Ratio Analysis And Statement Of Cash Flow: The Proctor And Gamble Company

1467 words - 6 pages

All company accounts are prepared in accordance with the various accounting laws and regulations, and are designed for a wide audience. Therefore, to obtain data for specific purposes it is frequently necessary to submit the numbers to specific analysis. Following is an analysis of The P&G Corporation's year 2004 and 2005 financial statements. This analysis is intended to, through the calculation of ratios; assess the short-term and long-term liquidity, in addition to the profitability of The P&G Corporation.Short-term liquidity is the ability of the company to meet its short-term financial commitments. Short-term liquidity ratios measure the relationship between current liabilities and current assets. This helps us measure the P&G's ability to sell inventory, to collect receivables and to pay current liabilities. Following is the Current Ratio, the return on sales ratio, earnings per share (EPS), debt ratio, and the price earnings ratio. These measures are concentrated upon the current assets and current liabilities to asses the P&G Corporation's ability to meet their financial commitments as they become due.Current RatioCurrent Ratio= Current Assets $20,329.00 = 0.81189Current Liabilities $25,039.00For the 2005 financial year, P&G Corporation had $20,329.00 in total current assets and $25,039.00 in total current liabilities. This gives the company $0.81 for ever dollar of current liabilities. This could be seen as a secure situation, but by looking into the 2004 financial year Statement of Financial Position, it can be ascertained that the company had $0.30 for ever dollar of current liabilities. That is $17,115.00 in total current assets and $57,048.00 in total current liabilities. This shows that P&G Corporation increased its ability to pay debts (The P&G Corporation, 2005) "Free Cash Flow. Free cash flow is defined as operating cash flow less capital spending. The company views free cash flow as an important measure because it is one factor in determining the amount of cash available for dividends and discretionary investment. Free cash flow is also one of the measures used to evaluate senior management and is a factor in determining their at-risk compensation. Free Cash Flow Productivity. Free cash flow productivity is defined as the ratio of free cash flow to net earnings. The Company's target is to generate free cash flow at or above 90% of net earnings. Free cash flow productivity is one of the measures used to evaluate senior management." (P&G)Return on Sales Ratio (Profit Margin)Profit Margin= Net Income $7,257.00 = .2610Sales $27,804.00This ratio shows a difference of $0.13 between the financial years of 2005 and 2004, again giving the corporation an increased ability to pay debts as they became due without selling its inventory. (The P&G Corporation)Earnings Per Share (EPS)Earnings Per Share= Income___________ 7,257.00 = 2.9344Weighted Average Common Shares 2,473.00"In computing earnings per share,...

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