PROCTOR & GAMBLE’S RATIO ANALYSIS

Ahlam Abdullah Elhindwan

Abu Dhabi University, Email: 1066914@students.adu.ac.ae

Supervised by:

Professor Haitham Nobanee

ABSTRACT

Proctor and Gamble is an American multinational company which is established in 1837 by

William Proctor and James gamble as well. The company is popularly known as P&G. The

company specializes and operates its products on health care, personal care products, and also

deals with beauty and grooming, baby care, and feminine products as well. The P&G

products also included some food and beverage products such as Pringles (macrotrends,

2020). In recent decades the company has grown and expanded internationally with strong

roots. In 2014 the company has dropped over 100 branches across the globe and from then it

is concentrating on the rest 65 branches, which contributes over 95% of the company profits

as well. 
INTRODUCTION

The Proctor and Gamble company is also known as the P&G is established in 1837 and it is

one of the oldest product-based companies in the world. The creators of P&G are Willem

Proctor and James Gamble who are basically from the UK and Ireland respectively. For the

first time in 1858-59, the P&G company has recorded over 1 million sales. In the time of

American civil wars, the P&G company has got big contracts for supplying soaps and candles

to the Union army. Around 1880, the company has launched a product that is very less

expensive and the soap which floats on water(investing, 2020). The company named it as

soap ivory. In 1930 the P&G company has acquired Thomas Hedley.co and after this deal the

P&G company has made the UK as their head office. In 1957, the company has acquired

Charmin paper mills and started to manufacture tissue papers and toilet papers as well. The

P&G also introduced a product named Tide, which is a laundry detergent in 1946. The P&G

company operates on the products which fall under the categories of baby care, daily care,

personal care, fabric care, grooming, beauty, and home care as well. The company began to

launch the products on personal health care and skincare also. The major markets for the

P&G company are Asia-pacific market, middle east market, China, Europe as well as Latin

and North America. The P&G company has the 12 member board of directors. Among the 12

members the 5 are women’s and all of them are listed in the fortune’s annual most powerful

women. In 2016 and 2017 the P&G company has recognized by Forbes as the World’s most

reputable company. The P&G company has the best figures in the financial statements as

well(investing, 2020).  

Introduction about ratio analysis

The ratio analysis is nothing but a precise analysis of the major items in the financial

statements as well. It is mainly used to analyze and understand the key areas such as the

profitability ratios, activity ratios, liquidity ratios and debt ratios to understand the working

and performance of the business in a company and its behavior and performance in all the
branches of the companies across the globe. With the help of the financial statements, the

company can figure out the key financial ratios, and then they analyze it to get the most

possible insights which can be useful for the future business growth and also helpful to

identify the key issues and deal with them with immediate effect as well (macrotrends, 2020).

The ratio analysis in simple terms can be defined as the analysis of the key items in the

company's financial statements as well (Al Muhairi and Nobanee, 2019). The company

managerial persons will calculate the ratios and analyze the situation and study the particular

ratio to know how the particular area is working well or bad for the company and they take

actionable measures against them to improve over time. 

Literature review

The ratio analysis is highly popular method and widely using by the almost all the firms to

measure the financial stabilities and conditions as well as the firm’s profits. The analysts or

the practitioners will conduct the analysis of the ratios to raise or boost the company’s

performance and the business growth in the future as well. Many researches has their own

view in the ratio analysis and some of them are listed below (Al Muhairi and Nobanee, 2019)

 One of the famous researcher Horrigan, says that the term ratio analysis is not a newly

coined term and people are practicing it from the early 300 B.C as well (ssrn, doi,

2020). In those eras the ratio analysis was used to analyse the properties and its ratios.

Now its became a tool for measuring the financial statements as well.

 Another researcher named Justin stated that the collection of the firm’s data and

analysing the average of the data is termed as the ‘scientific ratio analysis’ as well

(ssrn, doi, 2020).

 The person named Libby, in the year 1975 argued and reduced the 14 sections or the

sets of the ratio analysis based on the bankruptcy study (ssrn, doi, 2020).
  The researcher Beaver in the year, 1967 has pointed out the predicting nature and

capability of the ratio analysis data which can be implemented in a firm for the next

generation or the future business growth as well.

 The researcher named Bird, in the year 1977 identified a simple test named Shapiro-

Wilk-small-sample to analyse and find the normality of the financial ratios which is

conducted for the Australian firm for the 6 ratios of the past 5 years as well

(Sciencepublishgroup, 2020).

