The Proctor & Gamble. Company Analysis

Cite this


Company Overview

The Proctor & Gamble (P&G) is a multinational corporation offering home and individual products of high quality and value. The company was established in 1837 by William Proctor and James Gamble in Cincinnati, Ohio and was incorporated in 1905. The market for the company’s products have expanded to over 180 countries through mass merchandisers, retail stores, membership clubs, pharmacies, departmental stores, beauty shops and supermarkets among others (Repp and Venkatraman 1). Its organizational structure consists of global business units, global operations and corporate functions. The business units help the company in developing suitable strategies and products in a given market. The company’s markets are very competitive with some of its major competitors being Johnson & Johnson, Unilever and Kimberley –Clark Corporation. However, the P&G holds a significant market share and position in the industry (Repp and Venkatraman 2).

Company Strength

As already been mentioned, the company is well positioned in the industry and is among the top manufacturers of household and personal products (Repp and Venkatraman 1). It also has clear budgetary objective and create markets that provide the best prospect for development. In addition, the company has taken numerous measures to cut down cost and be more cost effective. At the moment, P& G is the market leader in beauty products, household products, female products, and blade and razor products (Peter 8). Marketing strategy and product design are one of the most significant elements in the company. So as to maintain its supremacy in the global market, P& G effectively responds to market trends and changes in customer behaviour by modifying its marketing strategies and product mix. The company’s large volume of sales and revenue are largely attributed to its efficient distribution channel (Repp and Venkatraman 4; Peter 10).

Risk Factors

The greatest threat facing companies offering consumer products, including P&G is rapid technological change. As a result, these companies are always under pressure to come up with new products that are in line with the market trends and changes in customer behaviour. Companies that cannot keep up are often forced out of the business. In order to retain their most innovative and creative personnel, they are forced to pay excessive wages. The high cost of wages is passed on to consumers. This is one of the reasons why their products are always expensive (Repp and Venkatraman 12).

P& G is a manufacturer of consumer product and, therefore, depend heavily on the constant demand for its brand and products. A material change in consumer demand could have a significant impact on the business. Therefore, it must develop and sell products that appeal to all customers. This requires constant innovation, positive brand reputations and maintenance of exclusive rights. It must also be able to obtain exclusive rights and trademark, and respond to technological changes and rights granted to its rivals in the industry (Repp and Venkatraman 12; Peter 16).

The industry is characterized by high levels of competition. As a result, spirited advertising and marketing programs are needed to boost sales and improve the overall performance of the company. Proctor and Gamble need to control factors such as pricing, marketing incentives, business terms and its relationship with consumers (Vishnoi 18). Fluctuations of elements like commodity prices, production inputs, labour cost, interest rates, and foreign exchange rates can also have a major impact on the company. This can be managed through pricing actions, cost saving measures, hedging and outsourcing projects. Managing these elements is essential in maintaining a stable business (McCarthy 5; Chengappa 40).

Analysis of Financial Statements

Financial analysis is a very significant aspect of case study analysis. In any case, financial analysis reflects on the performance of the company in relation to its strategies and structure. Even though financial analysis is somehow complex, a great deal of the company’s financial position can be determined using ratio analysis. The financial ratios are classified into five main categories, namely: profitability tests, Liquidity tests, Activities tests, Leverage ratios, and Solvency tests (Poznanski, Sadownik and Gannitsos 1). This essay will compare the ratios of Proctor & Gamble and Johnson &Johnson.

Profitability test

These ratios show whether the company is making progress or going down.

Profit Margin

Profit margin shows the company’s level of profitability (Poznanski, Sadownik and Gannitsos 2). As you can see from the table below, Johnson & Johnson has a higher net income earned by every dollar of net sales compared to Proctor & Gamble in the last five years. This means the profitability in Proctor & Gamble is lower compared to Johnson & Johnson. Nonetheless, the level of profitability in Johnson & Johnson has been lower in the past three years compared to 2011 and 2010 (Gorsky 6).

