Measuring and Managing the Value of Companies Proctor and Gamble Case - Part I (80 points) Company Introduction Founded in 1837, Proctor & Gamble (PG) is an $82.6 billion (by revenue as of 6/30/11)...

Measuring and Managing the Value of Companies



Proctor and Gamble Case - Part I (80 points)


Company Introduction

Founded in 1837, Proctor & Gamble (PG) is an $82.6 billion (by revenue as of 6/30/11) American based consumer products company. Procter & Gamble is engaged in providing branded consumer goods products. The Co.'s products are sold in more than 180 countries primarily through mass merchandisers, grocery stores, membership club stores, drug stores and high-frequency stores, the neighborhood stores which serve many consumers in developing markets. PG has on-the-ground operations in approximately 80 countries. As of June 30 2011, PG was organized into two Global Business Units (GBU's): Beauty and Grooming and Household Care. The business units comprising the GBUs are aggregated into six reportable segments: Beauty; Grooming; Health Care; Snacks and Pet Care; Fabric Care and Home Care; and Baby Care and Family Care. (PG annual report)

Instructions

Before analyzing and valuing PG, it is important to understand who the company is, what and where it sells, and how the company finances its operations. For this assignment, assess the following:

1. In the first section, provide a financial overview (all calculations done in excel) and brief commentary (text) about the company. Analyze the performance over the last five years by calculating revenue, operating profit and earnings growth as well as capital structure, gross and operating margin, ROIC, ROE, FCF and economic profit . (65 pts)
   
   
   
   1. Is PG sensitive to the economy based on your calculations over this time frame? Is their growth organic or acquired? Are most of their sales domestic or foreign? How is the company financed? Has their capital structure changed over the last several years and if so, how?
   
   
   2. What has PG done to improve its ROIC over the time period? What does PG view as their competitive advantage? Is the company adding positive value over this time period?
   
   
   3. Compare the ROIC and ROE of PG to one of its main competitors (all data given in excel worksheet). Based
      only
      on the information you have, explain which company shows better performance using both of these return measurements and why.
   
   
   
   


2. In the second section, please provide a financial overview and brief commentary by business segment. Focus on 2011-2010: How is revenue and profit distributed by segment? Specifically, what can you learn from the annual report about the strength of each segment? (15 pts)


3. NOTE: Your calculations on excel will answer many of the above questions. For the written analysis, do not copy your answers form the PG annual report or 10k. Briefly answer the questions. The format of the written answers can be in Q&A or paragraph form. No more than one to two pages should be written. I will only grade up to two pages, in normal font size, double spaced with one inch margins on all sides.


4. Assume the following:
   
   
   
   1. Invested capital = total debt (not total liabilities) and equity
   
   
   2. NOPLAT = EBIT (1-t) with the effective tax rate given on the income statement
   
   
   3. Capital expenditures, change in working capital and non-cash expenses should all be taken from the cash flow statement
   
   
   4. WACC = 6.5%
   
   
   
   

Part II

Byron Productions has sales in the most recent year of $650M, and EBIT of $250M. The firm also had capital expenditures of $120M and depreciation expense of $90M. Working capital needs are 9% of sales. The firm expects sales, EBIT, capex, and depreciation to grow by 18% in Year 1 and 13% in Years 2 and 3. Beginning in Year 4, the growth rate will drop to 5%, and the return on new invested capital will be 8.5% for the foreseeable future. The firm is financed with $1.05B in debt and $1.05B in equity, the bondholders require an 7.5% return, and the stockholders require a 11% return. The relevant tax rate is 34%. The firm has $50M in excess cash, investments in other company’s worth $125m and contingent liabilities of $150M.
Estimate the Enterprise and Equity Value using DCF analysis.Use the continuing value formula on the bottom of page 41 in the book to calculate the terminal value.If the stock is currently trading in the market at $15 per share, do you think it is undervalue, overvalued or fairly valued based on your DCF model of intrinsic value.Assume 130M shares outstanding.(20 points)

Delivery instructions:

Both your excel spreadsheet and word document should be sent.ALL excel work should be completed on one file – multiple tabs are fine.A hard copy of your word document should be printed out and brought to class.