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P&G Investment Fund Stock Report Unedited
P&G Investment Fund Stock Report Unedited
NYSE: PG
Student Investment Fund Stock Report Analysts: Janel Logan, Amanda Repp and
Padma Venkatraman
Business Summary
Recommendation:
LongTerm Buy
Procter & Gamble, founded in
1837 and based in Cincinnati, OH,
Recent Price (12/04/09): $62.60 Sector: Consumer Staples
is recognized as the world's largest
producer and distributor of Target Price: $65.53 Sub‐Sector: Consumer Goods
household and personal products.
52‐Week Range: $43.93‐ $64.00 Stock Classification: Classic Growth
PG is organized into three global
business units: Beauty; Health and Market Capt: $178 B Institutional Ownership: 58%
Well‐Being; and Household Care.
P/E Ratio: 17.4 Dividend Yield: 2.8%
PG Procter and Gamble operates
Earnings per Share: $4.58 Beta: 0.6
in over 80 countries and offers
products and services to more
than 180 countries worldwide. PG Price Performance
has a strong global market
presence. In 2009, PG generated
61% of its total sales in
international markets.
Highlights
PG is focused on developing its
consumer understanding,
marketing, and brand‐building
techniques.
Investment Thesis
PG manages 23 brands that
individually generate over $1 Concerns over a sluggish economy in 2010 led us to PG — we
billion in annual sales and 20 favor large‐capitalization, low beta, defensive stocks that pay
brands that individually generate above‐average dividends and have strong growth potential in
half of a billion in annual sales. foreign markets.
12 of PG’s billion‐dollar brands are PG is the best consumer staples stock in terms of brand
currently the #1 global market share management, innovation and consumer understanding.
leader in their respective product Procter and Gamble has superior financial standing and has
categories. provided shareholders with substantial value creation over time.
Student Investment Fund: Procter & Gamble
Business Segments
PG is organized into three global business units: Beauty, Health and Well‐Being, and Household Care.
BEAUTY Includes two sub‐segments:
o Beauty (2009 Sales $18.79 B, 23.7% of sales revenue) — cosmetics, deodorants, hair
care, personal cleansing, prestige, fragrances and skin care products
Billion‐dollar brands include: Head & Shoulders, Olay, Pantene and Wella
o Grooming (2009 Sales $7.54 B, 9.54% of sales revenue) — blades and razors, electric
hair removal devices, facial products, shave products and home appliances
Billion‐dollar brands include: Braun, Fusion, Gillette and Mach 3
HEALTH AND WELL‐BEING Includes two sub‐segments:
o Health Care (2009 Sales $13.62 B, 17.23% of sales revenue) — feminine care, oral care
and personal health care products
Billion‐dollar brands
include: Actonel,
Always, Crest and Oral‐
B
o Snacks and Pet Care (2009
Sales $3.11 B, 3.94% of sales
revenue)—pet food and snacks
Billon‐dollar brands
include: Iams and
Pringles
HOUSEHOLD CARE Includes two sub‐
segments:
o Fabric Care and Home Care
(2009 Sales $23.19 B, 29.33% of
sales revenue)—air care,
batteries, dish care, fabric care
and surface care
Billion‐dollar brands
include: Ariel, Dawn, Downy, Duracell, Gain and Tide
o Baby Care and Family Care (2009 Sales $14.10 B, 17.84% of sales revenue)—baby wipes,
bath tissues, diapers, facial tissues and paper towels
Billion‐dollar brands include: Bounty, Charmin and Pampers
Student Investment Fund: Procter & Gamble
Business Divestures
Procter and Gamble has recently divested two of its business segments in order to refocus on its core business
segments and to continue to maintain its strong portfolio of brands.
Folgers: On June 4, 2008, PG sold its Folgers coffee unit to J.M. Smucker Company in an all‐stock deal
worth approximately $2.95 billion.
Pharmaceuticals: In 2006, the company began winding down its discover‐phase pharmaceutical
products in favor of licensing late‐stage compounds, and announced in 2008 it would exit the drug
industry entirely. In 2009, PG sold its pharmaceutical unit to Warner Chilcott in a $3.1 billion cash deal.
As a result of the divesture, Procter and Gamble expects to book a 43 cent per share earnings boost in
the second quarter of fiscal year 2010.
These divestures will allow PG to primarily focus on its personal care, beauty, and household product divisions.
Moreover, it is our assessment that these divestures reveal Procter and Gamble’s strong focus on maintaining
a solid portfolio of brands that add value for the company rather than growing for growth's sake.
Consistency in Top Management
Procter and Gamble recently named Robert McDonald as president and CEO, succeeding A.G. Lafley, effective
as of July 2009. The new CEO Robert McDonald, otherwise known as Bob McDonald, comes into the position
with a rich company background. McDonald previously served as Vice Chair of PG’s Global Business Units and
Operations. Furthermore, McDonald has vast experience in brand‐building and market development, and has
over 30 years of experience with Procter and Gamble.
The news of Bob McDonald being named CEO of the company, shortly followed the announcement of PG’s
CFO Clayt Daley’s retirement. Daley was replaced January 1, 2009 by Jon Moeller. Prior to accepting the new
CFO position, Moeller previously served as the Vice President and Treasurer of Procter and Gamble. Moeller
also served as Vice President of Finance and Accounting in various global business units within the company.
Similar to McDonald, Moeller has developed a rich history at Procter and Gamble.
Looking forward, Procter and Gamble can remain confident in their recent changes in top management. Both
executive successors are individuals who have a thorough and well‐developed understanding of the
company’s core businesses and international markets, gained through many years of experience with Procter
and Gamble.
Student Investment Fund: Procter & Gamble
Competitors
Procter and Gamble provides largest and broadest portfolio of products in the household and personal care
industry with 24 billion dollar brands. PG generates 43% more revenue than its closest competitor, Unilever
(UL). PG also maintains a relatively high operating margin of 20.46% in 2009, the highest amongst its
competitors. Moreover, the company invests more than $2 billion annually in Research and Development —
nearly twice that of Unilever, and equal to the combined total of its other major competitors — Avon, Clorox
Company (CLX), Colgate‐Palmolive Company (CL), Energizer Holdings (ENR), Henkel, Kimberly‐Clark (KMB),
L'Oreal, and Reckitt Benckiser.
REVENUE NET INCOME OPERATING DIVIDEND BILLION DOLLAR BRAND(S)
(IN MILLIONS) (IN MILLIONS) MARGIN YIELD
PAMPERS, PANTENE, CREST,
PROCTER & $79,029 $11,010 20.79% 3.0% TIDE, BOUNTY, DURACELL,
GAMBLE CHARMIN
DOVE, AXE, LIPTON, VASELINE,
UNILEVER $56,546 $7,015 N/A 1.38% SLIM‐FAST, BEN & JERRY’S
CLOROX BLEACH, PINE‐SOL,
CLOROX $5,440 $566 20.12% 3.3% GLAD, BRITA WATER FILTERS,
COMPANY BURT’S BEES
HUGGIES, KLEENEX, SCOTT
KIMBERLY – $18,730 $,1810 15.95% 3.8% PAPER TOWELS
CLARK
COLGATE TOOTHPASTE,
COLGATE – $1,4910 $2,310 22.68% 2.2% PALMOLIVE DISHWASHING
PALMOLIVE LIQUID, SOFTSOAP, SPEEDSTICK
Student Investment Fund: Procter & Gamble
Global Presence
Procter and Gamble operates in over 80 countries and offers products and services in more than 180 countries
worldwide.
