Ratio Analysis - Colgate Palmolive (solved)

Prepared by Dheeraj Vaidya, CFA, FRM

dheeraj@wallstreetmojo.com

Table of Contents
Income Statements
Balance Sheet
Cash Flows
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Colgate-Palmolive Company
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Income Statement (Consolidated)

($ in Million Except Per Share Amounts) Dec-07 Dec-08

Net sales 13,790 15,330
Cost of sales 6,043 6,704
Gross profit 7,747 8,626

Selling, general and administrative expenses 4,973 5,422

Other (income) expense, net 54 103
Charges for Venezuela Accounting Change
EBIT 2,720 3,101
Interest expense, net 157 96

EBT 2,563 3,005

Provision for income taxes 759 968
Net income including noncontrolling interests 1,804 2,037
Less: Net income attributable to noncontrolling interests 67 80
Net income attributable to Colgate-Palmolive Company 1,737 1,957
Earnings per common share, basic 1.68 1.91
Earnings per common share, diluted 1.60 1.83

Vertical Analysis Dec-07 Dec-08

Net sales 100.0% 100.0%
Cost of sales 43.8% 43.7%
Gross profit 56.2% 56.3%

Selling, general and administrative expenses 36.1% 35.4%

Other (income) expense, net 0.4% 0.7%
Operating profit 19.7% 20.2%
Interest expense, net 1.1% 0.6%

Income before income taxes 18.6% 19.6%

Provision for income taxes 5.5% 6.3%
Net income including noncontrolling interests 13.1% 13.3%
Less: Net income attributable to noncontrolling interests (% o 3.7% 3.9%
Net income attributable to Colgate-Palmolive Company 12.6% 12.8%

Effective Tax Rates 29.6% 32.2%

Horizontal Analysis Dec-07 Dec-08

Net sales 11.2%
Cost of sales 10.9%
Gross profit 11.3%

Selling, general and administrative expenses 9.0%

Other (income) expense, net 90.7%
 Operating profit 14.0%
Interest expense, net -38.9%

Income before income taxes 17.2%

Provision for income taxes 27.5%
Net income including noncontrolling interests 12.9%
Less: Net income attributable to noncontrolling interests 19.4%
Net income attributable to Colgate-Palmolive Company 12.7%

Trend Analysis Dec-07 Dec-08

Sales 13,790 15,330
Net Profit 1,737 1,957

Sales 100.0% 111.2%

Net Profit 100.0% 112.7%

Business Risk Dec-07 Dec-08

Sales 11.2%
Operating Profit (EBIT) 14.0%
Net Income 12.7%

Total Leverage 1.13x

Operating Leverage 1.25x
Financial Leverage 0.90x
Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15
15,327 15,564 16,734 17,085 17,420 17,277 16,034
6,319 6,360 7,144 7,153 7,219 7,168 6,635
9,008 9,204 9,590 9,932 10,201 10,109 9,399

5,282 5,414 5,758 5,930 6,223 5,982 5,464

111 301 (9) 113 422 570 62
1,084
3,615 3,489 3,841 3,889 3,556 3,557 2,789
77 59 52 15 (9) 24 26

3,538 3,430 3,789 3,874 3,565 3,533 2,763

1,141 1,117 1,235 1,243 1,155 1,194 1,215
2,397 2,313 2,554 2,631 2,410 2,339 1,548
106 110 123 159 169 159 164
2,291 2,203 2,431 2,472 2,241 2,180 1,384
2.27 2.23 2.49 2.60 2.41 2.38 1.53
2.19 2.16 2.47 2.57 2.38 2.36 1.52

Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15

100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
41.2% 40.9% 42.7% 41.9% 41.4% 41.5% 41.4%
58.8% 59.1% 57.3% 58.1% 58.6% 58.5% 58.6%

34.5% 34.8% 34.4% 34.7% 35.7% 34.6% 34.1%

0.7% 1.9% -0.1% 0.7% 2.4% 3.3% 0.4%
23.6% 22.4% 23.0% 22.8% 20.4% 20.6% 17.4%
0.5% 0.4% 0.3% 0.1% -0.1% 0.1% 0.2%

