P&G Financial Ratio Analysis

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Liquidity ratios measure the company’s short-term ability to pay its maturing obligations. While analyzing the liquidity ratios for Procter & Gamble and the industry averages NAICS 325611, we found considerable differences. For 2009, the current ratio for P & G was .71 compared to the industry ratio of 1.4. This means that for every $ 1 that P & G has in current liabilities, it has $.79 in current assets. Since current ratio is a measure of short-term liquidity, this is not attractive for short-term creditors. This might be due to excessive inventory. The company experienced a decreasing trend from 2008 to 2009. The quick ratio for P & G for 2009 was .49 while the industry ratio was .7. This shows us that the ratios of the company and industry come much closer when inventory, which is relatively illiquid, is subtracted from current assets so it shows that one reason P & G is experiencing low liquidity is the amount of inventory held. The cash ratio for P & G in 2009 was .15 while in 2008 it was .11, so the company experienced a significant increase of 36%, a very good sign for short term creditors. Leverage ratios measure the firm’s long-run ability to meet its obligations. The total debt ratio for the company in 2009 was .53, meaning they have about $ .53 of debt for every dollar in assets, which is not encouraging as there is more percentage of debt, and the company experienced a decreasing trend from the .52 ratio of 2008. However, the industry average is. The capital structure of this industry determines if these ratios are too high or too low. The debt-equity ratio for the company in 2009 was 1.14, a fair increase from 2008 which was 1.07. Since the ratio is greater than 1, the debt is greater than the stockholders equity, meaning the majority of the assets are financed through debt so it isn’t attractive for investors as it is riskier to invest. ---- Yet

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