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Mehmet SAHIN
Mehmet Sahin
12/5/2010
P&G COMPANY ANAYLISIS
A) KEY FINANCIAL ANAYLISIS
1) Last Twelve Months (Dec2009 to Dec 2010)
Procter & Gamble Co. is a Fortune 500 American multinational corporation
headquartered in Downtown Cincinnati, Ohio that manufactures a wide range of
consumer goods. It is 6th in Fortune's Most Admired Companies 2010 list. P&G is
credited with many business innovations including brand management and the soap
opera.
The Key numbers for P&G is as following for the latest twelve months
Income
Revenue 78.94B
Cost of Revenue 37.92B
Gross Profit 41.02B
Selling, General, & Admin. Expense 25.00B
Total Operating Expenses 62.92B
Operating Income 16.02B
Non-Operating Income -974.00M
Pretax Income 15.05B
Provision for Income Taxes 4.10B
Income after Tax 10.95B
Income Before Extra ordinaries & Disc. Operations 10.95B
Income from Discontinued Operations 1.79B
Net Income 12.74B
Earnings Per Share Data
Average Shares to compute diluted EPS 3099.30
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Average Shares used to compute basic EPS 2900.80
EPS - Basic net 4.32
EPS - Diluted net 4.1
2) Cash Flow Analysis
Cash Flow - Operations 2006 2007 2008 2009 2010
Depreciation, Depletion, Amortization 2.63B 3.13B 3.17B 3.08B 3.11B
Other Non-Cash Items 473.00M 768.00M 1.49B -1.26B -2.18B
Total Non-Cash Items 3.10B 3.90B 4.65B 1.82B 927.00M
Deferred Income Taxes
Total Changes in Assets/Liabilities -419.00M -1.55B -1.59B -364.00M 2.21B
Other Operating Activities 10.00M 719.00M -127.00M 30.00M 196.00M
Net Cash from Operating Activities 11.38B 13.41B 15.01B 14.92B 16.07B
Cash Flow - Financing
Debt Issued 8.64B -4.17B -2.01B -81.00M -6.51B
Equity Issued -16.83B -5.58B -10.05B -6.37B -6.00B
Dividends Paid -3.70B -4.21B -4.66B -5.04B -5.46B
Other Financing Activities 1.32B 1.50B 1.87B 681.00M 721.00M
Net Cash from Financing Activities -10.58B -12.45B -14.84B -10.81B -17.25B
Foreign Exchange Effects 237.00M 187.00M 344.00M -284.00M -122.00M
Net Change in Cash & Cash Equivalents 304.00M -1.34B -2.04B 1.47B -1.90B
Cash at beginning of period 6.39B 6.69B 5.35B 3.31B 4.78B
Cash at end of period 6.69B 5.35B 3.31B 4.78B 2.88B
3) ROE Du Pont Model
The financial analysis is carried out using DuPont System of analysis and some others pertinent
ratios. DuPont analysis examines a company¶s Return on Equity (ROE) by splitting it into three
main elements:
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- Financial leverage- Asset use efficiency- Profitability
2008 2009 2010
net
income/sales
12.07B/79.26B
=0.152
13.44B/76.69B
=0.175
12.74B/78.94B
=0.161
sales/assets
79.26B/143.99B
=0.550
76.69B/134.83B
=0.56
78.94B/128.17B
=0.615
assets/equity
143.99B/69.49B
=2.72
134.83B/63.38B
=2.12
128.17B/61.44B
=2.08
As far as we can observe from the do Pont analysis, the company was in a bad
shape in 2008 but even the global in 2009 the values are better. Asset use
efficiency is increased by years.
4) Common Sizing
Income Statement
Income 2006 2007 2008 2009 2010
Revenue 68.22B 74.83B 79.26B 76.69B 78.94B
Cost of Revenue 33.12B 35.66B 39.26B 38.69B 37.92B
Gross Profit 35.10B 39.17B 40.00B 38.00B 41.02B
Research & Development Expense
Selling, General, & Admin. Expense 21.85B 24.17B 24.02B 22.63B 25.00B
Depreciation & Amortization
Operating Interest Expense
Other Operating Expenses
Total Operating Expenses 54.97B 59.83B 63.28B 61.32B 62.92B
Operating Income 13.25B 15.00B 15.98B 15.37B 16.02B
Non-Operating Income -836.00M -739.00M -1.09B -961.00M -974.00M
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Pretax Income 12.41B 14.26B 14.88B 14.41B 15.05B
Provision for Income Taxes 3.73B 4.20B 3.59B 3.73B 4.10B
Income after Tax 8.68B 10.06B 11.29B 10.68B 10.95B
Minority Interest
Equity In Affiliates
Income Before Extraordinaries & Disc.
