1. Financial Report on Procter & Gamble
Céline Tur
Caitlin Reilly
Jakob Sautter
Cos Selcuk
Jed Fletcher
Table of Contents Page number
1. Introduction 1
2. Income statement analysis 1
3. Balance sheet analysis 2
4. Investor’s analyses
- Stock market analysis
- Competitor analysis
- Industry summary
4
5. Conclusion 7
6. References and appendices 8
2. 1
1. Introduction
In 1837, The Procter and Gamble Company was created by two men, William Procter and
James Gamble. Both met in Cincinnati through the marriage of two sisters, where their
company was born. They began as a small company, mainly family-oriented, selling soap
and candles. Over the years the company has grown massively and is thriving on producing
quality products for its customers. Since 1930, P&G has been providing consumers from all
over the UK and Ireland with reliable brands, and now serving over 4.6 billion consumer all
over the world. From brands in the beauty sector to household care, P&G caters to many
aspects of a person’s daily life. They have between 70 and 80 core products which are the
leaders in their respective markets - making up 90% of P&G’s sales and over 95% of their
current profits.
The company operates in America, Europe, the Middle East and Africa (EMEA) as well as
Asia. It is headquartered in Cincinnati, Ohio and employed around 118,000 people as of
June 30, 2014. They invest more money in market research than any other company in the
world. Each year, they carry out around 20,000 research studies and spend a generous
amount of money in consumer understanding - around $400,000.
The company has been simplifying itself a lot and has cut many of their brands which have
had a decline in sales. These brands which the decision was made to cut,
accounted for between 90 and 100 of their brands, the annual report for
2014 stated this was due to: “declining sales of −3%, declining profits of
−16% and half the average Company margin during the past three years.” By
reducing the number of brands, this therefore allows the company to focus
its resources and energy more on the ones which are successful in their
respective industries and keep them as the market leaders.
2. Income StatementAnalysis
Ratios 2012 2013 2014
Sales Growth - 0,70% 0,58%
Gross Margin 49,50% 49,88% 48,88%
Operating Margin 15,28% 17,79% 17,92%
ROS 13,30% 13,81% 14,19%
EPS $3,97 $4,16 $4,35
DPS $2,23 $2,52 $2,55
PER 16,13 16,43 17,24
3. 2
Payout Ratio 56,30% 60,61% 58,64%
Dividend Yield 3,49% 3,87% 3,40%
ROE - 16,59% 16,84%
ROI - 20,59% 20,12%
ROA 8,25% 8,19% 8,17%
Sales growth slowed to a very low 0.58% at the end of 2014, however we see from the
increase in the operating margin that this does not reflect any decline in efficiency of
operation. This could be due to the fact that a number of their brands were not performing
well in their respective markets. Despite the fact it is a very low percentage, it is a good sign
that it is positive while they experience a lot of reconstruction within the company. Following
on from this, their gross margin has remained stable, showing their ability to manage costs
effectively. In relation to this, an increase in the operating margin over the 3 years also
indicates that they have been effective with their costs. These assumptions can be
supported by looking at return on sales (ROS), this has also improved year-on-year from
2013, meaning that the cost associated with each product sold by P&G has fallen - another
representation of the firm’s gains in efficiency during this period - leading to greater
profitability.
Another positive sign, observing the income statement, is that net earnings rose at a higher
rate (2.92%) than costs of goods sold did (2.60%). This comparison brings to light a
profitable increase in either volume production or quality of products supplied (this point is
amplified by the fact that inventories fell).
3. Balance SheetAnalysis
Ratios 2013 2014
NWC -6047 -4237
Gearing 13.72% 13.73%
TIE 22 21
Long term debt repayment
capacity
1.33 1.30
Current Ratio 0.80 0.94
Quick Ratio 0.57 0.74
WCR -11994 -51231
Average collection period 28.37 27.68
4. 3
Average days inventory 30.12 57.31
Average payable period 38.26 71.74
WCR in days -52.29 -222.04
Cash in 2014 : NWC – WCR = 46994
Cash in 2013 : NWC – WCR = 5947
Procter & Gamble’s net working capital is negative for the years 2013 and 2014 meaning
that the company would appear to have difficulties financing its long term operations (such
as mergers or purchases of other companies). Moreover, it lacks a great capacity to rapidly
raise funds due to its high value in fixed assets. However, the good point is that its gearing
rate is around 14% for both years and can be explained by the fact that the company is quite
financially independent and financing internally for the most part. Another good point is about
the time interest earned (TIE) which is quite high (21 and 22 times for 2013 and 2014
respectively) and means that if the company needs a loan, the bank will willingly accept it
since it seems it will not have any difficulties to pay back.