DATA AND METHODOLOGY

Methodology

In the financial data analysis of the company Proctor and Gamble (P&G), I’m using the data

which is recorded on the yahoo finance website as well, that is in order to simply easy to

calculate and find out the ratios that will prove the performance of P&G company in their

business.

Financial data analysis of the company Proctor and Gamble (P&G):

Item/Year 2019 2018 2017 2016

Current Assets 22,473,000 23,320,000 26,494,000 33,782,000
Current Liabilities 30,011,000 28,237,000 30,210,000 30,770,000
Inventories 5,017,000 4,738,000 4,624,000 4,716,000
Cash 10,287,000 11,850,000 15,137,000 13,348,000
Receivables 4,951,000 4,686,000 4,594,000 4,373,000
Total Assets 115,095,000 118,310,000 120,406,000 127,136,000
Total Liabilities 67,516,000 65,427,000 64,628,000 69,153,000
Total Equity 47,194,000 52,293,000 55,184,000 57,341,000
Sales 67,684,000 66,832,000 65,058,000 65,299,000
Cost of Goods Sold 34,768,000 34,268,000 32,535,000 32,909,000
EBIT 32,916,000 32,564,000 32,523,000 32,390,000
Interest 509,000 506,000 465,000 579,000
Net Income 3,897,000 9,750,000 15,326,000 10,508,000

The P&G company has recorded a whopping sales of amount $67,684,000 in the year 2019.

Which is considered as the best in the last 4 years. The current assets of the company lies at

$2,473,000 at the end of financial year 2019 as well, which is the least amount as in the 4

years of 2016,2017,2018 and 2019. The company has the inventories worth $5,017,000 in
2019 and its the higher inventories that P&G obtained in regarding the 4 years . The present

net income of the company is $3,897,000 and the interest is $509,000 which is recorded at

the financial year end of 2019, as also it shows that the net Income has declines from 2016

till the year of 2019. The P&G has the total assets of $115,095,000 in the current year of

2019 , which is recorded as the least amount of total assets in the four years. (yahoo.finance,

2020)

However, the figures which are provided below will showes the ratios analysis the explain

more about the performance and behaviour of key areas from the year 2016 to 2019 which is

the 4 year financial data of the company that is reocrded and presented through graphs for the

easy undersatnding the performance of the P&G company.

Results and Discussion

1. Results of Liquidity Ratios of P&G company

Ratio/Year 201 201 2017 2016

9 8
Current Ratio 0.75 0.83 0.88 1.10
Quick Ratio 0.58 0.66 0.72 0.94
Cash Ratio 0.34 0.42 0.50 0.43
Discussion

Liquidity ratios are the ratios that measures a company's ability to convert its assets to

cash[CITATION Sol19 \l 1033 ] . The current ratio shows how a company is able to pay short-

term and long-term obligations[CITATION Wil20 \l 1033 ]. The Current Ratio of the P&G

company in the 4 years from 2016 to 2019 are 1.10,0.88, 0.83 and 0.75 respectively. The

performance of the company regarding the current ratio for the four years are quite bad as the

ratio are slightly decreasing, which means they was not be able to pay almost all of their

obligations. Where the quick ratio is measures the company’s ability to meet its short-term

obligations with its most liquid assets[ CITATION Wil201 \l 1033 ].The Quick Ratio of the P&G

firm lies at 0.94, 0.72, 0.66 and 0.58 in 2016, 2017, 2018 and 2019 respectively, which shows

that there performance are decreasing and it means that their obligations of short-term or

long-term are not yet met. However, the “cash ratio is the ratio of a company's total cash and

cash equivalents to its current liabilities”[ CITATION Wil19 \l 1033 ] .

The Cash Ratio of the firm lies at 0.43, 0.50, 0.42 and 0.34 in the 4 years respectively, this

shows that the company has less cash and cash equivalents in the last year of 2019 due to

high of current liabilities that needed to be paid currently and that’s why the slop of cash ratio

is showing a decreasing due to high current liabilities for P&G company needed to be paid.

Overall, the P&G company has performed less for their liquidity ratios (Al Dhaheri and

Nobanee, 2020).