Operations
8.68B 10.06B 11.29B 10.68B 10.95B
Investment Gains/Losses
Other Income/Charges
Income from Discontinued Operations 277.00M 784.00M 2.76B 1.79B
Net Income 8.68B 10.34B 12.07B 13.44B 12.74B
Earnings Per Share Data 2006 2007 2008 2009 2010
Average Shares to compute diluted EPS 3285.90 3398.60 3316.80 3154.10 3099.30
Average Shares used to compute basic
EPS
3054.90 3159.00 3080.80 2952.20 2900.80
EPS - Basic net 2.79 3.22 3.86 4.49 4.32
EPS - Diluted net 2.64 3.04 3.64 4.26 4.11
Balance Sheet
Assets 2006 2007 2008 2009 2010
Cash & Short Term Investments 7.83B 5.56B 3.31B 4.78B 2.88B
Receivables 5.72B 6.63B 6.76B 5.84B 5.33B
Inventory 6.29B 6.82B 8.42B 6.88B 6.38B
Prepaid Expenses 2.88B 3.30B 4.01B 3.20B 3.19B
Other Current Assets
Total Current Assets 24.33B 24.03B 24.52B 21.91B 18.78B
Gross Property, Plant & Equipment 31.88B 34.72B 38.09B 36.65B 37.01B
Accumulated Depreciation 13.11B 15.18B 17.45B 17.19B 17.77B
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Net Property, Plant & Equipment 18.77B 19.54B 20.64B 19.46B 19.24B
Long Term Investments
Goodwill & Intangibles 89.03B 90.18B 94.00B 89.12B 85.65B
Other Long Term Assets 3.57B 4.26B 4.84B 4.35B 4.50BTotal Long Term Assets 111.37B 113.98B 119.48B 112.93B 109.39B
Total Assets 135.69B 138.01B 143.99B 134.83B 128.17B
Liabilities 2006 2007 2008 2009 2010
Current Portion of Long Term Debt 2.13B 12.04B 13.08B 16.32B 8.47B
Accounts Payable 4.91B 5.71B 6.78B 5.98B 7.25B
Accrued Expenses 9.59B 9.59B 11.10B 8.60B 8.56B
Deferred Revenues
Other Current Liabilities
Total Current Liabilities 19.98B 30.72B 30.96B 30.90B 24.28B
Total Long Term Debt 35.98B 23.38B 23.58B 20.65B 21.36B
Deferred Income Tax 12.35B 12.02B 11.80B 10.75B 10.90B
Minority InterestOther Long Term Liabilities 4.47B 5.15B 8.15B 9.15B 10.19B
Total Long Term Liabilities 52.80B 40.54B 43.54B 40.55B 42.45B
Total Liabilities 72.79B 71.25B 74.50B 71.45B 66.73B
Shareholder's Equity 2006 2007 2008 2009 2010
Common Shares Outstanding 3.18B 3.13B 3.03B 2.92B 2.84B
Preferred Stock 1.45B 1.41B 1.37B 1.32B 1.28BCommon Stock, Net 3.98B 3.99B 4.00B 4.01B 4.01B
Additional Paid-in Capital 57.86B 59.03B 60.31B 61.12B 61.70B
Retained Earnings 35.67B 41.80B 48.99B 57.31B 64.61B
Treasury Stock 34.23B 38.77B 47.59B 55.96B 61.31B
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Other Shareholder's Equity -1.29B -1.31B -1.32B -1.06B -1.03B
Shareholder's Equity 62.91B 66.76B 69.49B 63.38B 61.44B
Total Liabilities & Shareholder's
Equity
135.69B 138.01B 143.99B 134.83B 128.17B
Growth Analysis
In the income statement, we can observe the differences in Sales & Net Income
2001 2002 2003 2004 2005
Revenue 39.24B 40.24B 43.38B 51.41B 56.74B
2006 2007 2008 2009 2010
Revenue 68.22B 74.83B 79.26B 76.69B 78.94B
If we calculate the Compound annual Growth Rate for Sales which is;
{(78.94 / 39.24)^ (1/10)} ± 1 = 1.072 -1 = %7.2
If we calculate the year over year growth
2001-2002 = (40.24-39.24)/39.24 = 2.5%
2002-2003 = 7%
2003-2004 = 18%
2004-2005 =10%
2005-2006 =20%
2006-2007 = 9%
2007-2008 =5.9 %
2008-2009 = - 3%
2009-2010 = 2.9%
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For the net income;
2001 2002 2003 2004 2005
Net Income 2.92B 4.35B 5.19B 6.16B 6.92B
2006 2007 2008 2009 2010
Net Income 8.68B 10.34B 12.07B 13.44B 12.74B
{(12.74/2.92)^(1/10)} ± 1 = 15%
Well we can see that companies sales are increased 7% in ten years whereas its net income
manage to increase 15% which shows that company is being more efficient over the years.
Sustainable Growth
Divident Payout Ratio =
(www.ycharts.com) Blue=Earnings per share Orange=Dividend per share
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The current EPS is 1.02 and Dividend yield is 0.48
Dividend payout ratio is = 0.48/1.02 = 0.47
B) RATIO ANALYSIS
1) Margin Analysis
The gross Margin for 2001 is = 39.24B - 22.10B / 39.24B = 0.43
The gross Margin for 2010 is = 78.94B - 37. 92B / 78.94B = 0.51
PG Gross Profit Margin Graph
The company has increased its gross margin in ten year period. As we observe before company
is being managed good and is more efficient.
