PROCTOR & GAMBLE

Proctor and Gamble has a highest and efficient earning in year 2014.

Bench Mark Year’s ratio- 2014’s ratio

Profitability Ratios
Operating Profit Margin % 18.41%
Gross Profit Margin % 48.88%
Net income margin % 14.02%
Return on Assets % 8.07%
Return On Equity % 16.64%
Liquidity Ratios
Quick Ratio 0.74
Current Ratio 0.94
Asset Management Ratios
Inventory Turnover (DAYS) 6.28
Day Sales Outstanding (Days) 28.07
Operating Cycle ( Days) 86.19
Total Assets Turnover 0.58
Sales/Equity 1.19
Debt Management Ratios
Debt to Asset 0.51
Debt to Equity 1.06
Operating Profit Margin

Formula

Operating Profit Margin = Operating Income/ Total sales

The operating profit margin is expressed as a percentage and, in effect, measures how much out
of every dollar of sales a company actually keeps in earnings.

The company has current profit margin 21.45% while the benchmark is 18.41% , so company is
in profit Well, over the time an increase in net profit margin is clearly observed which is
indicating a green signal for P&G to excel in the market. The profit margin of Proctor and
Gamble is high. Increase in net profit margin from 2013 to 2017 indicates an increase in the net
profit and increase in number to total sales.

A high gross profit margin is one of the best indicators that a company is in good financial
health. It is the ratio of gross profit in a given period to revenue, and it is used as a measure of
profitability. A high gross profit margin indicates your company is efficient in the manufacturing
and distribution processes.

Gross Profit Margin

Formula

Gross Profit Margin = Gross Profit/ Sales

Gross profit margin is used to pay the operating expenses of the company. In general, a
company’s gross profit margin should be stable unless they have been changes in the company’s
business model.

Gross margin represents the percentage of total sales revenue that the company retains after
incurring the direct cost associated with producing the goods and services it sell. The higher the
percentage the more the company retains on each dollar of sale, to service its other costs and debt
obligations.
The gross profit margin of P&G is 48.88% in 2014. While its highest profit margin is 49.99%.
which indicates a little decrease in gross profit in 2014. This might be due to the decrease in
gross profit i.e. sales-CGS. This can be seen in the sheet 1! That shows a slight decrease in gross
profit. (gross profit was 41190 in 2013 and in 2014 it is 40602). And sales are not decreased
much.

This company retains $0.50 from each dollar of revenue generated. This remaining 0.5 can be
used to pay the operating expenses of the company. A high gross profit margin is one of the best
indicators that a company is in good financial health. It is the ratio of gross profit in a given
period to revenue, and it is used as a measure of profitability. A high gross profit margin
indicates your company is efficient in the manufacturing and distribution processes.

Net Income Margin

Net profit margin is one of the key indicators used to evaluate a company's performance as this
margin calculates a company's net income as a percentage of the company's sales.

Formula

Net Income Margin = Net Income/ Sales

The company’s current net income is 23.55% which is the highest, while the bench mark is
14.02% in 2014. So a company has a high net income and it’s a plus point for this company. It
tells the effectiveness of the company. A high net profit margin of P&G shows that a company
has converted its sales into profits very efficiently. The net profit margin also considers all of the
costs associated with the sale of the products.

Return on Assets

Formula

Return on Assets = Net income / Total Assets

The return on assets is indicator of how profitable a company is relative to its total assets. It is
how efficiently management is at using its assets to generate earnings. It also tells you what
earnings were generated from invested capital. This ratio gives investor an idea of how
effectively a company is converting the money it has to invest into net income.

The higher the ROA number, the better becomes the company’s earning more money on less
investment.

The return on assets of benchmark year is 8.07%. While highest return on assets of Proctor and
Gamble Ltd. is 12.73%. That shows an increase in the total assets over the years. It can be seen
in sheet 2! Row 21 that it’s total assets are highest in year 2017. Actually the assets goes up and
the returns did increase in the same proportion. This means assets are working as efficiently.
This can be due to high margins.

Return on Equity

Formula

Return on Equity = Net income / Total Equity

It is the measure of profitability that calculates how many dollars of profit a company generates
with each dollar of shareholder’s equity.

This company is currently generating 27.48% return on equity from each one dollar of sales
while the bench mark is 16.64% so it means that to a large extent return on equity in 2017 is
increased which is a plus point for this company. Well this company’s return on equity was
16.64% in 2013, 11.16% in 2015 and then increases to 27.48% in 2017. So P&G did the
following things

 Use more financial leverage

 Increase profit margins
 Improve asset turnover
 Distribute idle cash
 Lower the taxes to the best of their ability.

Quick Ratio

Formula
Quick Ratio = Current Assets – Inventory/ Current Liabilities

Quick ratio is a measure of how well a company can meet its short term financial liabilities.
Quick Ratio tells us the liquidity of the company.

And in 2014 the company had 0.74 to overcome the liabilities of $1. And now, the company has
$0.72 of liquid assets available to cover $1 of current liabilities. That’s why, it is not a good sign
for the company. Because, it’s liabilities will not be overcome by these liquid assets. And it has
even decreased in the liquid assets in 2017 i.e. 0.72 than that of 2014 that was 0.74. So, the
company should increase its total liquid assets. Protor & Gamble should improve

 Inventory turnover ratio

 Dispose unproductive assets
 Paying of current liabilities
 Sweep accounts if possible.

Current Ratio

Formula

Current Ratio = Current Assets/ Current Liabilities

It is the liquidity ratio that measures the company’s ability to meet its short term and long term
obligations.

The ratio below 1 indicates that a company’s liabilities are greater than its assets and suggest that
the company would be unable to pay off its obligations if they came due at that point.

We can see in the ratio analysis of this company that its current ratio was below 1 and it was 0.94
in 2014 ( benchmark) . But it improved its current ratio and reached to 1.00 in 2015 and 1.10 in
2016. But now, its current ratio has also decreased 0.88, that is not a good sign for the company
and so, it would not be able to pay off the obligations. So for improving current ratio, the
management of P&G needs to focus on various strategies including its current liabilities and
assets which are not a onetime activity. It has to be monitored very carefully throughout the year.
P&G should
 Pay off current liabilities
 Sell of unproductive assets if possible
 Rise shareholder’s funds
 Faster rolling of money via debtors will keep the current ratio in control.