Project Report on Ratio Analysis of Procter & Gamble Hygiene and Health Care Ltd. PGDM-IB 2011-2013 (Term - 1)
Submitted to:F M A Khan
Submitted By:Sweta Barnwal (353) Ved Prakash Yadav (355) Swagata Roy Chowdhary (352) Sumeet Shee (351) Upasana Banerjee (354)
Analysis of Financial Statements of Procter & Gamble Hygiene and Health Care Ltd.
Introduction of FMCG Industry Profile of Procter & Gamble Hygiene and Health Care Ltd. Objective of Analysis and Methodology Financial Analysis Using Ration Analysis References
Introduction of FMCG
In India FMCG sector i.e. Fast Moving Consumer Goods is the fourth largest in the economy and has a market size of Rs. 48,000 cr. in 2004-2005. FMCG is also known as CPG i.e. Consumer Packaged Goods. Well established distribution networks, as well as intense competition between the organized and unorganized segments are the characteristics of this sector. The company under this category have quick turnover. The FMCG companies in India are very strong competitors of each other and also to MNC presence across the entire value chain. The rural and middle class people are the most promising market for the FMCG and also give opportunity to convert them into branded products. The types of products under FMCG are like •
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Jam Toothpaste Skin care Shampoos Health care Home care, etc.
Since India is a developing country and it keep pace with rapid urbanization, increased literacy levels and also rising per capita income people also get attracted towards the quality of goods. The main players in of this category in India are •
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Hindustan Unilever ltd. Procter & Gamble Hygiene and Health Care Ltd. ITC Britannia Industries Nestle India Dabur India GCMMF (AMUL), etc
The Main Characteristics of FMCGs are as follows:
Frequently Purchased Non-Durable in nature Low Involvement product Low price High Demand in Market High turnover
Distribution Channel is stronger Used directly by the consumer
There is a huge growth potential for all the FMCG companies as the per capita consumption of almost all products in the country is amongst the lowest in the world. Again the demand or prospect could be increased further if these companies can change the consumer's mindset and offer new generation products. Earlier, Indian consumers were using non-branded apparel, but today, clothes of different brands are available and the same consumers are willing to pay more for branded quality clothes. It's the quality, promotion and innovation of products, which can drive many sectors .
The main segments of the FMCG sector are:
Personal Care: this sector includes products like oral care, hair care, skin care, soaps, cosmetics and toiletries, deodorants, perfumes, etc. Household Care: This includes the products like laundry soaps, synthetic detergents, dish/utensil cleaners, floor cleaners, toilet cleaners, air fresheners, insecticides and mosquito repellants, etc. Branded and Packaged Food and Beverages: Under this category the products are health beverages, soft drinks, staples/cereals, biscuits, bread, cakes, snack food, chocolates, ice cream, tea, coffee, vegetables, meat, dairy products, bottled water, branded grains, juices etc.
Profile of Procter & Gamble Hygiene and Health Care Ltd.
Procter & Gamble is a Public Based FMCG Company and is in the world due to the two persons and those two great persons are William Procter, a candle maker and James Gamble, a soap maker, who were basically from England and Ireland respectively.
They settled in Cincinnati initially and met when they married sisters. Their father-in-law Alexander Norris had suggested them to become business partners and as a result on 31st October 1837 Procter & Gamble was born which is a public company. At the beginning the product was the soap and candle and in 1880s, it began to market a new product, an inexpensive soap that floats in water and it was named as IVORY.
In 1887 the grandson of Procter William Arnett Procter began a profit-sharing program for the company’s workfor ce by giving a stake in the company and success follows it and the company starts building factories and selling product in other location as the demand also grows in high rate. Today the head quarter of Procter & Gamble is in Downtown Cincinnati, Ohio.
The Headquarter And it is sharing the market throughout the world with the some leading companies like Unilever, Colgate - Palmolive etc. In today’s date the President and CEO of P&G is Mr. Bob McDonald. The total revenue of P&G group is US$78.938 billion (2010), Operating income is US$16.021 billion (2010), Net income is US$12.736 billion (2010), Total assets is US$128.127 billion (2010), Total equity is US$61.439 billion (2010), more 250 brands present all over the world and the total number of employees are 127000 again in 2010.
If all P&G brands are combined together than it covers almost 57 percent share of market in the world.
Entry of P&G in India In India Proctor & Gamble have two subsidiaries: P&G Hygiene and Health Care Ltd. and P&G Home Products Ltd. P&G Hygiene and Health Care Limited is one of India's fastest growing Fast Moving Consumer Goods Companies with a turnover of more than Rs. 500 crores. It has in its portfolio famous brands like Vicks, Oral-B & Whisper. P&G Home Products Limited deals in Fabric Care segment and Hair Care segment. It has in its kitty global brands such as Ariel and Tide in the Fabric Care segment, and Head & Shoulders, Pantene, and Rejoice in the Hair Care segment. In 1951 it inters the Indian market with the Vicks Product Inc. India.
