Procter & Gamble – case study
Formed in 1837 by William Procter and James Gamble as a small family-operated soap
and candle company, Procter and Gamble Co. is now a leading consumer products
company with over $83 billion in revenues. Headquartered in Cincinnati, Ohio, the firm’s
products are sold in more than 180 countries.
P&G’s product range covers laundry detergents, toothpaste, baby diapers, paper towels,
beauty and health products, shampoos, snacks, coffee and pet food. The firm is better
known by its brands: Pampers, Bounty, Tide, Downy, Cascade, Olay, Tampax, Head and
Shoulders, Pringles, and more. The maintenance of these brands along with innovative
packaging and effective distribution through the retail supply chain is critical to the success
of the company’s operations. Product innovations and marketing along with streamlined
production and distribution, have contributed to growth, but the firm has also purchased
brands through acquisition of other companies. In fiscal 2006, the firm acquired Gillette
for $53.4 billion, adding Gillette’s shaving and grooming products to its range along with
Duracell batteries. The branded consumer products business is very competitive, and P&G
battles the likes of Unilever, Avon, Kimberly-Clark, L’Oreal and Colgate. Like these
companies, continual innovation is essential to the firm’s continuing profitability, so the
firm maintains an extensive research and development operation, including marketing
research and spends considerable amounts on advertising and promoting its brands.
The annual reports for P&G are available online as a PDF file on the company’s web site
at www.pg.com. Go the Investors page (bottom left hand corner of the screen) then to the
Financial Reporting tab (on the top right of the screen) and download the firm’s annual
report for 2019. Read the management letter and the Management Discussion and Analysis.
Management communications are helpful in understanding the strategy and how the
management is executing on that strategy. The stress on brand innovation and research is
evident from P&G’s management letters.
Required
After understanding the company, go to the financial statements, which along with the
footnotes to the statements are our main focus. Additional information after the statements
will aid you.
1. On the basis of the information supplied in this annual report prepare a brief
discussion and analysis of P&G’s performance and financial position.
2. In particular, you should address the following points:
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a. What is the P&G’s core operating activity through which it generates
revenues? When does P&G recognize its revenues from this core operating
activity? Discuss the treatment of payment discounts and product returns.
b. Discuss the accounting treatment of inventories and its implications on the
balance sheet and income statement numbers.
c. Which types of intangible assets are included in the “other intangible
assets”? Discuss the firm’s policy on amortization and/or impairment of
intangible assets and its implications on numbers in the financial statements.
Provide examples to illustrate your points.
d. Discuss the treatment of goodwill and explain why goodwill decreased
during 2019.
e. How much did P&G originally pay for all the Machinery and Equipment
that it owned as of June 30th 2019?
f. Assume that capital expenditure and recorded depreciation expense for
2019 relate exclusively to the Machinery and Equipment. Assume that the
only thing that the firm sold was one machine for $350 M in cash. How
much did the firm originally pay for the machine that was sold? At the time
of the sale, what was the accumulated depreciation on the machine that was
sold? Did P&G record a gain or a loss on the sale of the machine? Use the
information from Balance sheet, Cash Flow Statement and the P/L account
in your calculations.
g. Discuss the treatment of the leases and its implications on the numbers in
the financial statements.
h. Explain which transactions during 2019 affected total equity. Which
particular accounts reflected these changes in total equity?
i. What were the key components of comprehensive income for 2019? What
events caused currency translation gains/losses during 2019?
j. What is the implication of the acquisition of the Merck KGaA on P&G’s
accounting numbers?
k. Did P&G issue any shares as a part of stock option compensation plan in
2019? Did existing shareholders incur a loss as a result of such a share
issue? Did P&G have a stock option overhang at the end of fiscal 2019?
Explain your findings.
Some important notes regarding the coursework
 Suggested length is 1,200 words. However, it is possible to produce a concise yet
thorough analysis in less than 1,200 words.
 Summarize your broad conclusion and finding at the front of your report in an
executive summary (which is included in the word count).
 Your objective is to highlight the most salient information to enable your reader to
understand Procter and Gamble’s performance and financial position.