Vous êtes sur la page 1sur 27

PROJECT OF FINANCIAL DECISION MAKING

TOPIC: FINANCIAL STATEMENT ANALYSIS Submitted To: SIR.AHMED HASSAN Submitted By: Tanveer Khalid CIIT/SP10-MBA1-035/LHR

COMSATS INSTITUTE OF INFORMATION TECHNOLOGY LAHORE

EXECUTIVE SUMMARY
1

In this professional project analysis of Procter & Gamble Co. is done in very detail to check current position, performance and progress of the company. To measure these activities ratio analysis, , SWOT analysis and PEST analysis are performed that has explored the real picture. At the end conclusion is made on the basis of these analysis. Then future recommendations are made to improve company in every aspect.

HISTORY
2

Procter & Gamble was founded in 1837 by William Procter, a British citizen who emigrated to the United States, and James Gamble, a U.S.-based Irish soapmaker and industrialist. The company first sold candles

History in Pakistan
Procter & Gamble Pakistan, headquartered in Karachi, commenced operations in Pakistan in 1991. Our goal was to become the finest global consumer goods company operating locally in Pakistan. To fulfill this goal, we are serving Pakistani consumers with premium quality brands including Head & Shoulders, Pantene, Ariel, Safeguard, Pampers and Always that strive to make everyday lives better. With commitment came growth, and in 1994 we acquired a soap-manufacturing facility sprawling seven acres of land at Hub, Balochistan. In 2002, the plant tripled its soapmanufacturing capacity with an investment of $3 million. In 2004, with an initial investment of about half a million U.S. dollars, a PUR facility was set up with a production capacity of 50 million sachets of the water purifier annually. The P&G Hub plant is the first of its kind in the world. It provides people access to safe drinking water and is able to export millions of liters across the globe. Today, the Hub plant is equipped with state-of-the-art manufacturing technologies and quality assurance processes and systems, reflecting the company's values of safe, hygienic and ethical manufacturing practices. P&G Pakistan headquarters are consistently upgraded to the company's progressive values. Investments of $ 1.6 million have taken place in the work-space environment to date. The P&G Pakistan head office today hosts high-speed digital networks and advanced systems and facilities As a company with vast global experience, P&G has always believed in the potential Pakistan has as a country. Since 1989, the total amount invested by P&G Pakistan in assets, working capital and market development is approximately $ 100 million. In addition, Procter & Gamble contributed Rs 4.3 billion to the national exchequer in the 3

form of taxes and duties in 07/08, increasing 22 percent over the previous year. Strengthening its commitment to invest further in Pakistan, P&G recently broke ground for its second manufacturing facility in Pakistan. The launch of this manufacturing facility is testimony of P&Gs successful history in the country and symbolizes P&Gs confidence that Pakistan will continue to provide a stable and conducive business environment over the long-term. This project involves an investment of about US$100 million and is P&Gs largest single investment in the country to date. The facility is expected to improve local industrialization prospects by creating tremendous potential opportunity of business over the next few years. With the plant occupying only one-third of the total 25 acres of land acquired, provision has been built in for future expansion projects. P&G has attracted outstanding individuals since the day it began operations in Pakistan. The company presently employs more than 300 people, 99 percent of which are Pakistanis and creates more than 4,000 jobs indirectly in Pakistan. All this makes P&G a more locally focused company.

MANAGEMENT STRUCTURE:

CEO: General Manager in Pakistan: Brand Manager: Human Resource Manager:

Mr. Edwin L Artz Mr. Hans Peter Heissien Mr. Tahir Malik Ms Ghazala Nadeem

ABOUT COMPANY
Who We Are?
Three billion times a day, P&G brands touch the lives of people around the world. We are one of the largest and strongest portfolios of trusted, quality, leadership brands. At P&G, the people who develop and build the brands are the foundation of our success.

