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PROCTER AND GAMBLE

Submitted to Prof. Vandana Gupta By: Shubham Jain 211138

Shagun Gaurisaria 211133 Yukti Agarwal Vineet R. Singh Varun Bagai Tapsi Ahuja 211169 211165 211159 211148

Table of Contents
Introduction on company Brief background board of directors shareholding pattern, Chapter2 Operating performance: Net sales and earning analysis of sales mix peer comparison Financial statement analysis:, trends, profit and loss and balance sheet Ratio analysis Cash flow analysis SWOT analysis of company 3 3 4 7 8 9 10 16 25 29 39

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CHAPTER 1 INTRODUCTION
BRIEF BACKGROUND P&G is one of the largest and amongst the fastest growing consumer goods companies in India. Established in 1964, P&G India now serves over 650 million consumers across India. Its presence pans across the Beauty & Grooming segment, the Household Care segment as well as the Health & Well Being segment, with trusted brands that are household names across India. These include Vicks, Ariel, Tide, Whisper, Olay, Gillette, Ambipur, Pampers, Pantene, Oral-B, Head & Shoulders, Wella and Duracell. Superior product propositions and technological innovations have enabled P&G to achieve market leadership in a majority of categories it is present in. P&G India is committed to sustainable growth in India, and is currently invested in the country via its five plants and over nine contract manufacturing sites, as well as through the 26,000 jobs it creates directly and indirectly. Their sustainability efforts focus on Environmental Protection as well as Social Responsibility to help develop the communities we operate in. P&G operates under three entities in India - two listed entities Procter & Gamble Hygiene and Health Care Limited and Gillette India Limited, as well as one 100% subsidiary of the parent company in the U.S. called Procter & Gamble Home Products.

BOARD OF DIRECTORS The board of directors of Procter & Gamble currently has eleven members: CEO CEO , WELLPOINT CEO, AMERICAN EXPRESS CHAIRMAN INTUIT. INC CEO. Boeing Company CEO. ARCHER DANIELS Robert A. McDonald Angela Braly Kenneth Chenault Scott. D, Cook W.James Mc Nerney , Patricia A. Woertz

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CEO, HP OTHER BOARD MEMBERS

Meg Whitman Johnathan A. Rodgers, Ernesto Zedillo, , Susan D. Desmond-Hellmann, Maggie Wilderotter

Shareholding Pattern The Details of the shareholding pattern are as under: CATEGORY NO. TOTAL TOTAL NO. OF SHARES HELD IN TOTAL SHARES

OF SHAREHOLDER OF SHARE- NO. OF HOLDERS SHARES

SHAREHOLDING PLEDGED OR OTHERWISE ENCUMBERED NUMBER OF SHARES AS A % OF (A+B) AS A % OF (A+B+C) AS A % OF TOTAL No. OF SHARES

DEMATERIALIZED AS A % OF FORM TOTAL NO. OF SHARES

(A) Shareholding of Promoter and Promoter Group (1) Indian Bodies Corporate Sub Total (2) Foreign Bodies Corporate Sub Total Total shareholding of Promoter and
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1 1

619,683 619,683

619,683 619,683

1.91 1.91

1.91 1.91 -

2 22,310,090 2 22,310,090 3 22,929,773

22,310,090 22,310,090 22,929,773

68.73 68.73 70.64

68.73 68.73 70.64 -

Promoter Group (A) (B) Public Shareholding (1) Institutions Mutual Funds / UTI Financial Institutions / Banks Insurance Companies Foreign Institutional Investors Sub Total (2) Non-Institutions Bodies Corporate Individuals Individual shareholders holding nominal share capital up to Rs. 1 lakh Individual shareholders holding nominal share capital in excess of Rs. 1 lakh Any Others (Specify) Non Resident Indians 619 452 134,607 92,672 108,402 87,614 0.41 0.29 0.41 0.29 21 484,523 484,523 1.49 1.49 21,590 442 3,862,769 853,071 3,223,835 845,533 11.9 2.63 2.63 11.9 98 4,195,993 4,190,344 12.93 12.93 4 33 928,135 645,724 928,135 645,181 2.86 1.99 2.86 1.99 30 31 2,420,516 201,618 2,417,845 199,183 7.46 0.62 7.46 0.62 -

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Trusts Directors & their Relatives & Friends Hindu Undivided Families Clearing Members Sub Total Total Public shareholding (B) Total (A)+(B) (C) Shares held by Custodians and against which Depository Receipts have been issued-m (1) Promoter and Promoter Group (2) Public Sub Total Total (A)+(B)+(C) -

5 7

451 15,384

451 112 0.05

0.05 -

83

22,508

16,633

0.07

0.07 -

72 22,672 22,770

3,592 5,334,970 9,530,963

3,592 4,662,293 8,852,637

0.01 16.44 29.36

0.01 16.44 29.36 -

22,773 32,460,736 -

31,782,410 -

100 -

100 -

22,773 32,460,736

31,782,410 -

100 -

This Pattern shows that P & G is dependent on its internal sources for funds not on External sources.
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CHAPTER 2 ENCLOSURE ON THE OPERATING PERFORMANCE OF THE COMPANY

MARKET SHARE GBU Reportable Segment Categories Billion Dollar Brands BEAUTY AND GROOMING Beauty Cosmetics, Female Antiperspirant and Deodorant, Female Head & Shoulders, Olay, Pantene, Market Share 20%

Personal Cleansing, Female Wella Shave Care, Hair Care, Hair Color, Hair Styling, Pharmacy Channel, Prestige Products, Salon Professional, Skin Care Grooming Beauty Electronics, Home Small Appliances, Male Blades and Razors, Male Personal Care Braun, Fusion, Gillette, Mach3 HEALTH AND WELLBEING Health Care Feminine Care, Gastrointestinal, Incontinence, Rapid Diagnostics, Respiratory, Toothbrush, Toothpaste,Water Filtration, Other Oral Care
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70%