Sales are divided into four main segments:
North America accounted for 44% of total sales in 2009 or $34.8 billion.
Western Europe accounted for 22% of total sales in 2009 or $17.4 billion.
North East Asia accounted for 4% of total sales in 2009 or $3.2 billion.
Developing Markets accounted for 30% of total sales in 2009 or $23.7 billion.
Student Investment Fund: Procter & Gamble
Currently, international sales (sales outside of North America) generate roughly 61% of Procter and Gamble’s
total revenue. Over the past five years, the average growth rate for PG’s international sales was 12% — which
is almost three times that of PG’s domestic market sales growth of 5%.
In recent years, Procter and Gamble has heavily penetrated developing markets. Developing markets include
Latin America, Central & Eastern Europe/Middle East and Africa, Greater China and
ASEAN/Australasia/India/Korea. Procter and Gamble’s sales in developing markets comprise 30% of its total
sales revenue‐‐ up a significant 20% since the beginning of the decade.
International Market Share
Procter and Gamble maintains a strong focus on its market share, as this is a key factor for success in the
Consumer Staples sector in which they compete in. Each firm must compete for market share and viability of
growing future sales for the company. As economies around the world continue to recover following the
global downturn, Procter and Gamble recognizes that it is pertinent to have an established market share in
order to take advantage of new growth opportunities and increase their sales in the future.
Developing markets currently make up 86% of the world’s population. Procter and Gamble has already
established a strong market share in the most crucial areas of these developing markets: Central & Eastern
Europe, Middle East & Africa Region, Latin America, Greater China and Developing Asia. It is important that
PG takes advantage of opportunities in these particular markets as these areas provide the largest
international growth opportunities. Procter and Gamble has established themselves as the leader in market
share in the Blades and Razors markets. They are also first and second in market share in the Shampoos and
Diapers markets, respectively. Additionally, they maintain first, second and third market share positions in the
Laundry, Feminine Care and Oral Care product markets, respectively.
PurposedInspired Macro Strategy for Growth
Procter and Gamble is taking a focused approach
towards its growth opportunities. PG looks to
grow its leading, global brands and core categories. Where to Play:
PG will achieve this by narrowing the focus of their
portfolio. The recent divesture of their 1) Grow leading, global brands and core
pharmaceutical business is just one example of how categories
they are narrowing their focus. This will allow PG to
focus more heavily on their 43 billion and half‐ 2) Build business with underserved and
billion dollar brands that generate 85% of their unserved consumers
revenues. Furthermore, focusing on the expansion
of these 43 core brands into markets, where they 3) Continue to grow and develop faster‐
are currently underrepresented. growing, structurally attractive businesses with
global leadership potential
Student Investment Fund: Procter & Gamble
Another focus for Procter and Gamble is on building its business through underserved and unserved
consumers. As previously mentioned, developing markets make up more than 86% of the world’s population.
PG’s sales in developing markets totaled nearly $24 billion in 2009 — nearly five times greater than their
average competitor’s sales in developing markets. Procter and Gamble continues to aim towards growing its
current 19% share in developing markets. This allows an attractive opportunity for PG to further its growth
outreach. In a recent interview with Fortune Magazine, Procter and Gamble’s CEO Bob McDonald explained
that the company currently serves approximately 3.84 billion of the world’s 7.5 billion total population.
Moreover, McDonald expressed PG’s plans to add 1 billion more customers over the next five years.
PG’s final strategy takes a focused approach towards growing structurally‐sound businesses, rather than
growing for growth’s sake. The company maintains a solid strategy for future growth that adds value.
Key Strategies for Success
Consumer Understanding
o Each year, Procter and Gamble interacts with nearly 5 million consumers in over 60 countries
worldwide.
o It is important for Procter and Gamble to gain insight on consumer understanding in order to
discover innovation opportunities and to find ways in which the company can better serve its
customers. It is especially important for PG to recognize and adjust to cultural differences
among its international markets.
Brand Building
o Procter and Gamble currently has 23 brands within its product portfolio that individually
generate over one billion dollars in sales annually. PG also has 20 brands that generate half of a
billion dollars in annual sales. Combined, these 43 brands account for 85% of PG’s total sales
and 90% of PG’s profit. PG maintains the strongest‐performing portfolio of brands within its
industry. Moreover, PG maintains its key competitive advantage for the overall success of the
firm.
Innovation
o Procter and Gamble is the industry leader in terms of innovation. Each year in the U.S., the IRI
New Product Pacesetter Report ranks the best selling new products within the consumer
market. Over the past 14 years, Procter and Gamble has had 114 top 25 pacesetters—more
than six times the number of pacesetters of their largest competitors combined. (Pacesetter is
defined as a new, innovative Consumer Packaged Brand that exceeds $7.5 M in its first year).
Established Go‐To‐Market Capability
o Procter and Gamble is ranked as the preferred supplier and industry leader in a wide range of
capabilities including clearest company strategy, brands most important to retailers, strong
business fundamentals and innovative marketing programs.
Scale
o Procter and Gamble is able to take advantage of its ability to operate on a large scale. This
allows PG to share processes and procedures among the categories under which they operate.
This also creates the ability for PG to capitalize on its international expansion opportunities
since they have the capabilities and resources for such ventures.
Student Investment Fund: Procter & Gamble
Valuation Analysis
Dividend Growth: Despite a solid historical year‐to‐
year dividend growth rate of 16.9%, dividend growth
Our valuation analysis for PG was conducted using has been decreasing from its 2005 high of 37% growth
conservative model assumptions. Our discounted to more moderate measures. Forecasted dividend
cash flow model estimates PG’s intrinsic value at growth was reduced to a level of 10% for the forecast.
$65.53 per share for 2009, reaching $82.91 by 2019.
Income Statement Inputs: Balance Statement Inputs:
Property, Plant and Equipment: PG’s five‐year
Revenue Growth: Despite having a solid 5‐year historical average PPE/Sales of 25.8% and has been
historical growth of 8.6%, PG faced revenue growth improving over the past three years. Despite PG’s
of ‐3.3% during 2009. In 2009, PG saw the adverse recent efficiency with managing its capital
affects of a weak consumer spending environment, investments, we steadily grew PPE/Sales throughout
which was exacerbated by its inability to further our forecast from 24.0% in 2010 to 26% by 2019.
lower prices on its higher‐priced premium products This more accurately reflects its historical average
during the recession. We therefore forecasted and reflects more of a worst‐case scenario
revenue growth on a year‐to‐year basis. For 2010, assumption.
we again penalized PG’s revenue growth to a level of
‐3%, and used ‐2% in 2011. We expect PG’s revenue Capital Asset Pricing Model
growth to bounce back out of the recession with a
Cost of Equity: Cost of equity of 7.85% was
moderate growth rate of 5% in 2012. Following
calculated using a risk‐free rate of 4.25%, market risk
2012, we forecast the growth of revenue to taper
premium of 6% and beta of 0.6. Conducting a
down to a long‐term growth rate of 3% by 2019.
regression analysis on PG’s historical prices since
Selling, General and Administrative Expenses: PG’s
2002 yielded a beta estimate of .49. To maintain
historical average SG&A/Sales expense was 30.4%.
conservatism in our model, we increased the beta
For our forecast, we increased SG&A/Sales to 32%
estimate to 0.6 to allow for reversion to the mean.
due to PG’s stated intention to increase advertising
expenditures in the future.