In 1964 a Public ltd. Company, Richardson Hindustan Limited was formed which obtained an industrial license to undertake manufacture of Vicks range of products with menthol and other. Vicks range includes Vicks VapoRub, Vicks Cough Drop etc. In May 1967, RHL introduced Clearasil, then America's number one pimple cream in Indian market. In 1979, RHL launches Vicks Action 500 and in 1984 it set up an Ayurvedic Research Laboratory to address the common ailments of the people such as cough and cold. In October 1985, RHL became an affiliate of The Procter & Gamble Company, USA and its name was changed to Procter & Gamble India. In 1989, Procter & Gamble India launched Whisper - the breakthrough technology sanitary napkin. In 1991, P&G India launched Ariel detergent. In 1992, The Procter & Gamble Company, US increased its stake in Procter & Gamble India to 51% and then to 65%. In 1993, Procter & Gamble India divested the Detergents business to Procter & Gamble Home Products and started marketing Old Spice Brand of products. In 1999
Procter & Gamble India Limited changed the name of the Company to Procter & Gamble Hygiene and Health Care Limited. P&G Home Products Limited was incorporated as 100% subsidiary of The Procter & Gamble Company, USA in 1993 and it launched launches Ariel Super Soaker. In the same year Procter & Gamble India divested the Detergents business to Procter & Gamble Home Products. In 1995, Procter & Gamble Home Products entered the Hair care Category with the launch of Pantene Pro-V shampoo. In 1997 Procter & Gamble Home Products launches Head & Shoulders shampoo. In 2000, Procter & Gamble Home Products introduced Tide Detergent Powder - the largest selling detergent in the world. In 2003, Procter & Gamble Home Products Limited launched Pampers - world's number one selling diaper brand.
Today, Proctor & Gamble is the second largest FMCG company in India after Hindustan Lever Limited.
Board of Directors of P&G Hygiene and Health care Ltd. Chairman – Mr. R. A. Shah Managing Director – Mr. S. Khosla Other directors are – Mr. B.S. Mehta Mr. D. Acharya Ms. D. A. Henretta Mr. A. Vyas (Company Secretary)
Objective of Analysis and Methodology OBJECTIVE OF THE STUDY::
The objective of the study is to analyze the financial statements of Procter & Gamble Hygiene and Health Care Ltd. using the technique of ratio analysis so as to determine::
The financial position that is strength and weakness of the firm over the past years. The performance levels of the firm over the years compared with the industry and its competitor.
The efficiency of management policy framework and its execution levels.
The future prospects of the firm in terms of overall growth in the industry.
METHODOLOGY USED:: (1) Source of data :
The data extracted for the purpose of analysis is from a secondary but reliable source.
(2) Period of analysis :
The period taken into consideration for the purpose financial analysis is from financial years ranging from 2005 to 2008. That is: FY06: 1/7/2005 to 30/6/2006 FY07: 1/7/2006 to 30/6/2007 FY08: 1/7/2007 to 30/6/2008 FY09: 1/7/2008 to 30/6/2009 FY10: 1/7/2009 TO 30/6/2010
(3) Technique used for analysis :
Why only ratio analysis is used for financial analysis? Because of following reasons:
Simplifies financial statements Facilitates inter-firm comparison Helps in planning Makes inter-firm comparison possible Help in investment decisions Provides sufficient insight to appraise the future prospect of the firm.