Building Diversity in the Organization


At P&G, we believe in taking advantage of all the unique and special differences that our employees possess and leveraging them to the fullest. Since diversity is a business strategy for P&G, our efforts are focused on bringing in people from different ethnic and cultural backgrounds with remarkably diverse lives and career experiences. Organizations that are in touch are far more capable of understanding consumers from all walks of life. They are far more capable of understanding, appreciating and leveraging their own diversity. They are more capable of tapping the diversity of outside partners. Our recruiting efforts target universities all over Pakistan and are aimed at bringing in people with different leadership and thinking styles. Today, our organization draws from more than 30 schools and universities. We also focus on gender diversity by targeting women at universities for females and holding diversity sessions for female students on campuses. Women offer a different

perspective that is crucial to our success. We aim to balance not only organizational diversity but also diversity within the various departments. Women make up about 25 percent of the workforce at P&G Pakistan. To stress this goal to our employees, P&G Pakistan has introduced many initiatives. To avoid defining our diversity objectives too narrowly and limiting them to percentages and representations of certain groups, P&G has made tremendous recruiting efforts and has launched programs such as flexible work arrangements and the day-care center. Diversity is respected and required across all levels of the company. In fact, diversity action plans are developed in each region of the world to give local diversity strategies the best chance of success.

VISION of P&G
6

To be a leading consumer goods company and to improve the lives of world consumers by providing valuable and innovative products. Ten years ago Procter and gamble started the journey to improve the lives of Pakistani consumers by providing them with world famous quality brands. P&G want to be an outstanding organization with a passion for winning that would felt by everyone everyday; in the office, in the field every where P&G vision is to lead business growth by proactively identifying opportunities and positively contributing to volume growth.

MISSION STATEMENT
We will provide branded products and services of superior quality and value that improves the lives of worlds consumers, now and for generations to come. As a result consumers will reward us with leadership sales, profit and values creation, allowing our people, shareholders and the communities in which we live and work to prosper. Driven by passionate people and a common purpose, P&G brings beloved brands to consumers around the worldincluding our 50 Leadership Brands that are among the worlds most well known household names.

Financial Ratio Analysis

EXPLAINATION
Ratio analysis is essentially concerned with the calculation of relationships which after proper identification and interpretation may provide information about the operations and state of affairs of a business enterprise. The analysis is used to provide indicators of past performance in terms of critical success factors of a business. This assistance in decision-making reduces reliance on guesswork and intuition and establishes a basis for sound judgment. Financial ratio analysis groups the ratios into categories which tell us about different facets of a company's finances and operations. An overview of some of the categories of ratios is given below.

ANALYSIS OF SHORT TERM FINANCIAL POSITION TEST OF LIQUIDITY


A Liquidity ratio measures the ability of the unit to meet its short term (generally one year) obligations and reveals the short term financial strength or weakness. Or A firms ability to satisfy its short term obligations as they become due is known as liquidity of the firm. Liquidity refers to the solvency of the firms overall financial position------ the ease with which it can pay its bills. Liquidity ratios usually consist of: 1. Net Working Capital 2. Current Ratio or Working Capital Ratio 3. Absolute Liquid Ratio or Cash Position Ratio

4. Acid test Ratio or Quick Ratio or Liquid Ratio Trade creditors; creditor for expenses; commercial banks; short term lenders are concerned with the short term financial position or liquidity of the unit. Management is also interested in knowing how efficiently working capital is being utilized by the business. Shareholders and long term creditors are also interested in studying the prospectus of dividend and interest payment.

1. Current Ratio
CurrentRat io = CurrentAss ets CurrentLia bilities

Year Current Assets Current Liabilities Current Ratio

2008 24,515 30,958 0.79

2009 21,905 30,901 0.71

. The amount of Total current assets was Rs. 2,451,500,000 2008 after a increment of Rs.
48,400,000.

In the year 2009 the Amount becomes Rs. 2,190,500,000 after an decrement of

Rs. 261,000,000. It is maximum in the year 2008. The amount of Current liabilities was in 2008 Rs. 3,095,800,000. In the year 2009 the amount becomes Rs. 3,090,100,000 after and decrement of Rs. 5,700,000. It is maximum in the year 2008. The current ratio 0.79 in the year 2008.In the year 2009 the percentage becomes 0.71 after an increment of 0.08. The current ratio is higher in 2008 due to very large amount of current assets and much difference in current assets and current liabilities. Current assets are maximum due to large amount of stock in trade. The value of current ratio has risen slightly from the previous year. This is a good signal for the short term creditors that the company has potential to pay back the obligations in the near future. The figure shows the current ratio of the company has been better than the over all industry for the most of the time. It became low in 2007 due to the increase in the current portion of the long term loans and finances which the company has taken.

