Let us stay with HUL this time. Is the company’s sales growing? Can we easily relate it to HUL’s balance sheet? If yes, how. If not, what else to look at?
But first, let us recap what we did last time. We saw that HUL has a negative working capital and that the number has ballooned over the years. We saw how creditors are actually a source of finance for the company.
Which leads us to HUL’s sales growth.
1. Badhti Ka Naam Gaadi. Click on the picture to enlarge it. Look at the red box. By how much has the company’s sales grown over the last decade?
(Clue: Rs 29,000 crores minus Rs 11,000 crores.)
2. Chamatkaar Ho Gaya. Now look at the blue box. Shouldn’t its fixed assets also grow to handle this sales? But has it? How much?
(Clue: More than 18,000 crores? Or less?)
3. Parde Main Rahne Do. If fixed assets haven’t grown as much, is it possible that the HUL’s balance sheet fails to record the money spent? If so, where is it recorded mysteriously? Which specific head and where?
(Clue: Which financial statement shows assets? Which financial statement shows expenses? Which large expense of HUL can actually be considered an asset? Does it matter for calculating important ratios, if we put a large amount as expenses in one financial statement, rather than as assets in the other statement?)
4. Ek Aur Ek Gyaraah. If we take the the fixed assets numbers plus the mystery number, will we still be able to explain HUL’s sales growth?
(Clue: Sales is broken into two parts: prices of units – aka realisations and number of units – aka volumes. Which of them – realisations growth or volumes growth – usually requires money to be pumped in?)
This is the third part of the series on how to read a balance sheet. Now over to you. Tell us what you think.
Flickr Creative Commons Image via dynamosquito