Human Capital Analyst – Analysis of what your financial statement is saying about your people investment strategy BY

Cross-sectional case study of human capital pattern in the Consumer Goods Sector


All analysis contained herein is not meant to vilify any of the companies analyzed, but to provide an understanding to target audience on general pattern of human capital activities in the companies. The information utilized for the analysis are strictly those provided in the companies’ financial statement.


This analysis examines the implication of companies’ financial performance, (primarily the profit or loss account) on staffing, employee benefit and productivity. This will provide a guide to investors on line items and relationships to look out for in financial statements when assessing how organizations treat its staffs


A set of four companies in the consumer goods sector: Cadbury Nigeria, Nestle Nigeria, PZ Cussons Nigeria and Unilever Nigeria are selected for analytical comparison. These companies are all publicly listed, compete in the same consumer and input market and complies to similar regulatory body- in this case NAFDAC, SON. The financial statements used are those for their respective FY’2018, filed with the Nigerian Stock Exchange (NSE)

What are the items related to staffing and employee cost in the statement of financial performance?

  • Wages and salary
  • Pension and gratuity
  • Accruals related to employee cost – salaries and gratuity
  • Number of staffs

What are the items that can measure how employee cost affects a company?

  • Revenue 
  • Profit before interest and tax 

Because employee cost draws down directly on these components

Analysis of Human capital statistics and financial performance

Staff size

  • Nestle has the highest number of staff and Cadbury has the lowest. PZ Cussons was the only company that experienced a dip in staff size. Unilever had the highest recruitment in 2018. If this trend continues, Unilever would employ the highest number of new staffs in 2018. 

Source: Company’s financials, Author’s analysis

Wages and salaries

  • Nestle spent the highest amount on salaries in 2017 and 2018 compared to all other three companies. However, PZ Cussons and Unilever experienced the highest increase in salary cost. If this trend is repeated in 2019, PZ Cussons and Unilever would offer more opportunity for employment, promotion or salary increase. 

Source: Company Financials, Author’s analysis\\


  • Nestle incurred the highest cost of pension in 2017 and 2018. Cadbury’s pension expenditure reduced due to retrenchment of staff in 2017. Unilever had the highest growth in pension expenditure, followed by PZ Cussons, despite no major increase in staff size. This means Unilever and PZ Cussons have a stronger long-term welfare concern for their staff. 

Source: Company financials, Author’s analysis


  • In the case of gratuity, likewise, nestle spent the most in 2017 and 2018, which shows commitment to retirement compensation. PZ Cussons and Cadbury recorded the highest increase in gratuity spending between 2017 and 2018. Both Unilever and Nestle had a drop in their gratuity cost in 2018. Thus, a job applicant concerned about gratuity may prefer working for PZ Cussons.
See also  Cross-sectional case study of human capital trends in selected downstream Oil and Gas companies

Source: Company financials, Author’s analysis

Source: Author’s analysis

Descriptive analysis

Higher number of staffs may lead to higher level of revenue

Source: Author’s analysis

Nestle Nigeria is the biggest company in terms of revenue among the set of companies compared. Its revenue of N266bn appears to be directly proportional to its number of staff- 2,187: (its higher revenue coincides with higher number of staff). Cadbury had the smallest revenue of N36bn, corresponding to a small staff strength of 550. It is reasonable to adjudge that consumer goods companies with higher number of staffs outperform their peers in terms of revenue. But, Unilever’s revenue was more than PZ Cussons’ by 14.8% despite having a lower staff strength.

A bigger staff strength likely leads to higher salary expenditure and higher growth in number of staffs leads to higher growth in salaries

Source: Author’s analysis

Since Nestle has the biggest staff strength, its salary expenditure is higher than other companies. Other three companies displayed a direct relationship between salary expenditure and the number of staffs: companies with higher number of staffs had higher salary expenditure. In addition, nestle had the lowest growth in salary, despite having the largest number of staffs, because it had the smallest growth in number of staffs

Variations in pension expenditure is likely a function of variance in the distribution of staff across grade bands. Hence, companies often pay more pension due to higher number of senior staffs and not necessarily the number of staffs.

