{2004 Financial Follow up}
Prepared For:
Dr. Ahmad Ismail
American University of Beirut
Fall 2004-2005
Prepared By:
Abdul Aziz Al-Hariri
Amer Sbeity
Majd Jamaleddine
Mohamad Khaywa
Osmat Awar
November 2, 2004
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WWW.PG.COM
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Financial Statements
WWW.PG.COM
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*http://www.pg.com/investors/annualreports.jhtml
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Financial Ratios vs.
vs. Industry Ratios
&
Analysis
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Liquidity Ratios:
Current Ratio= 17115/22145
= 0.77 times
Quick Ratio= 17115-4400/22145
= 0.57 times
Liquidity ratios
CR
QR
P&G
0.77 times
0.57 times
Industry
1.12
0.62
Comment
Poor
Low
According to the data above data ratios, P&G current ratios compared to
that of industry is far from satisfying its current liabilities due to the
annual shortage in cash. Industry averages show that P&G is in a weak
position and thus holds high risk. For an investor the picture would only
be complete after looking at the debt management ratios that basically
denote a better image of the company mix of debt and equity. For now,
P&G level of cash is unsatisfactory as long as this ratio is below industry
average; therefore, it would be better for P&G to raise more equity and
back its weak position towards meeting its liabilities.
Asset Management Ratios:
Inventory turnover ratio = 51,407/4400
= 11.68 Times
The Days Sales Outstanding = Receivables/ Annual Sales/365
= 4062/51407/365
= 4062/140.84
= 28.84 Days
Fixed Assets Turnover Ratio = 51,407/17,115
= 3 Times
Total Assets Turnover Ratio =51,407/23900
= 2.15 Times
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Asset Management
Ratios
Inv. Turnover
Days Sales
Outstanding
Total Assets Turnover
P&G
Industry
Comment
11.68
28.84
5.18
11.01
Poor
Poor
2.15
1.25
Good
Approximately, ach item of P&G is turnover 11.68 times per year, annual
sales divided by inventory equaled turnovers or items per year.
P&G turnovers of 11.68 times is much higher then that of industry
average of 5.18 times that shows that P&G holds inventory less then the
industry as hole, it does not have excess in inventory so its so productive
evaluated to the industry, this ranking for P&G represent a high rate of
investments returns.
According to receivables turnover ratio that is calculated by dividing
receivables over average sales per day, represents the average length of
time that the firm wait after making the sales to receive cash, as founded
P&G call for payment within 28.84 days higher than that of the industry
average that is 11.01 days which says that customers are not paying there
bills on time this situation tells that P&G customers have financial
troubles which could but P&G in a great problem in collecting its
receivables, moreover if this ratio continue to rise in the future years that
will be a strong evidence to P&G to make an action to solve this problem
to collect its receivables.
Total assets turnover ratio that measures the turnover ratio of all P&G
firms assets here as we found that P&G ratio is higher than that of the
industry average in other words the company is doing very good in its
business, sales is high in P&G according to its total assets gives the
company sufficient volume of business given by its total assets
investments.
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Debt Management Ratio:
Debt Ratio= 39770/57048
= 69.7%
TIE (Times Interest Ratio) = 9979/629
= 16 times
EBITDA coverage ratio= EBITDA + Lease Payments / (Interest+
Principal Payments + Lease Payments)
= (9979 + 11196) / (629+2425)
= 7 times *
*: Could not find lease payments or amortization expense and used
additional paid-in-capital as principal payment.
Profitability
ratios
Debt Ratio
TIE
EBITDA
coverage ratio
P&G
Industry
Comment
69.7%
16
7
0.99
1.30
21.24
Poor
Poor
Poor
We can obviously see that P&G has relatively high dept when compared
with its industry its accordingly facing a hard situation especially in the
eyes of its creditors who usually prefer companies who have lower
percentage of dept. that means that P&G is living by the money of its
creditors, and accordingly any problem that would face it can cause
creditors to remove their money and thus the company can go
bankrupted.
On the other hand, we can see that the TIE value is also so different in
P&G than in the industry ratio. But that perhaps means that P&G is much
safer in this concern. Because it is well known that TIE ratio measures the
extent to which operating income can decline before the firm is unable to
meet its annual interest cost.
From EBITDA ratio, industry has a figure of 21.24 compared to P&G
which has a figure of 7. Nevertheless, if the EBIT falls then the coverage
will also fall and thus the income can decrease. P&G and the industry
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have very different EBITDA ratios; nevertheless P&G is lower in a
drastic way indicating that it has a definitely much lower level of debt.
The higher the debt the more limited the companies’ investments are, the
riskier it is for bankruptcy.
NOTE: We can’t conclude which company I should invest in from only
those ratios!! We have to compare all other companies’ ratios.
Profitability Ratios:
ROA = (6,481 / 51,607) x (51,607 / 57,048) = 11.36
ROE = 11.36% x (57,048 / 12, 2783.3) = 11.36% x 3.3 = 37.5%
PM = 6,481 / 51,607 = 12.56%
Profitability
ratios
ROA
ROE
Profit Margin
P&G
Industry
Comment
11.36%
37.5%
12.56%
13.13
40.4
11.65%
Poor
Poor
Good
P&G has a low rate of return on assets when comparing it to the industry
average. That is what it explains that the M/B ratio is also below the of
that of an average company. In fact when achieving a high ROA the
company’s market values will be higher than the book values. Since ROA
measures the firm’s profitability or management effectiveness we can
conclude that P&G must enhance its way resources are allocated in order
to increase the company’s efficiency; a way of doing it may be through
funding more research and developments projects.
In addition, we notice that P&G’s profit margin is higher than the
industry average which indicates that the company’s is realizing a high
net income over sales ratio although the company total assets turnover
ratio is below one. An increase in assets turnover ratio is needed to
maintain an even higher profit margin.
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Finally concerning the return on equity ratio, it is also below the average
and that is due to the fact that P&G has a very poor total assets turnover
ratio especially that the profit margin is higher than the average which
means that the total assets turnover ratio is far below what it should be.
Market Value Ratios:
-P/E = 51.18 / 2.46 = 20.80
-Price / Cash Flow per Share = 51.18 / 3.68 = 13.9
Cash Flow = NI + Dep + Amortization – Non Cash Revenues = 9362M
#Common Outstanding Shares = 2,543,838 thousands
-M/B = Price per Share / BVPS = 51.18 / 6.79 = 7.53
-BVPS = Total Common Equity / #Common Outstanding Share
= 17,128M / 2,543,838 thousands
= 6.79
Market Value
Ratios
P/E
P/CFPS
M/B
P&G
Industry
Comment
20.80
13.9
7.537
22.99
17.89
12.65
Low
Low
Low
P&G‘s market value ratios tend to be less than the average industry
ratios. This suggests that the company is regarded as being riskier than
other companies in the same industry and as having poorer growth
prospect.
We may also conclude that the company’s past performance seems to be
poor especially that the price / cash per share ratio and the market / book
ratio are far below the respective industry ratios.
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References
• www.pg.com
(For Financial Statements)
• http://yahoo.investor.reuters.com/StockOverview.aspx
(For Industry ratios)
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