March 21, 2010

Consumer Staples (Household Products)

Henry Fund Research

Procter & Gamble (PG)

Sumit Taneja
Sumit-taneja@uiowa.edu

Investment Recommendation
Current Price Target Price Range

BUY
$63.69 $72-76

INVESTMENT THESIS
(+)Procter & Gamble is the largest consumer goods company with strong financials and stable cash flows. The company has been very strong in new product innovation. Even during the economic downturn the company was not affected badly because the demand for its products remained somewhat stable. (+)The intrinsic value of Procter & Gambles share is $74.05 which is the average of all the valuation models. This is 16% higher than the current price and makes it a good investment opportunity. (+)Procter & Gamble generates 57% of its revenue from overseas markets, this adds to the geographic diversification and minimizes the effect of a downturn in the US. (+)Procter & Gamble has increased its focus on emerging markets; currently it has 32% of its revenue from emerging markets. These markets offer higher growth opportunities in the future. (+)Procter & Gamble has been involved in continuous product portfolio restructuring and strengthening through acquisitions and divestitures. The major acquisition of Gillette and other companies in the future will help improve revenue synergies and enable cost savings. (+)Procter & Gamble has a clear focus to grow its core, which consists of 43 brands that contribute 85% of the revenue. The company is increasingly changing focus to its higher margin products. (-)Volatility in commodity prices can affect profit margins of Procter & Gambles products because the US consumer goods market is very competitive and it will not be possible to pass all price increases to the consumer. (-)During the current downturn, consumers have traded down to lower priced products. If this trend continues then it will negatively impact Procter & Gambles high price and high margin product sales.

Source : http://finance.yahoo.com

Key Stock Statistics

52-Week Price Range Market Capitalization (B) Shares Outstanding (M) Institutional Ownership 60-Month Beta Dividend Yield Price/Earnings (ttm) Price/Book Price/Sales ROA (ttm) ROE(ttm) Projected 5-Year Growth $45.52-64.00 $185.43 2900.00 58.70% 0.59 2.80% 15.21 2.75 2.34 6.67% 17.61% 9.33%

EPS ($)
Year EPS 2007 3.22 2008 3.86 2009 4.49 2010E 4.11 2011E 4.04 2012E 4.18
All earnings represent earnings from operations and have been filtered from net nonrecurring gains.

Valuation Models
Discounted Cash Flow & EP Relative P/E Dividend Discount Model Average $89.60 $62.25 $70.32 $74.05

Important disclosures appear on the last page of this report.

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EXECUTIVE SUMMARY

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Its organizational structure is comprised of three Global Business Units(GBUs) and a Global Operations group. Procter & Gamble is one of the largest consumer The Global Operations group consists of the Market products company. Its products are sold in over 180 Development Organization (MDO) and Global Business countries and as of June 30, 2009 it has on ground Services (GBS). operations in about 80 countries. Market capitalization of Procter & Gamble is greater than the GDP of many countries. Since 1837, the company has built a rich Global Business Units ( GBUs) heritage of touching lives of millions of people because Procter & Gambles three global business units are of consumer research, strong management and Beauty, Health Care and Well-Being, and Household receptiveness to change. Care. Revenue and Net income contribution for the GBUs is shown for the year 2009 in the pie charts below: Procter & Gamble will continue to generate higher revenue and earnings growth and higher return on invested capital because of its brand leadership, scale advantages, diverse portfolio of products and global Revenue Contribustion by GBUs 2009 expansion. Procter & Gamble also has a very strong cash and cost management. Its strong financial position and share repurchase policy will generate additional Household value for shareholders. care, 47%

COMPANY DESCRIPTION

Beauty, 32%

Health & well being, 21%

Procter & Gamble is the largest consumer nondurables manufacturer and distributor of branded nondurable consumer goods with presence in 180 countries. Procter & Gamble is engaged in providing branded consumer goods products and its products are sold Source3: Annual report 2009 through retail operations including mass merchandisers, grocery stores, membership club stores, drug stores, department stores, salons and high-frequency stores. P&Gs revenue has doubled in Net Income contribution by GBUs 2009 the last 10 years. Revenue figures are plotted for the last ten years in the figure below: Household care, 42%

