Financial Management - mygiit.com · 1 Financial Management Code: MB0045 Marks(140) Time (3 hrs) Section-A 1Mark * 40= 40 Marks 1. The modern approach in financial management aims

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Financial Management

Code: MB0045

Marks(140) Time (3 hrs)

Section-A 1Mark * 40= 40 Marks

1. The modern approach in financial management aims at procurement of least

cost funds and its effective utilisation for ___________________.

a. Maximisation of shareholder's wealth

b. Maximisation of profit

c. Maximisation of sales

d. Procurement of funds

2. The dividend decision is taken by the ________________.

a. Treasurer b. Controller c. Finance Manager d. Chief Financial officer

3. _______________ refers to the ratio of capital employed to the sales

generated. a. Working capital b. Fixed capital c. Operating capital d. Share capital

4. ___________________ of a firm refers to the composition of its long-term funds and its capital structure. a. Capitalisation b. Over-capitalisation c. Under-capitalisation d. Market capitalisation

5. In the expression r = { ( 1 + (i/m)m}) - 1, what does " i " denote? a. Nominal rate of interest b. Effective rate of interest c. Frequency of compounding per year Number of years

6. Which among the following is the major factor that affects capital structure? a. Solvency b. Profitability

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c. Leverage d. Flexibility 7. ___________ is widely used in the field of investment banking as ready beckoners.

a. Annuity table b. Reference table c. Sinking fund factor d. Compound technique

8. . Which among the following bonds will never mature? a. Redeemable bonds b. Irredeemable bonds c. Zero coupon bonds d. Convertible bonds 9. _______________ is defined as the opportunity cost in terms of dividends forgone by withholding from the equity shareholders. a. Cost of debenture b. Cost of preference capital c. Cost of term loans d. Cost of retained earnings 10. The _______________ is the minimum rate of return of a company which it must earn to meet the expenses of the various categories of investors. a. Capital gain b. Cost of capital c. Capital budgeting d. Capital market 11. The _______________ refers to the degree to which a firm has built-in fixed costs due to its particular or unique production process. a. Combined leverage b. Financial leverage c. Operating leverage d. Capital structure 12. Which among the following costs are incurred irrespective of the income and value of sales? a. Discretionary costs b. Semi-variable costs c. Variable costs d. Fixed costs 13. In _______________ approach, the capital structure decision is relevant to the valuation of the firm. a. Net operating income b. Net income c. Traditional d. Miller and Modigliani

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14. _______________ is considered as the given rate of interest. a. Transaction cost b. Agency cost c. Implicit cost d. Explicit cost 15. Which of the following is the first step involved in the evaluation of any investment proposal? a. Examination of the risk profile b. Estimation of cash flow c. Commitment of funds on long-term basis d. Formulation of the decision criteria 16. __________ cannot be recovered after they have been incurred. a. Opportunity cost b. Capital cost c. Sunk cost d. Financing cost 17. Which among the following risk is defined as the measure of the unpredictability of a given stock value? a. Portfolio risk b. Stand-alone risk c. Corporate risk d. Market risk\ 18. _______________ in capital budgeting may be defined as the variation of actual cash flows from the expected cash flows. a. Internal rate of return b. Net present value c. Risk d. Profitability index 19. _______________ is defined as the capital rationing that cannot be violated under any circumstances. a. External capital rationing b. Hard capital rationing c. Soft capital rationing d. Internal capital rationing 20. _______________ approach to capital rationing tries to achieve maximum NPV subject to many constraints. a. Goal programming b. Integer programming c. Linear programming d. Mathematical programming

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21. Which among the following is the key component of current assets?

a. Bill payable

b. Inventory

c. Sundry creditors

d. Temporary bank overdrafts

22. _______________ refers to the amount invested in various components of

current assets.

a. Temporary working capital

b. Net working capital

c. Gross working capital

d. Permanent working capital

23. _______________ refers to a firm holding some cash to meet its routine

expenses that are incurred in the ordinary course of business.