23.1% 22.0% 22.6% 22.7% 20.5% 20.4% 17.2%

7.4% 7.2% 7.4% 7.3% 6.6% 6.9% 7.6%
15.6% 14.9% 15.3% 15.4% 13.8% 13.5% 9.7%
4.4% 4.8% 4.8% 6.0% 7.0% 6.8% 10.6%
14.9% 14.2% 14.5% 14.5% 12.9% 12.6% 8.6%

32.2% 32.6% 32.6% 32.1% 32.4% 33.8% 44.0%

Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15

0.0% 1.5% 7.5% 2.1% 2.0% -0.8% -7.2%
-5.7% 0.6% 12.3% 0.1% 0.9% -0.7% -7.4%
4.4% 2.2% 4.2% 3.6% 2.7% -0.9% -7.0%

-2.6% 2.5% 6.4% 3.0% 4.9% -3.9% -8.7%

7.8% 171.2% -103.0% -1355.6% 273.5% 35.1% -89.1%
 16.6% -3.5% 10.1% 1.2% -8.6% 0.0% -21.6%
-19.8% -23.4% -11.9% -71.2% -160.0% -366.7% 8.3%

17.7% -3.1% 10.5% 2.2% -8.0% -0.9% -21.8%

17.9% -2.1% 10.6% 0.6% -7.1% 3.4% 1.8%
17.7% -3.5% 10.4% 3.0% -8.4% -2.9% -33.8%
32.5% 3.8% 11.8% 29.3% 6.3% -5.9% 3.1%
17.1% -3.8% 10.3% 1.7% -9.3% -2.7% -36.5%

Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15

15,327 15,564 16,734 17,085 17,420 17,277 16,034
2,291 2,203 2,431 2,472 2,241 2,180 1,384

111.1% 112.9% 121.3% 123.9% 126.3% 125.3% 116.3%

131.9% 126.8% 140.0% 142.3% 129.0% 125.5% 79.7%

Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15

0.0% 1.5% 7.5% 2.1% 2.0% -0.8% -7.2%
16.6% -3.5% 10.1% 1.2% -8.6% 0.0% -21.6%
17.1% -3.8% 10.3% 1.7% -9.3% -2.7% -36.5%

-872.12x -2.48x 1.38x 0.80x -4.77x 3.32x 5.08x

-847.00x -2.25x 1.34x 0.60x -4.37x -0.03x 3.00x
1.03x 1.10x 1.03x 1.35x 1.09x -96.79x 1.69x
Colgate-Palmolive Company
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Consolidated Balance Sheets
Dec-07 Dec-08 Dec-09
Assets
Current Assets
Cash and cash equivalents 429 555 600
Receivables 1,681 1,592 1,626
Inventories 1,171 1,197 1,209
Other current assets 338 366 375
Total current assets 3,619 3,710 3,810

Property, plant and equipment, net 3,015 3,119 3,516

Goodwill, net 2,272 2,152 2,302
Other intangible assets, net 845 834 821
Deferred income taxes - - -
Other assets 361 164 685
Total assets 10,112 9,979 11,134

Liabilities and Shareholders' Equity

Current Liabilities
Notes and loans payable 156 107 35
Current portion of long-term debt 138 91 326
Accounts payable 1,067 1,061 1,172
Accrued income taxes 263 272 387
Other accruals 1,539 1,421 1,679
Total current liabilities 3,163 2,952 3,599

Long-term debt 3,222 3,585 2,821

Deferred income taxes 264 82 82
Other liabilities 1,067 1,316 1,375
Total liabilities 7,716 7,935 7,877
Commitments and contingent liabilities - - -
Shareholders' Equity
Preference stock 198 181 169
Common stock 733 733 733
Additional paid-in capital 1,518 1,610 1,764
Retained earnings 10,628 11,760 13,157
Accumulated other comprehensive income (loss) (1,668) (2,477) (2,096)
Unearned compensation (219) (187) (133)
Treasury stock, at cost (8,904) (9,697) (10,478)
Total Colgate-Palmolive Company
shareholders' equity 2,286 1,923 3,116
Noncontrolling interests 110 121 141
Total shareholders' equity 2,396 2,044 3,257
Total liabilities and shareholders' equity 10,112 9,979 11,134