Revenue in $ millions
100,000 80,000 60,000 40,000 20,000 0
3

Beauty, 35%

Health & well being, 23%

Source : Annual report 2009

Source2: www.mergentonline.com GBU-Beauty The company offers a wide range of products in Beauty & Grooming is a $300 billion market and P&G is personal care, household care health care and snacks. leading, but with only a 13% share. The Beauty GBU

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includes the Beauty and Grooming businesses. The Beauty business includes cosmetics, deodorants, prestige fragrances, hair care, personal cleansing and skin care. The Grooming business is comprised of blades and razors, electric hair removal devices, face and shaving products and home appliances. GBU- Household care

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Global Household Care is a $200 billion marketand P&Gs global share is about 20%. The Household Care GBU includes Fabric Care and Home Care as well as Baby Care and Family Care. The Fabric Care and Home Care business includes air care, batteries, dish The Beauty GBU has eight billion-dollar brands: Head & care, fabric care and surface care. The Baby Care and Shoulders, Olay, Pantene, Wella, Braun, Fusion, Family Care business includes baby wipes, bath tissue, Gillette and Mach3. diapers, facial tissue and paper towels. Beauty revenue was down 4% in 2009 on a 2% unit The Household Care GBU has nine billion-dollar decline because of the economic downturn. Volume in brands: Ariel, Dawn, Downy, Duracell, Gain, Tide, developed markets declined by mid single digits but the Bounty, Charmin and Pampers. volume in developing regions grew by low single digits. For the last two years the company has been involved Grooming revenue was down 9% in 2009 on 6% in dramatic simplification by brand and platform volume decline. Volume in developed regions declined optimization. This initiative will help the company to by high single digits and volume in developing regions have 40 active brands by June 2011, down from 60 declined by mid single digits. Global Fabric Care active brands in June 2007. By this simplification the Global Fabric Care production In the future we expect the Beauty GBU to have the platforms will be reduced from 53 in June 2007 to 20 in 6 higher growth for Procter & Gamble as this segment June 2011 . has the highest margin and the company is increasing focus in this area. Research & Development, Innovation and Marketing The organic sales growth in the last nine years has come from new brands and new or improved product innovation. Procter & Gamble is the innovation leader in Consumer Health Care is a $240 billion market; Procter the industry because it invests heavily in R & D, much & Gamble has a 5% market share. The Health and more than any of its competitors. The graph below Well-Being GBU includes the Health Care and the shows R&D expense for the last eight years: Snacks and Pet Care businesses. The Health Care business includes feminine care, oral care, personal health care and pharmaceuticals. The Snacks and Pet R&D Expense in $ million Care business includes pet food and snacks. GBU-Health and Well-Being The Health and Well-Being GBU has six billion-dollar brands: Actonel, Always, Crest, Oral-B, Iams and Pringles. In the Health care segment Procter & Gambles margin has been improving over the years, from 24% in 2006 to 27% in 2009. It plans to lay more focus on its higher margin businesses which will be good in the long term. In the Snacks category Procter & Gamble does not have a large product offerings; Pringles is the only large brand in the suite of products. Pringles has a 10% market share of the global chips business. In the Petcare market also Procter & Gamble has almost 10% market share in North America, with brands like Iams and Eukanuba. 2500 2000 1500 1000 2002 2003 2004 2005 2006 2007 2008 2009 Source : Company Financials
4

For Procter & Gamble, marketing is not a discretionary expense. Marketing expenses include media advertising, promotional coupons, trade promotions and event sponsorships. The graph below shows the companys advertising expense for last eight years

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Advertising Expense in $ millions
10000 8000 6000 4000 2000 0 2002 2003 2004 2005 2006 2007 2008 2009 Source : Company Financials
4

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Rest of the world 27% Developing Markets 31%