Operating Margin
Operating margin for 2001 is = 4.74B /39.24B =0.12
Operating margin for 2010 is =16.02B/ 78.94B = 0.20
Operating margin is also increased in years.
Pre ± Tax Margin
Pre-tax income for 2010 is = 15.05B / 78.94B = 0.19
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Net Profit Margin
Net profit Margin for 2010 is 12.74B/78.94 = 0.16
2) EBIT
2006 2007 2008 2009 2010
Pretax Income 12.41B 14.26B 14.88B 14.41B 15.05B
2001 2002 2003 2004 2005
Pretax Income 4.62B 6.38B 7.53B 8.90B 9.98B
EBIT Margin for 2010 is 9.98 / 78.94 = 0.12
EBITDA
EBITDA is Revenue ± Expenses (excluding tax, interest, depreciation and amortization
3) Return Calculations
ROE
ROE is net income / Shareholders Equity
For 2010 ROE is 12.74B / 61.44B = 20%
Return on Equity over the
years
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ROA
ROA is net income over Assets
For 2010 ROA is 12.74/ 128.17B =9%
Return on Long term invested capital is net income / (long term debt + shareholders
equity)
For 2010 it is 12.74 /(21.36B+61.44) = 15%
4) Liquidity
Net working Capital is Current Assets ± Current Liabilities represents operating
liquidity.
2001 2002 2003 2004 2005
Total Current Assets 10.89B 12.17B 15.22B 17.11B 20.33B
2006 2007 2008 2009 2010
Total Current Assets 24.33B 24.03B 24.52B 21.91B 18.78B
2001 2002 2003 2004 2005
Total Current Liabilities 9.85B 12.70B 12.36B 22.15B 25.04B
2006 2007 2008 2009 2010
Total Current Liabilities 19.98B 30.72B 30.96B 30.90B 24.28B
Net working capital for 2010 is 18.78 ± 23.28 = - 4.5
Current Ratio
Current Ratio for 2010 is 18.78/23.28 = 0.80
Quick Ratio
Quick Ratio for 2009(don¶t have the 2010 inventory data) = 21.91- 6, 8 / 30.90 = 0.48
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5) EFFICIENCY
Asset Turnover
Asset turnover for 2010 is 78.94B / 128.17B = 61 %
Accounts Receivable Turnover
2001 2002 2003 2004 2005
Receivables 2.93B 3.09B 3.04B 4.06B 4.18B
2006 2007 2008 2009 2010Receivables 5.72B 6.63B 6.76B 5.84B 5.33B
Money owed by customers (individuals or corporations) to another entity in exchange for goods
or services that have been delivered or used, but not yet paid for. Receivables usually come in
the form of operating lines of credit and are usually due within a relatively short time period,
ranging from a few days to a year. DSO shows how fast the company can collect its money.
DSO= (Accounts receivable/sales)*365
DSO= 5.33 / 78.94 = 24.6
Inventory Turnover
For 2009
Cost of Goods sold/ Average inventory = 38.69B / 6.88B = 5.61
Inventory Days outstanding = (6.88 /38.69) * 365 = 64
Accounts Payable Turnover
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6) Credit-Long Term Debt
Shareholders¶ Equity
Shareholders Equity by years
Shareholder's Equity 2006 2007 2008 2009 2010
Common Shares Outstanding 3.18B 3.13B 3.03B 2.92B 2.84B
Preferred Stock 1.45B 1.41B 1.37B 1.32B 1.28B
Common Stock, Net 3.98B 3.99B 4.00B 4.01B 4.01B
Additional Paid-in Capital 57.86B 59.03B 60.31B 61.12B 61.70B
Retained Earnings 35.67B 41.80B 48.99B 57.31B 64.61B
Treasury Stock 34.23B 38.77B 47.59B 55.96B 61.31B
Other Shareholder's Equity -1.29B -1.31B -1.32B -1.06B -1.03B
Shareholder's Equity 62.91B 66.76B 69.49B 63.38B 61.44B
Total Long Term Debt 35.98B 23.38B 23.58B 20.65B 21.36B
Long Term Capitalization = Long term Debt + Shareholders Equity
For 2010 = 21.36 + 61.44 = 82.8
Tangible Shareholders Equity
2006 2007 2008 2009 2010
Total Assets 135.69B 138.01B 143.99B 134.83B 128.17B
Goodwill & Intangibles 89.03B 90.18B 94.00B 89.12B 85.65B
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We can calculate tangible assets by total assets ± (Goodwill and Intangibles)
So for 2010 tangibles are = 128.17 ± 85.65 = 42.52
Tangible asset ratio is 42.52 / 128.17 = 0.33
RESULT
� Company is in a good shape
� It has a sustainable environment.
� Data shows it efficiency increasing over the years
� Expected return over the years is 7%
� Affected by the global crisis in terms of numbers but not efficiency
� Short DSO (24 days)
� Good dividend payout ratio
� Good for Long term investment