Following are summary financial statement data for Procter & Gamble for 2004 thr
ID: 2736085 • Letter: F
Question
Following are summary financial statement data for Procter & Gamble for 2004 through 2008. Required: Compute return on net operating assets and return on equity for each year 2005 through 2008, together with the components of RNOA (profit margin and asset turnover). What trends, if any, do we observe? Which component, if any, appears to be driving the change in RNOA over this time period? Procter & Gamble acquired Gillette Company in fiscal 2006 for S53 billion. How did this acquisition affect the ratios we computed in ? Procter & Gamble repurchased a large amount of its common shares during 2006 through 2008 at a cost of over $32 billion. How did this repurchase affect its return on equity?Explanation / Answer
Return on net operating assets Return on equity: = Net Income/Total operating assets = Net income/Equity 2005 = 6923/61527 = 11% = 6923/18475 = 37% 2006 = 8684/135695 = 6% = 8684/62908 = 14% 2007 = 10340/138014 = 7% = 10340/66760 = 15% 2008 = 12075/143992 = 8% = 12075/69494 = 17% Profit Margin ratio = Net income/Sales Asset Turnover = Sales/Asset 2005 = 6923/56741 = 12% 2005 = 56741/61527 = 92% 2006 = 8684/68222 = 13% 2006 = 68222/135695 = 50% 2007 = 10340/76476 = 14% 2007 = 76476/138014 = 55% 2008 = 12075/83503 = 14% 2008 = 83503/143992 = 58%