Profit margin= Net Income/Net Sales Revenue

Actual Calculation= Net Earnings Attributable to P& G/ Net Sales

Year 2014 2013 2012 2011 2010
Profit Margin Percentage for P& G 14.017 13.698 12.194 16.805 18.264
Year 2014 2013 2012 2011 2010
Profit Margin Percentage for Johnson & Johnson 21.959 19.395 16.144 14.871 21.651

Earning per Share

Earning per Share= Net Income/Average Number of Common Stock Outstanding

Earnings per Share

Year 2014 2013 2012 2011 2010
Earnings per Share for Proctor and Gamble 4.19 4.04 3.82 4.12 4.32
Year 2014 2013 2012 2011 2010
Earnings per Share for Johnson & Johnson 5.80 4.92 3.94 3.54 4.85

EPS shows the efficiency of earning from each share. Earnings per share for Proctor & Gamble start to decrease from 2010 to 2012. It may be because of changes in the global market environment and some economic factors, rather than poor performance of the company. The values of Proctor & Gamble are generally smaller than Johnson & Johnson, but this cannot be compared directly since the prices of shares always vary from one company to another.

Return on Equity (ROE)

The ratio computes the earning from every unit of equity. It is more reliable than earnings per share when comparing performance of different companies. The ratio decreases from 2010 to 2014 for Proctor & Gamble (Marketwatch 1). ROE for Johnson and Johnson is much better than Proctor and Gamble.

Return on Equity=Net Profit or Income/ Average Stakeholders’ Equity

Actual calculations= Net Earnings Attributable to a company/ (Beginning Equity Closing Equity/2)

Year 2014 2013 2012 2011 2010
ROE% for P&G 16.639 16.464 16.292 18.228 20.266
Year 2014 2013 2012 2011 2010
ROE% for JNJ 30.233 29.782 26.283 25.292 25.678

Return on Assets (ROA)

Return on Assets= Net Income/ Average Total Assets

Actual calculations= Net Earnings/ (Beginning + Closing Assets)

Year 2014 2013 2012 2011 2010
ROA for P&G 7.978 8.125 8.133 8.527 9.934

The ratio indicates how the company effectively turns asset into earning. The ratio of P&G starts decreasing from 2009, which may be affected by the drop of sales efficiency.

Quality of Income

Quality of Income= Cash Flow Operating Activity / Net Income

Actual Calculations= Total Operating Activities/Net Earnings

Year 2014 2013 2012 2011 2010
Quality of Income for P&G 1.253 1.246 1.235 1.121 1.262
Year 2014 2013 2012 2011 2010
Quality of Income for JNJ 1.592 1.437 1.418 1.478 1.229

The number measures the portion of income that was generated in cash. By comparing the above results, we can see that the quality of income of Johnson & Johnson is larger than P&G, which means that P&G has a lower ability to finance its operations and the cash needs from the inflows of operating cash, and cash may not be effectively collected due to bad debt (Marketwatch 3).

Fixed Asset Turnover Ratio

Fixed Asset Turnover Ratio= Net Sales Revenue/ Average Net Fixed Assets. The fixed asset turnover ratio measures a company’s capability to make sales given an investment in fixed assets. Johnson & Johnson have made good use of their investment in fixed assets compared to Proctor and Gamble. This may reflect a poor and less effective management of P&G.

Year 2014 2013 2012 2011 2010
Fixed Asset Turnover Ratio for P&G 4.0121 4.0102 4.0163 4.0732 4.0789
Year 2014 2013 2012 2011 2010
Fixed Asset Turnover Ratio for JNJ 4.341 4.352 4.360 4.440 4.202

Liquidity Test

These ratios measure the ability of the company to meet its short term obligations.

Current Ratio

Current Ratio=Current Assets/Current Liability

Year 2014 2013 2012 2011 2010
Current Ratio for P&G 0.913 0.883 0.879 0.805 0.773
Year 2014 2013 2012 2011 2010
Current Ratio for JNJ 2.361 2.197 1.901 2.381 2.050

The current ratios of Proctor & Gamble are below 1.0 in the last 5 years, which means the company is unable to pay off the current debt. This is not a good financially. However, the ratio keeps on increasing showing that the company is improving the situation. On the other hand, Johnson & Johnson has a high current ratio, which is financially sound. However, high current ratio, particularly the current ratio larger than 2 may mean the company is using its resources unproductively.

Quick Ratio (Acid Test)

Quick Ratio= Quick Asset/ Current Asset

Actual Calculations= (Cash Equivalent Investment Securities+ Account Receivable)/ Total Current Liabilities

Year 2014 2013 2012 2011 2010
Acid Test for P&G 0.456 0.442 0.423 0.341 0.354

The quick ratio confirms a solid level of Proctor & Gamble liquidity. It is a more reliable ratio than current ratio as it considers quick asset and exclude inventory, which may not be converted to cash. The low ratio shows the company is not in well position. Still, the ratio is increasing, which means the company is increasingly growing.