Check
 Dec-07 Dec-08 Dec-09
Assets
Current Assets
Cash and cash equivalents 4.2% 5.6% 5.4%
Receivables 16.6% 16.0% 14.6%
Inventories 11.6% 12.0% 10.9%
Other current assets 3.3% 3.7% 3.4%
Total current assets 35.8% 37.2% 34.2%

Property, plant and equipment, net 29.8% 31.3% 31.6%

Goodwill, net 22.5% 21.6% 20.7%
Other intangible assets, net 8.4% 8.4% 7.4%
Deferred income taxes 0.0% 0.0% 0.0%
Other assets 3.6% 1.6% 6.2%
Total assets 100.0% 100.0% 100.0%

Liabilities and Shareholders' Equity Dec-07 Dec-08 Dec-09

Current Liabilities
Notes and loans payable 1.5% 1.1% 0.3%
Current portion of long-term debt 1.4% 0.9% 2.9%
Accounts payable 10.6% 10.6% 10.5%
Accrued income taxes 2.6% 2.7% 3.5%
Other accruals 15.2% 14.2% 15.1%
Total current liabilities 31.3% 29.6% 32.3%

Long-term debt 31.9% 35.9% 25.3%

Deferred income taxes 2.6% 0.8% 0.7%
Other liabilities 10.6% 13.2% 12.3%
Total liabilities 76.3% 79.5% 70.7%
Commitments and contingent liabilities
Shareholders' Equity
Preference stock 2.0% 1.8% 1.5%
Common stock 7.2% 7.3% 6.6%
Additional paid-in capital 15.0% 16.1% 15.8%
Retained earnings 105.1% 117.8% 118.2%
Accumulated other comprehensive income (loss) -16.5% -24.8% -18.8%
Unearned compensation -2.2% -1.9% -1.2%
Treasury stock, at cost -88.1% -97.2% -94.1%
Total Colgate-Palmolive Company
shareholders' equity 22.6% 19.3% 28.0%
Noncontrolling interests 1.1% 1.2% 1.3%
Total shareholders' equity 23.7% 20.5% 29.3%
Total liabilities and shareholders' equity 100.0% 100.0% 100.0%

Solvency Ratios
Current ratio 1.14x 1.26x 1.06x
Quick ratio .67x .73x .62x
Cash ratio .14x .19x .17x
Sales 13790 15330 15327
COGS 6043 6704 6319
Purchases 6,730 6,331

Turnover Ratios
Receivables turnover 9.37x 9.53x
Inventory Turnover 5.66x 5.25x
Payables turnover 6.33x 5.67x

Days 365
Average receivables collection period 39.0 38.3
Average inventory processing period 64.5 69.5
Average payment period 57.7 64.4
Cash Collection Cycle 45.72 43.44

Operating Efficiency
Total asset turnover 1.53 1.45
Net fixed asset turnover 5.00 4.62
Equity turnover 7.28 6.08

Operating Profitability
Gross Profit Margin 56.2% 56.3% 58.8%
Operating Profit Margin 19.7% 20.2% 23.6%
Net Profit Margin 12.6% 12.8% 14.9%

Return on Total Assets 30.9% 34.2%

Return on Total Equity 91.8% 90.4%
Return on Owner's Equity or ROE 93.0% 90.9%

ROE DuPont Analysis

Profit Margin 12.8% 14.9%
Asset Turnover 152.6% 145.2%
Financial Leverage 477.3% 419.0%
ROE 93.0% 90.9%

Total Dividends Paid $798 $889 $981

Net Income 1804 2037 2397
Dividend Payout Ratio 44% 44% 41%
Retention Ratio 56% 56% 59%

Sustainable Growth 52.4% 53.7%

Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15

490 878 884 962 1,089 970

1,610 1,675 1,668 1,636 1,552 1,427
1,222 1,327 1,365 1,425 1,382 1,180
408 522 639 799 840 807
3,730 4,402 4,556 4,822 4,863 4,384

3,693 3,668 3,842 4,083 4,080 3,796

2,362 2,494 2,500 2,474 2,307 2,103
831 1,504 1,499 1,496 1,413 1,346
84 115 92 77 76 67
472 541 905 924 720 262
11,172 12,724 13,394 13,876 13,459 11,958

48 34 54 13 16 4
561 346 250 895 488 298
1,165 1,244 1,290 1,343 1,231 1,110
272 392 254 239 294 277
1,682 1,700 1,888 1,980 1,917 1,845
3,728 3,716 3,736 4,470 3,946 3,534