a. Speculative motive

b. Transaction motive

c. Precautionary motive

d. Compensating motive

24. _______________ refers to the credit extended by the supplier of goods and

services in the normal course of business transactions.

a. Instalment credit

b. Open credit

c. Trade credit

d. Revolving credit

25. _______________ motive is for making available inventories to facilitate smooth

production and sales.

a. Speculative

b. Transaction

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c. Precautionary

d. Compensating

26. Costs incurred for maintaining the inventory in warehouses are called

_______________.

a. Ordering costs

b. Material costs

c. Carrying costs

d. Shortage costs

27. Which among the following cost incurred by the firm when the customer fails to

pay back the amount on the expiry of credit period?

a. Administration cost

b. Delinquency cost

c. Capital cost

d. Default cost

28. _______________ are assets – accounts representing amount due to the firm

from sale of goods/services in the ordinary course of business.

a. Cash equivalents

b. Trade payables

c. Receivables

d. Current assets

29. Which among the following model explains that a firm’s dividend policy is

irrelevant and has no effect on the share prices of the firm?

a. Walter

b. Miller and Modigliani

c. Gordon

d. Dividend relevance

30. _______________ is a method to increase the number of outstanding shares by

proportionately reducing the face value of a share.

a. Inventory valuation

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b. Stock valuation

c. Share split

d. Stock split

31. The _______________ refers to setting off or balancing two transactions which

are entered into investment programmes, simultaneously.

a. Arbitrage process

b. Database transaction

c. Balance sheet

d. Market capitalisation

32. Which among the following term is referred to the criteria for extending credit to

customers?

a. Credit limit

b. Credit balance

c. Credit analysis

d. Credit standards

33. In which among the following methods of pricing inventories, the pricing is based on the materials that have been purchased recently? a. Standard price b. Weighted average c. Last in, first out d. First in, first out 34. _______________ is the ratio of the present value of cash inflow to initial cash

outlay.

a. Net present value

b. Profitability index

c. Internal rate of return

d. Future value

35. In the formula Ke = Rf + β (Rm – Rf), what does Ke denotes?

a. Risk free rate of return

b. Rate of return on share

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c. Beta of security

d. Rate of return on market portfolio

36. The _______________ is the portion of earnings per share that is given to

shareholders in the form of cash dividend.

a. Profit ratio

b. Rate of return

c. Payout ratio

d. Working capital ratio

37. In the hierarchy of the finance function of an organisation, the controller reports

to the __________________

a. Chief financial officer

b. Treasurer

c. Financial manager

d. Vice president of finance

38. Which among the following are the factors that affect financial plan?

a. Establishing corporate objectives

b. Creating flexible economic environment

c. Matching the sources with utilisation

d. Assigning responsibilities

39. ___________________ refers to the periodic flows of equal amount.

a. Present value

b. Perpetuity

c. Annuity

d. Sinking fund

40. ___________________is a long-term debt instrument/fixed income (debt)

instrument issued by government agencies or big corporate houses to raise large

sums of money.

a. Stock

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b. Mutual fund

c. Share

d. Bond

41. ____________ will be calculated for a firm when it moves over from one level of

sales (volume or value) to another.

a. Degree of operating leverage

b. Degree of financial leverage

c. Financial leverage

d. Operating leverage

42. Which among the following is the criticism of Miller and Modigliani (MM)

preposition

a. Floatation costs

b. Transaction cost

c. Implicit cost

d. Explicit cost

43. Which of the following is the first step involved in the evaluation of any

investment proposal?

a. Examination of the risk profile

b. Estimation of cash flow

c. Commitment of funds on long-term basis

d. Formulation of the decision criteria

44. _______________ in capital budgeting may be defined as the variation of actual

cash flows from the expected cash flows.

a. Internal rate of return

b. Net present value

c. Risk

d. Profitability index

45. _______________ approach to capital rationing tries to achieve maximum NPV

subject to many constraints.