Always, Crest, Oral-B

20%

Snacks and Pet Care HOUSEHOLD Fabric Care and Home CARE Care

Pet Care, Snacks Additives, Air Care,

Iams, Pringles Ace, Ariel,

10% 30%

Batteries, Dish Care, Fabric Dawn, Downy, Enhancers, Laundry, Surface Care Duracell, Gain, Tide Bounty, Charmin, Pampers 15%

Baby Care and Family Care

Baby Wipes, Diapers, Paper Towels, Tissues, Toilet Paper

NET SALES AND NET EARNINGS GBU Reportable Segment Categories Billion Dollar Brands % of Net Sales* BEAUTY AND GROOMING Beauty Cosmetics, Female Antiperspirant and Deodorant, Female Personal Cleansing, Female Shave Care, Hair Care, Hair Color, Hair Styling, Pharmacy Channel, Prestige Products, Salon Professional, Skin Care Grooming Beauty Electronics, Home Male Personal Small Appliances, Male Blades and Razors, Care Braun, Fusion, Gillette,
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% of Net Earnings*

Head & Shoulders, Olay, Pantene, Wella

24%

24%

9%

14%

Mach3

HEALTH AND WELLBEING

Health Care

Feminine Care, Gastrointestinal, Incontinence, Rapid Diagnostics, Respiratory, Toothbrush, Toothpaste,Water Filtration, Other Oral Care

Always, Crest, Oral-B

14%

16%

Snacks and Pet Care HOUSEHOLD Fabric Care CARE and Home Care

Pet Care, Snacks

Iams, Pringles

4%

2%

Additives, Air Care, Batteries, Dish Care, Fabric Enhancers, Laundry, Surface Care

Ace, Ariel, Dawn, Downy, Duracell, Gain, Tide Bounty, Charmin, Pampers

30%

27%

Baby Care and Family Care

Baby Wipes, Diapers, Paper Towels, Tissues, Toilet Paper

19%

17%

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SALES MIX

GBU

Reportable Segment

Net

Net

Net

Net

Sales*(2011) Sales*(2010) Sales*(2009) Sales*(2008) $20,157 $19,491 $18,789 $19,515

BEAUTY AND GROOMING

Beauty

Grooming HEALTH AND WELLBEING Snacks and Pet Care HOUSEHOLD Fabric Care CARE and Home Care Baby Care and Family Care Important Inferences: Health Care

$8,025 $12,033

$7,631 $11,493

$7,543 $13,623

$8,254 $14,578

$3,156

$3,135

$3,114

$3,204

$24,837

$23,805

$23,186

$23,714

$15,606

$14,736

$14,103

$13,898

Net sales increased by 5% to $82.6 billion. Organic sales increased by 4%. Unit volume increased 6% versus the prior year, behind double-digit growth in developing regions and low single-digit growth in developed regions.

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EARNINGS DATA GBU Reportabl Net e Segment BEAUTY AND GROOMING Groomin g HEALTH Health $1,796 $1,860 $2,435 $2,506 $1,631 $1,477 $1,492 $1,679 Beauty Earnings*(201 1) $2,686 Net Earnings*(201 0) $2,712 Net Earnings*(200 9) $2,531 Net Earnings*(200 8) $2,730

AND WELL- Care BEING Snacks and Pet Care HOUSEHOL D CARE Fabric Care and Home Care Baby Care and Family Care $1,978 $2,049 $1,770 $1,728 $3,009 $3,339 $3,032 $3,411 $241 $326 $234 $261

Net earnings from continuing operations increased by 8% to $11.8 billion behind sales growth and a lower effective tax rate, partially offset by operating margin contraction.
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 Operating margin declined 110 basis points behind a reduction in gross margin partially offset by a reduction in selling, general and administrative expenses (SG&A) as a percentage of net sales. Gross margin declined behind higher commodity costs, partially offset by manufacturing cost savings. SG&A as a percentage of net sales declined due to reduced foreign currency exchange costs and a reduction in overhead spending as a percentage of net sales due to productivity improvements, partially offset by increased marketing investments. Net earnings decreased 7% to $11.8 billion. Net earnings from discontinued operations declined $1.8 billion due to the gains on the sale of the pharmaceutical business in the prior year.

PEER COMPARISON RONW RONW 2011 P&G HUL ITC 33.62% 87.57% 31.36% 2010 40.64% 85.25% 28.98% 2009 37.91% 121.34% 23.85% 2008 30.85% 122.97% 25.99%

The Return on Net Worth of the company is low as compared to its competitor HUL and a bit high as compared to ITC but it has decreased in 2011 still Grow organic sales 1% to 2% faster than market growth in the categories and countries where P&G compete. Deliver core earnings per share (core EPS) growth of high single to low double-digits. Generate free cash flow productivity of 90% or greater.
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200 180 160 140 120 100 80 60 40 20 0 2011 2010 2009 2008 P&G HUL ITC

The net worth of P&G is increasing at a faster rate as compared to the net profit and therefore the decline in the past few years. That is, the company is giving lesser returns with the increase in capital investment by the owners of the company.

PROFIT MARGINS Return on Net Earnings 2011 P&G HUL ITC 14.54% 11.56% 22.91% 2010 19.31% 12.29% 21.30% 2009 22.36% 12.09% 21.18% 2008 19.89% 12.58% 21.50%

P&G is not doing better than most peers as far as the Profit margins are concerned. P&G has shown a downward trend in the past 3 years whereas its peers have shown an increases in at least three of the P&Gs years.

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200 180 160 140 120 100 80 60 40 20 0 2011 2010 2009 2008 P&G HUL ITC

RETURN ON ASSETS

Return on Assets Including Revaluations 2011 P&G HUL ITC 185.03 12.2 20.62 2010 164.7 11.84 36.84 2009 135.56 9.46 36.39 2008 106.79 6.61 32

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200 180 160 140 120 100 80 60 40 20 0 2011 2010 2009 2008 P&G HUL ITC

The figures may be misleading as it shows an downward trend over the years. That is because the company is investing more in the long term assets rather than going for short term investment. This can be summed up the profit has declined over the years because company is investing in Assets or the book value of Assets has increased but since company follows conservatism principle, second inference can be discarded.

