Procter and Gamble Financial Review

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TABLE OF CONTENTS

A.Industry and Sector Overview2
1.External Analysis3
a.Technology3
b.Demographic3
c.International Exposure4
2.Economic Indicators4
a.GDP Growth4
b.Household Income4
c.Foreign Exchange Risk4
3.Competition within Sector4
B.Procter and Gamble: Company Analysis6
1.Activities and Products6
2.Strategic Position and Competition7
3.Financial Analysis8
a.Review of Business Segments8
Health Care8
Fabric and Home Care8
Baby, Feminine and Family Care8
Beauty Care8
Food and Beverage9
b.Operating Results of Procter and Gamble9
Volume and Net Sales9
Net Earnings9
Operating Costs9
c.Financial Performance10
Profitability Analysis10
Investment Utilization11
Solvency and Short term Liquidity13
Return on Equity: The Dupont Analysis14
Z - Score for Bankruptcy15
Growth Analysis15
d.Comparative Financial Analysis16
Industry Specific Analysis17
Profitability17
Asset Utilization18
Liquidity18
Solvency19
e.Risk Analysis20
Business Risk20
Sales Variability21
Operating Leverage21
f.Valuation of Procter and Gamble21
Dividend Discount Model22
Economic Value Added22
Earnings Multiplier Model23
Technical Analysis23
g.Investment Appraisal25
h.Working Notes26
Working Note 126
Working Note 226
Working Note 326
Working Note 426
Working Note 527
Working Note 627
Working Note 727
Working Note 828
Working Note 929
APPENDIX30
References34

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...
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