Proctor_and_Gamble

Financial Health Analysis Procter & Gamble William Procter, who was a candle maker, met James Gamble, who was a soap maker, through their wives who happened to be sisters. Procter and Gamble started in 1837, in Cincinnati, Ohio, when William Procter and James Gamble took the suggestion of their father-in law named Alexander. (Procter & Gamble, 2006, p. 2) In 2005 Procter and Gamble climbed the ladder and became the tenth most valuable organization in the entire world. (Procter & Gamble, 2006, p. 9) Today, Procter and Gamble employs almost 127,000 employees in over 80 countries. (Yahoo!, 2010, p. 1) P & G’s Competitors include major organization such as Johnson & Johnson, Kimberly-Clark Corporation, Unilevel, and Colgate-Palmolive Company. (The Gale Group, Inc, 2006, p. 6) The Procter & Gamble Company provides personal and household goods. The company offers cosmetics, deodorants, razors, personal cleansing, skin & hair care products, fragrances, laundry detergent, dish soap, batteries, paper products, snacks and pet food. Procter and Gamble makes some of the most trusted and highest quality brands on the market today. That list includes brands such as Tide, Always, Pantene, Pampers, Charmin, Crest, Iams, Head & Shoulders, Braun, Oral-B, Duracell batteries, Pringles, Folgers coffee, Gillette and many more well-known brands. (Procter & Gamble, 2006, p. 10) The company sells its products through retail operations, including mass merchandisers, grocery stores, membership club stores, drug stores, department stores, salons, and high-frequency stores. (Yahoo!, 2010, p. 1) Upon review of the earning’s statements provided by Procter & Gamble, it seems as if this company has weathered the storm of the economic downturn the country and the world experienced in 2008 and 2009. Beginning in 2006, the net sales this company received was 68.22 billion dollars and the net earnings were 8.684 billion dollars. P&G had 3.112 billion shares outstanding in 2006 which equated to $2.79 basic earnings per share and $2.64 of earnings per share diluted in relation to 3.286 billion shares. Basic earnings per share for 2007 were $3.22 in relation to 3.211 billion shares outstanding and diluted earnings per share were $3.04 in relation to 3.399 billion shares. Net sales for 2007 were 76.476 billion and after expenses the net earnings were 10.340 billion. Looking forward at 2008, Net Sales were 81.748 billion, an increase of approximately 5 billion, and net earnings after expenses were 12.075 billion. Basic earnings per share for this year were $3.86 spread over a total of 3.128 billion shares and diluted earnings per share was $3.64 with a share base of 3.317 billion. In 2009, Proctor and Gamble had net sales of 76.694 billion, net earnings of 13.436 billion dollars and the basic earnings per share, continued and discontinued operations; of $4.49 spread over 2.992 billion shares. Diluted earnings per share were $4.26, spread over 3.154 billion shares. In 2010, net sales for P&G were 78.938 billion but expenses increased that year reducing the net earnings to 12.736 billion dollars. Basic earnings per share for 2010 were $4.32 spread over 2.948 billion shares and diluted earnings per share were $4.11 spread over 3.098 billion shares reflecting the fact that share amounts were reduced by the purchase of treasury stock over the course of 2009 and 2010. Retrieved, April 11, 2011, from http://www.pginvestor.com/phoenix.zhtml'c=104574&p=irol-quarterlyresults Based on this evaluation of the earnings data and cash flow statements P&G has demonstrated increased earnings and an ongoing effort to purchase treasury shares. Each year, for the past several years, they continued to reduce their shares outstanding by making treasury stock purchases and also made strong efforts to grow their sales. Beginning in the 2006 fiscal year for P&G, the cash and cash equivalents were 6.389 billion dollars. In 2007 this amount was 6.693 billion, 2008 was 5.354 billion, 2009 it was 3.313 billion and 2010 it recovered to 4.781 billion. Beginning in 2006, operating expenses totaled approximately 11 billion and by 2010, operating expenses had reached 16 billion. Investment activity expenses ranged from 500 million to 2 billion and financial operating expenses from 10 billion to 17 billion between the 2006 and 2010 time frame. In 2007, P&G announced a plan to increase their treasury stock purchases. Beginning in 2008 this share repurchase plan contributed to the increase in cash outflow. Between 2008 and 2009, a large amount was spent on the deferred tax balance which also contributed to a large cash