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Chapter 3

FINANCIAL ANALYSIS I: ANALYSIS OF BALANCE SHEET AND PROFIT AND LOSS ACCOUNT
BALANCE SHEET Consolidated Balance Sheets Amounts in millions Assets CURRENT ASSETS Cash and cash equivalents Accounts receivable INVENTORIES Materials and supplies Work in process Finished goods Total inventories Deferred income taxes Prepaid expenses and other current assets TOTAL CURRENT ASSETS PROPERTY, PLANT AND EQUIPMENT Buildings Machinery and equipment Land Total property, plant and equipment Accumulated depreciation NET PROPERTY, PLANT AND EQUIPMENT GOODWILL AND OTHER INTANGIBLE ASSETS 7,753 32,820 934 41,507 -20,214 21,293 6,868 29,294 850 37,012 -17,768 19,244 6,724 29,042 885 36,651 -17,189 19,462 7,052 30,145 889 38,086 -17,446 20,640 2,153 717 4,509 7,379 1,140 4,408 21,970 1,692 604 4,088 6,384 990 3,194 18,782 1,557 672 4,651 6,880 1209 3,199 21,905 2,262 765 5,389 8,416 2012 4,013 24,515 2,768 6,275 2,879 5,335 4,781 5,836 3,313 6,761 2011 2010 2009 2008

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Goodwill Trademarks and other intangible assets, net NET GOODWILL AND OTHER INTANGIBLE ASSETS OTHER NONCURRENT ASSETS TOTAL ASSETS Liabilities and Shareholders Equity CURRENT LIABILITIES Accounts payable Accrued and other liabilities Debt due within one year TOTAL CURRENT LIABILITIES LONG-TERM DEBT DEFERRED INCOME TAXES OTHER NONCURRENT LIABILITIES TOTAL LIABILITIES SHAREHOLDERS EQUITY Convertible Class A preferred stock, stated value1 per share (600 shares authorized) Non-Voting Class B preferred stock, stated value1 per share (200 shares authorized) Common stock, stated value1 per share (10,000 shares authorized; shares issued: 20114,007.9, 2010 4,007.6) Additional paid-in capital Reserve for ESOP debt retirement Accumulated other comprehensive income (loss) Treasury stock, at cost (shares held: 20111,242.2, 20101,164.1) Retained earnings

57,562 32,620

54,012 31,636

56,512 32,606

59,767 34,233

90,182 4,909

85,648 4,498

89,118 4,348 134,833 2009

94,000 4,837 143992 2008

138,354 128,172 2011 2010

8,022 9,290 9,981 27,293 22,033 11,070 9,957 70,353

7,251 8,559 8,472 24,282 21,360 10,902 10,189 66,733

5,980 8,601 16,320 30,901 20,652 10,752 9,146 71,451

6,775 11,099 13,084 30,958 23,581 11,805 8,154 74,498

1,234

1,277

1,324

1,366

4,008 62,405 -1,357 -2,054

4,008 61,697 -1,350 -7,822

4,007 61,118 -1,340 -3,358

4,002 60,307 -1,325 3,746

-67,278 70,682

-61,309 64,614

-55,961 57,309

-47,588 48,986

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TOTAL SHAREHOLDERS EQUITY TOTAL LIABILITIES AND SHAREHOLDERS EQUITY

68,001

61,439

63,382

69,494

138,354 128,172

134,833 143,992

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NATURE OF OPERATIONS The Procter & Gamble Companys (the Company, we or us) business is focused on providing branded consumer packaged goods of superior quality and value. Our products are sold in more than 180 countries primarily through retail operations including mass merchandisers, grocery stores, membership club stores, drug stores, department stores, salons and high-frequency stores. P&G have on-the ground operations in approximately 80 countries.

BASIS OF PRESENTATION The Consolidated Financial Statements include the Company and its controlled subsidiaries. Intercompany transactions are eliminated. Use of Estimates Preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (U.S. GAAP) requires management to make estimates and assumptions that affect the amounts reported in the Consolidated Financial Statements and accompanying disclosures. These estimates are based on managements best knowledge of current events and actions the Company may undertake in the future. Estimates are used in accounting for, among other items, consumer and trade promotion accruals, pensions, postemployment benefits, stock options, valuation of acquired intangible assets, useful lives for depreciation and amortization of long-lived assets, future cash fl ows associated with impairment testing for goodwill, indefinite-lived intangible assets and other long-lived assets, deferred tax assets, uncertain income tax positions and contingencies. Actual results may ultimately differ from estimates, although management does not generally believe such differences would materially affect the financial statements in any individual year. However, in regard to ongoing impairment testing of goodwill and indefinite-lived intangible assets, significant deterioration in future cash flow projections or other assumptions used in valuation models, versus those anticipated at the time of the valuations, could result in impairment charges that may materially affect the financial statements in a given year.