2. Results of Activity Ratios of P&G Company

 Ratio/Year 2019 2018 2017 2016

Inventory Turnover 6.93 7.23 7.04 6.98
Receivable Turnover 13.67 14.26 14.16 14.93
Total Asset Turnover 0.59 0.56 0.54 0.51
Discussion

Activity ratios are ratios that measure the ability of the company to convert from different

accounts within its balance sheets into cash or sales[ CITATION Wil202 \l 1033 ]. Inventory

turnover measures how efficiency a company can manage its stock of goods. In this company

P&G, the ratios of inventory turnover in the begining of the first 3 years were increasing

significantly from 6.98 times in 2016 to 7.23 times in 2018 , however in the last year of 2019

the inventory turnover of the P&G firm has significantly declined as well to 6.93 times; this

shows that the company didnt manage properly thier stock of goods in effecient way. Where

the receivable turnover measures a effectiveness of a company in collecting its receivables or

money owed by clients[ CITATION Chr20 \l 1033 ]. The P&G company has experienced a

declined slop of thier receivable turnover, in which they were able at the begining to collect

14.93 times in 2016, however in the last year their ability to collect thier money from thier

client became 13.67 times in 2019; which this shows how low money they were collecting
from thier receivables in thier performance. However, regarding the asset turnover ratio is a

ratio that measures the value of a company's sales or revenues relative to the value of its

assets[ CITATION Ada20 \l 1033 ]. The company of P&G has performed well in their assets

turnover as the the slop of their total assets turnover are growing highly in which they made

0.51 times of using its assets to generate revenue in 2016, and increased to 0.59 times in 2019

which is a good performance performed by this P&G company.

3. Results of Debt Ratios of P&G Company

Ratio/Year 2019 2018 2017 2016

Debt Ratio 59% 55% 54% 54%
Times Interest Earned Ratio 64.67 64.36 69.94 55.94

Discussion

The debt ratio is a financial ratio that measures the extent of leverage of a company [ CITATION

Ada201 \l 1033 ]. The debt ratio of the company P&G is quite good and the firm’s debt ratio

stands at 54.4%, 53.7%, 55.3%, and 58.7% in the years 2016, 2017, 2018, and 2019

respectively. The firm has experinced a positive growth which is a good sign for the business

growth and the share price also as the brand of the company gets positively impacted as well.

From the year 2016 the firm has expericned a better rise in the ratios compared to past years.
4. Results of Profitability Ratios of P&G Company

Ratio/Year 2019 2018 2017 2016

Return on Equity 8.3% 18.6% 27.8% 18.3%
Return on Assets 3.4% 8.2% 12.7% 8.3%
5.8% 14.6% 23.6% 16.1%
Profit Margin

Discussion

The profitibity ratio of the P&G firm is not well amanged and the ratio are too bad for the

present competetion as well. The return on equity and return on assets are two of the most

important measures for the effectiveness of management at a company; in other way, the

return on equity (ROE) helps investors measure how their investments are generating income,

while return on assets (ROA) helps investors measure how management is using its assets or

resources to generate more income[ CITATION Rya19 \l 1033 ]. The ROE ratio for P&G lies at

8.3% by the end of year 2019 which was 27.8% since 2017, and for the ROA stands at 3.4%

by the end of year 2019 which was 12.7% in 2017; as well as, the profit margin lies at 5.8%

in the last year of 2019 in which it was 23.6% in 2017. All these ratios are represented in the

graphs and the visual graphs shows the small increased in the three ratios from 2016 to 2017,
then suddenlly the 3 ratios have decreased significantl, as it may be worry about them but

there is nothing to panic as the firm is one for the largest and repitable company with string

data(ssrn, 2020).

Conclusion

The P&G company is highly popular for its products like daily care, personal care, skin care,

baby care, personal hygiene, and also beauty and grooming products as well. The firm’s

market is expanded in the middle east, Europe, Asia, North, and Latin America as well. The

P&G company is awarded as the most prestigious and reputable firm in the year 2016-17 by

Forbes(ssrn, 2020). The company has been praised for so many reasons because of its world-

class products and services (Al Hammadi and Nobanee, 2019). Their products result heavy

and customer satisfaction is the key goal of the company as well (Al Breiki and Nobanee,

2019). The firm has surpassed many competitors and stands out in the various products to

reach this global position and it is also the oldest product based company in the world which

is established in the year 1837. Till now the company is witnessing high positive growth and

it has acquired many firms like Thomson Hedley and Chairman paper mills as well(ssrn,

2020). The financial statements of the company show the highly recorded data and all the

financial ratios have experienced a positive movement year by year and the graphs are

showing the linear business growth of the company as well. The four years data from the year

2016 to 2019 is evaluated and analysed in the above sections and the results are plotted in the

form of visually appealing graphs as well. Today P&G company is one of the reputable,

highly popular, and prestigious companies in the world.

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