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Investors and banks will be liking Unilever Nigeria’s robust liquidity position which signals the company is not susceptible to short term liquidity risk even amid a severe foreign currency scarcity and a weak Naira.
For instance, the consumer goods giant has a cash ratio of 1.18 as at September 2023, which is lower than 2022’s 1.19, according to MoneyCentral calculations.
The cash ratio is a liquidity measure that shows a company’s ability to cover its short-term obligations using only cash and cash equivalents. The cash ratio is more conservative than other liquidity ratios because it only considers a company’s most liquid resources.
A calculation greater than 1 means a company has more cash on hand than current debts, while a calculation less than 1 means a company has more short-term debt than cash.
Unilever maintained robust liquidity with an increase in working capital to N51.88 billion from N48.52 billion as at nine months 2023 (9M-22).
It is important to note that its current and quick ratios were 1.83x and 1.45x, compared to 1.88x and 1.58x respectively as at 9M-22.
Unilever Nigeria is efficient in converting sales into cash as its operating cash flow margin rose to 10.55 percent in September 2023 from 10.02 percent the previous year.
Net operating cash flow from operations were up 32.66 percent to N8.61 billion as at September 2023, which means the firm can pay dividend to shareholders if it maintains the growth till the end of the year.
The consumer goods giant has a zero debt to equity ratio, which means it is not vulnerable to financial risk or bankruptcy risk, and that places it in an advantageous position to seek loans from banks that will be eager to grant credit to a firm with a healthy balance sheet.
Unilever’s EV/EBITDA of 1.0x is significantly cheaper than the average EV/EBITDA of 6.9x for its Sub-Sahara Africa peers.
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