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To: Mr. Alan G.

Lafley, Chairman of the Board, President and Chief Executive Officer
From: Valery Shapovalova, Junior Analyst
Date: 09/06/2014
Subject: Analysis of Procter & Gamble’s Financial Strength

According to these comparative findings, Procter & Gamble is in a weaker financial position
than its top competitor, Johnson & Johnson. The market capitalization of Johnson & Johnson is
in the top billions just like Procter & Gamble’s, which means both companies are of similar size.
This makes Johnson & Johnson a comparable competitor.
Procter & Gamble (PG) is one of the leaders in the personal products industry, but it is still not
the strongest competitor. The lack of financial growth in comparison to Johnson & Johnson
(JNJ) has left P&G as the weaker contender. This analysis focuses on comparing key indicators
of financial strength, which include stock price, market capitalization, revenue, P/E ratio, net
income, and EPS.

Procter & Gamble’s Weaker Financial Indicators
Indicator
Market Cap
P/E Ratio
EPS

Financials
PG
225.60B
22.21
3.75

JNJ
293.45B
19.90
5.23

(Yahoo!  Finance,  2014)  

In comparison to Johnson & Johnson, Procter & Gamble has a lower market cap, and EPS. These
are all indicators that Procter & Gamble is financially weaker.
The earnings per share (EPS) of a company can indicate how profitable the company is. When
comparing the EPS of both of these companies, it is clear that Johnson & Johnson has a higher
EPS. Therefore, Johnson & Johnson seems to be more profitable than Procter & Gamble. This
further solidifies that Johnson & Johnson is the stronger competitor in the personal products
industry.
The price to earnings ratio is an indicator of future growth. Therefore, Procter & Gamble is
expected to have higher growth than Johnson & Johnson according to the P/E ratio. However,
other indicators such as revenue and net income suggest that Johnson & Johnson has been
growing at a higher rate than Procter & Gamble.

Growth Based on Revenue and Net Income

Revenue  (in  billions)  
100  
Dollars  

80  
60  

PG  

40  

JNJ  

20  
0  
2011  

2012  

2013  

(Yahoo!  Finance,  2014)  

At first glance, Procter & Gamble has higher revenue than Johnson & Johnson. The historical
data shows that J&J has had significant growth in revenue over the past three years. Unlike
Johnson & Johnson, Procter & Gamble has had fairly low revenue growth over the past three
years. This has significance when analyzing the strength of Procter & Gamble. Although initially
the numbers seem higher, analyzing historical financial data gives a better representation of the
financial strength of the company. Net income over the past three years for both companies also
shows similar results. In fact, for the year 2013, Johnson & Johnson had a higher net income than
Procter & Gamble.

Net  Income  (in  billions)  

Dollars  

15  
10  
PG  
JNJ  

5  
0  
2011  

2012  

2013  

(Yahoo!  Finance,  2014)  

This chart shows that Johnson & Johnson has also been stronger than Procter & Gamble in
reference to net income. Over the past three years, J&J’s net income has not only been greater,
but it is also growing at a faster rate than P&G. When only comparing 2012 and 2013, J&J has
had an approximate three billion dollar increase in net income. P&G on the other hand, has seen
less than one billion dollar increase.

Slow Growth Based On Stock Price
Price
1 year
6 month
8/25/2014: High
Low
Closing

Stock Price
PG
79.89
80.56
83.82
83.31
83.54

JNJ
95.50
101.49
103.81
103.09
103.23

(Yahoo!  Finance,  2014)  

Based on this table, Procter & Gamble shows slow growth in stock price, as opposed to Johnson
& Johnson’s higher stock price growth. Furthermore, the overall stock price of Johnson &
Johnson is higher which means that the investors are more confident in J&J rather than P&G.
Also the demand for that stock could increase the price as well, which proves that J&J is a
stronger company because its stocks are more in demand.

Analysis of Procter & Gamble’s Financial Information
It is interesting to see that initially the financials of both companies seem very similar. Although,
the factor that separates these two companies is the rate at which the company is growing.
Procter & Gamble (PG) is one of the leaders in the personal products industry, but it is still not
the strongest competitor. The lack of financial growth in comparison to Johnson & Johnson
(JNJ) has left P&G as the weaker contender.

Valery Shapovalova
Valery Shapovalova
Junior Analyst, Procter & Gamble
Date: 09/06/2014

References

Johnson & Johnson. (JNJ) (2014). Income statement, annual. Yahoo! Finance. Retrieved
from  http://finance.yahoo.com/q/is?s=JNJ+Income+Statement&annual
Johnson & Johnson. (JNJ) (2014). Historical Prices. Yahoo! Finance. Retrieved from
http://finance.yahoo.com/q/hp?s=JNJ+Historical+Prices
The Procter & Gamble Company. (2014). Form 10-K 2014. Retrieved from
http://www.pginvestor.com/interactive/lookandfeel/4004124/PG_2014_10K.pdf
The Procter & Gamble Company. (PG) (2014). Income statement, annual. Yahoo!
Finance. Retrieved from http://finance.yahoo.com/q/is?s=PG&annual
The Procter & Gamble Company. (PG) (2014). Competitors. Yahoo! Finance. Retrieved
from http://finance.yahoo.com/q/co?s=PG+Competitors
The Procter & Gamble Company. (PG) (2014). Historical Prices. Yahoo! Finance.
Retrieved from http://finance.yahoo.com/q/hp?s=PG+Historical+Prices