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 plc (ADR) (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?
In business, as in personal finance, how much money coming in is essential to being financially secure.
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 plc (ADR) (NYSE:UL), 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 plc (ADR) (NYSE:UL)’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 plc (ADR) (NYSE:UL) 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 plc (ADR) (NYSE:UL)(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 plc (ADR) (NYSE:UL).
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.