2. Acid Ratio
AcidRatio = CurrentAss ets Inventory CurerentLi abilities

Year Current Assets Inventory Current Liabilities Acid Ratio

2008 24,515 8,416 30,958 0.52

2009 21,905 6,880 30,901 0.49

10

The amount of Total current assets was Rs. 2,451,500,000 in 2008. In the last year 2009 the Amount becomes Rs. 2,190,500,000 after an decrement of Rs. 261,000,000. It is maximum in the year 2008.. The amount of Current liabilities was Rs. 3,095,800,000 2008. In the last year 2009 the amount becomes Rs. 3,090,100,000 after and decrement of Rs. 5,700,000. It is maximum in the year 2008. The amount of inventory was Rs. 841,600,000 in 2008. In the year 2009 the amount becomes Rs. 688,000,000 after and decrement of Rs. 153,600,000. It is maximum in the year 2008. The acid ratio 0.52 in the year 2008. In the last year 2009 the acid ratio becomes 0.49 after a decrement of 0.03. The acid ratio is maximum in 2008.

11

3. Debt/Equity Ratio
Debt / EquityRati o = TotalLiabi lities ShareHolde rEquity

Year Total Liabilities Share Holder's Equaty Debt/Equity Ratio

2008
74,498 69,494

2009
71,734 63,099

1.07

1.14

4.Debt Ratio
TotalDebtT oAssetsRat io = TotalDebts TotalAsset s

Year Total debts Total assets Debt/Equity Ratio

2008
74,498

2009
71,734

143,992 .517376

134,833 0.532021

12

5. NET PROFIT MARGIN


Net Pr ofitM arg in = NetIncome Sales

Year Net Income Net Sales Net Profit Margin

2008 12,075 81,748 14.77%

2009 13,436 79,029 17.00%

13

The amount of sales was Rs. 8,174,800,000 in 2008. In the year 2009 the amount becomes Rs. 7,902,900,000 after an decrement of Rs. 271,900,000. It is maximum in the year 2008. The amount of net income was Rs. 1,207,500,000 in 2008. In the last year 2009 the amount becomes Rs. 1,343,600,000 after an increment of Rs. 136,100,000. It is maximum in the year 2009 and minimum in the year 2008. The net profit margin is 14.77% in the year 2008. In the last year 2009 the percentage becomes 17.00% after an increment of 2.23%. The net profit margin is maximum in 2009 . However, in 2009 the situation was quite good since the company earned 2.23%. more than 2008. The industrial median was also higher than that of the companies. The reason behind the reduction was the reduction in sales along with the relative increase in the cost of goods sold. The sales of the company reduced due to the production from wet process kiln due to stoppage of dry process kiln for routine maintenance.

6. A/R TURNOVER
A / RTurnOver = Sales A/ R

Year Net Sales Avg A/R A/R Turn Over

2008 81,748 6,761 12.09

2009 79,029 5,836 13.54

14

The amount of account receivable saving accounts was Rs. 676,100,000 in 2008. In the year 2009 the amount becomes Rs. 583,600,000 after a decrement of Rs. 92,500,000. It is maximum in the year 2008 . The amount of sales was Rs. 8,174,800,000 in 2008. In the year 2009 the amount becomes Rs. 7,902,900,000 after an decrement of Rs. 271,900,000. It is maximum in the year 2008 The account receivable turnover is 12.09 in the year 2008. In the last year 2009 the percentage becomes 13.54 after an increment of 1.45. The account receivable turnover is maximum in 2009 due to large amount of sales and very less amount of account receivable. The account receivable turnover is minimum in 2008.

7. Total Assets Turnover


TotalAsset TurnOver = Sales TotalAsset s

Year Net Sales Avg Total Assets Total Assets Turnover

2008 81,748 143,992 0.57

2009 79,029 134,833 0.59

15

The amount of sales was Rs. 8,174,800,000 in 2008. In the year 2009 the amount becomes Rs. 7,902,900,000 after an decrement of Rs. 271,900,000. It is maximum in the year 2008 The amount of total assets accounts was Rs. 14,399,200,000 in 2008. In the last year 2009 the amount becomes Rs. 13,483,300,000 after a decrement of Rs. 915,900,000. It is maximum in the year 2008. The total assets turnover becomes 0.57 in the year 2008. In the last year 2009 it becomes 0.59 after an increment of 0.02. The total turn over of the company is lower than the industrial median as well. The industrial median also shows that the over all industry earned. The two year industrial analysis shows that has been always performing well as compared to the competitors. The reason behind this increase was that in spite of the fact that the total assets of the company decreased.