outflow for that time period. Another cash outflow, that is beneficial for the shareholders of this company, is the fact that dividends continued to increase each year from 2006 to the current year. By 2010 P&G had drastically reduced their accounts receivable account but at the same time allowed their inventory level to drop inferring that that cash was used to pay down the credit on their inventory instead of building up inventory supply levels. Recovered April 11, 2011, from http://www.pg.com/annualreport2010/financials/audited-consolidated-financial-statements/consolidated-balance-sheets.shtml Considering the changes from year to year in the cash flow statement provided by the company, it seems they have maintained a balance between their inflow and outflow. One slight concern would be the amount of cash and cash equivalents that have been reduced in 2009 and 2010 in relation to the previous years. Still, with treasury stock purchases, reduction in debt and continued dividend increases, the company seems to be maintaining strong levels of cash and the ability to balance inflow and outflow. Procter and Gamble considers their long-term and short-term to be appropriate after examining the organization’s cash flow expectations, cash requirements for ongoing operations, investment and financing plans, and the overall cost of capital. Procter and Gamble’s total debt decreased in 2010 from $37.0 billion to an amazing 29.8 billion. This decrease was achieved by the repayments that were received by the sale of the global pharmaceutical division. (Procter & Gamble, 2010, p. 47) Procter and Gamble’s current liabilities do exceed their current assets by $5.5 billion but the organization does anticipate being able to support our short-term liquidity and operating needs largely through cash generated from operations. The organizations extremely strong short-term and long term debt ratings enable to company to be able to refinance their debt at favorable rates in both commercial paper and bond markets and at worse the business has agreements with numerous financial institutions if they become in need of short-term funding. (Procter & Gamble, 2010, p. 47) Accounts payable and other liabilities increased in 2010 primarily due to increased expenditures to support business growth, primarily related to the increased marketing investments. (Procter & Gamble, 2010, p. 44) | (Amounts in millions) | | | CURRENT LIABILITIES | 2010 | 2009 | | Accounts payable | $7,251 | $5,980 | | Accrued and other liabilities | $8,559 | $8,601 | | Debt due within one year | $8,472 | $16,320 | TOTAL CURRENT LIABILITIES | $24,282 | $30,901 | | LONG-TERM DEBT | $21,360 | $20,652 | | DEFERRED INCOME TAXES | $10,902 | $10,752 | | OTHER NONCURRENT LIABILITIES | $10,189 | $9,146 | TOTAL LIABILITIES | $66,733 | $71,451 | Procter and Gamble’s net investing activities consumed only $597 million of cash as opposed to the 2.4 billion it consumed in the prior year. (Procter & Gamble, 2010, p. 46) The majority of the $597 million in investing activity was used for capital spending and acquisitions and was off set from the proceeds from the sale of assets. (Procter & Gamble, 2010, p. 46) A huge sum came from the sale of Procter and Gamble’s global pharmaceuticals division. (Procter & Gamble, 2010, p. 46) Procter and Gamble’s capital spending is targeted to be 4% of their net sales and is used to support their plans for business growth. The organizations capital expenditures in 2010 were $3.1 billion and were used primarily to support any capacity expansions and new innovations. (Procter & Gamble, 2010, p. 46) In 2010 Procter and Gamble capital spending was down $1 billion and had improved to 3.9% of a percentage of net sales as opposed to the 4.2% from 2009. Procter and Gamble’s Pension plan and postretirement benefits are very usual. Procter and Gamble are entirely furnishing their defined retirement pension plans to employees. Not all employees fit in these plans, only a number of employees do. The majority receiving these benefits are from the United States. Enclosed in index is Note 3 from the 2010 Annual Financial Statement found on the Procter and Gamble Company’s webpage. These are the latest contributions for these benefit expenses. Summarizing that information, we have that the end of last year, 2010, compensation expense was $1,822 million and for other non-current liabilities they have, pension benefits and other postretirement benefits equals to $ 6,616 million. Nowhere had I found the number of beneficiaries receiving these benefits. The company’s percentage contributions for these plans are 15% of the