US 42%

Source : Annual report 2008

Global Operations Procter & Gamble is in the leading position in the consumer nondurables industry. Procter & Gamble has built the strongest portfolio of brands in the industry with 23 billion-dollar brands and 20 half-billion-dollar brands. These 43 brands account for 85% of sales and more than 90% of profit. Twelve of the billion-dollar brands are number one global market share leaders of their categories. The majority of the balance are number two. Procter & Gambles billion-dollar brands have grown sales at an average rate of 11% per year for the entire decade. Procter & Gamble is truly a global company with on the ground operations in 80 countries. Its status is also evident from the percentage of revenue it earns from the overseas market as shown in the graphs below:

RECENT DEVELOPMENTS
Acquisitions and Divestitures In December, 2009, Procter & Gamble signed a binding offer with the Sara Lee Corporation to acquire Ambi Pur for $470 million. This acquisition will help Procter & Gamble strengthen its global leadership position in Home Care, specifically in Air Care. In August 2009, Procter & Gamble and Warner Chilcott Plc announced an agreement for the sale of Procter & Gamble's global pharmaceuticals business to Warner Chilcott for an up-front cash payment of $3.1 billion. This move enables Procter & Gamble to focus on personal health care, oral care and feminine care. In November 2008, Procter & Gamble completed the divestiture of its coffee business through the merger of Folgers coffee subsidiary into The J.M. Smucker Company (Smucker) in an all-stock reverse Morris Trust transaction. Procter & Gamble recorded an aftertax gain on the transaction of $2.0 billion. The consumer products industry is becoming extremely competitive. Procter & Gamble has been focusing on building its core brands and making acquisitions and divestitures to strengthen its product portfolio. Restructuring and Simplification

Revenue by Geography 2009

Rest of the world 25% Developing Markets 32%

US 43%

Procter & Gamble has also been involved in streamlining management structure. The company plans to increase productivity by reducing its employee 3 Source : Annual report 2009 count at certain levels in the organization. It has a target to reduce V.P. and above level by 15% and the next two levels by 15% by June 2010 from the base Over the past years the percentage of sales from level of June 2007. international markets has been increasing, especially from developing markets. We feel that this trend will Revenue per employee has grown from $363,000 in continue in the future; maximum revenue growth will 2000 to $585,000 in 2009, and profit per employee has come from emerging markets. increased from $32,000 to $84,000. Procter & Gamble has doubled the productivity of its R&D organization 3 since 2000 even as it has become more innovative .

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For the last two years, Procter & Gamble has been involved in simplification of its businesses. The figures below show the path and target for this process for Fabric Care. This trajectory will help the company to reduce cost and have a competitive advantage.

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Tide Naturals, which is priced at Rs 20 for a 400gm pack. About 80% of detergents are priced in this band, which gives Procter & Gamble access to a large segment in India. As growth in developed economies stagnates, Procter & Gamble has been increasing its focus on emerging markets. This trend is visible from the chart below which shows the percentage of revenue from developing markets:

% Revenue from Developing Markets

32% 31% 30% 29% 28% 27% 26%
Source : P&G presentation at CAGNY Conference Feb2010 Source : Annual report 2009
3 6

2007

2008

2009

Business Segments Growth Below is the chart that shows the trend for before tax profit margins for different business segments: 30%

20%

10% 2006
Source : P&G presentation at CAGNY Conference Feb2010
6

2007

2008
Grooming

2009

Beauty Health Care Fabric Care and Home Care

2

Snacks and Pet care Baby Care and Family Care

Growth opportunities in Emerging Markets Eighty-six percent of the worlds population is in developing markets and Procter & Gamble has strong share positions in the most important of these markets. In Blades and Razors, it is number one in Central and Eastern Europe, the Middle East, Africa, Latin America, greater China and developing Asia. In shampoo and diapers, it is number one or two. In laundry, feminine care and oral care, it is ranked number one, two and three in the market share, respectively.

Source : Company Financials

As we can see, the profit margins are higher in grooming, health care and baby care and family care so Procter & Gamble is increasing focus on these businesses.