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a. Goal programming

b. Integer programming

c. Linear programming

d. Mathematical programming

46. In which among the following dividends, equity shareholders are issued

transferable promissory notes with shorter maturity periods, which may or may not

bear interest?

a. Stock dividend

b. Bond dividend

c. Cash dividend

d. Scrip dividend

47. Which among the following purpose of holding inventory firms maintain higher

levels of inventory to avoid the risks of lengthening the lead time in procurement?

a. Sales

b. To avail quantity discount

c. To reduce risk for production stoppage

d. To reduce ordering cost and time

48. ____________ and____________ carry a fixed rate of interest and are to be

paid off irrespective of the firm’s revenues.

a. Debentures, Dividends

b. Debentures, Bonds

c. Dividends, Bonds

d. Dividends, Treasury notes

49. Mr.A requires Rs.1050 at the end of the first year. Given the rate of interest as

5%,find out how much Mr. A would invest today to earn this amount.

a)1000

b)1050

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c)1500

d)900

50. Liquidity decisions deal with day-to-day financial operations that involve

______________ and ___________________.

a. Explicit costs, Implicit costs

b. Obtaining finance, Utilising funds

c. Expansion, Payment of dividend

d. Current assets, Current liabilities

2 Mark * 25= 50 Marks 51. Which among the following are the benefits of financial planning? 1. Ensures effective utilisation of funds 2. Helps in reducing operating capital of a firm 3. Lays the foundation for successful initiation of the working firm. 4. Helps promoters to estimate the amount of capital required for incorporation of company. a. Option 1 & 4 b. Option 1 & 2 c. Option 1 & 3 d. Option 2 & 3 52. Identify which among the following comes under future value of single flow. 1. Doubling period 2. Increased frequency of compounding 3. Capital recovery factor 4. Uneven periodic sum a. Options 1 & 4 b. Options 1 & 2 c. Options 1 & 3 e. Options 2 & 3 53. Identify which of the statement are related to intrinsic value of a share. 1. It is calculated by dividing the net worth by the number of outstanding shares. 2. It is associated with the earnings and profitability of the company. 3. It is the economic value of a company considering its characteristics, nature of business, and investment environment. 4. It may include intangible assets at acquisition cost minus amortised value. a. Options 1 & 4 b. Options 2 & 3 c. Options 1 & 3 d. Options 2 & 4

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54. Identify which of the following statements are related to cost of retained earnings. 1. It is the same as the cost of shareholder’s expected return from the firm’s ordinary shares. 2. Transaction costs are low and therefore can be ignored. 3. It is always less than the cost of new issue of ordinary shares due to absence of floating costs. 4. The floatation costs arise in the process of raising equity from the market. a. Option 1 & 4 b. Option 2 & 3 c. Option 1 & 3 d. Option 2 & 4 55. Which among the following statements are related to financial leverage? 1. It occurs anytime a firm has fixed costs. 2. It takes place when a change in revenue produces a greater change in Earnings Before Interest and Taxes (EBIT). 3. It is a process of using debt capital to increase the rate of return on equity. 4. It refers to the mix of debt and equity in the of the firm. a. Option 1 & 4 b. Option 1 & 2 c. Option 1 & 3 d. Option 3 & 4 56. Which among the following statements are related to capital structure? 1. It should be such that the company derives maximum benefits from it and is able to adjust it easily to changing conditions. 2. It is an indicator of the relative contribution of creditors and owners 3. It is usually planned keeping in view the interests of the ordinary shareholders . 4. It interferes in the system of balancing with arbitrage process. a. Option 1 & 4 b. Option 1 & 2 c. Option 1 & 3 d. Option 3 & 4 57. Consider the below mentioned statements: 1. Operating costs are estimated by cost accountants and production engineers. 2. Capital outlays are estimated by engineering departments after examining all aspects of production process. State True or False: a. 1-True, 2-False b. 1-True, 2-True c. 1-False, 2-True d. 1-False 2-False

