The Procter & Gamble Company Cost Accounting
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Introduction
The Procter & Gamble Company was founded in 1837 by James Procter and William Gamble. The company started out manufacturing soap and built on innovation by 1890 the company was selling more six different kinds of soap (PG, 2006). As we know the rest is history the company was later incorporated in 1905 and sells their consumer products in more than 180 countries and has operations in approximately 70 countries. The Procter and Gamble Company has more than 100,000 employees domestic and foreign. Their customers include mass merchandisers, grocery stores, member club stores, drug stores, department stores, salons, distributors, e-commerce and high frequency stores.
Income Statement Analysis ($ in million)
The 2015 net sales were negatively impacted by approximately $4.8 billion of unfavorable foreign exchange fluctuation compared to 2014. Net earnings attributable to Procter & Gamble in 2015 were negatively impacted by approximately $1.4 billion due to foreign exchange, $2.1 billion of non-cash impairment charges related to the Batteries business reported in discontinued operations and a $2.1 billion Venezuelan deconsolidation charge. The Vertical analysis shows that the gross profit represented 49% of sales and cost of goods sold rounded at 51% of sales for 2015 compare to 2014 that represent 49.1% and 50.9% respectively. Total SG&A decreased 5% to $23.6 billion, as reduced overhead and marketing spending was partially offset by increased foreign exchange transaction charges (SEC 10K Report, 2015).
SG&A as a percentage of net sales increased to 30.9%, as the negative scale effects of lower net sales and inflationary impacts were partially offset by cost savings efforts. The Horizontal analysis reveals that a decrease of $4,321 of sales were reported in 2015 compared to 2014. Cost of Goods Sold decreased by $2,134 in 2015 as well as Gross Profits reported a decrease of $2,097. Most notible was the net earnings (loss) from discontinued operations of $2,253 due to the deconsolidated Venezulian operations effective June 30, 2015. Horizontal analysis shows operating income reported the largest decreased of $2,950 from the income statement also related to the deconsolidation of Venezulian operations completed in 2015.
Balance Sheet analysis ($ in millions)
The vertical analysis shows a decrease of 4.2% of inventories that contributes to total assets in 2015 compared to 4.4% in 2014. 36.5% of Goodwill make up total assets in 2015 compared to very similar figures of 37.2% of Goodwill in 2014. Goodwill and indefinite-lived intangible assets are not amortized, but are evaluated for impairment annually or more often if indicators of a potential impairment are present. The cost of intangible assets with determinable useful lives is amortized to reflect the outline of economic benefits expended, either on a straight-line or accelerated basis over the estimated periods benefited (Procter & Gamble, 2015).
Trademarks and other intangible assets in 2015 is 20.7% of total assets compared to 2014 21.4% of total assets. All of the goodwill and indefinite-lived intangible asset impairment charges that are not reflected in discontinued operations are included in Corporate for segment reporting.
The vertical analysis shows that long-term debt contributes 14.2% to total liabilities in 2015. Liabilities held-for-sale almost doubled from 0.5% in 2014 to 0.9% in 2015. P&G retained earnings accounts for 65.5% of the shareholders’ equity. Procter & Gamble shareholders’ equity account has been paying a dividend for 125 consecutive years since its incorporation in 1890 and has increased its dividend for 59 consecutive years at an annual compound average rate of over 9% (Procter & Gamble, 2015).
The Horizontal analysis shows that cash and cash equivalents decreased by $1,713 between 2014 and 2015. Available-for-sale account increased by $2,639 or 124.0% from 2014 to 2015. Assets held for sale also increased by $661 from 2014 to 2015. Goodwill, trademarks and other intangible assets decreased respectively by $6,388 and $4,014 respectively.
Liabilities held for sale increased by 78.9% or $527. Retained earnings decreased by $183 from 2014 to 2015 and non-controlling interest accounts decrease by $131 between 2014 and 2015.
Segment Sales Analysis
The vertical analysis of the segment sales results shows total sales of $76,279 or 0.6% of net sales decreased in 2015 by 0.3%. In 2014 total sales represented $80,510 or 0.9% of net sales. Beauty, hair and personal Care accounts for 23.8% of net sales. Grooming is 9.8% of net sales and similar results in 2014 of 9.9%, Healthcare results in 10.1% of net sales 2015 comparable to 2014 of 9.7%. Fabric care and home care makes up 29.2% of net sales for 2015 and 2014. Baby, feminine and family care accounts for 26.5% of net sales for 2015 and 26.0% for 2014.
The horizontal analysis shows a decrease of all segments from 2014 to 2015. $1,372 in 2015 for beauty, hair and personal care segment. Grooming decreased by $568, Healthcare saw a smaller decreased of $85, fabric care and home care decreased by $1,232, baby feminine and family care decreased $703. Segment results reflect information on the same basis Procter & Gamble use for internal management reporting and performance evaluation. The results of these reportable segments do not include certain non-business unit specific costs such as interest expense, investing activities and certain restructuring and asset impairment costs. These costs are reported in our Corporate segment and are included as part of our Corporate segment discussion. Additionally, we apply blended statutory tax rates in the segments. Eliminations to adjust segment results to arrive at their effective tax rate are included in the corporate segment. This final segment that make up net sales accounts for only 0.6% in 2015 and 0.9% in 2014.
Inventory Analysis
The vertical analysis of inventory consists of materials and supplies that accounts for 25.5% of the inventory account in 2015 comparable to 2014 of 25.8%. Work in process make up 10.1% for 2015 and 2014 of the inventory account. Finished goods accounts for 64.4% of inventory for 2015 and 64.1% in 2015. The horizontal analysis of the inventory account shows a decreased across the board from 2014 to 2015. Materials and supplies decrease by $350,