Financial Managerial Principles - Essay Example

Financial Management Principles Chosen Company: Procter & Gamble “We will provide branded products and services of superior quality and value that improve the lives of the worlds consumers. As a result, consumers will reward us with leadership sales, profit and value creation, allowing our people, our shareholders and the communities in which we live and work to prosper” (Procter and Gamble, 2007). Procter and Gamble, one of the top line companies in household FMCG products, is growing at a faster pace.

From the following graph we can easily see the financial strength of the company and the performance throughout the past year as it clearly reflects that the company is seriously dedicate towards the wellbeing of its investors and every stakeholders.(Source: Procter and Gamble)It shows how P&G has been performing above than the average S&P 500 index over past years and benefiting its shareholders with higher than the average index returns. The graph assumes that a $100 amount was invested, one in P&G and other in S&P 500 index.

It can easily be seen that except for 3 years (1999, 2000 and 2001) during the period, P&G return has been above average which shows the soundness of its financial and operational performance which has enabled it to transfer the benefits to its shareholders in the form of valuable returns.With lowering debt to Asset ratio and increasing current ratio, the company is directed towards lowering its risk perceived by shareholders while at the same time improving its ability to pay off its operational liabilities accrued due to revenue expenditure.

Net earnings are also on the rise showing that more and more part of their income will be given to shareholders. Since the dividend payout ration is something around 40 percent it means that with rising net income the shareholders’ cut will also increase.Company’s research and development expenditure are at the ever highest, showing that the company is expected to increase customer satisfaction by offering them innovative and unique solutions to their day to day needs in the form of better and improved products.

This will increase customer loyalty and brand preference among customers which will result in increase in company’s value which is a primary concern for a shareholder. The last five year annual growth rate is 10.63 % (Procter & Gamble, 2007) which is good news for investors who relies on dividend payment as a source of their earnings such as retirees. Since these are the type of investors who cannot wait to realize capital gains. They use dividends from the stock investment as a source of earnings.

Opportunities are waiting for investors to invest in a company which is among the best in many sections of investors’ evaluation. It has high brand equity, excellent financial performance over the past years, especially in terms of shareholders’ return and dividend payment, and impressive ratios which are above average on the favorable side to show the operational and financial strength and expertise of management. All it requires is to contact a broker or use company’s own shareholder’s investment program (Procter & Gamble, 2007) which provides assistance in the procedural and documentation requirement to become its shareholder for minimal fees for (enrollment fee, maintenance fee and a minimum commission of $0.

02 per share).We have a responsibility beyond P&G, beyond today’s plans and today’s business to be responsible corporate citizens, to be good neighbors and to improve the communities in which we live and work, to build the firm foundation to improve the lives of future generations. At the heart of who we are and how we do business, is a desire to be the most in-touch company in the world, when we are in touch with customers, business partners, shareholders and the communities in which we live and work P&G and P&G brands will continue to improve lives and will continue to grow (CEO, Procter & Gamble).

BibliographyProcter and Gamble (2007). Retrieved on May 13, 2007: http://www.pg.com/annualreports/2003/pdf/pg2003annualreport.pdfProcter and Gamble (2007). Retrieved on May 13, 2007: http://www.pg.com/investors/fin_trends.jhtml Brigham and Gapenski (2002). Financial Management Theory and Practice by Eugene F. Brigham and Lou s C. Gapenski. ISBN: 0-03-017789-8Fundamentals of Corporate Finance by Brealey Myers and Marcus. Fourth Edition