Valuation of Proctor & Gamble (P&G) Case
This relates to chapter 8 Finance & accounting issues, LO 8.3
Added Notes: The purpose of this exercise is to re-calculate the 4 evaluation methods for the next year in the sequence which is 2018. You are to show your work as I may give partial credit for the right calculation but wrong answer. The most likely value is an actual dollar amount; explain why that amount. In steps 3 & 4, I am not asking for a definition. What is unique to the number in this exercise. If you did not follow this expanded guidance, you can re-accomplish and upload over the old submission.
The Proctor & Gamble Corporation is used as an example for chapter 8. There are several tables and charts of financial and accounting data.
- Use the EOY values based on those projected for 2018 (not actual for 2017)
- Assume same number of shares outstanding and a stock price of 91.18
- EPS is calculated as NI/shares
Accomplish these 4 steps
- Calculate the corporate valuation of P&G for 2018 using the 4 evaluation methods. You must show your work to derive the valuation for credit.
- What is the most likely value of the firm and why?
- Comment on the goodwill & intangibles; significance?
- Comment on the treasury stock and effect; significance?
8.2: Projected Financial Statements Table 8-8 P&G's Projected Income Statements for 2018, 2019, and 2020 (in millions) 6/30/18 6/30/19 6/30/20 Projected Income Statement Revenues $66,359 $68,350 $72,451 33,180 Cost of Goods Sold 34,175 36,225 Gross Profit 33,180 34,175 36,225 20,571 Operating Expenses 21,188 22,460 EBIT 12,608 12,986 13,766 565 Interest Expense 562 559 EBT 12,043 12,424 13,207 Tax 2,770 2,858 3,302 Non-Recurring Events 0 0 0 Net Income $9,273 $9,567 $9.905 8.2: Projected Financial Statements Table 8-9 P&G's Projected Balanced Sheets for 2018, 2019, and 2020 (in millions) 12/31/15 Projected Balance Sheet 12/31/17 12/31/18 Assets Cash and Equivalents $3,015 $7,409 $9,552 Accounts Receivable 4,645 4,784 5,072 Inventory 4,645 4,784 5,072 Other Current Assets 11,945 12,303 13,041 Total Current Assets 24,250 29,281 32,736 Property Plant & Equipment 21,143 22,393 23,643 Goodwill 44,699 44,699 44,699 Intangibles 24,187 24,187 24,187 Other Long-Term Assets 5,309 5,468 5.796 Total Assets 119.588 126.028 131.061 8.2: Projected Financial Statements 119,588 126,028 131,061 Total Assets Liabilities 15,926 Accounts Payable 16,404 17,388 Other Current Liabilities 11,281 11,619 12,317 Total Current Liabilities 27,207 28,023 29,705 Long-Term Debt 20,038 20,038 20,038 Other Long-Term Liabilities 14,599 15,037 15,939 Total Liabilities 61,844 63,098 65,682 Equity Common Stock 4,009 4,009 4,009 Retained Earnings 98,089 100,275 102,725 Treasury Stock (93,715) (93,715) (93,715) 8.2: Projected Financial Statements 98,089 Retained Earnings 100,275 102,725 Treasury Stock (93,715) (93,715) (93,715) Paid in Capital & Other 49,360 52,360 52,360 Total Equity 57,743 62,929 65,379 Total Liabilities and Equity 119,588 126,028 131,061 Table 8-11 P&G's Retained Earnings Data Table (in millions) Dividend Information Balance Sheet Information 5 2 Net Income - Dividends Paid - RE + Prior Year Current BSheet RE Year BSheet RE 2018 $ 9,273 $ 98,089 $ 7,308 $ 1.965 $ 96,124 2019 $ 9,567 $7,381 $ 2,186 $ 100,275 $ 98,089 2020 $ 9.905 $ 7,455 $ 2,450 $ 100,275 $ 102,725 8.2: Projected Financial Statements Table 8-8 P&G's Projected Income Statements for 2018, 2019, and 2020 (in millions) 6/30/18 6/30/19 6/30/20 Projected Income Statement Revenues $66,359 $68,350 $72,451 33,180 Cost of Goods Sold 34,175 36,225 Gross Profit 33,180 34,175 36,225 20,571 Operating Expenses 21,188 22,460 EBIT 12,608 12,986 13,766 565 Interest Expense 562 559 EBT 12,043 12,424 13,207 Tax 2,770 2,858 3,302 Non-Recurring Events 0 0 0 Net Income $9,273 $9,567 $9.905 8.2: Projected Financial Statements Table 8-9 P&G's Projected Balanced Sheets for 2018, 2019, and 2020 (in millions) 12/31/15 Projected Balance Sheet 12/31/17 12/31/18 Assets Cash and Equivalents $3,015 $7,409 $9,552 Accounts Receivable 4,645 4,784 5,072 Inventory 4,645 4,784 5,072 Other Current Assets 11,945 12,303 13,041 Total Current Assets 24,250 29,281 32,736 Property Plant & Equipment 21,143 22,393 23,643 Goodwill 44,699 44,699 44,699 Intangibles 24,187 24,187 24,187 Other Long-Term Assets 5,309 5,468 5.796 Total Assets 119.588 126.028 131.061 8.2: Projected Financial Statements 119,588 126,028 131,061 Total Assets Liabilities 15,926 Accounts Payable 16,404 17,388 Other Current Liabilities 11,281 11,619 12,317 Total Current Liabilities 27,207 28,023 29,705 Long-Term Debt 20,038 20,038 20,038 Other Long-Term Liabilities 14,599 15,037 15,939 Total Liabilities 61,844 63,098 65,682 Equity Common Stock 4,009 4,009 4,009 Retained Earnings 98,089 100,275 102,725 Treasury Stock (93,715) (93,715) (93,715) 8.2: Projected Financial Statements 98,089 Retained Earnings 100,275 102,725 Treasury Stock (93,715) (93,715) (93,715) Paid in Capital & Other 49,360 52,360 52,360 Total Equity 57,743 62,929 65,379 Total Liabilities and Equity 119,588 126,028 131,061 Table 8-11 P&G's Retained Earnings Data Table (in millions) Dividend Information Balance Sheet Information 5 2 Net Income - Dividends Paid - RE + Prior Year Current BSheet RE Year BSheet RE 2018 $ 9,273 $ 98,089 $ 7,308 $ 1.965 $ 96,124 2019 $ 9,567 $7,381 $ 2,186 $ 100,275 $ 98,089 2020 $ 9.905 $ 7,455 $ 2,450 $ 100,275 $ 102,725