The type of ratios a) Liquidity Ratio
Current Ratio Current Ratio = Current Assets / Current Liabilities
Quick Ratio Quick Ratio = Quick Assets / Current Liabilities
b)
Absolute Liquid Ratio Absolute Liquid Ratio = Absolute Liquid Assets / Current liabilities
Solvency Ratio
Equity Ratio
Equity Ratio = Shareholders funds / Total Assets
Fixed Assets to Shareholders fund Ratio Fixed Assets to Shareholders’ Fund = Fixed Assets / Shareholder’s Fund
Current Assets to Shareholders Fund Ratio Current Assets to Proprietors Funds = Current Assets / Proprietor's Funds
Debt-Equity Ratio Debt Equity Ratio = External Equities / Internal Equities
Debt-Service Ratio Debt-Service Ratio = Net Profit Before Interest and Tax / Fixed Interest Charge
c) Profitability Ratio
Gross profit ratio Gross Profit Ratio = (Gross profit / Net sales) × 100
Operating Ratio Operating Ratio = [(Cost of goods sold + Operating expenses) / Net sales]×100
Net profit ratio Net Profit Ratio = (Net profit / Net sales) × 100
Return On Investment Return on investment = [Net profit (after interest and tax) / Net worth] × 100
Return on Equity Capital Return on Equity Capital = [(Net profit after tax − Preference dividend) / Equity share capital] × 100
Earnings Per Share ratio. [Earnings per share (EPS) Ratio = (Net profit after tax − Preference dividend) / No. of equity shares (common shares)]
Price Earnings Ratio P/E ratio = market price per share/earning per share
Dividend Payout Ratio Dividend Payout Ratio = Dividend per Equity Share / Earnings per Share
d) Activity Ratio
Stock Turnover Ratio Stock Turnover Ratio = Cost of goods sold / Average inventory at cost
Debtor’s Turnover Ratio Debtors Turnover Ratio = Net Credit Sales / Average Trade Debtors
Working Capital Turnover ratio Working Capital Turnover Ratio = Cost of goods sold / Net Working Capital
Fixed Assets Turnover Ratio Fixed Assets Turnover Ratio = Cost of goods sold / Net Fixed Assets
Financial Analysis Using Ration Analysis
Jun ' 10
Jun ' 09 Jun ' 08
Jun ' 07 Jun ' 06
Per share ratios Adjusted EPS (Rs)
55.96
53.68
41.31
31.11
26.84
Adjusted cash EPS (Rs)
63.67
58.11
45.04
33.88
29.28
Reported EPS (Rs)
55.38
55.10
40.48
27.67
42.98
Reported cash EPS (Rs)
63.09
59.52
44.22
30.44
45.42
Dividend per share
22.50
22.50
20.00
20.00
25.00
Operating profit per share (Rs)
71.16
66.08
55.05
42.67
39.74
Book value (excl rev res) per share (Rs)
164.70
135.56
106.79
89.70
84.00
Book value (incl rev res) per share (Rs.)
164.70
135.56
106.79
89.70
84.00
Net operating income per share (Rs)
277.63
238.08
198.38
165.61
174.29
Free reserves per share (Rs)
154.70
125.56
96.79
79.70
74.00
Operating margin (%)
25.63
27.75
27.75
25.76
22.80
Gross profit margin (%)
22.85
25.89
25.86
24.09
21.40
Net profit margin (%)
19.31
22.36
19.89
16.21
23.81
Adjusted cash margin (%)
22.20
23.58
22.13
19.84
16.22
Adjusted return on net worth (%)
33.97
39.60
38.68
34.67
31.95
Reported return on net worth (%)
33.62
40.64
37.91
30.84
51.16
Return on long term funds (%)
44.05
51.60
52.86
50.12
51.73
Profitability ratios
Jun ' 10
Jun ' 09 Jun ' 08
Jun ' 07 Jun ' 06
Leverage ratios Long term debt / Equity
-
-
-
-
-
Total debt/equity
-
-
-
-
-
Owners fund as % of total source
100.00
100.00
100.00
100.00
100.00
Fixed assets turnover ratio
3.71
3.48
3.17
3.29
4.45
Current ratio
2.13
2.30
1.94
1.95
2.01
Current ratio (inc. st loans)
2.13
2.30
1.94
1.95
2.01
Quick ratio
1.92
2.02
1.70
1.69
1.82
21.28
17.79
16.88
23.81
25.27
Dividend payout ratio (net profit)
47.37
47.77
57.79
84.56
66.32
Dividend payout ratio (cash profit)
41.58
44.22
52.91
76.87
62.76
Earning retention ratio
53.12
50.97
43.36
24.79
-6.21
Cash earnings retention ratio
58.80
54.71
48.06
30.93
2.64
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-
-
-
-
Liquidity ratios
Inventory turnover ratio
Payout ratios
Coverage ratios Adjusted cash flow time total debt
Financial charges coverage ratio 10,389.90 4,47,114.95 8,051.92 17,379.57 1,335.84 Fin. charges cov.ratio (post tax)
8,167.17 3,57,811.90 5,916.05 11,084.78 1,322.92
Component ratios Material cost component (% earnings)
31.35
31.01
29.62
28.37
32.31
Jun ' 10
Selling cost Component
Jun ' 09 Jun ' 08
Jun ' 07 Jun ' 06
23.81
23.45
20.47
23.74
19.16
Exports as percent of total sales
1.32
1.20
0.33
0.46
1.24
Import comp. in raw mat. Consumed
10.57
10.46
22.56
31.46
28.64
0.23
0.23
0.23
0.27
0.21
72.52
72.52
72.52
72.52
72.52
Long term assets / total Assets Bonus component in equity capital (%)
References
P&G official website (PG.com) Wikipedia – the free encyclopedia www.Moneycontrol.com Economicstimes.com Project Report of Hotel Leela Class Notes