Cost of Goods Sold: PG operated with a historical Weighted Average Cost of Capital Assumptions
average COGS/Sales of 48.6%. This average was
maintained throughout the forecasted years. Weighted Average Cost of Capital: WACC of 7.4%
Research and Development: PG charges its R&D was calculated using costs of 2.7% in short‐term
costs to its SG&A expenses, which is primarily why debt and 5.28% in long‐term debt. Cost of equity
R&D/Sales were 0% as of the past three years. We was calculated at 7.85% as described above.
maintained .5% R&D/Sales for the forecast. Long‐term Horizon Value Growth Rate: We applied
Tax Rate: Since PG’s tax rate has been steadily a long‐term horizon growth rate of 3% for PG to
declining from its 30.6% high in 2005, we maintained maintain a conservative outlook for the company's
its historical average rate of 28.2% for the long‐term prospects.
forecasted years.
Share Growth: In 2007, PG announced its plan for a
repurchase of $24‐$30 billion of its common stock
through 2010. Therefore, we held PG’s share growth
to 0% through the forecasted years.
Student Investment Fund: Procter & Gamble
Profitability
Returns: PG maintains stable levels of returns on
assets and equity throughout the forecast. PG
generated a historical average 8.7% return on
assets. This 8.7% is slightly compressed to an
average 8% return on assets through 2019. PG also
generated an average 21.1% return on equity over
the past five years. Our conservative modeling
approach is reflected in a narrowing of PG’s average
return on equity to 14% throughout the forecasted
years.
Earnings Per Share & Dividends Per Share: PG's
ability to generate profits for shareholders is
reflected in its earnings per share and dividends per
share metrics. PG generated a historical average
growth in earnings per share of 8.1%. While our
conservative model reduces this rate to nearly a
quarter of its historical average EPS growth, PG’s
forecasted EPS growth remains a positive 2.2%
through 2019. PG also delivered a modest historical
average DPS of 11.4% to its shareholders. PG’s DPS
was tightened to a level of 8.2% annual growth for
the forecast. Even compressed to these rates, PG
manages to grow both EPS and DPS at healthy and
sustainable levels through 2019.
Value Creation Metrics
Free Cash Flow: Over the past five years, PG has
successfully shown its ability to create free cash
flow. After growing at a historical yearly average
rate of 17.7%, PG’s FCF was drastically reduced to a
sustainable level of 2.7% average growth for the
forecast.
Net Operating Profit After Tax:
Historically, PG has grown its NOPAT at an average
rate of 11.03%. Following a significant reduction in
NOPAT in 2010, we forecast NOPAT to grow at an
average yearly growth rate of 3%.
Student Investment Fund: Procter & Gamble
Economic Value Added: In 2009, PG created $10.2
billion in economic profit. Our forecast tightens EVA
to $8.7 billion and $8.5 billion in 2010 and 2011,
respectively. This decrease in EVA was due to our
projected forecasts of ‐3% and ‐2% revenue growth
for the years, in respective order. Despite this dip,
economic profit for PG grows at a steady average rate
of 3% per year for the forecast.
Market Value Added: PG created MVA of $143.4
billion in 2009. For 2010, this metric grew to $148
billion. PG’s MVA is projected to continue its growth
at a yearly rate of 3% through 2019.
Value Spread: ROIC vs. WACC
ROIC: Historical average return on invested capital
was 46.7% for PG. In 2009, generated a significantly
higher ROIC of 54.4%. For the forecast, ROIC was
slimmed to an average 42.4% through 2019.
WACC: Weighted average cost of capital was
calculated at 7.4%. As described above, the
risk‐free rate, beta, and market risk premium were
increased to maintain conservatism.
Value Spread (ROIC‐WACC): Procter and Gamble’s
historical average value spread was 39.9%. In 2009,
PG’s value spread was 44%. PG’s forecasted value
spread averages 35%. Even with a considerably
lower forecasted value spread, PG displays
considerable potential to further increase its value
creation beyond our forecasted ROIC‐WACC spread
measure.
Student Investment Fund: Procter & Gamble
Relative Valuation
Price‐to‐Earnings: Procter and Gamble currently
trades at a lower PE multiple of 13.5, which is lower
than two of its top competitors, Colgate Palmolive
(CL) and Clorox (CLX), with PE multiples of 19 and 15
respectively.
Price‐to‐Cash Flow: PG’s price‐to‐cash flow of 11 is
an additional relative valuation metric that favors PG
compared to Colgate Palmolive’s significantly higher
PCF of 16; Clorox’s PCF is also 11.
Valuation Measures
Altman Z‐Score Test for Bankruptcy:
The Altman Z‐Score was developed to predict a
company’s likelihood of bankruptcy using five
financial metrics. Companies scoring above 2.9 are
considered to be financially healthy. Lower scores
reflect a higher likelihood of failure of a firm.
Historically, PG scored an average 3.19—well above
the safe zone. Procter and Gamble also scored in the
safe zone with an average 3.92 for the forecast.
Piotroski ‘s Financial Fitness Scorecard
This scorecard evaluates companies based on
income statement and balance sheet performance.
Firms can score up to a maximum of 11 points.
Historically, Procter and Gamble scored an average
of 7 out 11. PG’s average score for the forecasted
years is 8 out of 11, which suggests increased
financial stability through 2019.
Student Investment Fund: Procter & Gamble
Graham and Dodd Insider Trading
Thomson Reuters’ metric is computed using a Over time, net insiders tend to sell off their positions
Graham and Dodd approach to valuation. PG, ranked in order to diversify their holdings. Most recently,
in the 7th Decile, indicates that Procter and Gamble’s PG’s net insiders have slowed the selling of their
investors are paying a lower premium for future positions. Overall, net insiders have divested an
earnings than 70% of investors in the S&P 500. This aggregate $43 million since 2004.
is indicative of undervaluation.
Earnings Momentum
Procter and Gamble has favorable earnings
momentum despite recent tough economic times.
PG’s earnings momentum is better than 87% of
stocks in the S&P 500.
Other Analysts Recommendation
Ranked on a scale from 1 to 5 (1 being a strong by
and 5 being a strong sell) PG has a mean analysts
recommendation of 1.9, indicating a buy signal from
analysts
Correlation with Student Investment Fund Stocks
Correlations are calculated between stock returns to
reveal how investments move in relation to one
another within a portfolio. Low correlations are
favorable and indicate a weak
relation in performance Days to Cover
between two equities. In order This ratio measures the period of time it will take
to ensure Procter and Gamble short sellers to cover their positions relative to the
would fit favorably into stock’s total trading volume. As of January 2006,
Washburn’s Student PG’s stable days to cover ratio remains low,
Investment Fund, we ran a suggesting short sellers have little interest in the
correlation of Procter and stock.
Gamble’s historical returns
since 2004 with respect to the
historical returns of stocks
currently held in the SIF over
the same time period. Procter
and Gamble’s strongest correlation of .49 was
shared between Johnson and Johnson (JNJ) and
United Technologies Incorporated (UTX). PG's low
correlation with the rest of the portfolio should
ensure the Student Investment Fund maintains its
lower‐than‐average beta exposure.