INDUSTRY TRENDS

In the last two decades most major US household Recently Procter & Gamble made an aggressive entry nondurable companies became global through a spree in the mass-end priced detergent segment in India with of acquisitions. Recently, the major players in this

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sector have been involved in restructuring and reducing costs, and these efforts promise further profit expansions. For instance, after acquiring razor maker Gillette Co in October 2005, Procter & Gamble has been shedding product lines and closing other facilities and plants to maximize profits. P&G plans to shed products that do not meet minimum financial targets or show slower potential for growth. Other companies like Kimberly Clark Corp., Colgate-Palmolive Co., Unilever NV and Avon Products Inc have all been involved in different restructuring and cost optimizing initiatives.

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receive potty training kits and other resources to help with the potty training process. The second phase involved arranging a phone call where Disney characters congratulate the child on her or his potty training. The final phase gave parents access to more Disney voices and messages by entering a proof of purchase. This program could encourage product purchase without lowering the prices. Other examples included, introducing a Virtual makeover Widget by Estee Lauder in August 2009 that allowed online customers to see how makeup products look on their own face and launching mobile applications named We feel that this will help the industry to show better SitOrSquat for Blackberry and iPhone, by Charmin, to results in the future. For the year 2010, we project mid help consumers find free, clean public toilets anywhere single digit revenue for both household products and in the world. personal care companies. There will be operating margin improvements from sales leveraging and various cost reduction and restructuring programs. An MARKETS AND COMPETITION EPS growth of around 10% for the household product Two companies Procter & Gamble and Unilever companies and 10% to 20% for personal care account for roughly half of the worldwide sales in companies is expected. consumer nondurables. The major competitors to Recently there has been a lot of media attention on retailers pressing manufacturers for price reductions. We dont expect to see any extensive price cuts, but if there are cuts, they would be strategic in nature i.e. in a particular market or product size or category. Most household nondurables companies have still not caught up with the three years of above average commodity cost increases. For example, in a presentation in 2009, Kimberly Clark said that in the last five years, it had price increases of $1 billion while the cost of commodity increased by $2 billion. Kimberly Clark has been able to offset half of this cost through efficient manufacturing and various cost control programs. Procter & Gamble in the global consumer nondurable products industry are Unilever Plc, LOreal SA, Kimberly-Clarke and Colgate-Palmolive. Procter & Gamble is the undisputed leader in the industry, with the largest product portfolio as well as the highest geographic reach. In 2009, it generated $79 billion in sales, far above Unilevers $53.7 billion, the second ranked player in the industry.

As the recession hit most economies after 2007, there customers changed their buying behaviors. Private label products gained market share in the laundry detergent, razor, and razor cartridges categories, but still are under 5%. Private label mostly increased market share in categories where it held between 15% and 24% share, in categories like facial tissue, toilet tissue, and disposable diapers. Keeping this trend in view manufactures have increased their emphasis on value. For example, in the summer of 2009 P&G started distribution of Tide Basic, which cost 20% less than regular Tide and does not have all of the same capabilities. Previously, P&G also introduced Charmin Basic and Bounty Basic. The companies have also been trying to reach consumers through nontraditional channels. In July 2009, Kimberly Clarks Huggies launched a multiphase campaign. The first phase involved putting on packs of 7 diapers, telling parents to text potty or bigkid to Source : S&P Net Advantage Industry report.

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Unilever Plc Unilever is a UK based consumer nondurables goods Company and Procter & Gambles biggest competitor. Unilever manufactures and markets goods in the food, home and personal care categories. Unilever competes with Procter & Gamble very closely in most of home and personal care products. Unilever offers stiff competition to P&G in low-end markets. In the personal care category, UL has strong product line in hair care, deodorants, skin care and skin cleansing, with Sunsilk, Rexona, Lux, Axe, Ponds and Dove being the large, global brands. Unilever also has a powerful presence in oral care with Close-up and Signal being two popular brands. Unilevers home care product portfolio includes laundry products like laundry detergent, liquids and tablets. It also manufactures soap bars for low-income consumers. Unilevers home care brands include Surf, Snuggle, Radiant, Cif and Domestos. Kimberly-Clark Corp.

