Question

Consolidated Balance Sheets 4.2395 6,048 4.951 2.569 9281 4.686 1,335 588 Amounts in millions: As o ne 10 Assets CURRENT ASSETS Cash and cash equivalents Available for sale investment securities Accounts receivable INVENTORIES Materials and supplies Work in process Finished goods Total inventories Prepaid expenses and other current assets TOTAL CURRENT ASSETS PROPERTY, PLANT AND EQUIPMENT, NET GOODWILL TRADEMARKS AND OTHER INTANGIBLE ASSETS, NET OTHER NONCURRENT ASSETS TOTAL ASSETS 1.289 612 3.116 5.017 2.218 22.473 21.271 40,273 24,215 6,863 115.095 2.815 4.738 2.046 23 320 20.600 45,175 23,902 5313 118310 S $ $ 11.260 9.054 9,697 30.011 20,395 6,899 10,211 67,516 10,344 7.470 10,423 28.237 20.863 6,163 10,164 65.427 Liabilities and Shareholders' Equity CURRENT LIABILITIES Accounts payable Accrued and other liabilities Debt due within one year TOTAL CURRENT LIABILITIES LONG-TERM DEBT DEFERRED INCOME TAXES OTHER NONCURRENT LIABILITIES TOTAL LIABILITIES SHAREHOLDERS' EQUITY Convertible Class A preferred stock, stated value $1 per share (600 shares authorized) Non-Voting Class B preferred stock, stated value $i per share (200 shares authorized) Common stock, stated value S1 per share (10,000 shares authorized:shares issued: 2019.4,009. 2. 2018 - 4,009.2) Additional paid-in capital Reserve for ESOP debt retirement Accumulated other comprehensive income (less) Treasury stock, at cost (shares held: 2019-1.504.5, 2018-1.311.2) Retained earnings Noncontrolling interest TOTAL SHAREHOLDERS' EQUITY TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 928 967 4.009 63.827 (1.146) (14,936) (100.406) 94,918 385 47,579 115,095 4,009 63.846 (1.204) (14,749) (99.217) 98.641 590 $2,883 118310 $ $ See accompanying Notes to Consolidated Financial Statements
Problem 2

On the following page, I have attached PG Company’s Consolidated Statements of Earnings for the 3 fiscal year’s ending June 30, 2019.

Required:Using the attached earnings statement, for each period presented,

1. Compute the gross margin %

Note: Gross margin % = [(Net sales – Cost of products sold)/Net sales] x 100

2. Compute the net profit margin on sales %

Note: Net profit margin % = (Net earnings attributable to PG/Net sales) x 100

3. Considering the 3-year trend for a. and b. above, provide a brief comment about the company’s performance for:

1. Gross margin % and
2. Net profit margin %.

Answer 1

gross margin	(net sales - cost of sales)/net sales * 100
	2019 ($ millions)	2018 ($ millions)	2017 ($ millions)
net sales	67684	66832	65058
cost of sales	34768	34432	32638
gross margin	48.63%	48.48%	49.83%

Gross margin has declined has declined marginally from 49.83% in 2017 to 48.63% in 2019. The primary reason being increase in cost of sales which could not of set the growth in sales.

net profit margin	net earnings attributable to PG / net sales *100
	2019 ($ millions)	2018 ($ millions)	2017 ($ millions)
net earnings attributable to PG	3897	9750	15326
net sales	67684	66832	65058
net profit margin	5.76%	14.59%	23.56%

Net profit margin has declined very significantly from 23.56% in 2017 to 5.76% 2019. The reason being impairment charges of $8345 million recored only in 2019.