Description
financials of Colgate Palmolive.
KeyWords: Profitability Ratio, Activity Ratio, Leverage Ratio, Liquidity Ratio, Market Ratio, Common Size balance sheet, cash flow, common size income statement
COLGATE PALMOLIVE COMPANY
I. RATIO ANALYSIS: Calculate the following ratios for Colgate Palmolive for the last two fiscal years and compare with industry averages. A. Profitability ratios Profit Margin Return on Assets(ROA) Return on Equity(ROE) B. Activity ratios Asset Turnover Days' Receivables Inventory Turnover C. Leverage ratio Debt to equity Ratio Times Interest earned Days' Payable D. Liquidity Ratios Current Ratio Quick Ratio Industry average for 1994 1993 1994 7.65% 2.66% 11.97% 12.48% 31.53%
Formula Net income/sales Net income/total assets 9.45% 3.30% Net income/shareholder' s equity 31.83% 10.13%
Formula sales/ total assets Accounts receivable/ (sales/365) Cost of Sales/inventory
Industry average for 1994 1993 1994 123.50 123.95 % % 103.55% 51.00 5.48 51.00 5.50 57.00 3.61
Formula Debt/equity (Pretax operating profit+interest)/Inter est Operating Payables/ (Pretax cash expenses/365)
1994 2.37 11.15
Industry average for 1993 1994 2.07 18.87 1.92 20.15 78.00 Industry average for 1993 1994 1.49 1.00 1.42 0.77
Formula Current Assets/Current Liabilties Monetary current ratio/current Liabilities
1994 1.42 0.96
E. Market Ratios Price Earnings Ratio Dividend Yield
Formula
1994
Industry average for 1993 1994
MPS/EPS DPS/MPS COMMON SIZE BALANCE SHEET ANALYSIS 1994 35.5% 32.4% 32.1% 100.0% 24.9% 28.5% 4.8% 12.1% 70.3% 1993 35.9% 30.7% 33.4% 100.0 % 24.2% 26.6% 4.6% 12.0% 67.5%
Particulars Total Current Assets Land, Building & Equipment Other Assets Total Assets Total Current Liabilities Long term debt Deferred income taxes Other liabilities Total Liabilities
Preferred & Common Stock 9.6% 10.4% Additional paid in capital 16.7% 17.4% Retained Earnings 40.6% 37.6% Common Stock in Treasury -23.8% -19.6% Cumulative Foreign Exchange Earnings Adjustments and other equity adjustments -13.4% -13.3% Total Equity 29.7% 32.5% Total liabilities & 100.0 Stockholders' equity 100.0% % II. COMMON SIZE BALANCE SHEET ANALYSIS A. Calculate a common size balance sheet for the last two fiscal years. Use the total assets line for each year as the denominator in each calculation. Solution:
B. How does Colgate- Palmolive’s balance sheet compare with those of other consumer products companies? Answer: Long Term Debt is something which stands out in the case of Colgate Palmolive, which gives a Tax Advantage. Also their equity is significantly lower than other companies, which gives them an option to raise further capital in future. Apart from above mentioned the other items of balance sheet were almost near to the industry average. Also one thing worth noticing is that only two companies, Gillette and Kimberly-Clarke, are comparable to Colgate Palmolive. All the other companies are many times bigger than Colgate Palmolive.
III. COMMON SIZE INCOME STATEMENT ANALYSIS: A. Calculate a common size income statement for the last two fiscal years. Use total sales in each year as the denominator in each calculation.
Solution:
COMMON SIZE INCOME STATEMENT ANALYSIS Particulars Sales B. How does Cost of Sales Gross Profit Selling, general & administrative expenses Other Expenses Operating Income Net Interest expense 1994 1993 100.0 100.0 % % 51.6 52.2 % % 48.4 47.8 % % 34.6 34.4 % % -1.1% -1.0% 12.7 12.4 % % -1.1% -1.0% 11.6 11.4 % % -3.9% -4.0%
Income before Income Tax Provision for income tax Cumulative effect on prior years of accounting changes -5.0% Net Income 7.7% 2.4% Colgate-Palmolive’s income statement compare with those of other products companies? Answer: The main reason for a lower profit is higher cost of sales. Thus company can try to improve its efficiency in the utilisation of resources both direct labour and raw materials. If we compare the company with the industry average we find that operating income of the company is less than the industry average which in turns results in lower net income than the industry average. Now if we look from the company specific Colgate-Palmolive can be compared with Gillette, American Home Products and Kimberly Clark as other companies are very big in size for comparison purpose in terms of sales value.