Procter and Gamble Technical Appendix, Page 1 of 8
A B C D E F G H I J K L M N
1 Forecasted income statement items are based on 5 years of historical average ratios unless a value is entered in
2 Enter Firm Ticker PG the manual cell, in which case the manual entry overrides the historical average. The idea is to consider whether
3 the historical average is truly representative of what the firm can achieve in the future.
4 values in millions
5 Historical Income Statements Forecasting Percentages
6 Enter first financial statement year in cell B6 2005 2006 2007 2008 2009 2005 2006 2007 2008 2009 Average Manual
7 Total revenue 56,741 68,222 74,832 81,748 79,029 Revenue Growth 20.2% 9.7% 9.2% -3.3% 8.6%
8 Cost of goods sold 27,872 33,125 35,659 39,536 38,898 COGS % of Sales 49.1% 48.6% 47.7% 48.4% 49.2% 48.6%
9 Gross profit 28,869 35,097 39,173 42,212 40,131
10 SG&A expense 16,460 19,773 24,170 25,575 24,008 SG&A % of Sales 29.0% 29.0% 32.3% 31.3% 30.4% 30.4% 32.0%
11 Research & Development 1,940 2,075 0 0 0 R&D % of Sales 3.4% 3.0% 0.0% 0.0% 0.0% 1.3% 0.5%
12 Depreciation/Amortization 0 0 0 0 0 D&A % of Sales 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
13 Interest expense (income), operating 0 0 0 0 0 Inc. Exp. Oper. 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
14 Non-recurring expenses 0 0 0 0 0 Exp. Non-rec 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
15 Other operating expenses 0 0 0 0 0 Other exp. 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
16 Operating Income 10,469 13,249 15,003 16,637 16,123
17 Interest income (expense), non-operating 0 0 0 0 0 Int. inc. non-oper. 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
18 Gain (loss) on sale of assets 0 0 0 0 0 Gain (loss) asset sales 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
19 Other income, net 346 283 565 462 560 Other income, net 0.6% 0.4% 0.8% 0.6% 0.7% 0.6%
20 Income before tax 9,981 12,413 14,264 15,632 15,325
21 Income tax 3,058 3,729 4,201 3,834 4,032 Tax rate 30.6% 30.0% 29.5% 24.5% 26.3% 28.2%
22 Income after tax 6,923 8,684 10,063 11,798 11,293
23 Minority interest 0 0 0 0 0 Minority interest 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
24 Equity in affiliates 0 0 0 0 0 Equity in affiliates 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
25 U.S. GAAP adjustment 0 0 0 0 0 U.S. GAAP adjust. 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
26 Net income before extraordinary items 6,923 8,684 10,063 11,798 11,293
27 Extraordinary items, total 0 0 277 277 2,143 Extrordinary items Too unpredictable to forecast, set to zero in the forecast
28 Net income 6,923 8,684 10,340 12,075 13,436
29 Total adjustments to net income (136) (148) (161) (176) (192) Adjustments to NI Too unpredictable to forecast, set to zero in the forecast
30 Basic weighted average shares 2,516 3,055 3,159 3,081 2,952 Share growth 21.4% 3.4% -2.5% -4.2% 4.1% 0.0%
31 Basic EPS excluding extraordinary items 2.75 2.84 3.19 3.83 3.83
32 Basic EPS including extraordinary items 2.75 2.84 3.27 3.92 4.55
33 Diluted weighted average shares 2,737 3,286 3,399 3,317 3,154 Diluted share growth 20.1% 3.4% -2.4% -4.9% 3.6% 0.0%
34 Diluted EPS excluding extraordinary items 2.53 2.64 2.96 3.56 3.58
35 Diluted EPS including extraordinary items 2.53 2.64 3.04 3.64 4.26
36 Dividends per share -- common stock 1.03 1.16 1.28 1.45 1.64
37 Gross dividends -- common stock 2,595 3,555 4,048 4,479 4,852 Dividend growth 37.0% 13.9% 10.6% 8.3% 16.9% 10.0%
38 Retained earnings 4,328 5,129 6,292 7,596 8,584
39
40
41
42
43
44
45
46
47
48
49
50
51
52
53
54
55 Data Source: Thomson/Reuters
56
Procter and Gamble Technical Appendix, Page 2 of 8
O P Q R S T U V W X Y Z
1
Revenues grow at the same rate each year unless a growth value is manually entered in the cell above the forecast year, in which case the year-by-year value
2 overrides the historical or manual average. It makes sense to start tapering the growth forecasts 5 or 6 years into the forecast period.
3
4 Year-by-year revenue growth -3.00% -2.00% 5.00% 5.00% 4.00% 4.00% 3.50% 3.00% 3.00% 3.00%
5 Forecasted Income Statements -- 10 Years
6 year 2010E 2011E 2012E 2013E 2014E 2015E 2016E 2017E 2018E 2019E
7 Total revenue 76,658 75,125 78,881 82,825 86,138 89,584 92,719 95,501 98,366 101,317
8 Cost of goods sold 37,242 36,497 38,322 40,238 41,848 43,522 45,045 46,396 47,788 49,222
9 Gross profit 39,416 38,628 40,559 42,587 44,290 46,062 47,674 49,104 50,577 52,095
10 SG&A expense 24,531 24,040 25,242 26,504 27,564 28,667 29,670 30,560 31,477 32,421
11 Research & Development 383 376 394 414 431 448 464 478 492 507
12 Depreciation/Amortization 0 0 0 0 0 0 0 0 0 0
13 Interest expense (income), operating 0 0 0 0 0 0 0 0 0 0
14 Non-recurring expenses 0 0 0 0 0 0 0 0 0 0
15 Other operating expenses 0 0 0 0 0 0 0 0 0 0
16 Operating Income 14,502 14,212 14,923 15,669 16,295 16,947 17,540 18,067 18,609 19,167
17 Interest income (expense), non-operating (957) (651) (596) (657) (653) (672) (748) (785) (865) (993)
18 Gain (loss) on sale of assets 0 0 0 0 0 0 0 0 0 0
19 Other income, net 468 459 482 506 526 547 566 583 601 619
20 Income before tax 14,014 14,019 14,808 15,517 16,169 16,822 17,359 17,864 18,345 18,793
21 Income tax 3,951 3,953 4,175 4,375 4,559 4,743 4,894 5,037 5,172 5,298
22 Income after tax 10,063 10,067 10,633 11,142 11,610 12,079 12,465 12,828 13,173 13,495
23 Minority interest 0 0 0 0 0 0 0 0 0 0
24 Equity in affiliates 0 0 0 0 0 0 0 0 0 0
25 U.S. GAAP adjustment 0 0 0 0 0 0 0 0 0 0
26 Net income before extraordinary items 10,063 10,067 10,633 11,142 11,610 12,079 12,465 12,828 13,173 13,495
27 Extraordinary items, total 0 0 0 0 0 0 0 0 0 0
28 Net income 10,063 10,067 10,633 11,142 11,610 12,079 12,465 12,828 13,173 13,495
29 Total adjustments to net income 0 0 0 0 0 0 0 0 0 0
30 Basic weighted average shares 2,952 2,952 2,952 2,952 2,952 2,952 2,952 2,952 2,952 2,952
31 Basic EPS excluding extraordinary items 3.41 3.41 3.60 3.77 3.93 4.09 4.22 4.35 4.46 4.57
32 Basic EPS including extraordinary items 3.41 3.41 3.60 3.77 3.93 4.09 4.22 4.35 4.46 4.57
33 Diluted weighted average shares 3,154 3,154 3,154 3,154 3,154 3,154 3,154 3,154 3,154 3,154
34 Diluted EPS excluding extraordinary items 3.19 3.19 3.37 3.53 3.68 3.83 3.95 4.07 4.18 4.28
35 Diluted EPS including extraordinary items 3.19 3.19 3.37 3.53 3.68 3.83 3.95 4.07 4.18 4.28
36 Dividends per share -- common stock 1.81 1.99 2.19 2.41 2.65 2.91 3.20 3.52 3.88 4.26
37 Gross dividends -- common stock 5,337 5,871 6,458 7,104 7,814 8,596 9,455 10,401 11,441 12,585
38 Retained earnings 4,725 4,196 4,175 4,038 3,796 3,484 3,010 2,427 1,732 910
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Procter and Gamble Technical Appendix, Page 3 of 8
AA AB AC AD AE AF AG AH AI AJ AK AL AM AN
1
Forecasted balance sheet items are based on 5 years of historical average ratios unless a value is entered in the
2 Enter Firm Ticker PG manual cell, in which case the manual entry overrides the historical average. The idea is to consider whether the
3 historical average is truly representative of what the firm can achieve in the future.
