Account Receivables Turnover Ratio Analysis P&G Assignment

Account Receivables Turnover Ratio Analysis P&G Assignment Words: 1682

One reason for this increase was due to a conscious effort by Proctor and Gamble to improve collection times for incoming payments. In 2009, they incurred too much short-term debt due to the delayed collection of payments for their products and ended up decreasing their A/R account by almost $500 million. Their sales also increased in 2010 due to the expansion of the Beauty, Grooming, and Health segments during the year.

A combination of their sales increase and a decrease in A/R led to the increase n their A/R turnover. In order to compare to the industry, we had to define what industry a company as large as P&G belongs apart of. After our research, we determined that the industry average A/R turnover is 9. 2. P&G’s 14. 80 A/R turnover compares very favorably to the industry average of 9. 2. 201 1 The A/R turnover ratio for 2011 was 13. 16, which was decrease from 14. 80 in 2010. One factor that led to this was P’s increased involvement in international sales. The company determined to expand sales, they needed to make a more significant prescense abroad.

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However, when involving in nternational sales, any country that has any level of economic turmoil makes it extremely difficult to collect on credit sales in a timely fashion. P&G’s A/R increased by $940 million due to these international credit transactions. To prevent a significant decrease in their A/R turnover ratio however, they were able to experience a $3,621 million increase in sales the ratio decrease. Nearly $3,000 of their increase in sales can be attributed to their international sales. could afford to decrease their A/R turnover ratio slightly because they still compare favorably to the industry average, which is 9. 2012 The A/R turnover ratio for 2012 was 13. 79, which happened to be a slight increase from 13. 16 of the previous year. The increase can be explained fairly simply; P was able to cash out from their previous years international credit transactions at a higher rate than any increase in international credit sales. This can be seen on the balance sheet where their A/R decreases by $206 million while they were still able to see an increase in sales by $1 , 121 million. Similarly to previous years, their A/R turnover compares very favorably to the industry average, which was 9. 7 in 2012. 2013

The A/R turnover ratio for 2013 was 12. 93, which happened to be a noticeable decrease from 2012’s ratio value of 13. 79. Part of this increase can be attributed to a $440 million dollar increase in accounts receivables. This was a product of a company initiative to fund segment growth. P&G’s plan was that in order to increase their stock price (in essence to increase they value of their company), they needed to expand a few of their segments (organic sales was one of these). This is why their A/R turnover ratio managed to decrease although they experienced a minor increase in sales of $487 million dollars.

Their ratio compares similarly to the industry average as it has in the past due to the fact the industry as a whole saw it’s A/R turnover ratio decrease to 9. 0. Quick Ratio Analysis 2010 The quick ratio for 201 0 was . 3383, which represented a slight decrease from . 344 in 2009. The primary way to trace this decrease is to analyze the decrease in $1 ,902 million in cash flow in the statement of cash flows. This was due to a multitude of reasons. First off, P&G invested $5,348 million in the purchase of treasury stock. This was partially done to obtain more stock internally to be sold at a later date when more funds were needed.

They also paid off $6,377 of long-term debt that was in relation to their pharmaceuticals divestiture. Both of these expenditures led to a decrease in the company’s cash account. Proctor and Gamble’s quick ratio is much lover than the industry average of . 9. Although this significant difference would cause concern for a smaller company, has enough segments in their company that they have minimal worries about being able to repay liabilities. 2011 The quick ratio for 201 1 was . 3313, a miniscule decrease from . 3383 the previous year.

Although there were not many negative expenditures for the ompany in 2011, the primary reason the quick ratio dropped slightly was because of the amount of Goodwill they allocated for due to the acquisition of Ambi Pur in their F-abric Care segment. This resulted in a $4,534 million decrease in cash flows due to intangibles. However, their yearly sales of $11 , 797 million was able to withstand the goodwill payments to minimalize the cash flow decrease. Similarly to previous years, their quick ratio compares negatively to the industry but this is partially due to the fact they have been reinvesting the majority of their asssts in the company.

The quick ratio for 201 2 was . 217, which happened to be a significant ratio increase due to the size of Proctor & Gamble. Part of the improvement can be attributed to the decrease in Goodwill paid in comparison to the previous year. P&G spent $3,789 million less in Goodwill in 2012. This can be correlated to the selling of their global snacks business. They also sold off a few of their international manufacturing plants in 2012 and this led to a significant cash increase for the quick ratio ($1 ,274 million).