IV. CASH FLOW ANALYSIS: Q. What were the primary sources and uses for Colgate-Palmolive in the latest fiscal year? Answer: The primary source of cash for Colgate-Palmolive in the latest fiscal year 1994 was from OPERATING ACTIVITIES and proceeds from issuance of debt. This was used for capital expenditures, payment of dividend and buy-back of common stock. V. OTHER QUESTIONS: A. How would you go about choosing comparable companies to Colgate- Palmolive? How would you calculate an industry average? Answer: Whenever we are trying to compare a company, it should always be done with companies within the same industry having almost the same scale of sales and operating activities. If we compare one company with another company which is manifolds in all terms w.r.t first company, it will serve no purpose. Thus in the present scenario Colgate Palmolive can be compared with Gillette, American Home Products and Kimberly Clark if we consider sales as the comparison criteria while if we consider the total assets of the firm it can be compared with Gillette and Kimberly-Clark. An industry average can be calculated by taking the arithmetic mean of the companies present in the industry. B. How well positioned is Colgate-Palmolive to meet the financial goals stated in the Management Interview? Answer: The area in which the company needs to concentrate is to reduce the cost of sales which would help in the improvement in the operating income of the company. Other than that, the increase in the sales and net income of the company shows a positive sign for the company. Even the ROA and ROE shows a healthy sign to the company. Another positive sign for the company is a high times interest earned, which shows that the company is having enough operating income to cover its interest expense. C. What are Colgate-Palmolive’s prospects for future growth? Can the company continue at its present growth rate?
Answer: For any company, if growth has to be there it’ll need Investment. Now if we look at the debt to equity ratio and also other comparable firms in the industry, the company still has the potential to raise equity and thus meet the capital expenditure requirements. Thus the company seems to have a decent prospect for future growth. Now it is not possible to conclude whether the company will able to grow at its present growth rate or not because of lack of data.
NOTE: ANY BLANK CELL LEFT IN PART I WHICH IS RATIO ANALYSIS INDICATES LACK OF DATA.
doc_271285381.doc
financials of Colgate Palmolive.
KeyWords: Profitability Ratio, Activity Ratio, Leverage Ratio, Liquidity Ratio, Market Ratio, Common Size balance sheet, cash flow, common size income statement
COLGATE PALMOLIVE COMPANY
I. RATIO ANALYSIS: Calculate the following ratios for Colgate Palmolive for the last two fiscal years and compare with industry averages. A. Profitability ratios Profit Margin Return on Assets(ROA) Return on Equity(ROE) B. Activity ratios Asset Turnover Days' Receivables Inventory Turnover C. Leverage ratio Debt to equity Ratio Times Interest earned Days' Payable D. Liquidity Ratios Current Ratio Quick Ratio Industry average for 1994 1993 1994 7.65% 2.66% 11.97% 12.48% 31.53%
Formula Net income/sales Net income/total assets 9.45% 3.30% Net income/shareholder' s equity 31.83% 10.13%
Formula sales/ total assets Accounts receivable/ (sales/365) Cost of Sales/inventory
Industry average for 1994 1993 1994 123.50 123.95 % % 103.55% 51.00 5.48 51.00 5.50 57.00 3.61
Formula Debt/equity (Pretax operating profit+interest)/Inter est Operating Payables/ (Pretax cash expenses/365)
1994 2.37 11.15
Industry average for 1993 1994 2.07 18.87 1.92 20.15 78.00 Industry average for 1993 1994 1.49 1.00 1.42 0.77
Formula Current Assets/Current Liabilties Monetary current ratio/current Liabilities
1994 1.42 0.96
E. Market Ratios Price Earnings Ratio Dividend Yield
Formula
1994
Industry average for 1993 1994
MPS/EPS DPS/MPS COMMON SIZE BALANCE SHEET ANALYSIS 1994 35.5% 32.4% 32.1% 100.0% 24.9% 28.5% 4.8% 12.1% 70.3% 1993 35.9% 30.7% 33.4% 100.0 % 24.2% 26.6% 4.6% 12.0% 67.5%
Particulars Total Current Assets Land, Building & Equipment Other Assets Total Assets Total Current Liabilities Long term debt Deferred income taxes Other liabilities Total Liabilities
Preferred & Common Stock 9.6% 10.4% Additional paid in capital 16.7% 17.4% Retained Earnings 40.6% 37.6% Common Stock in Treasury -23.8% -19.6% Cumulative Foreign Exchange Earnings Adjustments and other equity adjustments -13.4% -13.3% Total Equity 29.7% 32.5% Total liabilities & 100.0 Stockholders' equity 100.0% % II. COMMON SIZE BALANCE SHEET ANALYSIS A. Calculate a common size balance sheet for the last two fiscal years. Use the total assets line for each year as the denominator in each calculation. Solution:
B. How does Colgate- Palmolive’s balance sheet compare with those of other consumer products companies? Answer: Long Term Debt is something which stands out in the case of Colgate Palmolive, which gives a Tax Advantage. Also their equity is significantly lower than other companies, which gives them an option to raise further capital in future. Apart from above mentioned the other items of balance sheet were almost near to the industry average. Also one thing worth noticing is that only two companies, Gillette and Kimberly-Clarke, are comparable to Colgate Palmolive. All the other companies are many times bigger than Colgate Palmolive.
