Question

(I used proctor and gamble), (P&G) So, analyze the Statement of “Retained Earnings” for this company. Next, discuss any additions or subtractions recorded for the period from the perspective of a financial analyst. Be sure to discuss what you found interesting about these additions or subtractions

Answer 1

The latest statement of retained earnings for P&G is provided below:

	(in $ millions)
Balance as on June 30, 2017	96,124.00
Add: Net earnings for the year	9,750.00
less: Dividends
Common	-7,057.00
Preferred	-265.00
Add: ESOP debt impacts	89.00
Balance as on June 30, 2018	98,641.00

Net earnings for the financial year 2018 (ending 30^th June 2018) is added to the opening balance of retained earnings. From this the dividends paid for the year to common stock holders and preferred stock holders are deducted. This is because dividends are paid from net income and payout of dividends reduces retained earnings as the amount that is paid out as dividends are not retained by the company. Lastly ESOP debt impacts are added back.

All the above adjustments are in line with prudent accounting practices. The usual practice or method of computing year-end balance of retained earnings is: ending balance of retained earnings = opening balance of retained earnings+net income for the year-dividend payout for the year.

The one line item that I found interesting is the addition of ESOP debt impact. This represents the net impact of ESOP debt service requirements, and this is added as it has be netted against the plan asset for other retiree benefits. A reserve for ESOP debt retirement is adjusted in shareholder’s equity in the balance sheet.