4 values in millions
5 Historical Balance Sheets Forecasting Percentages
6 year 2005 2006 2007 2008 2009 2005 2006 2007 2008 2009 Average Manual
7 Assets PPE Growth 31.0% 4.1% 5.6% -5.7% 1.2%
8 Cash & equivalents 6,389 6,693 5,354 3,313 4,781 Cash % of Sales 11.3% 9.8% 7.2% 4.1% 6.0% 7.7%
9 Short term investments 1,744 1,133 202 228 0 ST Invest. % of Sales 3.1% 1.7% 0.3% 0.3% 0.0% 1.1%
10 Receivables, total 4,185 5,725 6,629 6,761 5,836 Receivables % Sales 7.4% 8.4% 8.9% 8.3% 7.4% 8.1%
11 Inventory, total 5,006 6,291 6,819 8,416 6,880 Inventory % of Sales 8.8% 9.2% 9.1% 10.3% 8.7% 9.2%
12 Prepaid expenses 1,924 2,876 3,300 3,785 3,199 Pre. Exp. % of Sales 3.4% 4.2% 4.4% 4.6% 4.0% 4.1%
13 Other current assets, total 1,081 1,611 1,727 2,012 1,209 Other CA % of Sales 1.9% 2.4% 2.3% 2.5% 1.5% 2.1%
14 Total Current Assets 20,329 24,329 24,031 24,515 21,905
15 Property, plant and equipment (net) 14,332 18,770 19,540 20,640 19,462 Net PPE % of Sales 25.3% 27.5% 26.1% 25.2% 24.6% 25.8%
16 Goodwill 19,816 55,306 56,552 59,767 56,512 Goodwill % of Sales 34.9% 81.1% 75.6% 73.1% 71.5% 67.2%
17 Intangibles 4,347 33,721 33,626 34,233 32,606 Intangibles % of Sales 7.7% 49.4% 44.9% 41.9% 41.3% 37.0%
18 Long term investments 0 0 0 0 0 LT Invest. % of Sales 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
19 Notes receivable -- long term 0 0 0 0 0 Notes Rec. % of Sales 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
20 Other long term assets, total 2,703 3,569 4,265 4,837 4,348 Other LT ass. % Sales 4.8% 5.2% 5.7% 5.9% 5.5% 5.4%
21 Other assets, total 0 0 0 0 0 Other assets % Sales 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
22 Total assets 61,527 135,695 138,014 143,992 134,833
23 Liabilities and Shareholders' Equity
24 Accounts payable 3,802 4,910 5,710 6,775 5,980 Acc. Payable % Sales 6.7% 7.2% 7.6% 8.3% 7.6% 7.5%
25 Payable/accrued 0 0 0 0 0 Pay/accured % Sales 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
26 Accrued expenses 7,531 9,587 9,586 10,154 7,879 Acc. Exp. % of Sales 13.3% 14.1% 12.8% 12.4% 10.0% 12.5%
27 Notes payable/short term debt 8,835 198 9,495 13,084 0 Notes payable % Sales 15.6% 0.3% 12.7% 16.0% 0.0% 8.9%
28 Current portion of LT debt/Capital leases 2,606 1,930 2,544 0 16,320 Curr. debt % of Sales 4.6% 2.8% 3.4% 0.0% 20.7% 6.3%
29 Other current liabilities 2,265 3,360 3,382 945 722 Other curr liab % Sales 4.0% 4.9% 4.5% 1.2% 0.9% 3.1%
30 Total Current Liabilities 25,039 19,985 30,717 30,958 30,901
31 Long term debt, total 12,887 35,976 23,375 23,581 20,652 LT debt % of Sales LT debt is manually adjusted for AFN in the pro formas
32 Deferred income tax 1,896 12,354 12,015 11,805 10,752 Def. inc. tax % Sales 3.3% 18.1% 16.1% 14.4% 13.6% 13.1%
33 Minority interest 0 0 0 0 0 Min. Int. % of Sales 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
34 Other liabilities, total 3,230 4,472 5,147 8,154 9,429 Other liab. % of Sales 5.7% 6.6% 6.9% 10.0% 11.9% 8.2%
35 Total Liabilities 43,052 72,787 71,254 74,498 71,734
36 Preferred stock (redeemable) 1,483 1,451 1,406 1,366 1,324
37 Preferred stock (unredeemable) 0 0 0 0 0
38 Common stock 2,977 3,976 3,990 4,002 4,007
39 Additonal paid-in capital 3,030 57,856 59,030 60,307 61,118
40 Retained earnings (accumluated deficit) 31,004 35,666 41,797 48,986 57,309
41 Treasury stock -- common (17,194) (34,235) (38,772) (47,588) (55,961) Set to last historical year's level throughout the forecasts.
42 ESOP Debt Guarantee (1,259) (1,288) (1,308) (1,325) (1,340) Set to last historical year's level throughout the forecasts.
43 Other equity, total (1,566) (518) 617 3,746 (3,358) The model uses the more conservative diluted common shares
44 Total Shareholders' Equity 18,475 62,908 66,760 69,494 63,099 number for total shares outstanding.
45 Total Liabilities and Shareholders' Equity 61,527 135,695 138,014 143,992 134,833
46 Diluted weighted average shares 2,737 3,286 3,399 3,317 3,154 Diluted share growth 20.1% 3.4% -2.4% -4.9% 3.6% 0.0%
47 Total preferred shares outstanding 0 0 0 0 0 model
The Preferred share
uses the growth
more conservative diluted common shares
48 number for total shares outstanding.
