas. This is done through capital budgeting.
Financing decision:
By taking financing decision means taking decision regarding the optimal mix (Web 03) of financing. Through this capital structure of the organization can be made.
Various sources of finance are analyzed. The advantages and disadvantages of these sources are considered while taking financing decision. Thus optimal mix of finance can be made.
Dividend decision:
Here decisions are made regarding the dividend i.e. it has to be given to shareholders or not, or else it has to be invested in business for expansion, modernization etc.
All multinational organization utilizes a similar kind of capital decision making process. It includes Collection, analysis, selection and implementation of project proposal.
Collection of data: It plays a crucial role in this process. Data is collected from primary and secondary sources. Primary data includes the data collected from various department head, employees, management etc via interview, survey etc. Secondary data includes annual reports, statements etc. All data associated to the project thus collected. To make the decision effective all data relevant and related has to be collected.
Analysis of data: The so collected data contain relevant and irrelevant data. It is processed and only relevant data is sorted out. This helps the management in proper decision making.
After sorting relevant data, the profitability of the projects is analyzed via capital budgeting methods, which include net present value (NPV), pay-back period, internal rate of return (IRR) etc. Capital budgeting helps in determining the present value and net cash inflows can be calculated and from this profitability is found out. It also helps in comparing the different project proposals, risk factors, profitability etc.
Selection of proposal: Based on the evaluation of the risk factors, profitability of the project proposals, selection is made. Apart from this various other factors are also considered. Time period, pay-back period, solvency etc. After selection of the project, implementation is carried out.
Basically profitability of the project proposal is the main criteria by which capital decisions are made. The capital decisions made by Unilever is strong that majority of its projects are success.
Capital acquisition and structure
Unilever is concerned regarding its financial positioning and market share. It has very strong financials which showed a continuous growth (Web 02). The financing decision of Unilever strong, that it has a stable capital structure which increased the financial stability. This also improved the capacity of Unilever to undertake new-new projects.
This helps Unilever to undertake various project proposals at low cost. This helps them to earn more profit. As it has major market share, it is easy for Unilever to raise large capital from secondary market. This improves the liquidity and thus increases the cash flow. Reduction in cost results in an increase in profitability. It is found that the capital structure of Unilever is stronger than its competitors. This helped the organization to obtain and utilize various market opportunities.
The current ratio of Unilever is proper, which shows the financial position of the organization. This increased the profit earning capacity and cash flows. The capital structure reveals that the optimal funding for the capital structure increases the efficiency and profitability of the organization.
Conclusion
The study reveals that management accounting practices and financials are efficient and this helped the organization to come up with flying colours.
A sound budgeting system essentially helped Unilever to progress. Moreover the information regarding the financial are kept up to date. And that helped for an efficient analysis, which finally led to appropriate managerial conclusions. Meanwhile, there are efforts to decrease the cost of products which in turn led to more customer satisfaction and demands. This has achieved by lessening the cost at the beginning stage of manufacture of products via fixed costing process.
The efficient and effective process undertaken by Unilever increased the profitability and liquidity. Thus the financial position, customer satisfaction has increased.
The reports, statements etc. generated by management accounting information system improved the efficiency of decisions made by top management. This study also reveals that the costing system in Unilever is efficient, which helped in proper pricing and increased customer satisfaction.
To summarise the processes and systems within the organization is efficient and effective. This is the reason why Unilever is the part of most of their lives. It has increased the financial position, liquidity, profitability and market share of Unilever.