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expanded on an annualized rate of 5.7% in the forth quarter of 2009, it might not be an indication of a stronger than expected recovery. Growth was mainly due to inventory rebuilding. Moving forward we forsee an annual growth of 2.35% for 2010. With the recovery in global economy Procter & Gamble will be able to grow its revenue for more discritionary products that are also more profitable.

Kimberly Clark is a strong competitor to Procter & Gamble in personal care, health care and consumer tissue segments. Kimberly Clark is also a global player 8 Source : US Bureau of Economic analysis with brands like Kotex, Kleenex, Huggies, Depend and Pull-Ups. The company has grown rapidly in the last Unemployment Rate decade, with robust organic growth as well as many acquisitions. Another indicator of economic health is the unemployment rate. Recently the unemployment rate touched the record high of 10.1% for the last 26 years. Colgate-Palmolive The latest figue is 9.7% for the month of February 2010. We feel that their will be improvemnet is the Colgate is one of the leading manufacturers of unemployment rate as President Barak Obama has consumer goods in oral, personal and home care declared that job creation will be his top priority for segments and the pet Nutrition segment. Although 2010. As unemployment gets better, consumers will Colgate is roughly 10% of Procter & Gamble in market start spending more and trade up on the household capitalization, it offers tough competition to P&G in all nondurable products. its product categories. Colgates leading brands are Colgate, Palmolive, Irish Spring, Softsoap and Protex.

ECONOMIC OUTLOOK
The consumer staples sector in general and household nondurable industry is somewhat recession resistant but not recession proof. With the weak economy consumers tend to change their buying behaviors and that has a negative effect on the premium brands by household nondurables. Thus, the profit margins could be squeezed if the economy does not start bouncing back.

GDP
Source : www.tradingeconomics.com
9

The US GDP growth came back to posititive after four quarters of contraction. Even though the economy

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Consumer Confidence

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Department of Commerce the producer price index increased by 350bps in 2009. So far, Procter & Gamble In early 2009 the consumer confidence index also was has been able to pass on some price increase to the at its lowest in the last few decades. We feel that there consumers but an unexpected increase in raw material will be moderate improvement in this level in the near prices would have a negative effect on the revenue. future. The past trend for the last nine months is shown Table A. Monthly and 12-month percent changes in selected stage-of-processing below:
price indexes, seasonally adjusted
Finished goods Change in finished goods Except from 12 Energy foods months ago 0.2 -3.8 1.4 1.8 7.6 -4.5 6.2 -1.8 1.2 6.3 0.7 0.1 0.2 0.1 -0.1 0.3 -0.1 0.3 -0.1 -0.5 0.5 0 -1.4 -3.4 -3.5 -4.8 -4.4 -6.9 -4.4 -4.9 -2 2.4 4.4 Intermediate goods Crude goods

Month 2009 Feb. Mar. Apr. May June July Aug. Sept. Oct.(1) Nov.(1) Dec. 2010

Total -0.2 -0.8 0.6 0 1.8 -1.2 1.5 -0.5 0.2 1.7 0.4

Foods -1.5 -0.8 1.6 -1.4 1 -1.3 0.3 0 1.3 0.7 1.3

-0.8 -1.3 0.1 0.5 1.1 -0.5 1.7 0 0.4 1.4 0.6

-6.1 -0.6 2.4 3.2 4.3 -3.3 4.5 -2.2 7 4.2 0.8

Source10: http://www.conference-board.org

Jan. Feb.

1.4 -0.6

0.4 0.4

5.1 -2.9

0.3 0.1

4.6 4.4

1.7 0.1

9.6 -3.5

Source12: US Department of Commerce statistics

Exchange Rate
In the first half of 2009 strengthening of the US dollar against other currencies affected the earnings of household nondurables companies that have a larger share of their revenues from overseas. From May 2009 until the end of 2009, US dollar weakened; recently, it has again shown strength. With the current crisis in the European PIIGS countries and problems in Japan, the US dollar might strengthen again in the short term. and That could affect Procter & Gamble because a strong dollar means a reduction in dollar revenue from overseas operations, which contribute around 60% of the revenue.