Receivable Turnover Ratio

Receivable Turnover Ratio=Net Sales/ Average Net Receivable

Actual Calculations= Net Sales/ (Beginning Account Receivables + Closing Account Receivables)

Year 2014 2013 2012 2011 2010
Receivable Turnover Ratio for P&G 13.241 13.543 13.559 14.122 14.133
Year 2014 2013 2012 2011 2010
Receivable Turnover Ratio for JNJ 6.138 6.097 6.141 6.639 6.342

The company has a high receivable turnover ratio than Johnson & Johnson. It suggests that Proctor & Gamble is more effective in its credit-granting and collection of debts. In other words, Proctor & Gamble use its assets more effectively.

Inventory Turnover Ratio

Inventory Turnover Ratio= Cost of Sales/ Average Inventory

Actual Calculation= Cost of Goods Sold/ (Beginning Inventory+ Closing Inventory/2)

Year 2014 2013 2012 2011 2010
Inventory Turnover Ratio for P&G 6.279 6.125 6.013 5.924 5.718
Year 2014 2013 2012 2011 2010
Inventory Turnover Ratio for JNJ 3.0771 3.128 3.143 3.491 3.559

The company has a higher inventory turnover ratio, which means the inventory of the company moves more quickly through the production processes to clients. This helps in reducing other costs like storage or obsolescence. In addition, the inventory turnover ratio keeps increasing, meaning Proctor & Gamble sells and replaces its inventory in a more efficient way.

Solvency Test

Debt-to-Equity Ratio

Debt-to-Equity Ratio= Total Liabilities/ Stakeholders’ Equity

Actual Calculations= Total Liabilities/ Total Shareholders’ Equity

Year 2014 2013 2012 2011 2010
Debt-to-Equity Ratio for P&G 1.338 1.549 1.065 1.035 1.086
Year 2014 2013 2012 2011 2010
Debt-to-Equity Ratio for JNJ 0.0931 0.864 0.872 0.991 0.818

Based on the Debt-to-Equity Ratio, for each dollar of stockholders’ equity, the company has greater worth of liabilities than that of Johnson & Johnson. A high ratio suggests that Proctor & Gamble depends heavily on funds provided by creditors, which puts the business at a high risk.

Times Interest Earned Ratio

Times Interest Earned Ratio= (Net Income Interest Expenses+ Income Tax Expenses)/ Interest Expenses

Actual Calculations=Earnings from Operations before Income Tax/ Interest Expenses

Year 2014 2013 2012 2011 2010
Debt-to-Equity Ratio for P&G 15.933 17.783 16.625 18.277 15.906

The Times Interest Earned Ratio compares the income generated by Proctor & Gamble to its interest obligation for the same period. A high Times Interest Earned ratio in earlier years represents a margin protection for the creditors. On the other hand, a high ratio may also mean an undesirable lack of debt or the company is paying down too much debt with earnings that could be used for other projects.

Activities Test

Sales Efficiency

Sales Efficiency = Sales/ Assets

Year 2014 2013 2012 2011 2010
Sales Efficiency 0.5757 0.5930 0.618 0.608 0.589

From 2010 to 2014, the sales efficiency decreases. This may be due to the emergence of some competitors in the same market. The average total asset also fluctuates from one year to another. This may be due to asset depreciation, purchase of treasuring stock for cash and payment of cash dividends. High efficiency in 2011 and 2012 may be attributed to sales strategy used to attract more customers.

Return on Assets

Return on Assets= Net Profit/ Total Assets

Year 2014 2013 2012 2011 2010
Return on Assets % 8.161 8.122 8.133 8.526 9.936

From 2010 to 2014, the return on assets increases. It may be due to several reasons. Firstly, the sale of goods increases and expenses reduces. Secondly, the asset turnover increases. This may also be attributed to efficiency in revenue collection and inventory management (Marketwatch 3).

Leverage Ratios

These ratios show the amounts of debt or equity used to finance the business. Businesses are highly leveraged if they use more borrowings than equity. The balance between the two is normally referred to as capital structure. The main leverage ratios include Debt to Asset ratio and Debt to Equity ratio. Debt to Equity Ratio has already been computed.

