Marko Antic ID# 100048067
Annual Project report
BUS 220e
Prof. Kevin Feeney
Colgate – Palmolive Company
Colgate-Palmolive Company (Colgate) is a global leader in the consumer products industry.
Colgate-Palmolive is a well established, global company in the personal products industry. Within
Colgate-Palmolive, there are four distinct product segments: personal care, home care, oral care and pet
nutrition. Colgate the Company markets its products in more than 200 countries and territories across
the world. The company owns or leases approximately 330 properties which include manufacturing,
distribution, research and office facilities worldwide of which about 60 properties are in the US and
approximately 270 properties are in Overseas. It is headquartered at New York, the US.
When talking about financial statements of this company, we could start with analyzing income
statement. Net sales represent aggregate revenue recognized during the period, and for the company,
comparing two years 2009 and 2010 have increased from 2009 to 2010. The net result for the period of
deducting operating expenses from operating revenues, which is operating profit slightly declined from
2009 to 2010. Income before income taxes has also slightly declined from 2009 to 2010, which is the
same case as for Net income including non controlling interests. Net income attributable to ColgatePalmolive Company has also declined from 2009 to 2010. Going on to the Balance sheets, there are
several things noticeable. Colgate-Palmolive’s cash and cash equivalents declined significantly from 2009
to 2010. Receivables, net of allowances slightly declined from 2009 to 2010. Considering the Inventories
for this company, there was an increase from 2009 to 2010. Total current assets have also slightly
declined from 2009 to 2010. Total assets have definitely increased from 2009 to 2010. Referring to the
liabilities, total current liabilities have increased, resulting total liabilities also to increase. Shareholders’
equity represent total of stockholders’ equity items, net of receivables from officers, directions owners,
and affiliates of the entity including portions attributable to both the parent and non controlling
interests if any. In case of this company shareholders’ equity slightly declined from 2009 to 2010. Talking
about consolidated statements of comprehensive income, the cumulative translation adjustment has
slightly declined from 2009 to 2010, which is the same case for Retirement plan and other retiree
benefit adjustments. Comprehensive income attributable to Colgate-Palmolive Company has also
slightly declined from 2009 to 2010. Considering the statement of cash flows, net cash provided by
operations has declined from 2009 to 2010, and cash and cash equivalents at the end of the year has
drastically declined.
Accounting policy is important to firms mostly because it structures the firm and the decisions
they make. Colgate-Palmolive is in the personal products industry and focuses on certain accounting
procedures to help enhance their productivity and ultimately resulting in profits. There are many factors
which they have to consider in order to succeed: highly developed research and development, then
promotional programs, marketing etc. Colgate’s management group uses estimates in accordance with
generally accepted accounting principles. These estimates are involved with stock-based compensation,
asset impairment, tax valuation allowances, and other contingency reserves. They have been chosen in
order to forecast sales in the market. This is important for the firm because estimates leave Colgate
vulnerable to market fluctuations. Colgate is conservative with the accounting policies. Instead of
incorporating the expenses into gross profit, they decide to allocate them differently, therefore lowering
the end cost of the resulting inventory. The preparation of financial statements is regulated by GAAP
inside of the United States. However dealing with many accounting policies, management is allowed to
use judgment and make estimates regarding many aspects of their company’s reports.
Capital structure entails dissecting the amount of debt financing a company incurs. There are a
lot of benefits that come from debt financing, but finding the optimal level of debt should be influenced
by the degree of risk a business has.
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Debt to Equity ratio:
This ratio calculates the difference between how much of a company’s external
financing comes from debt compared to the equity that it has generated. By showing
the ratio between debt and equity we can see if the company is being financed by loand
from banks or actually financing itself through equity.
Times interest earned
It is calculated by dividing net income before interest and taxes by interest
expense. The higher the figure determined by ratio is, the fewer problems that company
has paying the interest.
Debt Service Margin
In order to analyze it, operating cash flow is divided by the current portion of a
company’s notes payable. The higher the figure, again, shows that liabilities that need to
be paid are covered by cash from operations.
Referring to the important events for the business of the company, one that kind of pops out is
event which was held in May 2011. It was reported on Business Wire1. Colgate-Palmolive provided a live
webcast for the investors, who could access a live webcast of the presentation on the official site of the
company. The main goal of this presentation is to fully inform the investors and possibly to attract new
ones.
1
Year ended December 31,2010
Year ended December 31,2009
Current ratio
1.00
1.06
Quick ratio
0.56
0.62
Accounts Receivable turnover
9.67
9.43
Inventory Turnover
12.74
12.78
Liabilities-to-equity ratio
1.22
0.98
Earning-per-share ratio
4.31
4.37
Dividend Yield
1.24
1.21
Business Wire is a company that disseminates full-text news releases from thousands of companies and
organizations worldwide to news media, financial markets, disclosure systems, investors, information web sites,
databases and other audiences.
During the year ended December 31, 2010, the revenues of Oral, Personal and Home Care
products accounted for 43%, 22% and 22%, respectively, of its total revenues. During 2010, the revenues
of Pet Nutrition products accounted for 13% of the Company’s total revenues. In June 2011, it
purchased Sanex personal care brand from Unilever PLC.
Year over year, Colgate-Palmolive Co. has seen net income shrink from $2.3B to $2.2B despite
relatively flat revenues. A key factor has been an increase in the percentage of sales devoted to SGA
costs from 34.46% to 34.79%.As a global company serving consumers in more than 200 countries and
territories, the Company is routinely subject to a wide variety of legal proceedings. These include
disputes relating to intellectual property, contracts, product liability, marketing, advertising, foreign
exchange controls, antitrust and trade regulation, as well as labor and employment, environmental and
tax matters.
There is no way in which we can know future about certain company, in this case about ColgatePalmolive Company. However certain clues can help us realize the standing of the company and if it is
safe to invest. In order to judge company’s current “health” and future prospects we should use
accounts receivable and days sales outstanding. Accounts receivable, which represent the amount of
money owed to the company and days sales outstanding – the number of days’ worth of sales owed to
the company, by standing alone cannot tell us much, but by considering the trends in both of them
sometimes we might get a look into the future. Sometimes problems with accounts receivable and days
sales outstanding simply indicate a change in the business. But in the case when accounts receivable
grow more quickly than revenue, or ballooning days sales outstanding, can suggest a desperate
company that is trying to boost sales by giving its customers overly generous payment terms. If we ask
ourselves why Colgate-Palmolive would do something like this, the answer is simple. As any other
company they would try to make the numbers, since investors do not like revenue shortfalls and
employees do not like to report them to their superiors.
After having said all of the above, final word could be that Colgate- Palmolive is the company
that we can invest in. Even there is a decline of some of the ratios, if we look at the net income for the
last 2 years, and include 2011 we can notice, there is a great increase (September 2009, net income was
590 M, September 2010, net income was 619M and September 2011, net income was 643M). The
decrease of the ratios could be caused by the economic crisis or some other factors, but slowly the
company is recovering and it can definitely be considered as a low risk investment.