p&g company anaylsis

8/6/2019 P&G Company Anaylsis

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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



Mehmet SAHIN

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:



Mehmet SAHIN

- 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



Mehmet SAHIN

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



Mehmet SAHIN

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



Mehmet SAHIN

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%



Mehmet SAHIN

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



Mehmet SAHIN

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



Mehmet SAHIN

Net Profit Margin

Net profit Margin for 2010 is 12.74B/78.94 = 0.16

2) EBIT

2006 2007 2008 2009 2010


2001 2002 2003 2004 2005


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



Mehmet SAHIN

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


2006 2007 2008 2009 2010


2001 2002 2003 2004 2005


2006 2007 2008 2009 2010


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



Mehmet SAHIN

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



Mehmet SAHIN

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



Mehmet SAHIN

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

p&g company anaylsis

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