Source11: http://www.bea.gov/

The figure above shows the percentage change in disposable income and consumer spending since October 2009. We expect consumer spending to increase gradually over the next year. A decline in consumer spending will effect Procter & Gambles products negatively.

Euro vs $US

Inflation The US economy was a deflationary enviornment from March 2009 to November 2009; currently inflation is at 2.7%. Inflation does not seem to be a big worry in the near future. Increase in inflation can increase problems for consumers. According to the data from US Source1: http://www.finance.yahoo.com

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middle class. These are the people who buy cars, engage in international tourism, demand world class products, and require international standards of education. Procter & Gamble will be able to grow by targeting baby boomers (approximately 77 million Americans born between 1946 and 1964). These individuals are very sensitive about their looks thus skin care and hair coloring are two categories that have shown strong sales growth in recent years. Procter & Gamble has been very active introducing products targeting this category of consumers.

Yen vs $US

Source1: http://www.finance.yahoo.com

CATALYSTS FOR GROWTH

New products innovation will remain an important driver for growth. As population growth in the US is slow, the development of new products and categories remains the important factor for growth in the consumer products industry. New product development also increases profit margins and innovation keeps customers from switching to private label products. Procter & Gamble has 30% more innovation in the 6 pipeline in 2010 as compared to previous years .

Procter & Gambles future growth is also dependent on its ability to acquire new companies and divest from products that help strengthen existing products and increase both the top line and the bottom line.

INVESTMENT POSITIVES

The intrinsic value of Procter & Gambles share is $77.78 which is 22% higher than the current prevailing price of $63.69. Procter & Gamble is a highly diversified products consumer goods company with a large global presence. The company generates 57% of its revenue from overseas. Procter & Gamble has a history of increasing dividends for the last 55 years and has also been adding value to shareholders through share repurchases. Procter & Gamble is the industry leader in innovation of new products and innovation in product improvements. The company invests more in R&D than any of its competitors. It also has the strongest portfolio of brands in consumer nondurables. Procter & Gamble has a strong presence and a clear focus to grow in emerging markets where there is great growth potential. Higher growth in GDP, population and disposable income in other countries other than the US will be the driver of revenue growth.

Source7: S&P Net Advantage Industry report

Procter & Gamble has been investing heavily in emerging markets in Central and Eastern Europe, China and India. In most of these economies GDP and population growth are outpacing those of the United States and Western Europe. Increase in the disposable income in these countries is enabling consumers to demand world-class products. Stronger demand from overseas operations will be a big growth opportunity for the consumer nondurables industry. If current trends continue, by 2030, there will be more than 350 million Chinese who meet the World Banks classification of

INVESTMENT NEGATIVES

Increase in commodity prices can affect the companys profit margins because in the current competitive market it is difficult to pass price increases to the consumer. Strengthening of the dollar will affect the companys revenues as 57% of the revenues come from the overseas market. The recent strengthening of the

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dollar against Euro will affect the revenue in the coming quarters.

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REFERENCES
1. http://finance.yahoo.com 2. www.mergentonline.com 3. P&G Annual report 2009 4. Company Financials 2003 to 2009

If the current trend of trading down to lower-prices private label products continue, Procter & Gambles future revenue growth will be affected.

VALUATION
Our estimated price of Procter & Gambles share using DCF and EP is $89.60 .Using relative P/E ratio, the price is $62.25 and using Dividend Discount Model the price is $70.32. By taking the average valuations of the different models our target price is $74.05. Given this valuation and the qualitative research about the industry and the company, we recommend a Hold recommendation on the stock. The valuation of share price of Procter & Gamble has been done by assuming a risk-free rate of 4.64%current 30 year Treasury bond rate. MRP has been taken as 4.5%( Henry Fund Analysts consensus). The terminal growth rate is taken as 3% which is reasonable for a company like Procter & Gamble The valuation is very sensitive to the COGS as a percentage of revenue and SGA as percentage of revenue. Even a 1% change in any of them has a substantial change in the target price. Valuation is also quite sensitive to the Beta which is currently taken as 0.59. The model assumes the WACC of 7.33%. Sell and Buy discipline We would consider a Sell on Procter & Gamble if any of the following factors occurs: Sharp increase in commodity prices that could lead to lower margins. Any major change in government policies that will affect effective tax rate and environmental regulations. If management changes its focus from innovation or is unable to create attractive marketing and sales programs.