III. COMMON SIZE INCOME STATEMENT ANALYSIS: A. Calculate a common size income statement for the last two fiscal years. Use total sales in each year as the denominator in each calculation.
Solution:
COMMON SIZE INCOME STATEMENT ANALYSIS Particulars Sales B. How does Cost of Sales Gross Profit Selling, general & administrative expenses Other Expenses Operating Income Net Interest expense 1994 1993 100.0 100.0 % % 51.6 52.2 % % 48.4 47.8 % % 34.6 34.4 % % -1.1% -1.0% 12.7 12.4 % % -1.1% -1.0% 11.6 11.4 % % -3.9% -4.0%
Income before Income Tax Provision for income tax Cumulative effect on prior years of accounting changes -5.0% Net Income 7.7% 2.4% Colgate-Palmolive’s income statement compare with those of other products companies? Answer: The main reason for a lower profit is higher cost of sales. Thus company can try to improve its efficiency in the utilisation of resources both direct labour and raw materials. If we compare the company with the industry average we find that operating income of the company is less than the industry average which in turns results in lower net income than the industry average. Now if we look from the company specific Colgate-Palmolive can be compared with Gillette, American Home Products and Kimberly Clark as other companies are very big in size for comparison purpose in terms of sales value.
IV. CASH FLOW ANALYSIS: Q. What were the primary sources and uses for Colgate-Palmolive in the latest fiscal year? Answer: The primary source of cash for Colgate-Palmolive in the latest fiscal year 1994 was from OPERATING ACTIVITIES and proceeds from issuance of debt. This was used for capital expenditures, payment of dividend and buy-back of common stock. V. OTHER QUESTIONS: A. How would you go about choosing comparable companies to Colgate- Palmolive? How would you calculate an industry average? Answer: Whenever we are trying to compare a company, it should always be done with companies within the same industry having almost the same scale of sales and operating activities. If we compare one company with another company which is manifolds in all terms w.r.t first company, it will serve no purpose. Thus in the present scenario Colgate Palmolive can be compared with Gillette, American Home Products and Kimberly Clark if we consider sales as the comparison criteria while if we consider the total assets of the firm it can be compared with Gillette and Kimberly-Clark. An industry average can be calculated by taking the arithmetic mean of the companies present in the industry. B. How well positioned is Colgate-Palmolive to meet the financial goals stated in the Management Interview? Answer: The area in which the company needs to concentrate is to reduce the cost of sales which would help in the improvement in the operating income of the company. Other than that, the increase in the sales and net income of the company shows a positive sign for the company. Even the ROA and ROE shows a healthy sign to the company. Another positive sign for the company is a high times interest earned, which shows that the company is having enough operating income to cover its interest expense. C. What are Colgate-Palmolive’s prospects for future growth? Can the company continue at its present growth rate?
Answer: For any company, if growth has to be there it’ll need Investment. Now if we look at the debt to equity ratio and also other comparable firms in the industry, the company still has the potential to raise equity and thus meet the capital expenditure requirements. Thus the company seems to have a decent prospect for future growth. Now it is not possible to conclude whether the company will able to grow at its present growth rate or not because of lack of data.
NOTE: ANY BLANK CELL LEFT IN PART I WHICH IS RATIO ANALYSIS INDICATES LACK OF DATA.
doc_271285381.doc