Debt to Asset Ratio

Debt to Asset Ratio= Total Debt/Total Assets

Year 2014 2013 2012 2011 2010
Debt to Asset Ratio 2.061 2.026 2.049 2.059 2.107

From 2013 to 2014, the company had a small increase in debt. It may be due to long and short term borrowing for some new product inventions. From 2010 to 2012, the demand of debt had decreased by 0.081, which may be because of the payment of debt after collecting cash from accounts payable.


From the above analysis, it is evident that Proctor & Gamble is not performing well compared to its rival and, therefore, it is not rational to invest in the company. The analysis shows that P & G is not stable and healthy financially. The profit margin shows that the profitability of P&G keeps on decreasing. The Earnings per Share and Return on Equity are also decreasing. The current ratio further suggests the company is not able to pay off current liabilities. The quality of cash is not good, which means that there is no enough cash for running the business, especially when money is needed for emergency purposes. The debt-to-equity ratio also shows that the company mainly relies on creditors, which is not a healthy condition for any business. The fixed asset turnover ratio also shows lack of efficiency in management. In a nutshell, investing in P & G is a risky venture. As competitors like Johnson & Johnson keeps growing and improving, it may take the company a considerably long time to reverse the situation. This may require radical changes in both management and marketing strategies.


Chengappa, Marthur. 2010, Retail Management: Text and Cases, New Delhi, India: International Pvt Lited. Print.

Gorsky, Alex. Company Analysis, Cincinnati, Ohio Print: J & J Inc., 2014. Print.

Marketwatch. Annual Financials for Johnson and Johnson. n.d.Web.

McCarthy, Scott. Hedging and invoicing strategies to reduce exchange rate exposure: a Euro-area perspective, Brussels: European Commission, 2014. Print.

Poznanski, Julie, Bryn Sadownik and Irene Gannitsos. Financial Ratio Analysis. 2013. Web.

Repp, Amanda and Padma Venkatraman. Proctor and Gamble, Washburn: Washburn School of Business, 2012. Print.

Vishnoi, Peter. Proctor and Gamble Hygiene and Health Care Limited, Mumbai, India: Vicks, Inc., 2015. Print.


Financial Summary for Proctor & Gamble
Appendix 1: Financial Summary for Proctor & Gamble
Johnson and Johnson Consolidated Earning
Appendix 2: Johnson and Johnson Consolidated Earning

Appendix 3: Johnson & Johnson Consolidated Balance Sheet


Fiscal year is January-December. All values USD millions. 2010 2011 2012 2013 2014 5-year trend
Cash & Short Term Investments 27.66B 32.26B 21.09B 29.21B 33.09B
Cash Only 19.36B 24.54B 14.91B 20.93B 14.52B
Short-Term Investments 8.3B 7.72B 6.18B 8.28B 18.57B
Total Accounts Receivable 9.77B 10.58B 11.31B 11.71B 10.99B
Accounts Receivables, Net 9.77B 10.58B 11.31B 11.71B 10.99B
Accounts Receivables, Gross 10.11B 10.94B 11.78B 12.05B 11.26B
Bad Debt/Doubtful Accounts (340M) (361M) (466M) (333M) (275M)
Other Receivables 0 0 0 0 0
Inventories 5.38B 6.29B 7.5B 7.88B 8.18B
Finished Goods 2.85B 3.44B 3.82B 4.04B 4.51B
Work in Progress 1.46B 1.64B 2.26B 2.61B 2.46B
Raw Materials 1.07B 1.21B 1.42B 1.22B 1.21B
Progress Payments & Other
Other Current Assets 4.5B 5.19B 6.22B 7.61B 7.05B
Miscellaneous Current Assets 4.5B 5.19B 6.22B 7.61B 7.05B
Total Current Assets 47.31B 54.32B 46.12B 56.41B 59.31B
2010 2011 2012 2013 2014 5-year trend
Net Property, Plant & Equipment 14.55B 14.74B 16.1B 16.71B 16.13B
Property, Plant & Equipment – Gross 30.43B 31.83B 34.65B 37.13B 36.69B
Buildings 9.08B 9.39B 10.05B 10.42B 10.05B
Land & Improvements 738M 754M 793M 885M 833M
Computer Software and Equipment
Other Property, Plant & Equipment
Accumulated Depreciation 15.87B 17.09B 18.56B 20.42B 20.56B
Total Investments and Advances 0 0 0 0 0
Other Long-Term Investments 0 0 0 0 0
Long-Term Note Receivable 0 0 0 0 0
Intangible Assets 32.01B 34.28B 51.18B 50.75B 49.05B
Net Goodwill 15.29B 16.14B 22.42B 22.8B 21.83B
Net Other Intangibles 16.72B 18.14B 28.75B 27.95B 27.22B
Other Assets 3.94B 3.77B 3.42B 4.95B 3.23B
Tangible Other Assets 3.33B 3.52B 3.22B 2.59B 3.23B
Total Assets 102.91B 113.64B 121.35B 132.68B 131.12B