5. P&G Annual report 2008 6. P&G presentation Feb2010 at CAGNY Conference Industry surveys-

7. S&P Net Advantage Household nondurables

8. US Bureau of Economic analysis 9. www.tradingeconomics.com 10. http://www.conference-board.org 11. http://www.bea.gov/ 12. US Department of Commerce statistics

IMPORTANT DISCLAIMER
This report was created by a student(s) enrolled in the Applied Securities Management (Henry Fund) program at the University of Iowas Tippie School of Management. The intent of these reports is to provide potential employers and other interested parties an example of the analytical skills, investment knowledge, and communication abilities of Henry Fund students. Henry Fund analysts are not registered investment advisors, brokers or officially licensed financial professionals. The investment opinion contained in this report does not represent an offer or solicitation to buy or sell any of the aforementioned securities. Unless otherwise noted, facts and figures included in this report are from publicly available sources. This report is not a complete compilation of data, and its accuracy is not guaranteed. From time to time, the University of Iowa, its faculty, staff, students, or the Henry Fund may hold a financial interest in the companies mentioned in this report.

We would consider Buy recommendation if any of the following factors occurs: More than expected revenue growth in the future. If Procter & Gamble lowers the COGS more than is projected in the valuation model or if it reduces SGA below the projected levels.

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Procter & Gamble Co. Year ending June 30 ( Figures in millions) Revenue by business segment Beauty Grooming Beauty GBU Health care Snack and Pet Care Health care and well-being GBU Fabric Care and Home Care Baby Care and Family Care Household care GBU Corporate Net Sales 2007 17889 7437 25326 13381 2985 16366 21355 12726 34081 -941 76,476 2008 19515 8254 27769 9.6% 14578 3204 17782 8.7% 23714 13898 37612 10.4% -1415 83,503 9.2% 2009 18789 7543 26332 -5.2% 13623 3114 16737 -5.9% 23186 14103 37289 -0.9% -1329 79029 -5.4% 2010E 19353 7845 27197 3.3% 14168 3207 17375 3.8% 24113 14808 38922 4.4% -1357 82137 3.9% 2011E 19933 8237 28170 3.6% 14735 3304 18038 3.8% 25319 15697 41016 5.4% -1395 85829 4.5% 2012E 20531 8649 29180 3.6% 15324 3403 18727 3.8% 26585 16638 43224 5.4% -1442 89688 4.5% 2013E 21147 9081 30228 3.6% 15937 3505 19442 3.8% 27914 17637 45551 5.4% -1501 93720 4.5% CV 21782 9535 31317 3.6% 16574 3610 20184 3.8% 29310 18695 48005 5.4% -1573 97933 4.5%

Procter & Gamble Co. Year ending June 30 ( Figures in millions) As Reported Annual Income Statement Net sales Cost of products sold Selling, general & administrative expense Operating income (loss) Interest expense Other non-operating income (expense), net Earnings (loss) before income taxes Total current provision (benefit) for income taxes Total deferred income tax provisions (benefits) Income taxes Net earnings (loss) Preferred dividends, net of tax benefit Net earnings (loss) to common Weighted average shares outstanding-basic Net earnings (loss) per share-basic Dividends per common share Dividend Payout Ratio

2007 76,476 36,686 24,340 15,450 1,304 564 14,710 4,117 253 4,370 10,340 161 10,179 3,159 3.22 1.28 40%

2008 83,503 40,695 25,725 17,083 1,467 462 16,078 2,789 1,214 4,003 12,075 176 11,899 3,080.80 3.86 1.45 38%

2009 79,029 38,898 24,008 16,123 1,358 560 15,325 3,436 596 4,032 13,436 192 13,244 2,952.20 4.49 1.64 37%

