Question

The financial statements of Procter & Gamble in available online either through the SEC website or the corporation's website. Access the financial statements for the fiscal year end June 30, 2020 answer the following questions:

a. What type of income statement formate does P & G use?

b. What are P & G's primary revenue sources?

c. Why does P & G make a distinction between operating and nonoperating revenue?

d. Compute P & G's gross profit ratio of each of the years presented the June 30, 2020 annual report. Did the gross profit ratio increase or decrease? Explain why.  

Answer 1

(a): P&G uses a multiple-step income statement format. The company’s 2020 annual report shows that the income statement separates the company’s operating expenses from its non-operating expenses.

(b): P&G’s primary revenue source is the sale of branded consumer packaged goods. The segments that company is present in are beauty, grooming, health care, fabrics & home care, and baby, feminine & family care. For 2020 the company derived 22% of its sales from fabric care segment, 11% each from baby care and home care, 10% from skin/personal care, 9% each from hair/family care, 8% from oral care, 7% from shave care, 6% from feminine care, 5% from personal health care and 2% from others.

(c ): P&G makes a distinction between operating and non-operating revenue so as to enable the users of its financial statements to see how much the company earns and how much profit does it make from its primary activities. Shareholders and other users of financial statements of P&G are mainly interested in the core business of P&G and this is quantified by operating revenue. This is the reason why P&G makes this distinction.

(d):

	2020	2019	2018
Net sales	70,950	67,684	66,832
less: Cost of goods sold	35,250	34,768	34,432
Gross profit	35,700	32,916	32,400
Gross profit ratio = gross profit/net sales	50.32%	48.63%	48.48%

The company's gross profit ratio has increased for these years and this is because increase in its sales is more than the increase in its cost of goods sold and this led to higher grwoth of gross profit each year.