Financial Ratio Analysis: Financial Stability And Performance

Financial Stability and Performance
Financial Statement and Ratio Analysis Upon examining P&G’s financial ability to meet short-term obligations, it is apparent that not only have their current liabilities exceeded current assets over the last three years, but close to half of their current assets have been tied up in inventories and other illiquid assets. For example, assessing both the quick and current ratio respectively shows that less than 70% of the firm’s current assets could be converted immediately to pay current commitments, but a little more than 90% of the firm’s liabilities would ultimately be covered. Though, based on industry average similar findings occur; therefore, it must not be uncommon for industries similar to P&G to

For example, just last year P&G issued product recalls affecting Iams and Eukanuba pet foods brands “after its own inspections found the potential for salmonella contamination in a separate lot” (Barney, 2013, para. 2). The recalls happened nearly after The Food and Drug Administration’s onsite inspection found cases of Salmonella in the company’s Natura pet food products. Since the pet food industry was one of P&G’s sluggish divisions due to weak sales, the company has now divested it; thereby, reduce costs and boost financial numbers. Although no reports were made regarding illnesses, or worst, even death, the recall was enough to cause a decline in company sales; furthermore, the possibility of raising consumer doubt toward P&G’s other product brands. Several additional recalls were made in previous years pertaining to defective child-resistant packaging, mismatched expiration dates, and other forms of bacteria found in healthcare products, (Procter & Gamble, 2014, para. 1). These types of expenditures disrupt financial performance, as product recalls involve replacing products that are faulty, and increase the chances of a lawsuit if fatal suffering were to