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Procter and Gamble Technical Appendix, Page 4 of 8
AO AP AQ AR AS AT AU AV AW AX AY AZ
1
Model maintains a fixed ratio of ST debt/sales. LT debt is adjusted for shortfalls/surpluses of AFN. Every time something changes that affects the forecasts, set row 49
2
3 0.07 20,824 22,282 23,842 25,511 27,296 29,207 31,252 33,439 35,780 38,285
4 Year-by-year PPE/Sales 24.00% 24.00% 24.00% 25.00% 25.00% 25.00% 26.00% 26.00% 26.00% 26.00%
5 Forecasted Balance Sheets -- 10 Years
6 year 2010E 2011E 2012E 2013E 2014E 2015E 2016E 2017E 2018E 2019E
7 Assets
8 Cash & equivalents 6,800 6,800 6,047 6,349 6,603 6,867 7,107 7,321 7,540 7,766
9 Short term investments 810 794 833 875 910 947 980 1,009 1,039 1,071
10 Receivables, total 6,176 6,052 6,355 6,673 6,939 7,217 7,470 7,694 7,925 8,162
11 Inventory, total 7,077 6,935 7,282 7,646 7,952 8,270 8,559 8,816 9,081 9,353
12 Prepaid expenses 3,173 3,109 3,265 3,428 3,565 3,708 3,838 3,953 4,071 4,193
13 Other current assets, total 1,620 1,587 1,667 1,750 1,820 1,893 1,959 2,018 2,079 2,141
14 Total Current Assets 25,655 25,278 25,448 26,721 27,790 28,901 29,913 30,810 31,735 32,687
15 Property, plant and equipment (net) 18,398 18,030 18,931 20,706 21,535 22,396 24,107 24,830 25,575 26,342
16 Goodwill 51,542 50,511 53,037 55,689 57,916 60,233 62,341 64,211 66,138 68,122
17 Intangibles 28,388 27,820 29,211 30,672 31,899 33,175 34,336 35,366 36,427 37,520
18 Long term investments 0 0 0 0 0 0 0 0 0 0
19 Notes receivable -- long term 0 0 0 0 0 0 0 0 0 0
20 Other long term assets, total 4,157 4,074 4,277 4,491 4,671 4,858 5,028 5,179 5,334 5,494
21 Other assets, total 0 0 0 0 0 0 0 0 0 0
22 Total assets 128,140 125,713 130,906 138,279 143,810 149,563 155,725 160,396 165,208 170,164
23 Liabilities and Shareholders' Equity
24 Accounts payable 5,731 5,617 5,898 6,192 6,440 6,698 6,932 7,140 7,354 7,575
25 Payable/accrued 0 0 0 0 0 0 0 0 0 0
26 Accrued expenses 9,586 9,395 9,864 10,357 10,772 11,203 11,595 11,943 12,301 12,670
27 Notes payable/short term debt 6,831 6,694 7,029 7,381 7,676 7,983 8,262 8,510 8,765 9,028
28 Current portion of LT debt/Capital leases 4,825 4,729 4,965 5,213 5,422 5,639 5,836 6,011 6,192 6,377
29 Other current liabilities 2,377 2,330 2,446 2,569 2,671 2,778 2,875 2,962 3,051 3,142
30 Total Current Liabilities 29,351 28,764 30,202 31,712 32,981 34,300 35,501 36,566 37,663 38,792
31 Long term debt, total 14,624 8,915 7,693 8,677 8,438 8,653 9,936 10,523 11,895 14,183
32 Deferred income tax 10,050 9,849 10,342 10,859 11,293 11,745 12,156 12,521 12,896 13,283
33 Minority interest 0 0 0 0 0 0 0 0 0 0
34 Other liabilities, total 6,291 6,165 6,473 6,797 7,069 7,351 7,609 7,837 8,072 8,314
35 Total Liabilities 60,316 53,693 54,710 58,045 59,780 62,049 65,201 67,446 70,526 74,573
36 Preferred stock (redeemable) 1,324 1,324 1,324 1,324 1,324 1,324 1,324 1,324 1,324 1,324
37 Preferred stock (unredeemable) 0 0 0 0 0 0 0 0 0 0
38 Common stock 4,007 4,007 4,007 4,007 4,007 4,007 4,007 4,007 4,007 4,007
39 Additonal paid-in capital 61,118 61,118 61,118 61,118 61,118 61,118 61,118 61,118 61,118 61,118
40 Retained earnings (accumluated deficit) 62,034 66,230 70,406 74,444 78,240 81,723 84,733 87,160 88,892 89,802
41 Treasury stock -- common (55,961) (55,961) (55,961) (55,961) (55,961) (55,961) (55,961) (55,961) (55,961) (55,961)
42 ESOP Debt Guarantee (1,340) (1,340) (1,340) (1,340) (1,340) (1,340) (1,340) (1,340) (1,340) (1,340)
43 Other equity, total (3,358) (3,358) (3,358) (3,358) (3,358) (3,358) (3,358) (3,358) (3,358) (3,358)
44 Total Shareholders' Equity 67,824 72,020 76,196 80,234 84,030 87,513 90,523 92,950 94,682 95,592
45 Total Liabilities and Shareholders' Equity 128,140 125,713 130,906 138,279 143,810 149,563 155,725 160,396 165,208 170,164
46 Total common shares (diluted) 3,154 3,154 3,154 3,154 3,154 3,154 3,154 3,154 3,154 3,154
47 Total preferred shares outstanding 0 0 0 0 0 0 0 0 0 0
48 AFN (interactive with 3 items below) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
49 Adjustment to LT Debt (use Goal Seek) (6,028.4) (5,708.8) (1,221.9) 984.3 (239.5) 215.1 1,283.4 586.7 1,372.4 2,287.6
50 Issue Common Stock to Fund AFN
51 Set Balance Sheet Cash Lower to Fund AFN 6,800.0 6,800
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Procter and Gamble Technical Appendix, Page 5 of 8
BA BB BC BD BE BF BG BH BI BJ BK BL BM BN BO BP
1 Enter Firm Ticker PG
2 values in millions
3 Historical Ratios and Valuation Model Forecasted Ratios and Valuation Model -- 10 Years
4 2005 2006 2007 2008 2009 2010E 2011E 2012E 2013E 2014E 2015E 2016E 2017E 2018E 2019E
5 Liquidity
6 Current 0.81 1.22 0.78 0.79 0.71 0.87 0.88 0.84 0.84 0.84 0.84 0.84 0.84 0.84 0.84
7 Quick 0.61 0.90 0.56 0.52 0.49 0.63 0.64 0.60 0.60 0.60 0.60 0.60 0.60 0.60 0.60
8 Net Working Capital to Total Assets (0.08) 0.03 (0.05) (0.04) (0.07) (0.03) (0.03) (0.04) (0.04) (0.04) (0.04) (0.04) (0.04) (0.04) (0.04)
9 Asset Management
10 Days Sales Outstanding 26.92 30.63 32.33 30.19 26.95 29.41 29.41 29.41 29.41 29.41 29.41 29.41 29.41 29.41 29.41
11 Inventory Turnover 11.33 10.84 10.97 9.71 11.49 10.83 10.83 10.83 10.83 10.83 10.83 10.83 10.83 10.83 10.83
12 Fixed Assets Turnover 3.96 3.63 3.83 3.96 4.06 4.17 4.17 4.17 4.00 4.00 4.00 3.85 3.85 3.85 3.85
13 Total Assets Turnover 0.92 0.50 0.54 0.57 0.59 0.60 0.60 0.60 0.60 0.60 0.60 0.60 0.60 0.60 0.60
14 Debt Management
15 Long-Term Debt to Equity 69.8% 57.2% 35.0% 33.9% 32.7% 21.6% 12.4% 10.1% 10.8% 10.0% 9.9% 11.0% 11.3% 12.6% 14.8%
