Procter And Gamble Financial Review

TABLE OF CONTENTS

A. Industry and Sector Overview 2

1. External Analysis 3

a. Technology 3

b. Demographic 3

c. International Exposure 4

2. Economic Indicators 4

a. GDP Growth 4

b. Household Income 4

c. Foreign Exchange Risk 4

3. Competition within Sector 4

B. Procter and Gamble: Company Analysis 6

1. Activities and Products 6

2. Strategic Position and Competition 7

3. Financial Analysis 8

a. Review of Business Segments 8

пЃ¶ Health Care 8

пЃ¶ Fabric and Home Care 8

пЃ¶ Baby, Feminine and Family Care 8

пЃ¶ Beauty Care 8

пЃ¶ Food and Beverage 9

b. Operating Results of Procter and Gamble 9

пЃ¶ Volume and Net Sales 9

пЃ¶ Net Earnings 9

пЃ¶ Operating Costs 9

c. Financial Performance 10

пЃ¶ Profitability Analysis 10

пЃ¶ Investment Utilization 11

пЃ¶ Solvency and Short term Liquidity 13

пЃ¶ Return on Equity: The Dupont Analysis 14

пЃ¶ Z - Score for Bankruptcy 15

пЃ¶ Growth Analysis 15

d. Comparative Financial Analysis 16

пЃ¶ Industry Specific Analysis 17

пЃ¶ Profitability 17

пЃ¶ Asset Utilization 18

пЃ¶ Liquidity 18

пЃ¶ Solvency 19

e. Risk Analysis 20

пЃ¶ Business Risk 20

пЃ¶ Sales Variability 21

пЃ¶ Operating Leverage 21

f. Valuation of Procter and Gamble 21

пЃ¶ Dividend Discount Model 22

пЃ¶ Economic Value Added 22

пЃ¶ Earnings Multiplier Model 23

пЃ¶ Technical Analysis 23

g. Investment Appraisal 25

h. Working Notes 26

Working Note 1 26

Working Note 2 26

Working Note 3 26

Working Note 4 26

Working Note 5 27

Working Note 6 27

Working Note 7 27

Working Note 8 28

Working Note 9 29

APPENDIX 30

References 34

The Procter and Gamble was incorporated as a family owned partnership business by William Procter and James Gamble in 1837 with a paid up capital of USD 7,192. This was the period when American economy was in financial panic. There was a fear of civil war and a widespread concern that the United States was bankrupt. However, despite of this era of financial distress the forward looking and aggressive policies of the owners helped company to achieve the sales of one million just in twenty second year of its existence. This forward looking and aggressive approach of company since its inception has made it a leader in consumer products.

Today Procter and Gamble is a public limited company and is listed on New York Stock Exchange. It manufactures and markets more than 250 products to more than five billion consumers in 130 countries throughout the world. The company has diversified its operations from family care products to food and beverages. It emphasize on continuous development of its product line with intensive capitalization for research and development. The company’s human resources are one of its major strength and its policy of employee retention has significantly improved the profits over time. The financials of the company reflects the result of clear strategic choices and operational excellence.

A. Industry and Sector Overview

The main operations of Procter and Gamble are manufacturing of consumer products that are included in Consumer Non Cyclical sector. The other industries in consumer non cyclical sector includes manufacturers of Beverages (alcoholic and non alcoholic), Crops, Fish/Livestock, Food Processing, Office Supplies, Personal and Household Products and Tobacco. There exist some big names in this sector including Coca Cola, Pepsi (Beverages), Phillip Morris (Tobacco). These companies have higher profit margins and asset efficiency due to effective management policies. However, companies like Coca Cola are not in direct competition with Procter and Gamble because P&G has beverages as one of its segment and is not the core competence of the Group while in case of Coca Cola beverages are the main products and is the main strength of the company.

In the household products industry, there exists certain direct competitors of Procter and Gamble but still it enjoys a very dominant position in this industry. The main players in this industry are Procter and Gamble, Unilever, Johnson and Johnson. However, Procter and Gamble dominates over the other two with higher revenues and profits. This might be the result of more diversified operations and higher geographical presence of Procter and Gamble as compared to Johnson and Johnson and to some extent Unilever. The industry and the sector can be classified as being in a mature state. Despite this, many companies in the sector are able to achieve higher profit margins due to strong brand name recognition, innovative products