8. Return on Equity
Re turnonequi y = netprofita ftertax * 100 Equity

Year Net profit after tax Total equity Return on Equity

2008 12,075
69,494

2009 13,436
63,099

17.37

21.29

As you can see above Return on equity is going in increasing trend, so this is because of the slightly increase in the net profit after tax and decrease in the total equity ratio.

16

9. Return on Assets

Re turnonasse ts =

netprofita ftertax * 100 totalasset s

Year Net profit after tax Total Assets Assets Turn Over

2008 12,075 143,992 8.38

2009 13,436 134,833 9.96

We know that the profit of P&G has been increased sby gaining on disconnecting of operation otherwise thire profit was low. In 2009 value are showing that assets are decreasing thats why company producing more profit by utilizing their assets.

17

10. Net working capital ratio


netw orkink capital = C C A L

Year Current assets Current liabilities NWC ratio

2008 24,515
30,958

2009 21,905
30,901

-6443

-8996

Value show that their net working capital is increasing with negative sign. Company has more current liabilities as compared to current assets the reason is that company is increasing their net cash in hand they should utilize their cash

18

PEST ANALYSIS
POLITICAL AND LEGAL FORCES
Rapid changes in the political scenario of the country along with the uncertain policies of the Government have made the whole business community as uncertain. Also there is terrorism prevailing in the important cities of the country like Karachi and Afghan War, which are affecting the business activities. Policies about taxes are changing continuously due to changing government.

ECONOMIC FORCES
Increasing inflation in the country, persistently reducing the purchasing power of the people and dropping people from high price soap to low price soap and providing more fuel for expansion of local Producers.

19

Increased import duties on the finished goods and raw material have increased the

price of the product, along with this, increasing inflation in the country have made it difficult for soap industry to transfer the whole increased cost at the consumer, thus forcing the industry to operate at a very low margin.

Sanctions imposed by the developed nations on Pakistan due to nuclear

experimentation create the uncertainty in business activities.

SOCIAL
The greater the tendency towards urbanization in Pakistan, the living standard which is forcing the people to use standardized product and people are diverting from the beauty soap to anti bacterial soap.

TECHNOLOGICAL
obsolete. No major and rapid breakthrough in the technology of soap and their manufacturing process, but innovations is required so that the product does not become

SWOT ANALYSIS
STRENGTHS
Heavy and impressive promotional plan for safeguard. Strong social & corporate image of P&G. Strong financial position of company. More concern towards total quality management. Highly health caring product, safeguard gives protections against germs. Direct contact with customers. P&Gs good relations with the supplier. Strong emphasis on environmental prosperity. Worldwide research and technology, engineering and manufacturing.

20

Well-established and renowned distributors. Highly enthusiastic sales team of the company. They identified directly influence group such as wives and children in their target market. Fifth-lowest Injury/Illness Rate for employees. Fourth-lowest lost Workday Rate for employees. Fifth-lowest property loss.

WEAKNESSES
Safeguard is available in limited pack sizes; only two sizes are available. One is 125 gm and other is 75 gm. Unwilling to serve low-income market. Price is especially very high towards lower income groups. Due to limited manufacturing facility, they cannot reduce production cost of the safeguard. But now expansion is being made in hub plant to increase production of safeguard. One Plant start production since 10th of April.

OPPORTUNITIES
According to the information obtained by Chamber of Commerce and Industry Lahore, the soap market is growing at an annual rate of 9.8%. The main reasons for this growth are: o Rapid growth in population, o High urbanization o Increase in awareness among people about new advancements. Due to this growing market, there are lots of opportunities for P&G to exploit this growing market by introducing new soaps. P&G has a good corporate image among consumers. Therefore, they can get maximum share from the soap industry by introducing multiple brands of soaps because they have already different soaps in their international health and beauty care product line.

21

Due to rising awareness among people, switching trend toward health care soaps is high. Therefore, it is a good opportunity to capture this segment through efficient marketing practices.

THREATS
Increasing market share of local Producers. The local Producers are playing an important role in soap industry, because they are providing low price soaps and try to penetrate in their local market by replacing the branded products. Threat of new entrants is also present. As Lever Brothers is a potential threat in soap industry, because they are already involved in different related businesses and providing raw material for soap production to different manufacturing companies like Colgate Palmolive, etc. Increasing inflation in the country is also a major threat of P&G because it is reducing the purchasing power of consumers

CONCLUSION
The company mainly trading household items. The analysis of P&G has shown a modest growth over the past few years showing healthy increases in the profit of the company. P&G knows better about business perspectives understand its business requirements and invest successfully in its portfolio. It is hoped that all its efforts will bear fruit.

