Maria Alejandra Ramirez

ACG2021-001

Annual Report

Executive SummaryExecutive SummaryExecutive SummaryExecutive SummaryIn 2007, Procter and Gamble achieved a 5% increase on its Organic Sales Growth, and a 15% increase on its Earnings per Share. Beauty and Health Care Sales have doubled just in the past six years. The company’s stock price has increased, as well as the investors’ confidence in the company. Also, the stock’s return to the investors increased. A negative change was that Receivables turnover and Days’ inventory on hand decreased. But overall, the company seems to show good performance and increased business.

Procter & Gamble’s 2007 Annual Report http://thomson.mobular.net/thomson/7/2481/2801/

IntroductionIntroductionIntroductionIntroductionALAN G. (A.G.) LAFLEY

Chairman of the Board and Chief Executive Officer

CORPORATE HEADQUARTERSThe Procter & Gamble CompanyP.O. Box 599Cincinnati, OH 45201-0599

Ending date of latest fiscal year: June 30th

P&G is a recognized leader in the development, distribution and marketing of superior Fabric & Home Care, Baby Care, Feminine Care, Family Care, Beauty Care, Health Care, and Snacks & Coffee products.

About half of P&G sales come from North America and half from other 47 countries around the world.

Audit ReportAudit ReportAudit ReportAudit Report Procter & Gamble’s independent auditors:

Deloitte & Touche LLP

In 2007, Deloitte & Touche LLP concluded that P&G’s financial statements presented fairly the company’s financial position, according to the accounting principles generally accepted in the United States of America. In addition, the auditors opinion was that P&G’s internal controls over financial statements were effective.

Stock Market InformationStock Market InformationStock Market InformationStock Market InformationAs of June 30th, 2007:• Company’s stock price: $61.190• Dividend per share: $0.35• Twelve month trading range of the

company’s stock (June 30th, 2006 – June 30th, 2007)High: $66.30 - Low: $55.25

November 28th,2007 Closing Price: $73.91• PG has strong market share and a balanced

portfolio of brands. Currently, either buying or holding this investment would be a good choice.

Industry Situation and Industry Situation and Company PlansCompany Plans

Industry Situation and Industry Situation and Company PlansCompany Plans

PG's competitive strengths are a diverse portfolio of businesses, scale, strong brands and a strong focus on product innovation. Combined with geographic diversity, category diversity provides PG with a consistent revenue stream. P&G expects to grow globally, and increase consumer usage frequency. Also, they expect to enter categories they are not currently competing in. The company expects to increase 3% to 4% its beauty and health markets. Procter & Gamble recently announced plans to invest approximately $300 million to begin Phase I construction in early 2008, of a manufacturing facility in Box Elder County, Utah, to be operational by 2010.

http://www.seekingalpha.com/article/22504-procter-gamble-a-classic-investment-with-great-potentialhttp://www.expansionmanagement.com/cmd/articledetail/articleid/19227/default.asphttp://money.cnn.com/2006/11/07/commentary/sivy/sivy.moneymag/index.htm

Income StatementIncome StatementIncome StatementIncome StatementP&G uses the Multistep Income Statement format

In millions of USD 06/30/07 06/30/06

Gross Profit 39,790.00 35,097.00

Income from Operations

14,710.00 12,413.00

Net Income 10,340.00 8,684.00

Gross Profit increased by $4,693.Income from Operations increased by $2,297Net Income increased by $ 1,656.

Clearly, Procter & Gamble has been growing and developing for the last two years.

Balance SheetBalance SheetBalance SheetBalance Sheet

Between 2006 and 2007, the Assets account increased by $2,319 and the Liabilities account decreased by $1,533. As a result, Stockholders’ Equity increased by $3,852.

  Assets

 = 

Liabilities

+

Stockholders Equity

06/30/07 138,014.00 71,254.00 66,760.00

06/30/06 135,695.00 72,787.00 62,908.00

in millions of USD

Statement of Cash FlowsStatement of Cash FlowsStatement of Cash FlowsStatement of Cash Flows• Cash flows from operations are more than net income for the past two years (2006 and 2007)

• In 2007, Acquisitions used $492 million of cash for transactions primarily in Beauty and Health Care. On October 2005, P&G acquired the Gillette Company.

• P&G’s first discretionary use of cash is dividend payments. There are also long-term and short-term debts, as well as treasury purchases.

• Overall, P&G’s cash has decreased over the past two years

Accounting PoliciesAccounting PoliciesAccounting PoliciesAccounting PoliciesSignificant accounting policies:• Revenue recognition: Sales are recognized when revenue is realized or realizable and has been earned. The revenue recorded is presented net of sales and other taxes P&G collects on behalf of governmental authorities and includes shipping and handling costs. • Cash Equivalents: Highly liquid investments with remaining stated maturities of three months or less when purchased are considered cash equivalents and recorded at cost.• Inventory Valuation: are valued at the lower cost or market value. Product-related inventories are primarily maintained on the first-in, first-out method.• Property, Plant, and Equipment: are recorded at cost. Depreciation expense is recognized over the assets’ estimated useful lives using the straight-line method.

1. Significant accounting policies 2. Acquisition 3. Goodwill and intangibles assets4. Supplemental Financial Information5. Short-term and Long-term Debt6. Risk Management Activities7. Earnings Per Share8. Stock-based Compensation9. Postretirement Benefits and Employee Stock Ownership Plan10. Income Taxes11. Commitments and Contingencies12. Segment Information

Topics of the notes to the financial statements:

Financial AnalysisFinancial AnalysisLiquidity RatiosLiquidity Ratios

Financial AnalysisFinancial AnalysisLiquidity RatiosLiquidity Ratios

2006 2007

Working Capital 4,344 (6,686)

Current Ratio 1.22 0.82

Receivable turnover 13.8 12.4

Average days’ sales uncollected

30 31

Inventory turnover 5.4 5.17

Average days’ inventory on hand

67 70

A negative change was that Receivables turnover decreased, and, as a result, days’ sales uncollected increased. The same happened with Inventory turnover and Days’ inventory on hand.

Financial AnalysisFinancial AnalysisProfitability RatiosProfitability RatiosFinancial AnalysisFinancial AnalysisProfitability RatiosProfitability Ratios

2006 2007

Profit margin 12.5 13.3

Asset turnover 0.6 0.7

Return on assets 6.4 7.5

Return on equity 13.8 15.5

The company managed better its costs per dollar of sales, since the Profit Margin ratio increased.

Also, the Asset Turnover increased which led to an increase in the Return on Assets.

The Return on Equity percentage also increased.

Financial AnalysisFinancial AnalysisSolvency RatioSolvency Ratio

Financial AnalysisFinancial AnalysisSolvency RatioSolvency Ratio

2006 2007

Debt to Equity 0.61 0.53

Since the ratio is lower than 1 in both years, the company’s assets are mostly financed by its investors.

Financial AnalysisFinancial AnalysisMarket Strength RatiosMarket Strength Ratios

Financial AnalysisFinancial AnalysisMarket Strength RatiosMarket Strength Ratios

2006 2007

Price Earnings 20.19 23.35

Dividend Yield 1.79% 1.9%

The increase in the Price Earnings ratio, signals the investor may have more confidence in the company. Also, the stock’s return to the investors increased.