Question

. Appendix B Specimen Financial Statements: The Procter & Gamble Company Once each year, a corporation communicates to its stockholders and other interested parties by issuing a complete set of audited financial statements. The annual report, as this communication is called, summarizes the financial results of the company's operations for the year and its plans for the future. Many annual reports are attractive, multicolored, glossy public relations pieces, containing pictures of corporate officers and directors as well as photos and descriptions of new products and new buildings. Yet the basic function of every annual report is to report financial information, almost all of which is a product of the corporation's accounting system. The content and organization of corporate annual reports have become fairly standardized. Excluding the public relations part of the report (pictures, products, etc.), the following are the traditional financial portions of the annual report: Financial Highlights • Letter to the Stockholders Management's Discussion and Analysis • Financial Statements • Notes to the Financial Statements Management's Responsibility for Financial Reporting • Management's Report on Internal Control over Financial Reporting • Report of Independent Registered Public Accounting Firm • Selected Financial Data The official SEC filing of the annual report is called a Form 10-K, which often omits the public relations pieces found in most standard annual reports. On the following pages, we present The Procter & Gamble Company (P&G)'s financial statements taken from the company's 2017 Form 10-K. Consolidated Statements of Earnings Amounts in millions except per share amounts; Years ended June 30 2017 2016 2015 NET SALES $ 65,058 $ 65,299 $ 70,749 Cost of products sold 32,535 32,909 37,056 Selling, general and administrative expense 18,568 18,949 20,616 Venezuela deconsolidation charge 2,028 OPERATING INCOME 13,955 13,441 11,049 Interest expense 465 579 626 Interest income 171 182 149

Please show work as well if you can, thank you.

Answer 1

Working Capital = Current Assets - Current liabilities

Working capital

2017 = 26494 - 30210 = - 3716

2016 = 33782 - 30770 = 3012

Net cash from oprating

2017 = 12753

2016 = 15435

2015 = 14608

Net cash from investing

2017 = -5689

2016 = -5575

Net cash from financing

2017 = -8568

2016 = -9213

From 2015 to 2016 net cash from operating increased by:

(15435 - 14608)/14608 = 5.7%

From 2016 to 2017 net cash from operating increased by:

(12753-15435)/15435 = -17.4%

Current Cash Debt Coverage ratio

Current Cash Debt Coverage ratio =  net Cash provided by operating activities ÷ Average total current liabilities

where,

Average total current liabilities =  (current liabilities of previous year + current liabilities of this year) ÷ 2

For 2017,

Average total current liabilities = (30770 + 30210)/2 = 30490

Current Cash Debt Coverage ratio = 12753 / 30490 = 0.42

Cash Debt Coverage ratio

Cash Debt Coverage ratio = net Cash provided by operating activities ÷ total liabilities

total liabilities for 2017 = 64628

Cash Debt Coverage ratio = 12753 / 64628

Cash Debt Coverage ratio = 0.2

Free Cash FLow

Free Cash FLow =

Factor Location + Cash Flow from Operating Activities Statement of Cash Flows + Interest Expense Income Statement - Tax Shield on Interest Expense Income Statement - Capital Expenditures (CAPEX) Statement of Cash Flows (Cash Flow from Investing Activities) = Free Cash Flow

Tax rate for the company = income taxes / earning from continous operation before income taxes    (Income statement)

Tax rate for the company = 3063/13257 = 23.1%

Tax shield on interest expense = Tax rate as calculated above x Net interest expense

Tax shield on interest expense = 23.1% x 404 = 93.34

Free Cash FLow = 12753 + 404 - 93.34 - 3384

Free Cash FLow = 9679.66