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REVENUE RECOGNITION Sales are recognized when revenue is realized or realizable and has been earned. Revenue transactions represent sales of inventory. The revenue recorded is presented net of sales and other taxes P&G collect on behalf of governmental authorities. The revenue includes shipping and handling costs, which generally are included in the list price to the customer. Our policy is to recognize revenue when title to the product, ownership and risk of loss transfer to the customer, which can be on the date of shipment or the date of receipt by the customer. A provision for payment discounts and product return allowances is recorded as a reduction of sales in the same period that the revenue is recognized. Trade promotions, consisting primarily of customer pricing allowances, merchandising funds and consumer coupons, are offered through various programs to customers and consumers. Sales are recorded net of trade promotion spending, which is recognized as incurred, generally at the time of the sale. Most of these arrangements have terms of approximately one year. Accruals for expected payouts under these programs are included as accrued marketing and promotion in the accrued and other liabilities line item in the Consolidated Balance Sheets. Cost of Products Sold Cost of products sold is primarily comprised of direct materials and supplies consumed in the manufacture of product, as well as manufacturing labor, depreciation expense and direct overhead expense necessary to acquire and convert the purchased materials and supplies into finished product. Cost of products sold also includes the cost to distribute products to customers, inbound freight costs, internal transfer costs, warehousing costs and other shipping and handling activity.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSE Selling, general and administrative expense (SG&A) is primarily comprised of marketing expenses, selling expenses, research and development costs, administrative and other indirect overhead costs, depreciation and amortization expense on non-manufacturing assets and other miscellaneous operating items. Research and development costs are charged to expense as incurred and were $2,001 in 2011, $1,950 in 2010 and $1,864 in 2009. Advertising costs, charged to expense as incurred, include worldwide television, print, radio, internet and in-store advertising expenses and were $9,315 in 2011, $8,576 in 2010 and $7,519 in 2009. Non20 | P a g e

advertising related components of the Companys total marketing spending include costs associated with consumer promotions, product sampling and sales aids, all of which are included in SG&A, as well as coupons and customer trade funds, which are recorded as reductions to net sales.

OTHER NON-OPERATING INCOME/(EXPENSE), NET Other non-operating income/(expense), net, primarily includes net divestiture gains, interest and investment income and the provision for income attributable to non-controlling interests. Currency Translation Financial statements of operating subsidiaries outside the United States of America (U.S.) generally are measured using the local currency as the functional currency. Adjustments to translate those statements into U.S. dollars are recorded in other comprehensive income (OCI). Currency translation adjustments in accumulated OCI were a gain of $5,632 at June 30, 2011 and a loss of $861 at June 30, 2010. For subsidiaries operating in highly inflationary economies, the U.S. dollar is the functional currency. Re-measurement adjustments for financial statements in highly inflationary economies and other transactional exchange gains and losses are reflected in earnings.

STATEMENT OF EARNINGS Consolidated Statements of Earnings Amounts in millions except per share amounts NET SALES Cost of products sold Selling, general and administrative expense OPERATING INCOME Interest expense Other non-operating income/(expense), net EARNINGS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES Income taxes on continuing operations
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2011 82,559 40,768 25,973 15,818 831 202

2010 78,938 37,919 24,998 16,021 946 -28

2009 76,694

2008 81748

38,690 39,536 22,630 25,575 15,374 16,637 1,358 397 1,467 462

15,189 3,392

15,047 4,101

14,413 15,632 3,733 3,834

NET EARNINGS FROM CONTINUING OPERATIONS NET EARNINGS FROM DISCONTINUED OPERATIONS NET EARNINGS BASIC NET EARNINGS PER COMMON SHARE: Earnings from continuing operations Earnings from discontinued operations BASIC NET EARNINGS PER COMMON SHARE DILUTED NET EARNINGS PER COMMON SHARE: Earnings from continuing operations Earnings from discontinued operations DILUTED NET EARNINGS PER COMMON SHARE DIVIDENDS PER COMMON SHARE 3.93 3.93 1.97 3.53 0.58 4.11 1.80 3.39 0.87 4.26 1.64 3.56 0.08 3.64 1.45 4.12 4.12 3.70 0.62 4.32 3.55 0.94 4.49 3.77 0.09 3.86 11,797 1,790 12,736 2,756 13,436 277 12075 11,797 10,946 10,680 11,798

NET EARNINGS Net earnings from continuing operations were $11.8 billion in 2011, an increase of 8% versus the prior year due mainly to net sales growth and a lower effective tax rate, partially offset by operating margin contraction. Operating margin decreased 110 basis points due to a decrease in gross margin, partially offset by a decrease in SG&A spending as a percentage of net sales. Gross margin declined behind higher commodity costs, partially offset by manufacturing cost savings. SG&A as a percentage of net sales declined due to reduced foreign currency exchange costs and a reduction in overhead spending as a percentage of net sales due to productivity improvements, partially offset by increased marketing investments. Net earnings from continuing operations were $10.9 billion in 2010, an increase of 2% versus the prior year due mainly to net sales growth and operating margin expansion, partially offset by a higher effective tax rate. Operating margin was up 30 basis points due to an increase in gross margin, mostly offset by an increase in SG&A as a percentage of net sales.

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STATEMENT OF CASH FLOWS Consolidated Statements of CASH FLOWS Amounts in millions CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR OPERATING ACTIVITIES Net earnings Depreciation and amortization Share-based compensation expense Deferred income taxes Gain on sale of businesses Change in accounts receivable Change in inventories Change in accounts payable, accrued and other liabilities Change in other operating assets and liabilities Other TOTAL OPERATING ACTIVITIES INVESTING ACTIVITIES Capital expenditures Proceeds from asset sales Acquisitions, net of cash acquired Change in investments TOTAL INVESTING ACTIVITIES FINANCING ACTIVITIES Dividends to shareholders Change in short-term debt Additions to long-term debt Reductions of long-term debt
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2011

2010

2009

2008

2,879

4,781

3,313

5,354

11,797 2,838 414 128 -203 -426 -501 358 -1,190 16 13,231

12,736 3,108 453 36 -2,670 -14 86 2,446 -305 196 16,072

13,436 12,075 3,082 516 596 -2,377 415 721 -742 -758 30 3,166 555 1214 -284 432 -1050 297 -1270 -127

14,919 15,008

-3,306 225 -474 73 -3,482

-3,067 3,068 -425 -173 -597

-3,238 1,087 -368 166 -2,353

-3,046 928 -381 -50 -2,549

-5,767 151 1,536 -206

-5,458 -1,798 3,830 -8,546

-5,044 -2,420 4,926 -2,587

-4,655 2,650 7,088 -

11,747 Treasury stock purchases Impact of stock options and other -7,039 1,302 TOTAL FINANCING ACTIVITIES EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS CHANGE IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS, END OF YEAR SUPPLEMENTAL DISCLOSURE Cash payments for: Interest Income taxes Assets acquired through non-cash capital leases Divestiture of coffee business in exchange for shares of P&G stock 2,466 806 2,992 13 1,184 4,175 20 1,226 3,248 8 1,373 3,499 13 163 -111 2,768 -122 -1,902 2,879 -284 1,468 4,781 344 -2,041 3,313 10,023 -6,004 721 -6,370 10,047 681 1867 -