Liabilities & Shareholders’ Equity

2010 2011 2012 2013 2014 5-year trend
ST Debt & Current Portion LT Debt 7.62B 6.66B 4.68B 4.85B 3.64B
Short Term Debt 7.6B 6.04B 3.16B 3.08B 3.63B
Current Portion of Long Term Debt 13M 616M 1.51B 1.77B 7M
Accounts Payable 5.62B 5.73B 5.83B 6.27B 7.63B
Income Tax Payable 578M 854M 1.06B 770M 500M
Other Current Liabilities 9.25B 9.57B 12.69B 13.79B 13.31B
Dividends Payable
Accrued Payroll 2.64B 2.33B 2.42B 2.79B 2.75B
Miscellaneous Current Liabilities 6.61B 7.25B 10.27B 10.99B 10.56B
Total Current Liabilities 23.07B 22.81B 24.26B 25.68B 25.09B
Long-Term Debt 9.16B 12.97B 11.49B 13.33B 15.12B
Long-Term Debt excl. Capitalized Leases 9.16B 12.97B 11.49B 13.33B 15.12B
Non-Convertible Debt 9.16B 12.97B 11.49B 13.33B 15.12B
Convertible Debt 0 0 0 0 0
Capitalized Lease Obligations 0 0 0 0 0
Provision for Risks & Charges 6.09B 8.35B 9.08B 7.78B 9.97B
Deferred Taxes (3.65B) (4.74B) (1.41B) 117M (242M)
Deferred Taxes – Credit 1.45B 1.8B 3.14B 3.99B 3.15B
Deferred Taxes – Debit 5.1B 6.54B 4.54B 3.87B 3.4B
Other Liabilities 6.57B 10.63B 8.55B 7.85B 8.03B
Other Liabilities (excl. Deferred Income) 6.57B 10.63B 8.55B 7.85B 8.03B
Deferred Income
Total Liabilities 46.33B 56.56B 56.52B 58.63B 61.37B
Non-Equity Reserves 0 0 0 0 0
Preferred Stock (Carrying Value) 0 0 0 0 0
Redeemable Preferred Stock 0 0 0 0 0
Non-Redeemable Preferred Stock 0 0 0 0 0
Common Equity (Total) 56.58B 57.08B 64.83B 74.05B 69.75B
Common Stock Par/Carry Value 3.12B 3.12B 3.12B 3.12B 3.12B
Retained Earnings 77.77B 81.25B 85.99B 89.49B 97.25B
ESOP Debt Guarantee 0 0 0 0 0
Cumulative Translation Adjustment/Unrealized For. Exch. Gain (869M) (1.69B) (288M) 43M (4.66B)
Unrealized Gain/Loss Marketable Securities 24M 448M 195M 106M 257M
Revaluation Reserves 0 0 0 0 0
Treasury Stock (20.78B) (21.66B) (18.48B) (15.7B) (19.89B)
Total Shareholders’ Equity 56.58B 57.08B 64.83B 74.05B 69.75B
Accumulated Minority Interest 0 0 0 0 0
Total Equity 56.58B 57.08B 64.83B 74.05B 69.75B
Liabilities & Shareholders’ Equity 102.91B 113.64B 121.35B 132.68B 131.12B

Cite this paper

Select style


BusinessEssay. (2023, January 13). The Proctor & Gamble. Company Analysis. Retrieved from


BusinessEssay. (2023, January 13). The Proctor & Gamble. Company Analysis.

Work Cited

"The Proctor & Gamble. Company Analysis." BusinessEssay, 13 Jan. 2023,


BusinessEssay. (2023) 'The Proctor & Gamble. Company Analysis'. 13 January.


BusinessEssay. 2023. "The Proctor & Gamble. Company Analysis." January 13, 2023.

1. BusinessEssay. "The Proctor & Gamble. Company Analysis." January 13, 2023.


BusinessEssay. "The Proctor & Gamble. Company Analysis." January 13, 2023.