Question

In: Accounting

Income Statement for Fiscal Years Endings (in Millions, except per share amounts) Report Date 06/30/2019 06/30/2018...

Income Statement for Fiscal Years Endings
(in Millions, except per share amounts)

Report Date

06/30/2019

06/30/2018

06/30/2017

Net sales

$67,684

$66,832

$65,058

Cost of products sold

34,768

34,268

32,535

Gross profit

$32,916

$32,564

$32,523

Selling, general & administrative expense

19,084

18,853

18,568

Goodwill & indefinite lived intangible asset impairment charges

8,345

0.00

0.00

Operating income

$5,487

$13,711

$13,955

Interest expense

509

506

465

Interest income

220

247

171

Other non-operating income (expense), net

871

-126

-404

Earnings from continuing operations before income taxes

$6,069

$13,326

$13,257

Income taxes expense on continuing operations

2,103

3,465

3,063

Net earnings from continuing operations

$3,966

$9,861

$10,194

Net earnings (loss) from discontinued operations

0.00

0.00

5,217

Net income (loss)

$3,966

$9,861

$15,411

Less: net earnings attributable to noncontrolling interests

-69

-111

-85

Net earnings attributable to Procter & Gamble Co.

$3,897

$9,750

$15,326

Earning per share information:

Earnings (loss) per share from continuing operations - basic

$1.45

$3.75

$3.79

Earnings (loss) per share from discontinued operations - basic

0.00

0.00

2.01

Net earnings (loss) per share - basic

$1.45

$3.75

$5.80

Earnings (loss) per share from continuing operations - diluted

$1.43

$3.67

$3.69

Earnings (loss) per share from discontinued operations - diluted

0.00

0.00

1.90

Net earnings (loss) per share - diluted

$1.43

$3.67

$5.59

Other Key Metrics

Dividends per common share

$2.90

$2.79

$2.70

Total number of employees

97,000

92,000

95,000

Vertical Analysis for Fiscal Years Endings
(in Millions, except per share amounts)

For Fiscal Years Ending

Percentages of Annual Revenue

Report Date

06/30/2019

06/30/2018

06/30/2017

06/30/2019

06/30/2018

06/30/2017

Net sales

$67,684

$66,832

$65,058

100.00%

100.00%

100.00%

Cost of products sold

34,768

34,268

32,535

51.37%

51.27%

50.01%

Gross profit

$32,916

$32,564

$32,523

48.63%

48.73%

49.99%

Selling, general & administrative expense

19,084

18,853

18,568

28.20%

28.21%

28.54%

Goodwill & indefinite lived intangible asset impairment charges

8,345

0.00

0.00

12.33%

0.00%

0.00%

Operating income

$5,487

$13,711

$13,955

8.11%

20.52%

21.45%

Interest expense

509

506

465

0.75%

0.76%

0.71%

Interest income

220

247

171

0.33%

0.37%

0.26%

Other non-operating income (expense), net

871

-126

-404

1.29%

-0.19%

-0.62%

Earnings from continuing operations before income taxes

$6,069

$13,326

$13,257

8.97%

19.94%

20.38%

Income taxes expense on continuing operations

2,103

3,465

3,063

3.11%

5.18%

4.71%

Net earnings from continuing operations

$3,966

$9,861

$10,194

5.86%

14.75%

15.67%

Net earnings (loss) from discontinued operations

0.00

0.00

5,217

0.00%

0.00%

8.02%

Net income (loss)

$3,966

$9,861

$15,411

5.86%

14.75%

23.69%

Less: net earnings attributable to noncontrolling interests

-69

-111

-85

-0.10%

-0.17%

-0.13%

Net earnings attributable to Procter & Gamble Co.

$3,897

$9,750

$15,326

5.76%

14.59%

23.56%

briefly summarize your observations about changes, i.e. financial trends, in the following Income Statement line items for the Vertical Analysis:

  1. Net sales,
  2. Operating income, and
  3. Net earnings attributable to the company

Solutions

Expert Solution

From the above income statement for the year 2017 , 2018 and 2019, it can be clearly observed that even though there had been marginal growth in the net sales of Procter and Gamble, operating profit witnessed a considerable decline primarily because of Goodwill impairment charge of $8,345 in the year 2018.

  • It shows that fair value of goodwill has dropped below the previously recorded value from the time of an acquisition. Impairment may occur if the assets acquired no longer generate the financial results that were previously expected of them at the time of purchase.

Hence, Procter and Gamble's operating profit declined from $13,995 to $8,345 that is from 21.5% to 8.11%

Thereafter, Net Income witnessed a downfall of around 9% from 2018 to 2019.

Procter and Gambel's writing down of Gillette is associated with devaluation of its goodwill significantly which in turn resulted in the decline.

The company said that currency devaluations since the carrying values were first established in 2005 played a significant role. Over the last decade, currency has hurt its global business.

P&G’s second reason for the write-down is the market contraction of blades and razors, primarily in developed markets. In countries like the United States, growing beards is more popular, leading fewer men to buy razors.


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