Source: Author’s analysis

The staff size of companies in the consumer goods sector is not the main factor affecting pension expenditure (a measure of companies’ long-term commitment to staffs) or growth in pension expenditure. This explanation holds particularly for Cadbury which had higher pension expenditure and smaller staff size compared to PZ Cussons which had a bigger staff size and smaller pension expenditure. The number of staffs in higher grades is the main factor affecting pension expenditure.

The size of companies’ gratuity expenditure commitment varies based on their respective discretionary gratuity policies and the rate of exit of gratuity-eligible staffs.

Source: Author’s analysis

Like the pension analysis, Nestle’s gratuity expenditure is highest among the four companies. This was followed by Cadbury, which had the smallest staff size and salary expenditure. Unilever, which has a bigger staff size spent less on gratuity compared to Cadbury.

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Financial ratios

The size of total employee cost, not the growth in total employee cost, directly affect revenue and the revenue-TEC ratio

 CadburyNestlePZ CussonsUnilever
Revenue to total employee cost ratio6.7X6.6X11.4X10.8X8.8X11.9X9.5X11.6X

Source: Author’s analysis

Revenue to total employee cost (TEC) ratio measures how much revenue, N1 of employee cost generate for the companies surveyed. Nestle’s employee cost generated the highest level of revenue at N11.4 per TEC in FY’2018, surpassing Unilever and PZ Cussons in FY’2018, which generated N9.5 per TEC and N8.8 per TEC in FY’2018. Between 2017 and 2018, Nestle exhibited the highest growth in revenue to TEC ratio of 5.6% between 2017 and 2018 compared to Cadbury’s ratio growth of 1.5%. The driver of this performance is the high level of TEC amounting to N23bn by Nestle, which resulted in higher revenue

Companies with smaller staff size often have lower salary cost and a higher revenue to TEC ratio and otherwise; the more the number of staff, the more important is salary policies.

 CadburyNestlePZ CussonsUnilever
Ratio of growth in revenue to growth in total employee cost1.53:12.75:10.08:10.28:1

Source: Author’s analysis

The ratio of the growth in revenue to growth in TEC measures the percentage increase in revenue caused by spending an extra 1% on TEC. Nestle recorded the highest ratio in this regard at 2.75%. This means a 1% additional increase in TEC leads to 2.75% increase in revenue. Likewise, Cadbury’s 1% additional spending on TEC leads to a 1.53% growth in revenue.  Nestle’s performance is driven by its big size in terms of revenue while Cadbury’s performance is a result of lower total employee cost.

Companies with higher staff size and total employee cost record the highest operating profit to TEC ratio; companies with smaller staff size and total employee cost record the lowest operating profit to TEC ratio

 CadburyNestlePZ CussonsUnilever
PBIT to total employee cost ratio0.32X0.14X2.59X2.46X0.90X2.02X0.94X1.66X

Source: Author’s analysis

The PBIT to TEC ratio measures the amount of operating profit caused by N1 spent on total employee cost. Nestle recorded the highest ratio in 2018 and 2017 at 2.59X and 2.46X respectively. This means for every N1 spent on employee, N2.59 was generated in 2018 and N2.46 was generated in 2017. This was driven by higher revenue, which trickled down to higher operating profit. Cadbury, on the other hand, had the lowest ratio because its small staff strength and TEC led to smaller revenues that brought about lower revenues.

See also  A Tale of Two Frogs

Companies that spend less on their employees often have lower total variable cost and higher fraction of total employee cost to total variable cost.

 CadburyNestlePZ CussonsUnilever
Employee cost to total variable cost ratio16%17%12%13%13%10%12%11%

Source: Author’s analysis

Employee cost to total variable cost ratio measures the fraction of total variable cost spent on employee. Ideally, this should be greater than 10% and all the four companies played above the threshold. Despite Cadbury’s smallest staff size, its TEC had the highest fraction of total variable cost at 16% in 2018 and 17% in 2017.  This is because Cadbury had the smallest total variable cost. Nestle and Unilever had the smallest ratio of 12% each in 2018 due to higher total variable cost.