However this increase was mitigated partially due to the increase in short-term debt due to the negative economic conditions. P&G still compared negatively to the industry quick ratio average of . 9, but this year they took a massive step closer to the average. The quick ratio for 201 3 regressed minimally from its 201 2 value of . 4217 to a value of . 4147. Although their cash and A/R accounts improved slightly, the trace to this decrease in value can be brought back to an increase in payable accounts.

The first increase in the AIP account is partially due to an increase in raw materials costs for their Beauty and Health segment. A lot of these raw materials purchases were made on short-term credit, which resulted in an increase in the A/P account. The remainder of the $857 million dollar increase in the A/P can be traced to marketing accruals and from an increase in advertising costs. As stated previously, P&G has been attempting to increase their influence in the International market and due to that they needed to increase their advertising expenditures.

Their quick ratio compares similarly to the industry average as it had in previous years due to the fact the industry average maintained its . 9 value. Debt-equity Ratio Proctor & Gamble had a decrease in their debt equity ratio from 2009 to 2010 from 1. 1368 to 1. 0972. In 2010, total liabilities decreased by $4,677 million hile total equity decreased by $1 ,984 million. As stated previously, the liabilities decreases can be primarily traced back to P&G’s pharmaceutical divestiture ($6,377 million). This liability decrease however was combated by P’s decision to buy back treasury stock. $5,348 million). The decrease in debt equity ratio represented a yearly decreasing trend in their debt due to a company policy created by CEO A. G. Lafley with the goal to decrease their credit in order to combat the economic recession. The minimizing of their debt is made obvious when comparing their ratio to the industry debt equity average of 2. 0. Their significantly lower value proved that a smaller percent of their earnings were based off of debt. Procter & Gamble experienced another decrease in their debt equity ratio in 201 1, which dropped from 1. 0972 to 1. 0454.

They incurred a liability increase by $3,657 million and a equity increase in $6,525 million. The equity increase can be pinpointed to a significant increase in the retained earnings account ($1 1 ,836 million). The first reason for this increase was due to currency fluctuations. Due to an expanding influence in the European and Asian markets over the most recent fiscal years, P&G’s equity can be supseptible to urrency fluctuations. Secondly, P increased their retained earnings as risk assessment procedures to prevent mitigate risk during the back-end of the economic recession.

Their liability increased can be traced to the increasing cost of raw materials. Raw material prices spiked by 13-16% and this led to increases in their payable accounts. Again, P compares strongly to the industry average, which in 201 1 was 1. 6. Procter & Gamble saw their debt equity ratio rise in the fiscal year of 2012 from 1. 0454 to 1-0846. Although this is still a highly impressive value, it was a noticeable increase. Their equity account decreased by $4,201 million and their liabilities also decreased by $1,909 million as well.

The decrease in retained earnings ($2,612 million) can be attributed back to their international sales focus. An issue for P was that because of the economic turmoil throughout the world in the late 2000’s and in the most recent years, they continually added to their short-term debt account because it took a while to “cash in” on an international transaction. In 201 2, P&G paid off $2,372 million in N/P accounts. Retained Earnings also decreased due to the $1 ,600 million mpairment charge they associated with the Appliances and Salon Professional business.

P&G also reduced their equity by continuing their efforts to purchase more treasury stock (52,326 million). Although their debt equity ratio experienced an increase, they still compared favorably to the industry average of 1. 5. Procter & Gamble reversed their increase in their debt equity ratio in 201 2 by decreasing the ratio from 1. 0846 to 1. 0461 in 2013. They saw their equity accounts raise by $4,625 million and their liabilities raise as well by $2,394 million. part of this debt equity ratio decrease can be connected to how ccounted for their discontinued operations.

Net earnings from discontinued operations increased by 22% due to the yearly net impact of acquisition and divestiture gains when associated with declines in impairment charges. As stated previously, their increase in liabilities is correlated with their uptick in advertising expenditures ($857 million). Although Procter & Gamble saw their debt equity ratio improve in 2013, the industry as a whole improved their value from 1. 5 to 1. 3. This is partially due to the economic recession ending and the stabilizing Of the economy over the previous year.

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