For Investors:

22

I have concluded that to invest in P&G, although firm has giving handsome return on investment but it is expected that firm will generate more returns on its investment because of its more command on its business strategy and its current expansion plan which will be completed in next proceeding years

For Lenders
To sum up I can say that there are better opportunities for short term lenders to provide funds to P&G because short term debt paying ability of firm is GOOD while the Long tern Lender will also get benefit because the debt rate of the firm is good which will be sustained in future.

FUTURE PERSPECTIVE
It is expected that the company will be able to perform well because of its future expansion plan which will increase the market share from current 20% to 45%. Analysis is also showing the increasing trend. One more thing which is favorable for company is its diversification projects and investment horizon. If the company would be able to

23

continue its current stability and investments in profitable projects then the company would be able to increase its market share as well as Profitability. In the year 2010 and onward, the company will maintain its focus on timely and flawless implementation of the significant growth initiatives in all business taking place in its household items and industrial automation businesses. P&G has put in places plans to continue to source and retain quality people to sustain its growth ambition. The P&G continue to take proactive measure to mitigate potential risks and cope with challenges to companys profitability arising from the current economic climate.

RECOMMENDATIONS
On the basis of SOWT analysis and other firm analysis these recommendation are generated.

The level of training is lower so they hiring the services of foreigners, they need to train their own employees so they could save the cost and utilize the human resources in a proper manner.

24

It is needed to be focus toward new technology and modern gadget to fulfill the future needs of industry at national as well as international level.

Focus toward expansion projectexpansion may open up attractive export avenues.

To reduce the higher cost of production, Try to use the subsidiary in efficient way provided by Government to reduce the cost per unit and try to avoid wastage of row material by using them again in the production of some other products.

Lack of online market facility to access international buyers in the organization so there is a

need to focus the sales force automation.

Starting new research and development program in the organization for introducing the new fertilizers that increase the production as well as less dangerous for human health.

Balance Sheet
2008 2009 4,781 5,836 0 1,557 672 4,651 6,880 1,209 3,199 21,905 6,724 29,042 885 36,651

CURRENT ASSETS Cash and cash equivalents Accounts receivable Investment securities 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

3,313 6,761 0 2,262 765 5,389 8,416 2,012 4,013 24,515 7,052 30,145 889 38,086

25

Accumulated depreciation NET PROPERTY, PLANT AND EQUIPMENT GOODWILL AND OTHER INTANGIBLE ASSETS Goodwill Trademarks and other intangible assets, net NET GOODWILL AND OTHER INTANGIBLE ASSETS OTHER NONCURRENT ASSETS TOTAL ASSETS CURRENT LIABILITIES Accounts payable Accrued and other liabilities Taxes payable 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 value $1 per share (600 shares authorized) Non-Voting Class B preferred stock, Common stock, stated value $1 per share (10,000 shares authorized; shares issued: 20063,975.8, 20052,976.6) Additional paid-in capital Reserve for ESOP debt retirement Accumulated other comprehensive income Treasury stock, at cost (shares held: 2006 797.0, 2005 503.7) Retained earnings TOTAL SHAREHOLDERS EQUITY TOTAL LIABILITIES AND SHAREHOLDERS EQUITY

-17,446 20,640 59,767 34,233 94,000 4,837 143,99 2

-17,189 19,462 56,512 32,606 89,118 4,348 134,833

6,775 10,154 945 13,084 30,958 23,581 11,805 8,154 74,498

5,980 8,601 0 16,320 30,901 20,652 10,752 9,429 71,734

1,366

1,324

4,002 60,307 -1,325 3,746 -47,588 48,986 69,494 143,99 2

4,007 61,118 -1,340 -3,358 -55,961 57,309 63,099 134,833

PROFIT and LOST STAEMENT 2008 Turnover / Sales Net Sales Less:Cost of sales Gross Profit Total operating expenses Operating profit 81,748 39,536 42,212 25,575 16,637 2009 79,029 38,898 40,131 24,008 16,123

26

Total other operating costs Net profit after interest Total other incomes Profit before taxation Less:Taxation Profit after taxation Earning from discontinoued Operations Net Earning

1,467 15,170 462 15,632 3,834 11,798 277 12,075

1,358 14,765 560 15,325 4,032 11,293 2,143 13,436

27