The Procter & Gamble Company. The 2015 annual report of The Procter & Gamble Com

Question

The Procter & Gamble Company. The 2015 annual report of The Procter & Gamble Company(P&G) is available at:

http://us.pg.com/annualreport2017/annual-report.html#/Financial

http://www.pginvestor.com/Cache/1001226614.PDF?O=PDF&T=&Y=&D=&FID=1001226614&iid=4004124

After reviewing the P&G's annual report, respond to the following questions:

1. What types of equity securities does P&G have outstanding? What is their par or stated value, how many shares are authorized, and how many shares are outstanding at year-end 2014 and 2015?

2. What percentage of P&G's assets are debt-financed versus equity-financed in 2014 and 2015? Why do you think the company has followed this strategic financing policy? What is P&G's cost of debt in 2015?

3. How many common shares did P&G repurchase in 2015 and at what aggregate price?

4. How many common shares were issued in 2015 to employees under P&G's employee stock option plan? If P&G had utilized the fair value method to account for its employee stock options, what would have been the effect on P&G's basic and diluted EPS for 2015?

(copy and paste links above, they work fine. I just tried them both)

Explanation / Answer

The answers are based on P&G’s 2015 annual report:

1. The company had the following equity securities – Convertible class A preferred stock with stated value of $1 per share, Non-voting class B preferred stock with stated value of $1 per share and Common stock with stated value of $1 per share.

600 millionshares of Convertible class A preferred stock and 200 million shares of Non-voting class B preferred stock are authorized for both 2015 and 2014.

10,000 million shares of common stock are authorized. For 2015 and 2014 the number of common stock issued is 4009.2 million.

2.

Debt Financing = Total Debts/Total Assets

2015: 18329/129495 = 0.1415

2014: 19800/144266 = 0.1372

Equity Financing

2015: 1-debt financing = 1-0.1415 = 0.8585

2014: 1-debt financing = 1-0.1372 = 0.8628

Procter & Gamble is focused on strategic financing policy so that its debts may not increase substantially. The company wants to keep itself lower on debts as the majority of net income is washed in form of interest to pay debts. The company is focused at reducing its debts so as to enable itself to increase the return on the investments of stockholders.

3. No. of shares repurchased: 54,670,000

Aggregate Price: $4.6 billion.

4. Shares issued under stock-option plan = 19,000,000 shares

There would have been no impact on basic EPS and it would have remained same at $2.56. However net income for diluted earnings would have increased by $8 million. The diluted earnings would have been $1.77 ($7144/(4009+19) per share.

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