Financial Statements Part I.A. the Research Proposal

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Working capital reduction is not always a bad thing -- tightening receivables and inventory turns is often considered to be good financial policy.

In the case of Unilever, it is important to synthesize the two statements. We can see, for example, that "unusual expense" is the category most responsible for the change in working capital. At this point, it would be advisable to delve deeper into the comments in the annual report to discern the precise nature of these unusual items, as they will reveal the cause for the steady decrease in "unusual items" that has fueled the widening gulf between net income and cash flow from operations in the past five years.

I would predict that Kraft will work in the next few years to reduce costs. Their revenues have experienced steady increase, but their net income has not. They will focus their efforts on reducing the selling/general/administrative expenses. The other prediction I will make about Kraft is that they work to reduce their liabilities. They have experienced a sharp jump in liabilities over the past couple of years, which has had adverse impact on their capital structure.

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They will attempt to bring their debtload down over the next couple of years.

In the next couple of years, Unilever will continue their focus on reducing s/g/a expenses. They have begun this process, and saw significant improvement in this area in 2008. This has driven profit improvements at the company, and they will continue to focus on this area of their income statement in order to drive further profit improvements. Another prediction for Unilever will be to continue to reduce working capital. This has been a significant focus for the company over the past five years. Indeed, over that span, Unilever has been able to execute steady improvement to its financial statements. As a result, the company's financial standing has steadily improved. It is fully reasonable to expect that Unilever will continue to work towards further financial statement improvement.

(These predictions are based on analysis of the past five years' worth of income statement, balance sheet and statements of cash flows from Unilever and Kraft).

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