Brand Building at Procter&Gamble - Research Paper Example

?Running head: Financial Analysis Overview Financial Analysis COMPANY OVERVIEW Proctor and gamble famously known also as P & G is an American multinational corporation that manufactures and distributes manufacture of consumer goods (household and personal products industry). Proctor and Gamble has Cincinnati, Ohio as its headquarters. It was formed in October 31st, 1837 through a partnership by William Proctor and James Gamble, who had married into the same family and was convinced by their father in law to become business partners which they did. Proctor and gamble operates in more than 100 countries and serves around 4 billion people tall over the world through their products of around 300 brands. It operates in segments of three business units, which are - beauty, health and wellbeing, and household segment. It also has global operations group that is divided into- global business service and market development organization. These help P & G to be able to remain ahead of competitors in terms of market share and also innovative products and services to the consumers. Proctor and G amble is the largest consumer goods company in the world based on the 2011 revenues. Closely behind it are Nestle and unilever respectively. Since demand for its products continue to increase, proctor and gamble has moved into several countries in terms of manufacturing and sales. P & G now has offices and factories in Europe, Asia, Middle East and even Africa. Products manufactured by proctor and gamble cover the overall market of consumer goods. Their three business units (beauty, wellbeing and household) have products like cosmetics, skin care, hair care, fabric care, baby and family care products. With the acquisition of Gillette, P & G introduced Duracell batteries, razors and electric razors to its already rich and diversified variety of products. Proctor and Gamble’s brands are (but not limited to) Pampers, Ariel, Always, and Crest. Other than manufacturing consumer goods, which is its core business, proctor and gamble also has in recent years sponsored television series like the young and the restless. It also became the first company to produce and to sponsor a prime TV show when it produced our private world, a soap opera. It is also a sponsor of the Olympics 2012 games and other sports events. VULNERABILITY Proctor and Gamble operates in more than 100 countries worldwide. Each of the countries that it operates in has its own economy which also affects the operations of P & G. in the current world, companies face extensive challenges and threats in the course of their operations and achievement of their organizational goals. P & G being a multinational company operating in many countries, it faces a lot of competition from other multinational companies like Johnson and Johnson, Sara Lee corporation, Unilever Plc and national companies that also operate and produce consumer goods in the country where proctor and gamble also operates in. Proctor and gamble leads the pack based on revenues and variety of consumer product considerably more after acquisition of Gillette. It is able to beat global competition through product innovation (improving efficiency, effectiveness and usability of its products). It also spends more in research and development of its products than their competitors do; this ensures that their products meet the needs, wants and expectations of their potential consumers. In terms of competition and business practices, proctor and gamble together with unilever plc were accused of running a price fixing cartel, and in April 2011, the European commission subsequently fined them. Proctor and Gamble is able to lead Consumer Goods Company by having strong brand names (Gillette, dolce and gabbana and bounty), increased dwelling on research and development of its products and it has strong distribution infrastructure as compared to its competitors. Most of proctor and gambles’ products are needed in the day-to-day life of consumers. We all need to use soaps, toothpaste and skin care products. In times of recession, many consumers find their income is not able to buy non-essential goods and luxuries; hence, the consumer reduces his/her expenditure on goods not considered essential to them. Proctor and gamble has a rich portfolio of consumer goods needed for use daily by consumers, prices also range for their different products. A consumer is less likely to change brand name of items like lotion, toothpaste or razors in times of recession. With this in mind and the fact that proctor and gamble has a wide range of products that serve the same purpose, the consumer will continue buying the product. Even if he/she changes from an expensive product to a cheaper product, it cushions proctor and gamble from adverse effects of recession as its products are still being consumed in the market due to their varying prices for different consumers. During the recession, Proctor and Gamble opted to introduce cheaper products that were cheaper to manufacture instead of price cuts to their existing products. FINANCIAL PERFORMANCE Proctor and Gamble has shown tremendous and improved financial performance throughout its years of existence. From 1859 when its sales reached $1 million to 2011 revenue of about $82 million, proctor and gamble has shown that its future is bright. In 2009, profit was about $38 million with net income at $13 million. In 