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58. Identify which of the following statements are related to payback-period. 1. It ignores time value of money. 2. It is computed based on the returns on government securities. 3. It takes care of the risk element in future cash flows. 4. It is the most commonly used method of recognising risk associated with a capital budgeting proposal. a. Option 1 & 4 b. Option 1 & 3 c. Option 2 & 3 d. Option 2 & 4 59. Which among the following are related to external capital rationing? 1. Deficiencies in market information. 2. It is used by a firm as a means of financial control. 3. Restriction may be imposed on divisional heads on the total amount that they can commit on new projects. 4. Rigidities that hamper the force flow of capital between firms. a. Option 1 & 4 b. Option 1 & 2 c. Option 1 & 3 d. Option 3 & 4 60. Identify which of the following statements are related to gross working capital. 1. It is a qualitative concept. 2. It is termed as the quantitative aspect of working capital. 3. It helps in fixation of various areas of financial responsibility. 4. It is also known as fixed working capital. a. Option 1 & 4 b. Option 1 & 3 c. Option 2 & 3 d. Option 2 & 4 61. Identify which of the following are related to the objectives of cash management. 1. Meeting payments schedule 2. Keeping other factors such as expansion, modernisation and diversification constant. 3. Minimising funds held in the form of cash balances 4. Showing the time and magnitude of expected cash inflows and outflows. a. Option 1 & 4 b. Option 1 & 3 c. Option 2 & 3 d. Option 2 & 4 62. Identify which of the following statements are related to shortage costs. 1. Loss of customer goodwill

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2. Receiving, inspecting at the ware house 3. Extra costs associated with urgent replenishment purchases 4. Purchase ordering or set-up a. Option 1 & 4 b. Option 1 & 3 c. Option 2 & 3 d. Option 2 & 4 63. Which among the following statements are related to credit policy of the firm? 1. Reduces the cost of credit administration 2. Brings down bad-debt losses 3. Trade-off between higher profits from increased sales 4. The incremental cost of having large investment in receivables a. Option 1 & 4 b. Option 1 & 2 c. Option 1 & 3 d. Option 3 & 4 64. Which among the following statements are related to scrip dividend? 1. The reserves and surplus (retained earnings) are capitalised to give effect to bonus issue. 2. It has the effect of increasing number of outstanding shares of the firm. 3. Payment of dividend in this form is done only if the firm is suffering from weak liquidity position. 4. It is adopted if the firm has earned profits and it will take some time to convert its assets into cash. a. Option 1 & 4 b. Option 1 & 2 c. Option 1 & 3 d. Option 3 & 4 65. Consider the below mentioned statements: 1. Internal rate of return is also known as benefit cash ratio. 2. Net present value recognises the time value of money. State True or False: a. 1-False, 2-False b. 1-True, 2-True c. 1-False, 2-True d. 1-True, 2-False 66. Which among the following approach establishes a relationship between the required rate of return of a security and its systematic risks? a. Capital asset pricing model b. Dividend forecast c. Earnings price ratio d. Realised yield

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67. State whether the following statements are true or false. 1. Fixed capital is required for the purchase of raw materials and for meeting day-to-day expenditure. 2. Variable working capital requirements which fluctuate from season to season will have to be financed only by short-term sources. a. 1-False, 2-False b. 1-True, 2-True c. 1-False, 2-True d.1-true,2-false 68. Identify which of the following statements are related to the assumptions of net income approach. 1. The cost of debt is less than the cost of equity and remains constant 2. The operating profits/EBIT are not expected to increase or decrease 3. The firm has only two sources of funds, debt and ordinary shares 4. Use of debt does not change the risk perception of investors a. Option 1 & 4 b. Option 1 & 3 c. Option 2 & 3 d. Option 2 & 4 69. Which of the following technical aspects of the project are dealt by technical appraisal? 1. Selection of plant, equipment and scale of operation. 2. Decision on determination of plant capacity 3. Expected profitability 4. Risk dimensions of the project a. Options 1 & 4 b. Options 1 & 2 c. Options 3 & 4 d. Options 2 & 3 70. Consider the below mentioned statements: 1. The certainty equivalent coefficient is also known as the risk-adjustment factor. 2. The risk-adjustment factor varies directly with risk. State True or False: a. 1-False, 2-False b. 1-False, 2-True c. 1-True, 2-True d. 1-True, 2-False 71. Annual consumption of raw materials is 40,000 units. Cost per unit is Rs.16 along with a carrying cost of 15% per annum. The cost of placing an order is given as Rs.480. Find out the EOQ of the raw materials. a) 3000 units