16 Total Debt to Total Assets 35.3% 26.7% 23.8% 25.5% 15.3% 16.7% 12.4% 11.2% 11.6% 11.2% 11.1% 11.7% 11.9% 12.5% 13.6%
17 Times Interest Earned N/A N/A N/A N/A N/A 15.2 21.8 25.0 23.8 25.0 25.2 23.5 23.0 21.5 19.3
18 Profitability
19 Gross Profit Margin 50.9% 51.4% 52.3% 51.6% 50.8% 51.4% 51.4% 51.4% 51.4% 51.4% 51.4% 51.4% 51.4% 51.4% 51.4%
20 Operating Profit Margin 18.5% 19.4% 20.0% 20.4% 20.4% 18.9% 18.9% 18.9% 18.9% 18.9% 18.9% 18.9% 18.9% 18.9% 18.9%
21 Net After-Tax Profit Margin 12.2% 12.7% 13.8% 14.8% 17.0% 13.1% 13.4% 13.5% 13.5% 13.5% 13.5% 13.4% 13.4% 13.4% 13.3%
22 Total Assets Turnover 0.92 0.50 0.54 0.57 0.59 0.60 0.60 0.60 0.60 0.60 0.60 0.60 0.60 0.60 0.60
23 Return on Assets 11.3% 6.4% 7.5% 8.4% 10.0% 7.9% 8.0% 8.1% 8.1% 8.1% 8.1% 8.0% 8.0% 8.0% 7.9%
24 Equity Multiplier 3.33 2.16 2.07 2.07 2.14 1.89 1.75 1.72 1.72 1.71 1.71 1.72 1.73 1.74 1.78
25 Return on Equity 37.5% 13.8% 15.5% 17.4% 21.3% 14.8% 14.0% 14.0% 13.9% 13.8% 13.8% 13.8% 13.8% 13.9% 14.1%
26 Free Cash Flow Per Share $1.48 $3.10 $4.04 $3.48 $3.29 $3.34 $3.38 $2.94 $3.40 $3.53 $3.40 $3.84 $3.96 $4.07
27 EPS (using diluted shares, excluding extraordinary item 2.53 2.64 2.96 3.56 3.58 3.19 3.19 3.37 3.53 3.68 3.83 3.95 4.07 4.18 4.28
28 DPS (dividends per share) 0.95 1.08 1.19 1.35 1.54 1.69 1.86 2.05 2.25 2.48 2.73 3.00 3.30 3.63 3.99
29
30 Valuation Metrics Trend Analysis (NOPAT, EVA, MVA, FCF and Capital in millions) Forecasted Valuation Metrics -- 10 Years
31 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
32 NOPAT (net operating profit after tax) 7,261 9,269 10,584 12,557 11,881 10,413 10,205 10,715 11,251 11,701 12,169 12,595 12,973 13,362 13,763
33 ROIC (return on invested capital) 39.1% 40.3% 45.9% 56.6% 51.4% 45.0% 44.7% 46.9% 45.3% 45.3% 45.3% 43.9% 43.9% 43.9% 43.9%
34 EVA (economic value added) 5,886 7,568 8,879 10,913 10,171 8,701 8,517 9,024 9,414 9,790 10,182 10,470 10,784 11,107 11,440
35 FCF (free cash flow) N/A 4,866 10,520 13,402 10,982 10,381 10,532 10,668 9,280 10,708 11,137 10,728 12,111 12,475 12,849
36 Weighted Average Cost of Capital 7.4% 7.4% 7.4% 7.4% 7.4% 7.4% 7.4% 7.4% 7.4% 7.4% 7.4%
37 Net Operating Working Capital (NOWC) 4,247 4,212 3,506 1,561 3,638 4,735 4,776 3,921 4,118 4,282 4,454 4,609 4,748 4,890 5,037
38 Operating Long Term Assets 14,332 18,770 19,540 20,640 19,462 18,398 18,030 18,931 20,706 21,535 22,396 24,107 24,830 25,575 26,342
39 Total Operating Capital 18,579 22,982 23,046 22,201 23,100 23,133 22,806 22,853 24,824 25,817 26,850 28,716 29,578 30,465 31,379
40
41 Valuation (in millions) -- through year 2019 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
42 Long-term Horizon Value Growth Rate (user-supplied) 3.00%
43 PV of Forecasted FCF, discounted at 7.40% $222,563 $228,656 $235,048 $241,777 $250,391 $258,216 $266,191 $275,166 $283,420 $291,923 $300,681
44 Value of Non-Operating Assets $4,781 $7,610 $7,594 $6,880 $7,224 $7,513 $7,814 $8,087 $8,330 $8,580 $8,837
45 Total Intrinsic Value of the Firm $227,344 $236,266 $242,642 $248,657 $257,616 $265,729 $274,005 $283,253 $291,750 $300,503 $309,518
46 Intrinsic Market Value of the Equity $206,692 $215,614 $221,990 $228,005 $236,964 $245,077 $253,353 $262,601 $271,098 $279,851 $288,866
47 Per Share Intrinsic Value of the Firm $65.53 $68.36 $70.38 $72.29 $75.13 $77.70 $80.33 $83.26 $85.95 $88.73 $91.58
48 MVA (market value added) $143,593 $147,789 $149,969 $151,809 $156,730 $161,047 $165,840 $172,078 $178,148 $185,169 $193,274
49 Weighted Average Cost of Capital Calculations Capital Asset Pricing Model
50 Item Value Percent Cost Weighted Cost Risk Free Rate 4.25%
51 ST Debt (from most recent balance sheet) 0 0.00% 2.70% 0.00% Beta 0.60
52 LT Debt (from most recent balance sheet) 20,652 11.05% 5.28% 0.42% Market Risk Prem. 6.00%
53 MV Equity (look up stock's mkt. cap and enter in cell BB53 166,245 88.95% 7.85% 6.98% Cost of Equity 7.85%
54 Weighted Average Cost of Capital 7.40%
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Procter and Gamble Technical Appendix, Page 6 of 8
BQ BR BS BT BU BV BW BX BY BZ CA CB CC CD CE CF CG CH
1
2 In this section we are going to examine historical and forecasted ratios (or "multiples") typically used to value stocks ‐‐ P/CF, Enterprise Value/EBITDA, etc. We first want to compare the historical trends
3 in these ratios to the trends in their forecasted values. If our forecasted multiples are systematically increasing or decreasing our forecasts may be too optimistic or pessimistic, and our forecast
4 assumptions may have to be adjusted. Second, we want to compare our discounted cash flow valuation estimates with those derived from the various multiples. Once again, if there is a large
5 discrepancy between our DCF valuation estimate of the company's stock and the range of values obtained from the various multiples, we may want to adjust our forecast assumptions.
6 1. You will need to look up the company's year‐end stock prices and enter them in the first 5 (historical) years of the "per share value" category.
7 2. Use the estimated DCF price per share in the forecasted period (link to your forecasted prices in cells BG47‐BP47.
8
3. Market capitalization will be calculated as basic weighted shares x historical year‐end prices and then forecasted basic weighted shares x DCF forecasted prices.
4. As with previous calculations, historical multiples use actual historical values and forecasted multiples use forecasted values.