17,255 -10,814 14,844

CASH FLOW PRESENTATION The Consolidated Statements of Cash Flows are prepared using the indirect method, which reconciles net earnings to cash flow from operating activities. The reconciliation adjustments include the removal of timing differences between the occurrence of operating receipts and payments and their recognition in net earnings. The adjustments also remove cash fl ows arising from investing and financing activities, which are presented separately from operating activities. Cash flows from foreign currency transactions and operations are translated at an average exchange rate for the period. Cash flows from hedging activities are included in the same category as the items being hedged. Cash flows from derivative instruments designated as net investment hedges are classified as financing activities. Realized gains and losses from nonqualifying derivative instruments used to hedge currency exposures resulting from intercompany financing transactions are also classified as financing activities. Cash flows from other derivative
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instruments used to manage interest, commodity or other currency exposures are classified as operating activities. Cash payments related to income taxes are classified as operating activities.

CASH FLOW STATEMENT ANALYSIS After thorough analysis we believe that the financial condition of P&G is of high quality.The company enjoys high degree of financial flexibility as well as it is not dependant on debt ad can raise debt for its future needs.

Operating cash flow provides the primary source of funds to finance operating needs and capital expenditures. Excess operating cash is used first to fund shareholder dividends. The overall cash position of the Company reflects their strong business results and a global cash management strategy that takes into account liquidity management, economic factors and tax considerations.

OPERATING ACTIVITIES Operating cash flow was $13.2 billion in 2011, an 18% decrease versus the prior year. Operating cash flow resulted primarily from net earnings adjusted for non-cash items (depreciation and amortization, stock-based compensation, deferred income taxes and gain on the sale of businesses), partially offset by an increase in working capital. The net of accounts receivable, inventory and accounts payable consumed $569 million of operating cash flow in 2011 mainly due to increases in inventories and accounts receivables. Inventory consumed $501 million driven by higher commodity costs, business growth and increased stock levels in advance of initiatives and sourcing changes.

Operating cash flow was $16.1 billion in 2010, an 8% increase versus the prior year whereas in 2009, operating cash flow was $14.9 billion, a decrease of 1% versus the prior year total of $15.0 billion. Operating cash flow in 2010 resulted primarily from net earnings adjusted for non-cash items (depreciation and amortization, stock-based compensation, deferred income taxes and gain on the sale of businesses) and a reduction in working capital. The increase in operating cash flow was primarily due to the current year reduction in working capital balances, partially offset by a
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decline in earnings versus 2009. Working capital reductions contributed $2.5 billion to operating cash flow in 2010 mainly due to an increase in accounts payable, accrued and other. Inventory contributed to operating cash flow despite growth in the business due to a reduction in days on hand due primarily to inventory management improvement efforts In 2009 Operating cash flow resulted primarily from net earnings adjusted for non-cash items. The decrease in operating cash flow versus 2008 was primarily due to a decline in net earnings from continuing operations.

INVESTING ACTIVITIES

Net investing activities consumed $3.5 billion of cash in 2011 and $597 million in 2010 mainly due to capital spending and acquisitions, partially offset by proceeds from asset sales, including $3.0 billion in cash received from the sale of our global pharmaceuticals business in 2010.Net investing activities consumed $597 million of cash in 2010 and $2.4 billion in 2009 mainly due to capital spending and acquisitions, partially offset by proceeds from asset sales, including $3.0 billion in cash received from the sale of their global pharmaceuticals business in 2010. Discontinued operations consumed $1 million of cash from investing activities in 2010 and contributed $69 million in 2009.

FINANCING ACTIVITIES

Dividend Payments. Their first discretionary use of cash is dividend payments. Dividends per common share increased 9% to $1.97 per share in 2011. Total dividend payments to common and preferred shareholders were $5.8 billion in 2011 and $5.5 billion in 2010. The increase in dividend payments resulted from increases in our quarterly dividends per share, partially offset by a reduction in the number of shares outstanding. Dividends per common share increased 10% to $1.80 per share in 2010. Total dividend payments to both common and preferred shareholders were $5.5 billion in 2010 and $5.0 billion in 2009.

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Long-Term and Short-Term Debt. They maintain debt levels they consider appropriate after evaluating a number of factors, including cash flow expectations, cash requirements for ongoing operations, investment and financing plans (including acquisitions and share repurchase activities) and the overall cost of capital. Total debt was $32.0 billion in 2011 and $29.8 billion in 2010. Our total debt increased in 2011 mainly due to net debt issuances to fund general corporate purposes. Total debt was $29.8 billion in 2010, $37.0 billion in 2009 and $36.7 billion in 2008. Their total debt decreased in 2010 mainly due to repayments funded by operating cash flow and cash provided by the global pharmaceuticals divestiture.

CASH EQUIVALENTS Highly liquid investments with remaining stated maturities of three months or less when purchased are considered cash equivalents and recorded at cost.

Investments Investment securities consist of readily marketable debt and equity securities. Unrealized gains or losses are charged to earnings for investments classified as trading. Unrealized gains or losses on securities classified as available-for-sale are generally recorded in shareholders equity. If an available-for-sale security is other than temporarily impaired, the loss is charged to either earnings or shareholders equity depending on our intent and ability to retain the security until P&G recover the full cost basis and the extent of the loss attributable to the creditworthiness of the issuer. Investments in certain companies, over which P&G exert significant influence but do not control the financial and operating decisions, are accounted for as equity method investments. Other investments that are not controlled, and over which P&G do not have the ability to exercise significant influence, are accounted for under the cost method. Both equity and cost method investments are included as other noncurrent assets in the Consolidated Balance Sheets.