b)4000 units

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c) 3500 units

d) 1000 units

72. Match the following sets:

Part A

1. Redeemable bonds

2. Irredeemable bonds

3. Zero coupon bonds

4. Yield to maturity

Part B

A. The discount rate equalling the present values of cash flow to the current market

price.

B. There is no intermediate payment between the date of issue and the maturity

date.

C. The maturity value does not exist.

D. The bond with annual interest payments.

a. 1D, 2C, 3B, 4A

b. 1A, 2D, 3B, 4C

c. 1D, 2A, 3B, 4C

d. 1B, 2C, 3A, 4D

73. Consider the below mentioned statements:

1. The objective of cash management is best achieved by speeding up the working capital cycle, particularly the collection process and investing surplus cash in short term assets in most profitable avenues.

2. The necessity to hold cash will arise if there is a perfect co-ordination between the inflows and the outflows.

3. The amount of precautionary balance also depends on the firm’s ability to raise additional money at a short notice.

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4. The firm may hold cash to benefit from a falling price scenario or getting a quantity discount when paid in cash or delay purchases of raw materials in anticipation of decline in prices.

State True or False:

a. Statements 1, 2 and 3 are true

b. Statements 1, 2 and 4 are true

c. Statements 2, 3 and 4 are true

d. Statements 1, 3 and 4 are true

74. Arrange the following steps in order to calculate the weighted average cost of

capital.

1. Determine the weight associated with each source.

2. Add these weighted costs to determine the weighted average cost of capital.

3. Calculate the cost of each specific source of fund, that of debt, equity, preference

capital, and term loans.

4. Multiply the cost of each source by the appropriate weights.

a. 3-1-4-2

b. 3-2-4-1

c. 4-2-1-3

d. 4-1-3-2

75. Assume that you have started a new company. You need extra working capital

for changing production and sale level of the firm. You need investments to take care

of variations in the business. Which among the following working capital is required

for your business?

a. Net working capital

b. Temporary working capital

c. Gross working capital

d. Permanent working capital

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Applied Theory Questions

(Students need to answer all questions of this section)

Sl.

No.

Questions Marks

1. Mr. Harish, CFO of Prakash Packers Ltd. (PPL) discusses the capital structure with

his Finance Manager Mr.Ravi. He assigns the responsibility of analysing the

Weighted Average Cost of Capital. The below Table depicts the capital structure:

Particulars Rs.

(in Lakhs)

Equity capital (Rs. 10 par value) 200

14% preference share capital Rs. 100 each 100

Retained earnings 100

12% debentures (Rs. 100 each) 300

11% term loan from ICICI bank 50

Total 750

The market price per equity share is Rs. 32. The company is expected to declare a

dividend per share of Rs. 2 per share, and there will be a growth of 10% in the

dividends for the next 5 years.

The preference shares are redeemable at a premium of Rs. 5 per share after 8 years

and are currently traded at Rs. 84 in the market.

Debenture redemption will take place after 7 years at a premium of Rs. 5 per

debenture and their current market price Rs. 90 per unit. The corporate tax rate is

40%.

On behalf of Mr. Ravi, Finance Manager of the PPL, you are required to calculate

the present Weighted Average Cost of Capital (WACC).