Concerning the long term debt repayment capacity, it remains quite similar for 2013 and
2014 (1,30 and 1,33 respectively). As it is below 4 times, it means that it is possible for the
company to repay its debt quickly even though we said before that P&G has difficulties to
raise funds rapidly.
According to the current ratios for 2014 and 2013 (0,94 and 0,80 respectively), P&G does
own enough liquid assets in order to pay back its short term liabilities. This fact is coherent
with the negative NWC referenced earlier. If we look at the quick ratios at the same time, we
can see that they are both increasing from 2013 to 2014 which can be explained by the fact
that inventories fell during this period.
In addition, P&G financed too much on the short-term during 2013 and especially 2014. We
can observe it thanks to the working capital requirements which are negative for both
periods.
According to the calculations, P&G’s working capital requirements was $11.994 for 2013 and
$51.231 for the year 2014. In 2013, they possessed $5.947 in cash and the next year, they
had $46.994. In other words, P&G needed an extra $4.237 to cover its WCR in 2014
compared to $6.047 in 2013. We can note that the amount the company needed decreased
which is quite a good sign. Moreover, in this sector, it is usual to notice a negative WCR.
In 2014, P&G would receive customer payments after an average of 28 days. This figure is
only slightly lower than the year before (29) which isn’t surprising as the majority P&G’s
customers are most likely long-term clients who consistently pay within similar time frames
year-on-year. In 2013, P&G kept goods on inventory an average of 58 days while this figure
was only 30 days in 2014 which is normal since P&G is in a sector which is evolving quickly.
It needs to decrease its inventory in order to save money, but also time and goods (in this
sector, goods are updated often). In 2013, P&G paid its suppliers in 72 days (mean) while
only 39 days in 2014. If we are computing all these numbers, we can see that the company
5. 4
did not change concerning the amount of time their customers needed to pay : 28 days of
activity in 2013 and 29 days in 2014. However, the company reduced the time during which
they were keeping goods by almost 2 times (58 days in 2013 while only 30 days in 2014)
which is approximately the same proportionate reduction for the amount of time it needed to
pay its suppliers (72 days while it was only 39 days in 2014).
4.Investor’s Analyses
Stock MarketAnalysis
All figures correct from rolling year November 2014 - November 2015.
Average price per share: $79.46
Current volume of shares: 369,434
Total value of P&G shares on stock market (76.94 x 369434) = $28,424,252
Rolling year share low: $65.02
Rolling year share high: $93.89
EPS = $2.60
DPS = $2.55
Dividend yield: 3.44%
PER: 29.62
Procter & Gamble operate on the New York Stock Exchange (NYSE). In November 2005,
P&G had sold approximately 3 million shares at a value of $43.05 each. Almost 4 years on,
in March 2009, average share price had dropped to $36.49 (the lowest of the past 10 years).
This was a direct result of the 2008 recession. However, all things considered, this was not
such a dramatic decrease. This is mainly due to P&G’s resilience and future prospects which
allowed them to prepare for the future and build on from a disappointing turn. In December
2014 share price hit an all time high at $94.24. This represents an incredible growth of
$57.75 per share since their lowest point in March 2009 in just 5 years and 9 months. This
significant increase has
allowed P&G to expand
globally and continue to
create and release a
significant number of
successful brands.
The firm’s turnover in 2014
was $83,062,000,000. An
impressive 61% of the firm’s
turnover in 2014 was from
outside their home market.
In 2014 P&G employed over
118.000 people worldwide.
This gives P&G an
impressive revenue per
employee of approximately $654,031. P&G reports its turnover by region which shows the
6. 5
following: North America - 39%, Europe - 28%, Asia - 16%, Latin America 10%, IMEA - 7%.
The firm has a presence in 180 countries however their performance in East Asia
(particularly China and Japan) is incredibly poor in comparison. The company plans on
exiting 90 to 100 of its brands in 2015 as every single one of them have declining sales of at
least 3%, declining profits of 16% and half the average company margin over the past three
years.
This graph highlights the price per share for P&G from 11/09/2005 to 11/09/2015. There is a
clear trend of steady growth from 2005 to early 2009, followed by a sharp decrease and then
a consistent increase from then on. Other than a brief dip mid 2015, P&G has recently
established itself as a sound financial investment.
The above graph clearly shows the trend that P&G’s shares have taken (in their respective
forms) over the last 10 years. Whilst showing a steady increase up to its peak in 2009 with
all 3 graphs, there is a significant drop from 2014 to 2015 with the basic earnings per share
and diluted earnings per share. As P&G’s net profit continued to rise, this suggests that
investment was significantly encouraged and more shares were sold, meaning that the
increase in profits were not matched by the increase in the sale of shares. Meanwhile over
this entire period, the dividend paid out per share continued to rise. This could suggest that
P&G attempted to stimulate increased investment as a result of the inconsistent nature of
the earnings per share as DPS consistently increased over the 10 years.