2,815 4,430 4,926 4,749 5,644 6,269

108 252 293 444 261 233
1,704 1,785 2,049 1,677 2,223 1,966
8,355 10,183 11,004 11,340 12,074 12,002
- -

- - - -
733 733 1,466 1,466 1,466 1,466
1,132 1,336 818 1,004 1,236 1,438
14,329 15,649 16,953 17,952 18,832 18,861
(2,115) (2,475) (2,621) (2,451) (3,507) (3,950)
(99) (60) (41) (33) (20) (12)
(11,305) (12,808) (14,386) (15,633) (16,862) (18,102)

2,675 2,375 2,189 2,305 1,145 (299)

142 166 201 231 240 255
2,817 2,541 2,390 2,536 1,385 (44)
11,172 12,724 13,394 13,876 13,459 11,958
Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15

4.4% 6.9% 6.6% 6.9% 8.1% 8.1%

14.4% 13.2% 12.5% 11.8% 11.5% 11.9%
10.9% 10.4% 10.2% 10.3% 10.3% 9.9%
3.7% 4.1% 4.8% 5.8% 6.2% 6.7%
33.4% 34.6% 34.0% 34.8% 36.1% 36.7%

33.1% 28.8% 28.7% 29.4% 30.3% 31.7%

21.1% 19.6% 18.7% 17.8% 17.1% 17.6%
7.4% 11.8% 11.2% 10.8% 10.5% 11.3%
0.8% 0.9% 0.7% 0.6% 0.6% 0.6%
4.2% 4.3% 6.8% 6.7% 5.3% 2.2%
100.0% 100.0% 100.0% 100.0% 100.0% 100.0%

Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15

0.4% 0.3% 0.4% 0.1% 0.1% 0.0%

5.0% 2.7% 1.9% 6.4% 3.6% 2.5%
10.4% 9.8% 9.6% 9.7% 9.1% 9.3%
2.4% 3.1% 1.9% 1.7% 2.2% 2.3%
15.1% 13.4% 14.1% 14.3% 14.2% 15.4%
33.4% 29.2% 27.9% 32.2% 29.3% 29.6%

25.2% 34.8% 36.8% 34.2% 41.9% 52.4%

1.0% 2.0% 2.2% 3.2% 1.9% 1.9%
15.3% 14.0% 15.3% 12.1% 16.5% 16.4%
74.8% 80.0% 82.2% 81.7% 89.7% 100.4%

0.0% 0.0% 0.0% 0.0% 0.0% 0.0%

6.6% 5.8% 10.9% 10.6% 10.9% 12.3%
10.1% 10.5% 6.1% 7.2% 9.2% 12.0%
128.3% 123.0% 126.6% 129.4% 139.9% 157.7%
-18.9% -19.5% -19.6% -17.7% -26.1% -33.0%
-0.9% -0.5% -0.3% -0.2% -0.1% -0.1%
-101.2% -100.7% -107.4% -112.7% -125.3% -151.4%

23.9% 18.7% 16.3% 16.6% 8.5% -2.5%

1.3% 1.3% 1.5% 1.7% 1.8% 2.1%
25.2% 20.0% 17.8% 18.3% 10.3% -0.4%
100.0% 100.0% 100.0% 100.0% 100.0% 100.0%

1.00x 1.18x 1.22x 1.08x 1.23x 1.24x

.56x .69x .68x .58x .67x .68x
.13x .24x .24x .22x .28x .27x
 15564 16734 17085 17420 17277 16034
6360 7144 7153 7219 7168 6635
6,373 7,249 7,191 7,279 7,125 6,433

9.62x 10.19x 10.22x 10.54x 10.84x 10.76x

5.23x 5.61x 5.31x 5.17x 5.11x 5.18x
5.45x 6.02x 5.68x 5.53x 5.54x 5.50x

37.9 35.8 35.7 34.6 33.7 33.9

69.8 65.1 68.7 70.5 71.5 70.5
66.9 60.6 64.3 66.0 65.9 66.4
40.78 40.29 40.08 39.13 39.21 37.96