(10 Marks)

2. The decision regarding dividend payment is a very important one for the finance

manager in any corporate house. It is more so because the decision needs to strike a

proper balance between expansion of the company in one hand and immediate

gratification of the shareholders on the other hand.

In the light of these statements, you are required to explain the different types of

dividend theories and the different types of dividend pay-outs that are prevalent in

the corporate world.

(10 Marks)

Read the following case study thoroughly and answer the following questions:

3. As per the case, do you think that HUL has preferred the profit maximisation

approach over the wealth maximisation approach? Justify your answer.

(10 Marks)

4 Critically comment on the trends of (a) capital structure and (b) Dividend Pay-out

in HUL for last five years. (10 Marks)

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.

Hindustan Unilever Limited

Introduction: Hindustan Unilever Limited (HUL) is India's largest Fast Moving

Consumer Goods Company with a heritage of over 75 years in India and touches

the lives of two out of three Indians.

With over 35 brands spanning 20 distinct categories such as soaps, detergents,

shampoos, skin care, toothpastes, deodorants, cosmetics, tea, coffee, packaged

foods, ice cream, and water purifiers, the Company is a part of the everyday life of

millions of consumers across India. Its portfolio includes leading household brands

such as Lux, Lifebuoy, Surf Excel, Rin, Wheel, Fair & Lovely, Pond’s, Vaseline,

Lakmé, Dove, Clinic Plus, Sunsilk, Pepsodent, Closeup, Axe, Brooke Bond, Bru,

Knorr, Kissan, Kwality Wall’s, and Pureit.

The Company has over 16,000 employees and has an annual turnover of

around Rs.19,401 crore (financial year 2010 - 2011). HUL is a subsidiary of

Unilever, one of the world’s leading suppliers of fast moving consumer goods with

strong local roots in more than 100 countries across the globe with annual sales of

about €44 billion in 2011. Unilever has about 52% shareholding in HUL.

Unilever has a long history in sustainability and the use of marketing and market

research to promote behaviour change. In November 2011, for the first time, it

published its own model of effective behaviour change.

History of the Company: In the summer of 1888, visitors to the Kolkata harbour

noticed crates full of Sunlight soap bars, embossed with the words "Made in

England by Lever Brothers". With it began an era of marketing branded Fast

Moving Consumer Goods (FMCG).

Soon after followed Lifebuoy in 1895, and other famous brands like Pears, Lux,

and Vim. Vanaspati was launched in 1918 and the famous Dalda brand came to the

market in 1937. In 1931, Unilever set up its first Indian subsidiary, Hindustan

Vanaspati Manufacturing Company, followed by Lever Brothers India Limited

(1933) and United Traders Limited (1935). These three companies merged to form

HUL in November 1956; HUL offered 10% of its equity to the Indian public, being

the first among the foreign subsidiaries to do so. Unilever now holds 52.10% equity

in the company. The rest of the shareholding is distributed among about 360,675

individual shareholders and financial institutions.

The erstwhile Brooke Bond's presence in India dates back to 1900. By 1903, the

company had launched Red Label tea in the country. In 1912, Brooke Bond & Co.

India Limited was formed. Brooke Bond joined the Unilever fold in 1984 through

an international acquisition. The erstwhile Lipton's links with India were forged in

1898. Unilever acquired Lipton in 1972 and in 1977 Lipton Tea (India) Limited

was incorporated.

Pond's (India) Limited had been present in India since 1947. It joined the Unilever

fold through an international acquisition of Chesebrough Pond's USA in 1986.

Since the very early years, HUL has vigorously responded to the stimulus of

economic growth. The growth process has been accompanied by judicious

diversification, always in line with Indian opinions and aspirations.

The liberalisation of the Indian economy, started in 1991, clearly marked an

inflexion in HULs and the Group's growth curve. Removal of the regulatory

framework allowed the company to explore every single product and opportunity

segment, without any constraints on production capacity.

