3 Things You Need to Know About Unileverhttp://www.fool.com/investing/international/2013/06/07/3-things-you-need-to-know-about-unilever.aspx Jill Ralph
June 7, 2013
LONDON -- Though there isn't one surefire way to tell if a company is worth investing in, there are a few quick ways to see if you're looking at a dud or a stud.
You don't need a finance degree or a week off work to do this. You just need 20 minutes and a web browser, and you'll be all set to finding your next stock.
I've put popular U.K. share Unilever (LSE: ULVR) (NYSE: UL) under the microscope for today. I'm going to zoom in on three key things to know -- and in this case, like -- about a company that makes many of the products you and I keep in our cupboards.
Is Unilever making money?
This money coming in is cash flow, and looking at a company's cash flows gives us, as current or potential shareholders, a sense of how well that company is doing at selling its wares.
In the case of Unilever, looking at its cash flows will give us a good sense of how many of its products -- think Dove soaps, Cif detergents, or Magnum ice cream -- are being sold to consumers like you and me from Asia to the U.K. to the U.S.
Looking at Unilever's cash flows over the past three years reveals, to me, a healthy and growing business that's spending money wisely to support its international expansion.
In 2010, the company -- which reports figures in euros – posted 3.8 billion euros in free cash flow. The following year, as Unilever began to invest more heavily to support its growth in emerging markets (think staff, distribution, and product innovation costs), free cash slid to 3.5 billion euros.
But in the most recent full-year filing for Unilever (2012), the company reported a healthy increase in free cash flow, rising to 4.7 billion euros in 2012.
The investment in emerging markets is paying off, as Unilever's sales growth outside Europe is up 11.4% and now represents 55% of the company's total turnover. Asia and Latin America continue to be good markets for Unilever.
Remember, companies that are making money can therefore typically afford to reinvest in their businesses -- as is the case with Unilever -- and return some of those profits in the form of dividends to you and me as shareholders.
How much debt does it have?
When looking at a company's net debt -- its debt minus the cash it has in the bank -- you also want to see how easily it can pay down that debt.
In Unilever's case, it carries 7.4 billion euros in net debt (as reported at the end of 2012). This is down from 8.8 billion euros at the end of 2011 and up from 6.7 billion euros of debt in 2010.
While investing in a company that carries billions in debt may seem scary, remember that the company is also making billions each year. And in Unilever's case, it generated operating profits to the tune of a whopping 6.7 billion euros in 2012, a healthy debt-t