9
10
11
12 Historical Ratios and Valuation Forecasted Ratios and Valuation
13 Inputs 2005 2006 2007 2008 2009 2010E 2011E 2012E 2013E 2014E 2015E 2016E 2017E 2018E 2019E
14 Per share value (hist. & DCF est.) $57.88 $64.27 $73.42 $61.82 $58.00 $68.36 $70.38 $72.29 $75.13 $77.70 $80.33 $83.26 $85.95 $88.73 $91.58
15 Market capitalization $145,603 $196,338 $231,934 $190,455 $171,228 $201,812 $207,780 $213,410 $221,795 $229,389 $237,136 $245,791 $253,745 $261,937 $270,375
16 EBITDA $9,981 $12,413 $14,541 $15,909 $17,468 $14,970 $14,671 $15,404 $16,174 $16,821 $17,494 $18,107 $18,650 $19,209 $19,786
17 Enterprise Value $162,419 $227,270 $260,856 $225,173 $188,423 $217,790 $217,913 $223,409 $232,828 $240,224 $248,228 $258,206 $266,781 $276,381 $287,144
18 Multiples
19 Price/Sales 2.57 2.88 3.10 2.33 2.17 2.63 2.77 2.71 2.68 2.66 2.65 2.65 2.66 2.66 2.67
20 Price/EBITDA 14.59 15.82 15.95 11.97 9.80 13.48 14.16 13.85 13.71 13.64 13.56 13.57 13.61 13.64 13.67
21 Price/Free Cash Flow N/A 33.23 21.32 14.57 16.27 19.44 19.73 20.00 23.90 21.42 21.29 22.91 20.95 21.00 21.04
22 Enterprise Value/EBITDA 16.27 18.31 17.94 14.15 10.79 14.55 14.85 14.50 14.39 14.28 14.19 14.26 14.30 14.39 14.51
23 Price/Earnings 22.88 24.32 24.80 17.38 16.20 21.43 22.05 21.44 21.27 21.11 20.97 21.07 21.13 21.24 21.41
24 Free Cash Flow Yield 2.3% 4.2% 6.5% 6.0% 4.8% 4.7% 4.7% 3.9% 4.4% 4.4% 4.1% 4.5% 4.5% 4.4%
25 Dividend Yield 1.64% 1.68% 1.62% 2.18% 2.65% 2.48% 2.64% 2.83% 3.00% 3.19% 3.39% 3.60% 3.84% 4.09% 4.36%
26 Historical Override Forecasted Stock Prices Based on Historical Multiples -- 10 Years
27 Valuation Estimates Based On: Average w/Manual 2010E 2011E 2012E 2013E 2014E 2015E 2016E 2017E 2018E 2019E
28 Price/Sales 2.61 $63.38 $62.12 $65.22 $68.48 $71.22 $74.07 $76.66 $78.96 $81.33 $83.77
29 Price/EBITDA 13.63 $69.09 $67.71 $71.10 $74.65 $77.64 $80.74 $83.57 $86.08 $88.66 $91.32
30 Price/Free Cash Flow 21.35 16.27 $57.21 $58.04 $58.79 $51.14 $59.01 $61.37 $59.12 $66.75 $68.75 $70.81
31 Enterprise Value/EBITDA 15.49 $78.56 $76.99 $80.84 $84.88 $88.27 $91.81 $95.02 $97.87 $100.81 $103.83
32 Price/Earnings 21.12 16.20 $55.22 $55.24 $58.35 $61.14 $63.71 $66.28 $68.40 $70.39 $72.28 $74.05
33 Low Price $55.22 $55.24 $58.35 $51.14 $59.01 $61.37 $59.12 $66.75 $68.75 $70.81
34 High Price $78.56 $76.99 $80.84 $84.88 $88.27 $91.81 $95.02 $97.87 $100.81 $103.83
35 DCF Price $68.36 $70.38 $72.29 $75.13 $77.70 $80.33 $83.26 $85.95 $88.73 $91.58
36
37
38 Price/Sales and Enterprise Value/EBITDA vs. Price Forecasted Per Share Stock Values
39 20 $100 $120
P/S and Ent. Value/EBITDA
40
Forecasted Value Per Share
$90 $105
Historical or DCF Price
41 16
42 $80 $90
43 $70 $75
12
44
45 $60 $60
46 8 $50 $45
47
$40 $30
48 4
49 $30 $15
50 0 $20 $0
51
52
53
54
55 Price/Sales Enterprise Value/EBITDA Historical or DCF Price Low Price DCF Price High Price
56
Procter and Gamble Technical Appendix, Page 7 of 8
CI CJ CK CL CM CN CO CP CQ CR CS CT CU CV CW CX CY CZ DA DB
1
2
3
Price/Earnings Ratio and Dividend Yield Earnings and Dividends Per Share
4 35 5.0% $4.50
$4.00
Price/Earnings Ratio
5 30
4.0% $3.50
EPS and DPS
6
25
7 $3.00
Dividend Yield
20 3.0%
8 $2.50
9 15 $2.00
2.0%
$1.50
10 10
11 1.0% $1.00
5 $0.50
12
0 0.0% $0.00
13
14
15
16
Price/Earnings Ratio Dividend Yield Earnings Per Share Dividends Per Share
17
18
19
20 Gross, Operating and Net Profit Margins Return on Assets, Equity and Invested Capital
21
60% 60%
22 55% 55%
ROA, ROE and ROIC
23 50% 50%
45% 45%
Gross Margin
24 40% 40%
25 35% 35%
26 30% 30%
25% 25%
27 20% 20%
28 15% 15%
10% 10%
29 5% 5%
30 0% 0%
31
32
33
34 Gross Margin Operating Margin Net Margin Return on Assets Return on Equity Return on Invested Capital
35
36
37
NOPAT and Free Cash Flow (millions)
38 Economic Value Added & Market Value Added (millions)
39 $16,000
NOPAT and Free Cash Flow
$12,000 $210,000
40 $14,000
Economic Value Added
$11,500 $190,000
Market Value Added
41 $12,000
$11,000
42 $170,000
$10,500 $10,000
43 $150,000
$10,000 $8,000
44
$9,500 $130,000
$6,000
45
$9,000 $110,000
46 $4,000
47
$8,500
$90,000 $2,000
48
$8,000
$7,500 $70,000 $0
49
50
$7,000 $50,000
51
52
53 NOPAT Free Cash Flow
54 Economic Value Added Market Value Added
55
56
Procter and Gamble Technical Appendix, Page 8 of 8
DC DD DE DF DG DH DI DJ DK DL DM DN DO DP DQ DR DS DT DU DV
1
2
Short Interest (thousands of shares) Average Daily Trading Volume (thousands)
3
4 72,000 32,000
Short Interst (thousands)
66,000
5 60,000 28,000
Avg. Daily Volume
6 54,000
48,000 24,000
7 42,000
36,000 20,000
8 30,000
9 24,000 16,000
18,000
10 12,000 12,000
6,000
11 0 8,000
12
4,000
13
14
15 Axis Title
16
17 Short Interest (thousands of shares) Average Daily Volume (thousands of shares)
18
19
20 Days to Cover Ratio (Short Interest / Volume) Peer Comparison: Price/Cash Flow Ratio
21
8.0 22 22
22
7.0
Days to Cover Ratio
20 20
CL & CLX
23
6.0
24 18 18
5.0
25 16 16
PG
26
4.0
14 14
27 3.0
2.0 12 12
28
29 1.0 10 10
30 0.0 8 8
31
32
33
34 Days to Cover PG CL CLX
35
36
37
38 Peer Comparison: Price/Earnings Ratio Peer Comparison: Price/Sales Ratio
39 30 30 5
40
41 4
25 25
CL & CLX
CL & CLX
42
43
3
PG
44
20 20
2
45
46 15 15
1
47
48 10 10 0
49
50
51
52
53 PG CL CLX PG CL CLX
54
55
56