Question

Refer to P&G's 2019 financial statements and the accompanying notes to answer the following questions.

a.  What cash outflow obligations related to the repayment of long-term debt does P&G have over the next 5 years?

b.  P&G indicates that it believes that it has the ability to meet business requirements in the foreseeable future. Prepare an assessment of its solvency using ratio analysis  

FINANCIAL HIGHLIGHTS (UNAUDITED) Amounts in billions, except per share amounts 2016 2019 2018 2017 2015 $67.7 $66.8 $65.1 $65.3 $70.7 Net Sales $11.1 $5.5 $13.4 $13.8 $13.3 Operating Income $9.8 $3.9 $15.3 $10.5 $7.0 Net Earnings Attributable to P&G Net Earnings Margin from Continuing Operations 15.7% 5.9% 14.8% 15.4% 11.7% $1.43 $3.67 $3.69 $3.49 $2.84 Diluted Net Earnings per Common Share from Continuing Operations' $1.43 $3.67 $5.59 $3.69 $2.44 Diluted Net Earnings per Common Share' Core Earnings per Share? $4.52 $4.22 $3.92 $3.67 $3.76 $15.2 $14.9 $12.8 $15.4 $14.6 Operating Cash Flow $2.90 $2.79 $2.70 $2.66 $2.59 Dividends per Common Share 2019 NET SALES BY 2019 NET SALES BY BUSINESS SEGMENT3 GEOGRAPHIC REGION

Answer 1

What cash outflow obligations related to the repayment of long-term debt does P&G have over the next 5 years?

As per Audited financial statement of P&G , long term debt maturities during the next five year are as follows

Long term Debt Position -Amnt in Mio
Year ended 30th June	2020-$	2021-$	2022-$	2023-$	2024-$
Debt Maturities	3,388	2,009	2,840	2,465	2,461

Companies long term debt level considered appropriate after evaluating a number of factor like :

1. Cash flow expectation
2. Cash requirement for ongoing operations
3. Investment and financial planning
4. Financial planning includes – acquisition , share purchase activities
5. Overall cost of capital

Companies in recent year has done following activity , which will impacted long term debt ( 5 years debt plan along with Interest cost)

Acquisition – Companies keep on doing acquisition, disinvestment , declare dividend etc. Recently company has done major acquisition of The Merck OTC , which cost almost $ 3.9 Billion

Dividend payment – In April 2019 , the Board of Director announced an increase in Quarterly dividend from $ 0.7172 to $ 0.749 per share on common stock and series A & B ESOP convertible class A preferred stock.

Company keep on utilizing short and long term debt to fund discretionary item such as acquisition and share purchase

Recorded Liability-Amnt in Mio	Total	Less than 1 Year	1-3 Years	3-5 Years	>5 Years
Total Debt	29,988	9,695	4,791	4,807	10,695
Capital lease	33	9	15	7	2
US tax Act Transitional Charges	2,557	214	449	646	1,248
Uncertain tax position	143	143
Interest payment relating to Long term debt	4,682	572	979	737	2,394
Operating lease	1,218	255	375	300	288
Purchase obligation	1,491	633	397	193	268
Total Debt	40,112	11,521	7,006	6,690	14,895

Company maintaining bank credit facility to support ongoing commercial paper program .

The current facility is an $ 8 billion facility kept for 4 year facility and $ 4.8 billion kept for 364 days facility .which will expiry on November 2022

Contractual purchase obligation are primarily purchase order at fair value that are part of normal operation and are reflected in historical operating cash flow trends.

P&G indicates that it believes that it has the ability to meet business requirements in the foreseeable future. Prepare an assessment of its solvency using ratio analysis-

Amount in Mio
Solvency Ratio	2019	2018
Current Asset	22473	23320
Current Liabilities	30011	28237
Net Working Capital	-7538	-4917

In the financial company mentioned that at present companies current liability exceeds current assets under Liquidity clause . Reason for the same are as below :

1. Mainly due to short term borrowing in the name of “ commercial paper”
2. Company expect that present short term liquidity and operating need largely through cash generated from operations
3. At present companies cash + cash Equivalent + marketable securities was relates to foreign subsidiaries

Overall cash position of the company reflects strong business results and global cash management strategy that take into account liquidity , solvency economic factor etc

Excellent news is company having “ Adjusted free cash flow “ position . This represents that company is quite solvent after meeting up all major capex + dividend + Stock Purchase + Discretionary investment

Adjusted free cash flow was $ 12 billlion in 2019 an increase of 9% versus the prior year , which is really excellent – company made major acquisition in 2019 as discussed above .

Another excellent par is on June 30, 2019 companies short term credit rating and Long term credit rating ( as per S&P) is a Stable outlook

Company maintain bank credit facility to support ongoing commercial paper.