Simultaneously, deregulation permitted alliances, acquisitions, and mergers. In one

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of the most visible and talked about events of India's corporate history, the

erstwhile Tata Oil Mills Company (TOMCO) merged with HUL, effective from

April 1, 1993. In 1996, HUL and yet another Tata company, Lakme Limited,

formed a 50:50 joint venture, Lakme Unilever Limited, to market Lakme's market-

leading cosmetics and other appropriate products of both the companies.

Subsequently in 1998, Lakme Limited sold its brands to HUL and divested its 50%

stake in the joint venture to the company.

HUL formed a 50:50 joint venture with the US-based Kimberly Clark Corporation

in 1994. Kimberly-Clark Lever Ltd, which markets Huggies Diapers and Kotex

Sanitary Pads. HUL has also set up a subsidiary in Nepal, Unilever Nepal Limited

(UNL), and its factory represents the largest manufacturing investment in the

Himalayan kingdom. The UNL factory manufactures HULs products like soaps,

detergents, and personal products both for the domestic market and exports to India.

The 1990s also witnessed a string of crucial mergers, acquisitions, and alliances on

the Foods and Beverages front. In 1992, the erstwhile Brooke Bond acquired

Kothari General Foods, with significant interests in Instant Coffee. In 1993, it

acquired the Kissan business from the UB Group and the Dollops Ice cream

business from Cadbury India.

As a measure of backward integration, Tea Estates and Doom Dooma, two

plantation companies of Unilever, were merged with Brooke Bond. Then in 1994,

Brooke Bond India and Lipton India merged to form Brooke Bond Lipton India

Limited (BBLIL), enabling greater focus and ensuring synergy in the traditional

Beverages business. 1994 witnessed BBLIL launching the Wall's range of Frozen

Desserts. By the end of the year, the company entered into a strategic alliance with

the Kwality Ice cream Group families and in 1995 the Milk food 100% Ice cream

marketing and distribution rights too were acquired.

Finally, BBLIL merged with HUL, with effect from January 1, 1996. The internal

restructuring culminated in the merger of Pond's (India) Limited (PIL) with HUL in

1998. The two companies had significant overlaps in personal products, speciality

chemicals and exports businesses, besides a common distribution system since 1993

for personal products. The two also had a common management pool and a

technology base. The amalgamation was done to ensure for the Group, benefits

from scale economies both in domestic and export markets and enable it to fund

investments required for aggressively building new categories.

In January 2000, in a historic step, the government decided to award 74 percent

equity in Modern Foods to HUL, thereby beginning the divestment of government

equity in public sector undertakings (PSU) to private sector partners. HULs entry

into bread is a strategic extension of the company's wheat business. In 2002, HUL

acquired the government's remaining stake in Modern Foods.

In 2003, HUL acquired the cooked shrimp and pasteurised crabmeat business of the

Amalgam Group of Companies, a leader in value added marine products exports.

HUL launched a slew of new business initiatives in the early part of 2000s. Project

Shakti was started in 2001. It is a rural initiative that targets small villages

populated by less than 5000 individuals. It is a unique win-win initiative that

catalyses rural affluence even as it benefits business. Currently, there are over

45,000 Shakti entrepreneurs covering over 100,000 villages across 15 states and

reaching to over 3 million homes.

In 2002, HUL made its foray into Ayurvedic health and beauty centre category with

the Ayush product range and Ayush Therapy Centres. Hindustan Unilever Network,

Direct to home business was launched in 2003 and this was followed by the launch

of ‘Pureit’ water purifier in 2004.

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In 2007, the Company name was formally changed to Hindustan Unilever Limited

after receiving the approval of share holders during the 74th AGM on 18 May,

2007. Brooke Bond and Surf Excel breached the Rs 1,000 crore sales mark the

same year followed by Wheel which crossed the Rs.2, 000 crore sales milestone in

2008.

On 17th October, 2008, HUL completed 75 years of corporate existence in India.

