Live Project On Advance Financial Management: Topic: - Leverage Analysis of Deloitte and Hindustan Unilever Limited

Live Project
On
Advance Financial Management
Topic: - Leverage analysis Of Deloitte and
Hindustan Unilever Limited.
Submitted to: Submitted by:
Prof. Aditya Tripathi Atulit Garg 19BSP0569
Jitesh Dhingra 19BSP1182
Kamya Jain 19BSP1228
Neha Thakur 19BSP1692
Udita Malviya 19BSP3094
Varun Chandel 19BSP3166

Introduction
The word ‘leverage’, borrowed from physics, is frequently used in financial management.
Leverage is very scientific tool in the hand of finance manager. Finance manager uses this tool
for making effective financial structure of company. Financial structure is just mix of debt and
equity and with help of leverage, finance manager gets fund with effective ratio of debt and
equity. In simple word leverage is power and relationship between two interrelated variables.
These variables may be output, sale, cost and profit. Finance manager calculates these leverage
by apply formula and then uses them for taking decision in favor of company's shareholder.
Main aim of leverage testing is maximize the earning of shareholder and reduce the risk of
company. Leverage occurs in varying degrees. The higher the degree of leverage, the higher is
the risk involved in meeting fixed payment obligations i.e., operating fixed costs and cost of debt
capital. But, at the same time, higher risk profile increases the possibility of higher rate of return
to the shareholders. “Leverage is the employment of an asset or funds for which the firm pays a
fixed cost of fixed return.”
Deloitte
Deloitte, is a multinational professional services network. Deloitte is one of the "Big Four"
accounting organizations and the largest professional services network in the world by revenue
and number of professionals.
Deloitte provides audit, tax, consulting, enterprise risk and financial advisory services
Hindustan Unilever Limited (HUL)

Hindustan Unilever Limited (HUL) is a British-Dutch manufacturing company headquartered in
Mumbai, India. Its products include foods, beverages, cleaning agents, personal care products,
water purifiers and consumer goods.
Need for the study:
Generally investors would like to invest in a company which is more profitable, and earnings per
share serves as an indicator of profitability of the company hence this study will help the investor
to take better investment decision. Therefore, there is need to find out the relationship between
leverage and earnings per share in the companies.
Objectives of the study:

General Objectives:
The general objective of this study is to find out the leverage of Hindustan Unilever and Deloitte
limited.
Specific Objectives:
 To understand and analyze the leverage effects of both of the companies.
 To find out the leverages namely a) operating leverage b) financial leverage c)
combined leverage.
 To study the impact of leverage on earnings per share (EPS)
 To make suggestions to the investors to take appropriate investment decisions.
 To check the financial risks of both the companies.
 To analyze the cost volume profit.
 Find out the breakeven point and margin of safety.
 To study the accounting operation involved in the organization.
Limitations of the study:
The limitations of the study are as under:
1. The project is confined to the annual report of the companies.

2. Due to shortage of time only secondary data analysis is done.
3. Some of the external factors like inflation, GDP, supply and demand, interest rate
affecting the leverage are not take into account.
Methodology:
The present study adopts an analytical and descriptive research design. The data of Hindustan
Unilever and Deloitte limited has been collected from the annual reports of both of the
companies for the purpose of the study.
A) Data collection:
This study is based on secondary data collected from various sources like websites like
moneycontrol.com, hindustanunilever.com, deloitte.inc. The data has been collected from the
annual reports of company for 2018-19.
B) Research Approaches:
Analytical research: It is best suited for Financial Analysis. Uses fact or information already
available and analyzes to make a critical evaluation.
Descriptive research: Survey and fact finding enquiries, State of affairs as it exists, No control
over variables, try to discover cause.
C) Research Instrument:
 Secondary data collection instrument:
 Balance sheet of Hindustan Unilever & Deloitte Ltd.
 Profit and Loss account of Hindustan Unilever and Deloitte limited.
 Internal ( company journals, manuals)
D)Analyze the information: Here we analyze the raw data and convert those data
into meaningful information.
HINDUSTAN DELOITTE
UNILEVER
OPERATING OPERATING
LEVERAGE LEVERAGE
% change in EBIT/ % change in EBIT/
%change in SALES %change in SALES
1.99 1.221
FINANCIAL FINANCIAL
LEVERAGE LEVERAGE
%change in EPS/ % %change in EPS/ %
change in EBIT change in EBIT
0.89 1.01
COMBINED COMBINED
LEVERAGE LEVERAGE
OPERATING OPERATING
LEVERAGE * LEVERAGE *
FINANCIAL FINANCIAL
LEVERAGE LEVERAGE
1.99*0.89 = 1.221*1.01 =
1.787 1.244
1.) Operating leverage: firm generally purchases the assets, that its operation will produce
revenue. When sale increases the fixed cost remains the same and operating revenue will
increases. As fixed cost is constant, the % change in operating revenue is more than %
change in sale. Hence there is a positive relation between operating leverage and break-even
point.
2.) Financial leverage: it is also called trading on equity. Financial leverage means the use of
preference share capital, equity share capital along with fixed interest bearing securities or
debentures. Financial leverage assumes that the firm is capable of earning more on assets
than that acquired by use of funds, on which fixed rate of dividend is paid.
3.) Combined leverage: So the firm uses proper amount of both operating leverage and financial
leverage as even a small change in sale changes EPS. EPS increase if sale increases and EPS
decreases if sale decreases; there is a positive relation between the two.
E) Present the Findings:

1. The operating leverage of Hindustan Unilever is 1.99 is higher than the operating
leverage of deloitte which is 1.221.
2. The financial leverage of Hindustan Unilever is 0.89 as compared to Deloitte which

is 1.01.
3. The combined leverage of Hindustan Unilever is 1.787 and the combine leverage of
Deloitte is 1.244.
4. We conclude that Hindustan Unilever earn more profit than Deloitte because their
operating expenses is less as compared to deloitte.
5. Financial leverage shows that the shareholder will earn more profit in deloitte as
compared to Hindustan Unilever because the number of outstanding shares is more in
Hindustan Unilever as compared to Deloitte.
6. In overall the performance of Deloitte is better because the operating expenses is less
as compared to Hindustan Unilever.
References
Websites
http://www.google.com/
https://www.hul.co.in/investor-relations/annual-reports
https://www2.deloitte.com/in
Books
Pandey, I.M (2009), Financial Management (10th Edition), Vikas

Publishing House Pvt Ltd, New Delhi.

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Live Project On Advance Financial Management: Topic: - Leverage Analysis of Deloitte and Hindustan Unilever Limited

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Submitted to: Submitted by:

Prof. Aditya Tripathi Atulit Garg 19BSP0569

Jitesh Dhingra 19BSP1182

Kamya Jain 19BSP1228

Neha Thakur 19BSP1692

Udita Malviya 19BSP3094

Varun Chandel 19BSP3166

fixed cost of fixed return.”

Hindustan Unilever Limited (HUL)

Objectives of the study:

1. The project is confined to the annual report of the companies.

E) Present the Findings:

2. The financial leverage of Hindustan Unilever is 0.89 as compared to Deloitte which

Pandey, I.M (2009), Financial Management (10th Edition), Vikas

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