Companies with bigger staff size and total employee cost have the tendency to achieve higher operating profit per head

 CadburyNestlePZ CussonsUnilever
PBIT per employeeN3.1mN1.3mN27.7mN25.3mN6.2mN8.3mN7.8mN10.6m

Source: Author

The operating profit per employee measures the amount of operating profit each employee contributes to a company. Nestle had the highest level of PBIT per employee in 2018 and 2017 at N27.7m and N25.3m respectively. This was driven by higher staff size and total employee cost that ensured higher revenues and operating profit. Cadbury recorded the lowest ratio of N3.1m and N1.3m in both years because its small staff strength and total employee cost led to lower revenue and operating profit. 

Based on this analysis, the following conclusions are eminent

  • Changes to salary policies in bigger organizations tend to attract more attention compared to changes in smaller organizations
  • Revenue and operating profit respond more to total employee cost in companies that are bigger in size (measured in terms of revenue)
  • Companies that spend more on their employee often record a lower proportion of total employee cost to total variable cost
  • Bigger companies can provide other means of staff compensation, particularly, share-based compensations
  • Companies with higher number of staff can still incur lower total employee cost as in the case of PZ Cussons in 2017 compared to Unilever; thus, total employee cost is more important than the number of staff in improving companies’ performance

Key insights 

  1. The component of employee benefit differs across firms. While some companies offer additional benefits like share-based remuneration, gratuity, incentive packages, staff loans and free company products to staffs, other companies stick to the conventional salary and pension. Unilever is a typical example of the former and PZ Cussons is an example of the latter. 
  2. Unlike salaries and pension which are mandatory, gratuity and other benefits policies are largely discretionary and varies across companies. For instance, Unilever does not pay its management staff gratuity and it also considers only staffs who have spent more than 10 years with the company. 
  3. Most gratuity plans come in the form of unfunded obligation which means most companies do not make annual provisions for gratuity for employees that would retire. This explains why certain companies owe their employees gratuity e.g. Unilever. However, Nestle has a defined contribution gratuity plan. 
4.     FY’2018Cadbury NigeriaNestle NigeriaPZ Cussons NigeriaUnilever Nigeria
Number of employees550 (a decrease of 2%)2,187 (a decrease of 0.06%) 1318 (a decrease of 17%)1,174 (an increase of 2%)
Wages and salariesN3.9 billion (an increase of 8%)N21 billion (an increase of 3.9%)N8.2 billion (an increase of 34%)N6.1 million (an increase of 22%)
Pension costN612 million (a decrease of 17%)N1.1 billion (an increase of 3%)N516 million (an increase of 200%)N512 million (an increase of 500%)
Gratuity costN826 million (an increase of 18%)N1.1 billion (a decrease of 9%)N399 million (an increase of 59%)N265 million (a decrease of 7%)
Gratuity accrualsN46 million (a decrease of 33%)N179 million (an increase of 42%) 
Interaction with revenue    
Revenue to total employee cost ratio6.7X (6.6X in 2017)11.4X (10.8X in 2017)8.8X (11.9X in 2017)9.5X (11.6X in 2017)
Ratio of growth in revenue to growth in employee total cost1.53:12.75:10.08:10.28:1
Interaction with profit before tax    
PBIT to total employee cost ratio0.32X (0.14X in 2017)2.59X (2.46X in 2017)0.90X (2.02X in 2017)0.94X (1.66X in 2017)
Interaction with cost    
Employee cost to total variable cost ratio16% (17% in 2017)12% (13% in 2017)13% (10% in 2017)12% (11% in 2017)
PBIT per employee (per thousand of naira)N3,088 (N1,266 in 2017)N27,727 (N25,305)N6,243 (N8,327 in 2017)N7,834 (N10,654 in 2017)
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