Introduction
Procter and Gamble (P&G) will turn 180 years old by the end of 2017. The company’s
success is mainly due to its commitment in serving its esteemed customers and creating value to its shareholders. Currently, the company is focusing of ten categories of products to enable it continue being the market leader in sales of household goods. Despite facing stiff competition, the company is the leader in all the ten major categories in consumer products (baby, feminine, family, fabric, home, hair, skin and personal care, grooming, oral, and personal health care items.
Currently, the company has introduced powder dishwashing soaps, which have accelerated the sale of its household items. One of the most popular product that has been affected by this change is Dawn liquid soap.  Since its creation in the 1970’s, the liquid soap was one of the most popular items sold by the company. Recently, the company has converted the liquid soap into highly concentrated powder soap, which is more effective and easy to use. As a result, the demand for this soap has continued to increase, which may enable the company to make higher profits in the future. Currently, the fabric and home care segment contributes 32% of P&G’s net sales and 27% of its net income.
Data Analytics
A financial analysis of Procter and Gamble audited financial statements can show whether the introduction of concentrated powder soaps has enabled it to become more profits. In turn, these research findings will show whether the business should continue with the production of powder soaps or discontinue this project. This paper will mainly concentrate in the use of liquidity, operations, and solvency ratios to determine the impact of these new items into P&G’s business.
Current Ratio
Current Ratio= Current assets/ current liabilities
Year 2016: 33,782/30,770=1.09788
Year 2017: 26,494/30,210=0.87699
Quick ratio
Quick ratio = (current assets-inventories)/current liabilities
Year 2016: (33,782-4,716)/30,770= 0.9446
Year 2017: (26,494-4,624)/30,210= 0.7239
Operating Ratios
Inventory Turnover Ratio
Inventory turnover ratio= cost of goods sold/ average inventory
Inventory turnover ratio= 32,535/ ((4716+4624)/2) = 6.9668
Inventory Days on Hand
Inventory Days on Hand= 365 days / Inventory Turnover Ratio
Inventory Days on Hand= 365days/6.9668= 52.3913 days
Accounts Receivable Turnover Ratio
Accounts receivable turnover ratio= net credit sales/average accounts receivable
2017: Accounts receivable= 65,058/((4373+4594)/2)= 14.5105
Accounts Receivable Days on Hand
Account receivable day on hand= 365 days/{ net credit sales/average accounts receivable}
Year 2017: 365 days/65,058/((4373+4594)/2)}= 25.154 days
Accounts Payable Turnover Ratio
Accounts Payable Turnover Ratio = Cost of Goods Sold / Inventory
Accounts Payable Turnover Ratio= 65058/4624= 14.0696
Accounts Payable Days
Accounts Payable Days= 365 days / Accounts Payable Turnover Ratio
Accounts Payable Days= 365 days/ 14.0696= 25.9424 days
Cash Cycle
Cash Cycle= Accounts Receivable Days + Inventory Days – Accounts Payable Days
Cash Cycle= 26+ 53-26= 53days
Return on Assets Ratio
Return on Assets = Profit Before Taxes / Total Assets
Return on Assets= 18,389/120,406= 0.1527
Debt-to-Worth Ratio
Debt-to-Worth Ratio = Total Liabilities / Net Worth
Net Worth = Total Assets – Total Liabilities
Debt-to-Worth Ratio= 64,682/(120,406-64,682)= 1.160756
Working Capital
Working Capital = Total Current Assets – Total Current Liabilities
Year 2016: Working Capital 33,786- 30,770= 3,016
Year 2017: Working Capital 26,494- 30,210= -3,716
Net Sales to Working Capital
Net Sales to Working Capital Ratio = Net Sales / Net Working Capital
Year 2016: Net Sales to Working Capital Ratio= 65,299/3,016= 21.6508
Year 2017: Net Sales to Working Capital Ratio= 65,078/-3,716=-17.513
Critique of P&G’s Roll Out Strategy for Compacted Detergent
            P&G’s strategy of introducing compacted soap is wrong due to the company’s current financial performance. The business has been having low liquidity, low returns on investments, and a low working capital. Therefore, if the new investment on compacted detergent fails to be as profitable as projected, the company may collapse. P&G’s current debt-to-worth ratio is 1.61 and its 2017 working capital is -3,716, which indicates that the business has more liabilities than assets. Consequently, the business may be forced to borrow more credit if the compacted detergent segment fails to be successful. In worse cases, it may be unable to repay its debts.
Additionally, the P&G’s liquidity is bad. The company’s current quick ration is 0.7239, which shows that the business must always sell its inventories for it to be able to operate. This situation is aggravated by the company’s low return on assets ratio, which is only 0.1527. Therefore, the company makes approximately $0.1527 for every dollar that it invests. Further, P&G’s cash cycle of 53 days shows that the business must wait for almost two months for it to receive income from each unit that it sells. 53 days is an extremely long time for a company that has low liquidity. Consequently, the strategy of introducing compacted soap at this time is wrong.
Risks of Undertaking the Strategy
The main risk of P&G’s current strategy of launching compacted soap products are its inability to finance the project and being forced to borrow more credit. Since the company already has liquidity problems, it will have to rely on credit for it to implement this strategy. In this case, it may request for long credit days from its suppliers or borrow from financiers. Since the company has a cash cycle of 53 days, the credit period repayment periods must at least be 53 days. This long credit period may cause the company to miss out on the services of affordable suppliers who only offer short credit days. Additionally, the company’s low working capital may make it unable to meet unable to process some of its orders. Currently, the company has a working capital of -3,716, which shows that it does not have adequate finances to process orders. As such, it may be forced to borrow finances, which may be very expensive due to its poor rating in the debt-to-worth ration, which is 1.1608. This ratio indicates that the company has more debts than total assets.
Data for Forecasting of Compacted Detergent
The most appropriate data needed for forecasting are the demand levels, location of market, and income bracket of target customers. The demand for compacted detergent will enable the company evaluate whether it should continue with this investment. Basically, it may decide to establish the project if the demand is high and forego it if there are few potential customers. The business should also identify the location of the target market. This information will help the business to estimate logistics costs, and the viability of the project. Additionally, the location will enable the company to estimate the income levels of the target market. Typically, a company will desire to establish its products in areas that have huge populations and the people have high incomes. Therefore, this analysis will help P&G to evaluate if they should continue with their investment in compacted detergents.
Specific Data Points
P&G should collect data on the size of the market available for compacted detergents, the demand for this item, and its production cost. With regards to market, the company must ensure that it has a huge number of buyers for the compacted detergent in all its major markets. Since the fabric and home care segment contributes to 32% of the company’s sales, the market for this product should be worth $20,818 million.
Besides identifying the size of the market, the business must ensure that individuals have enough purchasing power to buy P&G’s products. In this case, the consumers should be able to spend at least $100 annually on detergents. Finally, the cost of manufacturing and selling the product should be less than $20, 818 million annually. The low costs will enable the company to breakeven and make profits from the sale of compacted detergents.
Fields to be Collected in the Forecast
For P&G to have an appropriate analysis of the impact of compacted detergents, it should collect the following information:

  1. Global economic performance.
  2. Transport and logistics costs.
  3. Electricity costs.

The information on global economic performance will enable the company to predict the ability
 
 
Create a list of every field that should be collected, and explain why.
When developing a database such as the one you created in #2 above, what decisions can be made based on the information collected, and what decisions can NOT be made?
What are the limitations to forecasting?