1.40 1.40 1.31 1.28 1.26 1.26

4.32 4.55 4.55 4.40 4.23 4.07
5.38 6.63 7.49 7.75 10.02 37.91

59.1% 57.3% 58.1% 58.6% 58.5% 58.6%

22.4% 23.0% 22.8% 20.4% 20.6% 17.4%
14.2% 14.5% 14.5% 12.9% 12.6% 8.6%

31.3% 32.1% 29.8% 26.1% 26.0% 21.9%

76.2% 95.3% 106.7% 97.8% 119.3% 230.9%
76.1% 96.3% 108.3% 99.7% 126.4% 327.2%

14.2% 14.5% 14.5% 12.9% 12.6% 8.6%

139.5% 140.1% 130.8% 127.8% 126.4% 126.2%
385.2% 473.2% 572.3% 606.8% 792.3% 3004.4%
76.1% 96.3% 108.3% 99.7% 126.4% 327.2%

$1,142 $1,203 $1,277 $1,382 $1,446 $1,493

2313 2554 2631 2410 2339 1548
49% 47% 49% 57% 62% 96%
51% 53% 51% 43% 38% 4%

38.5% 50.9% 55.7% 42.5% 48.2% 11.6%

Colgate-Palmolive Company
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Consolidated Cash Flows
Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Err:509 Err:509 Err:509
Operating Activities
Net income including noncontrolling interests $ 2,313 $ 2,554 $ 2,631 $ 2,410 $ 2,339 $ 1,548
Adjustments to reconcile net income
to net cash provided by operations:
Depreciation and amortization 376 421 425 439 442 449
Restructuring and termination benefits, net of cash 86 103 35 182 64 69
Venezuela hyperinflationary transition charge 271 - - 172 327 34
Voluntary benefit plan contributions (35) (178) (101) (101) (2)
Charge for a foreign tax matter 66
Stock-based compensation expense 121 122 120 128 131 125
Gain on sale of South Pacific laundry detergent business 0 -187
Charge for Venezuela accounting change 0 1084
Gain before tax on sales of non-core product lines (50) (207) -
Deferred income taxes 29 88 63 71 18 -51
Cash effects of changes in:
Receivables 40 (130) 19 (37) (109) (75)
Inventories (10) (130) (21) (97) (60) (13)
Accounts payable and other accruals (65) 199 (5) 24 57 (67)
Other non-current assets and liabilities 135 54 30 13 25 33
Net cash provided by operations 3,211 2,896 3,196 3,204 3,298 2,949

Investing Activities
Capital expenditures (550) (537) (565) (670) (757) (691)
Sale of property and non-core product lines 42 263 72 15 24 9
Purchases of marketable securities and investments (308) (356) (545) (505) (340) (742)
Proceeds from sale of marketable securities and investments 167 423 147 267 283 599
Proceeds from sale of South Pacific laundry detergent business 0 221
Payment for acquisitions, net of cash acquired - (966) (29) (3) (87) (13)
Reduction in cash due to Venezuela accounting change 0 (75)
Other (9) (40) 55 6 18 7
Net cash used in investing activities (658) (1,213) (865) (890) (859) (685)

Financing Activities
Principal payments on debt (4,719) (4,429) (5,011) (7,554) (8,525) (9,181)
Proceeds from issuance of debt 5,015 5,843 5,452 7,976 8,960 9,602
Revolver
Dividends paid (1,142) (1,203) (1,277) (1,382) (1,446) (1,493)
Purchases of treasury shares (2,020) (1,806) (1,943) (1,521) (1,530) (1,551)
Proceeds from exercise of stock options and excess tax benefits 242 353 478 339 371 347
Net cash used in financing activities (2,624) (1,242) (2,301) (2,142) (2,170) (2,276)

Effect of exchange rate changes on Cash and cash equivalents (39) (53) (24) (94) (142) (107)
Net increase (decrease) in Cash and cash equivalents (110) 388 6 78 127 (119)

Cash and cash equivalents at beginning of year 600 490 878 884 962 1089
Cash and cash equivalents at end of year $ 490 $ 878 $ 884 $ 962 $ 1,089 $ 970

Supplemental Cash Flow Information

Income taxes paid $ 1,123 $ 1,007 $ 1,280 $ 1,087 $ 1,009 $ 1,259

Interest paid 70 58 77 118 133 131