Competitor Analysis
8. 7
It is hard to compare any firm of P&G’s relative size to its competitors. However, when we
observe the investor ratios of Unilever, Kimberly-Clark Corporation and Johnson & Johnson,
there are some notable comparisons which we can make.
P&G’s earnings per share (EPS) figure is quite low compared to its competitors, however it
is important to note that the next biggest firm, Unilever, has an EPS even lower than theirs.
P&G and Unilever’s lower EPS reflects a heightened security in buying their shares – the
returns are likely to be less than other firms who grow more rapidly, but the chances of
unexpectedly low returns are minimal as the size of these companies makes them robust to
external shocks.
Regarding dividend analysis, P&G’s dividend yield performs very well amongst its
competitors. At 3.44% the dividends paid per share (DPS) make up a larger proportion of
P&G’s share price [as represented in the dividend yield] than all their competitors at the end
of 2014.
P&G’s share price displays a similar general evolution over the last two years to its
competitors (for more detailed charts of competitor share price evolution consult appendix);
as the largest FMCG firm operating in the market, not surprisingly, Procter & Gamble’s share
price has evolved more steadily than those of other FMCG companies - particularly the
smaller competitors such as Kimberly-Clark Corporation - which describes to an extent why
their share price lags slightly. Notably, there is a sharp decrease in share price of each firm
at the same instance as P&G has encountered one just before November of 2014 - this was
likely due to a US stock market-wide spike in volatility after the US Federal Reserve ceased
the last of its quantitative easing brought on by the financial crisis of seven years before.
Procter & Gamble have a lower share price (c. $80) compared to some of the industry
around them (Kimberly-Clark Corporation and Johnson & Johnson both with prices over
$100 per share). However, it is crucial to note that when observing the company’s price-to-
earnings ratio (PER) to that of their main competitors, P&G’s figure is considerably higher
than the others’ PERs (29.62>25.42>21.77>18.1); what we can infer from this is that, though
the share price is lower for Procter & Gamble, their stock is in fact more expensive than the
rest of the industry in terms of time taken for the stock to pay itself off.
5. Conclusion
P&G is a well performing company; it is creating value even though it is in the process of a
major restructuring, and net earnings rose more than costs of goods sold did.
For investors aiming to find a title which provides a safe dividend payout, P&G can be highly
recommended. The company has not skipped a dividend distribution since 1890 and it has
increased the distribution for 59 consecutive years. This fact suggests a solid management,
which has found a good balance of profit distribution and responsible reinvestment.
With exceptions, price per share increased continuously over the last 10 years, which is
another sign for a successful and gainful long-term investment.
9. 8
Regarding the ROE, it has to be mentioned that P&G has a solid and consistent figure of
around 16%. Although this is lower than some of its competitors’, it remains an excellent
benchmark.
The share price of P&G shows a far greater period of growth, e.g. compared to Kimberly-
Clark. This therefore means that P&G presents a more attractive investment opportunity
whilst minimising risk as it remains far more consistent as a result of the most recent ROE
projections. Therefore, although there exists the potential for greater profit with other
competitors, there is also a lot more risk, making P&G a much safer investment
And since the dividend yield is currently higher than the competitors’, P&G should be the
preferred choice in this sector.
A decreasing but still positive sales growth can be explained by the sales of business.
Recapping the aforesaid, it can be stated that P&G is a well-managed company which is
healthy from a financially point of view.
6. References
http://csimarket.com/stocks/PG-Annual-Return-on-Assets-ROA.html
http://www.wikinvest.com/stock/Procter_%26_Gamble_Company_(PG)
http://finance.yahoo.com/q;_ylt=A9mSs2xdUTtWxkMAMl9jAQx.;_ylu=X3oDMTByMWk
2OWNtBGNvbG8DaXIyBHBvcwMyBHZ0aWQDBHNlYwNzcg--?s=pg
http://www.bloomberg.com/quote/PG:US
http://seekingalpha.com/article/2837396-unilever-vs-procter-and-gamble-an-
investment-comparison
http://www.loreal-finance.com/site/us/graphique-direct.asp?graph=25&valeur=2
https://finance.yahoo.com/echarts?s=KMB+Interactive#{"range":"2y","allowChartStac
king":true
https://finance.yahoo.com/echarts?s=JNJ+Interactive#{"range":"2y","allowChartStack
ing":true
https://finance.yahoo.com/echarts?s=UL+Interactive#{"range":"2y","allowChartStacki
ng":true
http://www.loreal-finance.com/eng/annual-report
http://www.nasdaq.com/symbol/pg/guru-analysis/graham
https://www.unilever.com/investor-relations/annual-reports-and-accounts/