2010, profits grew to $41 million with net income of $12 million. In 2011, profits were at $41,790,000 with net income at $11 million. From looking at the above details, one might think that P & G finances are going down. It is true their net income are down assuming all other factors remain constant over all the three periods, but this is not the case. The difference in net income comes from increase in operating expenses from the period of 2009 to 2011, this brought about the decrease in income. However, the general trend for the last couple of years at Proctor and Gamble has always been on the positive effect. The company has been able to take over other companies like Gillette due to its strong financial position. This trend is bound to continue gradually if the management continues to improve its products and portfolio. STOCK PRICE ANALYSIS The stock prices of Proctor and Gamble have been improving gradually through the years. From $52.26 in April 2007 to $67.51 in April 2012. This is an indicator that the company is doing well and as a result, investor confidence is high. The stocks have not been in a linear appreciation as at times the stocks fall below what was previously traded; while at times stock rises above what was previously traded. On average 10 million shares of P & G are traded daily. This is an indicator that very few investors are willing to part with the P & G stocks. Judging from previous stock price trends and the innovative and improved products from proctor and gamble, I am confident to believe that the stock prices will appreciate gradually although no sharp sudden rises will be exhibited. Proctor and Gambles’ stock are likely to attract an investor whose aim is dividend yield as it pays out an average of $1.50 per share. The management of Proctor and Gamble should make it their business to improve stock performance to ensure investor confidence in the company and stable stock prices. When investors are unhappy with the way the management is running the business, they tend to sell off their shares, this leads to fall in stock prices, and hence, potential investors will be put off from buying the stocks. To increase stock performance, the management can opt to conservative use of debt finance. This is where the company reinvests profits back into the company first before sourcing for external sources of finance. It ensures that future profits are either used to pay dividends to investors and for reinvestments instead of paying off debts that are to be paid at a certain interest amount. The management can also opt to increase liquidity of the stocks. Liquidity is the level by which a stock can be bought or sold. A liquid stock will attract investors since it is easily bought when one needs to buy and sold quickly when an investor is in need of liquid cash for use elsewhere. REFERENCES 1. Roberts, D. Grant, J. (2000) P & G looks to gain strength through unity, Financial Times. 2. Proctor and Gamble Income Statement retrieved from http://finance.yahoo.com/q/is?s=PG 3. Dyer, Davis; Frederick Dalzell, Rowena Olegario (May 2004). Rising Tide: Lessons from 165 Years of Brand Building at Procter & Gamble. Harvard Business School Press. 4. Alecia Swasy. (1994) soap opera: the inside story of proctor and gamble, Touchstone. 5. Proctor and gamble (2004) Cracking China. APPENDICES APPENDIX 1 Proctor and Gamble stock prices (table) Amounts in millions, except per share amounts 2011 2010 2009 2008 2007 Net Sales $82,559 $78,938 $76,694 $79,257 $72,441 Operating Income 15,818 16,021 15,374 15,979 14,485 Net Earnings 11,797 12,736 13,436 12,075 10,340 Net Earnings Margin from Continuing Operations 14.3% 13.9% 13.9% 14.2% 13.3% Diluted Net Earnings per Common Share from Continuing Operations $3.93 $3.53 $3.39 $3.40 $2.84 Diluted Net Earnings per Common Share 3.93 4.11 4.26 3.64 3.04 Dividends per Common Share 1.97 1.80 1.64 1.45 1.28 APPENDIX 2 Proctor and Gamble Income Statement Period Ending Dec 31, 2011 Sep 30, 2011 Jun 30, 2011 Mar 31, 2011 Total Revenue 22,135,000   21,917,000   20,860,000   20,230,000   Cost of Revenue 11,125,000   11,061,000   10,787,000   10,005,000   Gross Profit 11,010,000   10,856,000   10,073,000   10,225,000   Operating Expenses Research Development -   -   -   -   Selling General and Administrative 6,717,000   6,522,000   6,788,000   6,453,000   Non Recurring 1,554,000   -   -   -   Others -   -   -   -   Total Operating Expenses -   -   -   -   Operating Income or Loss 2,739,000   4,334,000   3,285,000   3,772,000   Income from Continuing Operations Total Other Income/Expenses Net 203,000   (32,000) 132,000   3,000   Earnings Before Interest And Taxes 2,942,000   4,302,000   3,417,000   3,775,000   Interest Expense 201,000   207,000   212,000   202,000   Income Before Tax 2,741,000   4,095,000   3,205,000   3,573,000   Income Tax Expense 995,000   1,071,000   695,000   768,000   Minority Interest (56,000) -   -   68,000   Net Income From Continuing Ops 1,690,000   3,024,000   2,510,000   2,873,000   Non-recurring Events Discontinued Operations -   -   -   -   Extraordinary Items -   -   -   -   Effect Of Accounting Changes -   -   -   -   Other Items -   -   -   -   Net Income 1,690,000   3,024,000   2,510,000   2,873,000   Preferred Stock And Other Adjustments -   -   -   -   Net Income Applicable To Common Shares 1,690,000   3,024,000   2,510,000   2,873,000   Currency in USD. 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