Inventory Valuation

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Inventories are valued at the lower of cost or market value. Product related inventories are primarily maintained on the first-in, first-out method. Minor amounts of product inventories, including certain cosmetics and commodities, are maintained on the last-in, first-out method. The cost of spare part inventories is maintained using the average cost method.

CHAPTER 5 RATIO ANALYSIS

Ratios Current Ratio Jun-11 Jun-10 Jun-09 Jun-08

0.80496831 0.77349477 0.70887674 0.79187932 Current Asset/ Current Liability

Acid-Test Ratio

0.33133038 0.33827527 0.34358111 0.32540862 Current Asset- Total Inventories/ Current Liability

Creditors Turnover Ratio Creditors payment period Projected daily cash requirement Defensive Interval Ratio

8.73973679 9.51054342 9.61505292 9.6104797

Cost of products sold/ Average Inventories

1.37303906 1.26175755 1.24804305 1.24863694 12/ Payment Period

36.2493151 44.0328767 40.8739726 41.1178082 TOTAL OPERATING ACTIVITIES/365

79.4221903 108.577962 81.0540251 130.211221 CASH AND CASH EQUIVALENTS/Projected Daily Cash Requirement

Cash-flow From
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0.48477632 0.66188947 0.48279991 0.48478584 TOTAL OPERATING ACTIVITIES/Current

Operations Ratio Debt-equity ratio

Liabilities

0.72537169 0.74288318 0.81336973 0.78480157 TOTAL CURRENT LIABILITIES+LONGTERM DEBT/ Share Holder's Equity

Debt to Total Capital

0.5478597

0.55123854 0.61347788 0.58596831 TOTAL CURRENT LIABILITIES+LONGTERM DEBT/ Share Holder's Equity+LONGTERM DEBT

Debt-assets ratio

0.35652023 0.35609962 0.38234705 0.3787641

TOTAL CURRENT LIABILITIES+LONGTERM DEBT/Total Asset

Equity-assets ratio Interest coverage ratio 18.2779783 17.7980973 12.6428571 10.8445808 Net Earnings+Income taxes on continuing operations/ Interest Expense Dividend coverage ratio Total fixed charge coverage ratio Total Cashflow
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2.0456043

2.33345548 2.66375892 2.59398496 Net Earnings/Dividends to shareholders

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Coverage Ratio Debt Service Coverage Ratio Gross Profit Margin Net Profit Margin Operating Profit Ratio Pre-tax Profit Ratio Net Profit Ratio 9.17% 9.74% 10.88% 8.29% 13.28% 14.94% 15.75% 12.98% 14.29% 16.13% 17.52% 14.77% NetProfit before interest and Tax/ net Sales NetProfit before Tax/ net Sales NetProfit after interest and Tax/ net Sales Expenses Ratio Cost of goods sold Operating expenses 0.49380443 0.48036434 0.50447232 0.48363263 Cost of products sold/Net Sales 0.31459926 0.31667891 0.29506871 0.31285169 Selling, general and administrative expense/Net Sales Administrative expenses Selling expenses --------ratio --------------------------------------------------------18.40% 19.06% 18.79% 19.12% Gross Profit/ Net Sales ---------------------------------

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Operating ratio

0.80840369 0.79704325 0.79954103 0.79648432 Cost of Product Sold + Selling, general and administrative expense/Net sales

Financial expenses Return on Investments Return on Assets (ROA) Return on Capital Employed (ROCE) Return on Shareholders Equity Return on total shareholders equity Return on ordinary shareholders equity (Net worth)

0.01006553 0.01198409 0.01770673 0.01794539 Interest Expense /Net Sales

0.0885242

0.09684987 0.09637586 0.08385883 Net Earnings/Total Assets

0.07121771 0.08353995 0.08106967 0.06901972 Net Earnings/Total AssetsTotal Current Liabilities

0.1822775

0.20406823 0.20223366 0.17375601 Net Earnings/Average Share Holder's Equity

0.1822775

0.20406823 0.20223366 0.17375601 Net Earnings/Average Share Holder's Equity

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Earnings per share (EPS)

46.48

55.38

55.1

40.48

Net profit available to equity shareholders (EAT Dp)/Number of equity shares outstanding (N)

Dividends per share (DPS)

22.5

22.5

22.5

20

Dividend paid to ordinary shareholders/Number of ordinary shares outstanding (N)

Earnings yield

8.4

6.82

7.57

EPS/Market price per share

Dividend Yield

3.25%

3.10%

3.25%

3.25%

DPS/Market price per share

Dividend payment/payout (D/P) ratio Price-earnings (P/E) ratio Book value per share

56.26

47.37

47.77

57.79

DPS/EPS

49.05

41.58

44.22

52.91

Market price of a share/EPS.

185.03

164.7

135.56

106.79

Ordinary shareholders equity/Number of equity shares outstanding.

Efficiency Ratio Inventory Turnover Ratio Inventory holding period 2.02555926 2.09878953 2.37208581 2.5544314 5.92428976 5.71758142 5.05883891 4.69771863 Cost of products sold/ Average Inventories 12/ Inventoryturnover ratio

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Raw materials turnover Work-inprogress turnover Debtors Turnover Ratio Debtors turnover Average collection period Assets Turnover Ratio Total assets turnover Fixed assets turnover Capital turnover Current assets turnover Working capital turnover