receiving member’s annual wages and salaries. The benefit plans within the company are as follow: * The U.S. defined contribution plan, the U.S. DC plan. * The Procter and Gamble Profit Sharing Trust * The Employee Stock Ownership Plan, ESOP Now, for the year, 2011, there are the expected benefit expenses. Shown in index 2 is Note 8. For 2011 pension benefit is $494 and for other retiree benefits is $195 totaling $689. Other postretirement benefits include and are limited to, primarily health care, and life insurance. These benefits would depend on each recipient’s eligibility. For example, the company would take into account the person’s age, time with the company and the person’s specific benefit plan. On the 2010 annual financial statement, the Stock-Based Compensation is depicted on note 7. The total common shares authorized under stock-based compensation plans were $180 million. All the shares were approved by shareholders in 2003-2009. The total amount for stock-based compensation expense on stock option grants was $417 million for 2010. (Amounts in millions) | 2010 | 2009 | Compensation expenses | $1,822 | $1,983 | Pension benefits | $4,701 | $3,798 | Other postretirement benefits | $1,915 | $1,516 | TOTAL | $8,438 | $7,297 | | | | EXPECTED BENEFIT PAYMENTS | (Amounts in millions) | Pension Benefits | Other Retiree Benefits | 2011 | $494 | $195 | 2012 | $487 | $213 | 2013 | $500 | $230 | 2014 | $524 | $245 | 2015 | $537 | $261 | 2016 – 2020 | $3,063 | $1,530 | Procter and Gamble’s growth strategy is to focus on growing the organization’s core brands and categories with an unrelenting focus on innovation, to build their business with un-served and underserved consumers and to continue to grow and develop faster-growing, higher-margin businesses with global leadership potential. (Procter & Gamble, 2010, p. 2) P&G also has growth goals set to benefit their shareholders which include the creation of value for shareholders at industry leadership levels on a consistent basis and to deliver total shareholder return that consistently ranks P&G among the top-third of competing consumer products companies. (Procter & Gamble, 2010, p. 2) In 2010 P&G made significant progress on meeting their goal on growth by the increase in organic sales growing to 3%. Core earnings per share grew to 6% which is almost double what the organization expected and their adjusted free cash flow was above their target goal at 125% of their net earnings. (Procter & Gamble, 2010, p. 2) As well P&G raised their global market share nearly half a point and it is still accelerating by growing in 14 out of 17 countries they do business in. (Procter & Gamble, 2010, p. 2) Procter and Gamble also managed to add an addition 200 million consumers in 2010 which brought the consumer total to an amazing 4.2 billion which is well on their way to their goal of 5 billion consumers by 2015. (Procter & Gamble, 2010, p. 2) Procter and Gamble’s financial condition continues to be of extremely high quality with proof of their ability to generate substantial cash from operations and to have quick access to capital markets at competitive rates as compared to their competitors. (Procter & Gamble, 2010, p. 43) The overall cash position of the company reflects their strong business results and a global cash management strategy that takes into account liquidity management, economic factors and tax considerations. (Procter & Gamble, 2010, p. 45) The company has been around for years and understands what it takes to run a successful business with business strategies, strong internal controls and ability to keep investors happy by providing consistent dividends every year for the last 12 years. From a financial look, P&G’s organization will continue to grow in the future and would be a good organization to invest your money. References Procter & Gamble. (2010). 2010 Annual Report. Retrieved April 12, 2011, from http://www.pg.com/en_US/downloads/investors/annual_reports/2010/PG_2010_AnnualReport.pdf Procter & Gamble. (2006). A Company History 1837 - Today. Retrieved April 11th, 2011, from Procter & Gamble: http://www.pg.com/translations/history_pdf/english_history.pdf The Gale Group, Inc. (2006). The Procter & Gamble Company. Retrieved April 11th, 2011, from Funding Universe: The Procter & Gamble Company Yahoo! (2010). Procter & Gamble Co. (PG). Retrieved April 16th, 2011, from Yahoo: http://finance.yahoo.com/q/pr's=PG+Profile Procter & Gamble Company. (2010) P & G Annual Report. Notes to Consolidated Financial Statement. Retrieved from: http://www.pg.com/en_US/downloads/investors/annual_reports/2010/PG_2010_AnnualReport.pdf