P&G Financial Report

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Table of Contents         

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1 Presentation of the company ......................................................................3

2 Profitability analysis...........................................................................................5

Return on Equity..................................................................................................................5

Economic profitability analysis ..................................................................................6

Sales efficiency

Assets productivity

Working capital

Leverage Analysis.................................................................................................................8

3 Financial risks..........................................................................................................8
Solvency Risk..........................................................................................................................8

Liquidity Risk.......................................................................................................................10

4 Competitive analysis..........................................................................................11

5 Conclusion..................................................................................................................14

6 Appendix......................................................................................................................15

1 Presentation of the company 

Procter & Gamble was founded by William Procter, an English candle maker and James Gamble, an Irish soap maker who emigrated and decided to settle their business in Cincinnati (USA) in October 1837. The company belongs to the chemical and pharmaceutical sector and produces body care, cleaning and beauty products.

The brand has often launched successful products that have had tremendous success. In the 80s, they launched a new product: an inexpensive soap that floats in water, the famous soap Ivory. In 1887, William Arnett Procter, the grandson, started a profit-sharing program to benefice the workforce by giving them a stake in the company. With this, he correctly assumed that they would have less chance to go on strike. They opened new factories all over the country to supply the growing demand and began to diversify its products. They started to produce Crisco in 1911, a shortening made of vegetables oils instead of animal fats. The year 1961 was the year of big launches. They came out with one of the most famous and revolutionary products, the Pampers disposable diapers and also Head & Shoulders. Most recently in 2015, they acquired Gillette and became the largest consumer goods surpassing their competitor Unilever. Many of their products were sold such as Pringles snack to Kellogg’s for $2,75 billion but also Jif peanut butter, Crisco and Folgers to Smucker’s, another company in the food business.

On August 2014, P&G announced that they will drop around 100 brands from its product portfolio in order to focus on the remaining 65 brands, which produced 95% of the company's profits.

Today, the feminine and family care counts for 29% of their total net sales and products can be found all over the world, available not only in North America but also Latin America, Europe, Middle East, Asia, Africa, Australia and New Zealand.

We cannot avoid the fact that they face a cannibalization of products due to their dominance in many categories in the market.

Their products are not only a success in the Western markets, but also in the rest of the world where they were able to build a reputation and meet the needs of local people.

The main competitors of the multinational can be found in various segmentations like Unilever in the beauty, home care and family care industry. They also compete against Colgate-Palmolive for the beauty, healthcare, home care and family care market and Church and Dwight Co. for home care, healthcare and family care. Finally, Avon in the beauty industry.  

In the past two years we can state a few events that had an impact in the company. In 2016, the Amnesty International reported that the world's bigger palm oil grower and P&G supplier Wilmar International was using child and forced labour. They stated that they would threatened and not pay their employees. In addition to that, it was related that some workers had important injuries due to toxic banned chemicals.  A second but not less important scandal was with one of them advertisement in China. Indeed, they were condemned by the Chinese administration to pay 900,000 € fine for false toothpaste advertisement. It would be the heaviest penalty ever imposed in the country for such a reason, according to the China News Agency.

Foreword before the Financial Analysis

Our financial analysis will be based on net earnings from continuing operations, because in 2017, Procter & Gamble sold a part of their current assets, which has generated important net earnings from discontinued operations. It is important to do the analyse only on the continuous operations to compare figures between the years, and understand if the company creates wealth or not.

This is why ROE and other calculations are not the same as we can find in other financials analysis of Procter & Gamble which are based on net earnings attributable to Procter & Gamble.

2 Profitability analysis

Return on equity

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The profitability of P&G slightly rose of 0,99% between 2016 and 2017. The Return On Equity (ROE) increased from 17.29% to 18.28% due to a better economic profitability. The Return On Capital Employed (ROCE) increased from 13.40% to 14,86%.  This growth of 1.46% is a consequence of the increase of the EBIT compared to the Capital Employed.

The Financial Leverage Effect (FLE) decrease of 0.47% between 2016 and 2017, which does not impact enough the profitability.

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