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14.22205

14.1326649 12.17655

12.0911108 Total Sales/Accounts receivable

0.84376022 0.84909676 0.98550082 0.99246465 12/ debtors turnover ratio

0.29466441 0.29584465 0.28694756 0.27457081 COGS/Total Assets

1.91461983 1.97043234 1.98797657 1.91550388 COGS/Fixed Assets

0.5995206

0.61718127 0.61042567 0.56891242 COGS/Total Shareholder's Equity

1.8556213

2.01890108 1.76626341 1.6127269

COGS/Current Assets

0.36707755 0.36499182 0.37226263 0.34977087 COGS/Total AssetsCurrent Liabilities

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LIQUIDITY The current liabilities exceeded current assets by $5.3 billion, largely due to P&Gs commercial paper program. This anticipates that being able to support the short-term liquidity and operating needs largely through cash generated from operations. P&G utilize short- and long-term debt to fund discretionary items such as acquisitions and share repurchases. P&G have strong short- and long-term debt ratings which have enabled and should continue to enable us to refinance P&Gs debt as it becomes due at favorable rates in commercial paper and bond markets. In addition, P&G have agreements with a diverse group of financial institutions that, if needed, should provide sufficient credit funding to meet short-term financing requirements. On June 30, 2011, P&Gs short-term credit ratings P&G A-1+ (Standard & Poors), while P&Gs long-term credit ratings are AA- (Standard & Poors), both with a stable outlook. P&G maintain bank credit facilities to support P&Gs ongoing commercial paper program. These facilities can be extended for certain periods of time as specified in, and in accordance with, the terms of each credit agreement. The current facility is an $11.0 billion facility split bet P&G en a $7.0 billion 5-year facility and a $4.0 billion 364-day facility, which expire in August 2016 and August 2012, respectively. P&G anticipate that these facilities will remain largely undrawn for the foreseeable future. These credit facilities do not have cross-default or ratings triggers, nor do they have material adverse events clauses, except at the time of signing. In addition to these credit facilities, P&G have an automatically effective registration statement on Form S-3 filed with the SEC that is available for registered offerings of short- or long-term debt securities. SOLVENCY Solvency ratios indicate that the capital structure of P&G are similar, with the former having slightly higher leverage. The main note in the solvency of the firm is its capacity to affront debt long-term, which is given by companys ability to generate cash. P&G is a money machine firm, it has double the percentage of operating cash flow to total liabilities Furthermore, P&Gs interest coverage ratio is more. The difference in capacity to generate cash reduces a firms risk, therefore improving credit ratings and decreasing cost of debt.

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Price earnings ratio and market to book ratio, also assessed by the solvency ratios, illustrates the assessment of the market on each firm. In P&Gs case the market provides a considerable premium. This was expected given the higher profit margin, lower risk and strong cash flow provided by P&G. PROFITABILITY ANALYSIS Procter & Gamble has considerable higher profit margin, but in order to perform a detail assessment on both of ROA and ROCE. P&G has higher profit margin for return of assets. The table shows the composition of the profit margin by providing the value of each major element of the income statement as a percentage of sales. There is an inverse relationship between the cost of goods sold and selling and administrative expenses between the firms. By assessing the overall percentage of both measures, P&G presents a lower amount of COGS and SGA. This was expected given P&Gs higher operating leverage and savings the firm has in its sales efforts due to its market power with ad agencies and other service providers, furthermore given that P&Gs brands are leaders in their respective industries (High brand equity) the firm is expected to have to invest smaller amounts of capital in SGAs. As previously indicated by the liquidity ratios P&Gs current assets turnovers are higher, but its overall asset turnover is of similar value. This is caused by the low fix asset turnover of P&Gs , furthermore, as seen in the appendix (Financial statements), P&Gs has considerable higher percentage on investments and other current assets. This account usually reflects long-term investments and holdings in other companies, which increases the amount of assets of the firm and reduces its asset turnover. The higher return on common equity for P&G can further support the higher market to book value ratio and price earnings premiums, given that P&G provides an average 35% return on common equity, investors will be willing to pay premium to hold a piece of the equity of the firm.

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RISK ANALYSIS Enterprise risk is measured by liquidity (short term capacity to fund debt) and solvency (longterm ability to fund debt) ratios and indicate the capacity of the firm to support its debt. It can be inferred that P&G has higher current and quick ratios, further analysis of the calculated liquidity ratios indicate that there is a considerable difference of the cash cycle (Net Working Capital Days). The table indicates that P&G has had approximately 50 days of cash cycle financing. Given P&G market power, large array of resources and experience managing businesses; it is believed that the simple adaptation of corporate procedures will allow P&G to generate enough synergies in the short-term to guarantee increases of cash flow. Analyzing the elements of the cash cycle It is noticed that the firm is concentrated in days inventory and receivables held. Days inventory held would immediately improve by the re-assessment of inventory management which usually requires advance integrated information systems and market power, both of which P&G has in place. Furthermore, as previously stated in the analysis of synergies, P&G is improving its COGS and ultimately days payable held. Days receivable held are usually driven by the firms relationship with the customer and improvement of collection practices. Given P&Gs market power, I expect that P&Gs will improve receivables by discounts and restructuring of terms, therefore improving its collection period. GROWTH DRIVERS P&Gs Purpose is to touch and improve peoples everyday lives. This is an inspiring but demanding aspiration. There are nearly seven billion people on the planet today and P&G are currently reaching about 4.4 billion of them. P&G want to reach all of them with products and services that make their everyday live a little better. P&G know that if P&G do this well, well be rewarded with sales and profit growth, market share leadership, a strong company reputation and, ultimately, the creation of value that allows P&Gs people, P&Gs shareholders and the communities in which P&G live and work to prosper. P&Gs growth strategy, which P&G established two years ago, is inspired by P&Gs Purpose. P&G are executing this strategy by innovating to improve peoples everyday lives in every part of the world, and by then expanding P&Gs portfolio of innovation up and down price tiers, into new markets, and into new and existing product categories. This strategy is fundamentally right for P&G because it inspires P&Gs people and P&Gs partners, focuses us where the growth opportunities are greatest, and
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leverages P&Gs core strengths: consumer understanding, brand building, go-to-market capability, global scale and, most importantly, innovation.

