Case Analysis of Procter and Gamble

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Question 1
What is the nature of this company’s operations?

P & G primarily provides branded consumer goods. They operate under three general business units: beauty and health, household care, and Gillette. Beauty, healthcare, fabric care and home care, baby and family care, snacks, coffee, and pet care, blades and razors, and Duracell and Braun all fall under one of these three general business units. (Page 31)

Question 2
Does the company do business domestically and/or internationally?

P & G markets its goods both domestically as well as internationally. Their products have presence in over 180 countries where they appear primarily in high frequency stores. They have actual operations in over 80 countries. (Page 31)

Question 3
What is the company’s fiscal year-end? Where is this information found?

P & G ended their fiscal year June 30, 2007. I found this information in the consolidated balance sheet. (Page 50)

Question 4
Who were the auditors and what type of audit opinion did they give?

P & G used Deloitte & Touche LLP, which is an independent public accounting firm, to perform the audit of internal control over financial reporting and management’s assessment of effectiveness of internal control. Deloitte & Touche found all information was presented fairly and in conformity to generally accepted accounting principles. They expressed an unqualified opinion on management’s assessment of the effectiveness of the company’s internal control over financial reporting and an unqualified opinion on the effectiveness of the company’s internal control over financial reporting. (Page 29)

Question 5
What are generally accepted accounting practices (GAAP)?

Generally accepted accounting principles are accounting rules set by the Financial Accounting Standards Board (FASB) for the preparation, presentation, and report of financial statements. (Page 7 textbook,

Question 6
What income statement format is illustrated in the company’s financial statements?

P & G uses the multiple-step format of the income statement for presentation of the company’s financial statements. (Page 49)Page 348-349 textbook)

Question 7
What balance sheet format is illustrated in the company’s financial statements?

P & G presents the balance sheet in the vertical format. (Page 50,

Question 8
Is the statement of cash flows presented in “direct” or “indirect” format? Explain. Is the format in conformity with GAAP?

P & G presents the statement of cash flows using the indirect format. The indirect method considers each change in non cash operating account in the balance sheet and thus explains cash flow from operating activity. Yes but the GAAP encourage use of the direct method. (Page 54, Page 352-354 textbook)

Question 9
Give an overall assessment of how this company managed its cash flows for the most recent year.

P & G saw an 18 percent increase in its operating cash flows due to higher net earnings. This increase was slightly offset by cash used to fund working capital due to business growth and thus increases in inventory and higher accounts payable. Investing activities increased 240 percent due to higher capital expenditures and lower proceeds from asset sales. Financing activities saw an increase of 11 percent to dividends per common share, a decrease of 7 percent to total debt, and a $5.6 billion repurchase of total shares. (Page 42-43)

Question 10
How many financial statements are presented in the company’s annual report? What titles are used for each statement? How many of these financial statements are “basic”?

P & G has 4 financial statements; the consolidated statements of earnings, the consolidated balance sheets, the consolidated statements of shareholders’ equity, and the consolidated statements of cash flows. All of these financial statements are basic....
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