Following are excerpts from the company’s Annual Report 2010 – 2011:

Financial Highlights:

Net Sales: Rs. 19,401 crore

Net Profit: Rs.2, 306 crore

EPS (Basic): Rs.10.58

EVA: Rs.1, 750 crore

Total expenditure:

Financial Performance – 10 year track record (Rs. Crores) P&L

account 2001 2002 2003 2004 2005 2006 2007

2008-09

(15 months) 2009-10 2010-11

Gross

Sales*

11,781.30 10,951.61 11,096.02 10,888.38 11,975.53 13,035.06 14,715.10 21,649.51 18,220.27 20,305.54

Other

Income

381.79 384.54 459.83 318.83 304.79 354.51 431.53 589.72 349.64 586.04

Interest (7.74) (9.18) (66.76) (129.98) (19.19) (10.73) (25.50) (25.32) (6.98) (0.24)

Profit

Before

Taxation

@

1,943.37 2,197.12 2,244.95 1,505.32 1,604.47 1,861.68 2,146.33 3,025.12 2,707.07 2,730.18

Profit

After

Taxation

@

1,540.95 1,731.32 1,804.34 1,199.28 1,354.51 1,539.67 1,743.12 2,500.71 2,102.68 2,153.25

Earnings

Per Share

of Re. 1#

7.46 8.04 8.05 5.44 6.40 8.41 8.73 11.46 10.10 10.58

Dividend

Per Share

of Re. 1#

5.00 5.16 5.50 5.00 5.00 6.00 9.00 7.50 6.50 6.50

* Sales before Excise Duty Charge @ Before Exceptional/Extraordinary items # Adjusted

60%

16%

6%

6%

6%

1% 5%

Materials

Advertising Costs

Staff Costs

Carriage and Freight

Utilities, Rent, Repairsetc.

Depreciation

21

for bonus

Balance Sheet 2001 2002 2003 2004 2005 2006 2007 2008-09

(15 months) 2009-10 2010-11

Fixed Assets 1,320.06 1,322.34 1,369.47 1,517.56 1,483.53 1,511.01 1,708.14 2,078.84 2,436.07 2,468.24

Investments 1,635.93 2,364.74 2,574.93 2,229.56 2,014.20 2,413.93 1,440.80 332.62 1,264.08 1,260.68

Net Deferred

Tax

246.48 269.92 267.44 226.00 220.14 224.55 212.39 254.83 248.82 209.66

Net Current

Assets

(75.04) (239.83) (368.81) (409.30) (1,355.31) (1,353.40) (1,833.57) (182.84) (1,365.45) (1,304.66)

3,127.43 3,717.17 3,843.03 3,563.82 2,362.56 2,796.09 1,527.76 2,483.45 2,583.52 2,633.92

Share Capital 220.12 220.12 220.12 220.12 220.12 220.68 217.74 217.99 218.17 215.95

Reserves &

Surplus

2,823.57 3,438.75 1,918.60 1,872.59 2,085.50 2,502.81 1,221.49 1,843.52 2,365.35 2,417.97

Loan Funds 83.74 58.30 1,704.31 1,471.11 56.94 72.60 88.53 421.94 – –

3,127.43 3,717.17 3,843.03 3,563.82 2,362.56 2,796.09 1,527.76 2,483.45 2,583.52 2,633.92

Others

HUL Share

Price on BSE

(Rs. Per Share

of Re. 1)*

223.65 181.75 204.70 143.50 197.25 216.55 213.90 237.50 238.70 284.60

Market

Capitali-sation

(Rs. Crores)

49,231 40,008 45,059 31,587 43,419 47,788 46,575 51,770 52,077 61,459

* Based on year-end closing prices quoted in the Bombay Stock Exchange, adjusted for

bonus shares.

50. _______________ refers to a firm holding some cash to meet its routine

expenses that are incurred in the ordinary course of business.

a. Speculative motive

b. Transaction motive

c. Precautionary motive

d. Compensating motive

…………..……………………………….×××××………………………………………