TREND ANALYSIS The factors that are driving and challenging P&Gs growth today have been discussed earlier. It can be concluded by looking forward and reaffirming the strong confidence that P&G have the right strategy and supporting capability to grow well into the future. The growth opportunities created by P&Gs strategy are clearest when one look at population and economic growth trends and P&Gs geographic expansion plans. Its estimated that the worlds population will be nearly eight billion people by 2020. All these people in developed and developing countries alike will have the same fundamental needs, wants and aspirations for products and services that make their lives better. There is tremendous potential for P&G to grow by meeting those needs. P&G are going after this potential by making P&Gs products available in more categories, countries and channels, expanding product lines to meet a fuller range of regimen needs, and stimulating market growth. P&G currently compete in a total of 38 product categories. Today, on average, P&G compete in 19 categories in any given country. In P&Gs most developed market, the United States, P&G compete in 35 product categories. In Russia and Mexico, were in the 20s. In China, Brazil and India, were in the mid-to-high teens. In Nigeria, were in the mid-singledigits. P&Gs five-year plan will increase the average number of categories from 19 to 24. Within each of these categories and countries, there are generally five distinct price tiers ranging from the best performing and highest priced products in the super premium and premium tiers, down to products that offer basic benefits at a lower price in the value tie.

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SWOT ANALYSIS
STRENGTHS 1. P&G currently competes in 38 product categories and this provides a highly strategic platform for market leadership and sustainable growth. 2. From the past 55 years p&G is continuously paying dividends and it is growing at an annual compound average rate of 9.5% 3. The greatest Assets of the company, its employees are performing heroically to improve lives, to grow the business and to create value to shareholders. 4. The main strength is the purpose- inspired growth strategy of P&G i.e. They invest about $2 billion a year on research and development to have an unrelenting focus on innovation. It is aiming to increase productivity, so that resources can be freed for innovation. It is continuously trying to strengthen its portfolio of business up and down price tiers, into new markets, and into new and existing product categories. They are tackling growth challenges head on

5. It is continuously earning external recognition for their innovations. 6. Most recently P&G agreed to divest Pringles to Diamond Foods, thus completely exiting from food and beverages business. WEAKNESSES 1. Top brand losing market share to competitors. 2. It is operating only in health and beauty sector only. 3. Lagging behind in online media presence. OPPORTUNITIES 1. P&G currently reaches only 4.4 billion out of 7 billion people on the planet. There is an opportunity to reach them with products and services that make their everyday lives a little better. 2. Its estimated that the worlds population will be nearly eight billion people by 2020. All these people in developed and developing countries alike will have the same fundamental

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needs, wants and aspirations for products and services that make their lives better. There is tremendous potential for P&G to grow by meeting those needs. They are going after this potential by making products available in more categories, countries and channels, expanding product lines to meet a fuller range of regimen needs, and stimulating market growth. 3. The increase in productivity through 1) integrating as one company, 2) simplifying the process and 3) digitalizing the process is a great opportunity to free resources for innovation. Their integrated plans will double the number of categories in which P&G competes in the next few years. And above all they are launching 2 new categories this year (skin care and air care) with three more planned for 2012. They are creating multi brand programs such as Olympic Games sponsorship. These multi brand initiatives earn significantly higher returns than many independent brand programs. The company is moving from large, single-category manufacturing plants to more localized, scaled multi-category facilities that enable them to lower cost by leveraging the same infrastructure, as well as lower transportation and delivery costs. This will enable them to use local talent and material and thus will enable them to provide better customer service. Simplification of the business from 500 platforms to 150 platforms till 2014 will be worth about $500 million savings worldwide. Product and packaging simplification is a big opportunity in terms of cost savings. Digitizing P&G will enable them to manage the business in real time and on a demanddriven basis. Theyll be able to collaborate more effectively and efficiently, inside and outside the Company. And theyll interact with consumers, retail partners and others far more directly and frequently than they can do today

4. They are planning to enter pharmaceuticals sector. They announced earlier that they will have a joint venture with Teva pharmaceutical industries. 5. Increasing market share in health care, household care and grooming business is more than a $20 billion sales opportunity.
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6. Company is expanding into various categories, countries and channels. They are now trying to meet a broader range of consumer needs. They are trying to stimulate market growth in developed and developing markets alike. And thus there portfolio of business presents abundant opportunity to grow. Company is currently globalizing products such as Gillette fusion Proglide, Crest 3D white, laundry additives and the pamper Thinness and absorbency Upgrade. 7. Theyre also expanding successful marketing innovation such as the Shiksha education program in India, in which P&G contributes a brick to build a school for each pack of product purchased, or the Pampers One Pack Equals One Vaccine campaign with its focus on eradicating maternal and neonatal tetanus. 8. P&G is trying to fill product lines to fulfill consumers regimen needs. A good example of this can be Pantene in japan. 9. In addition to this it is trying to grow current market share by increasing the usage frequency. Eg. Diaper market in Egypt and India. 10. The increasing Economic growth can be of great help in future. A study revealed that 41% of the current middle-income and affluent class plans to trade up to more premium products especially in packaged goods and clothing. 11. A great opportunity which awaits P&G is that still large chunk of rural market is untapped. Along with this penetration in urban areas can be increased. 12. Company can enter into Health and Beauty for men. Through Gillett they have made their first step in this sector. 13. Company can adopt eco- friendly policies and strategies.

THREATS 1. Company is facing rapid and significant increases in commodity costs. Materials and energy costs were up more than $1.8 billion before tax for the fiscal year. They are taking a holistic approach to manage these cost increases. 2. Developed markets are growing slower than expected. These markets principally North America, Western Europe and Japan account for about two-thirds of their sales. Their underperformance reduced total Company growth by one percentage point in fiscal year 2011.
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3. Government is allowing FDI in retail thereby allowing international brands 4. Competition from unbranded and local products 5. Tremendous pressure due to fluctuating exchange rate. 6. Increase of regulations by the government. 7. A major threat from Substitute brands that have a cheaper price 8. Due to recession, the consumer spending has decreased globally. 9. Intense and increasing competition among other FMCG companies. Key competitors expanding their product portfolios through acquisitions and thus posing serious threat to P&Gs market share in different countries.

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