2010E 82052 38798 24673 18581 2144 143 16580

2011E 85190 40908 26277 18005 1944 90 16151

2012E 88641 42782 27396 18462 1946 106 16622

2013E 92629 44935 28715 18980 1996 143 17127

CV 96798 46814 30457 19526 2068 157 17615

4360 12219 202 12018 2922 4.11 1.80 44%

4248 11904 212 11692 2897 4.04 1.98 49%

4372 12250 222 12028 2876 4.18 2.18 52%

4504 12622 233 12389 2848 4.35 2.40 55%

4633 12982 245 12737 2825 4.51 2.64 59%

Procter & Gamble Co. Year ending June 30 ( Figures in millions) Annual Balance Sheet Assets Current Assets Cash & cash equivalents Investment securities Accounts receivable Total inventories Deferred income taxes Prepaid expenses & other current assets Total current assets Long Term Assets Total property, plant & equipment Accumulated depreciation Net property, plant & equipment Goodwill Trademark & other intangible assets, net Net goodwill & other intangible assets Other non-current assets Total assets Liabilities & Shareholder Equity Current Liabilities Accounts payable Taxes payable Accrued & other liabilities Debt due within one year Total current liabilities Long Term Liabilities Long-term debt Deferred income taxes Other non-current liabilities Total liabilities Shareholder Equity Preferred stock Total Common Stock and Paid-in Capital Reserve for ESOP debt retirement Accumulated other comprehensive income (loss) Treasury stock, at cost Retained earnings (accumulated deficit) Total shareholders' equity (deficit) Total Liabilities and Shareholder equity

2007

2008

2009

2010E

2011E

2012E

2013E

CV

5,354 202 6,629 6,819 1,727 3,300 24,031 34,721 15,181 19,540 56,552 33,626 90,178 4,265 138,014

3,313 228 6,761 8,416 2,012 3,785 24,515 38,086 17,446 20,640 59,767 34,233 94,000 4,837 143,992

4,781 5,836 6,880 1,209 3,199 21,905 36,651 17,189 19,462 56,512 32,606 89,118 4,348 134,833

2,392 615 6,564 7,392 1,641 3,364 21,969 41,292 19,719 21,573 58,747 34,881 91,792 4,513 139,847

2,883 639 6,679 7,597 1,704 3,493 22,995 44,899 22,524 22,375 60,509 34,036 94,545 4,685 144,601

4,108 665 6,914 7,824 1,773 3,634 24,918 48,569 25,432 23,136 62,324 37,005 97,382 4,875 150,311

4,546 695 7,188 8,092 1,853 3,798 26,171 52,490 28,440 24,050 64,194 38,115 100,303 5,095 155,618

4,914 726 7,512 8,368 1,936 3,969 27,425 56,466 31,567 24,899 66,120 39,259 103,312 5,324 160,960

5,710 3,382 9,586 12,039 30,717 23,375 12,015 5,147 71,254 1,406 63,020 1,308 617 38,772 41,797 66,760 138,014

6,775 945 10,154 13,084 30,958 23,581 11,805 8,154 74,498 1,366 64,309 1,325 3,746 47,588 48,986 69,494 143,992

5,980 722 8,601 16,320 30,901 20,652 10,752 9,427 71,734 1,324 65,125 1,340 (3,358) 55,961 57,309 63,099 134,833

6,564 1,641 9,846 9,243 27,294 24,270 11,487 9,846 72,898 1,324 67,283 1,340 (3,358) 60,961 64,001 66,949 139,847

6,815 1,704 10,223 8,378 27,120 25,172 11,927 10,223 74,442 1,324 69,598 1,340 (3,358) 65,961 69,895 70,158 144,600

7,091 1,773 10,637 8,388 27,889 26,028 12,410 10,637 76,963 1,324 72,083 1,340 (3,358) 70,961 75,600 73,348 150,311

7,410 1,853 11,116 8,604 28,982 27,056 12,968 11,116 80,122 1,324 74,748 1,340 (3,358) 76,961 81,083 75,496 155,618

7,744 1,936 11,616 8,915 30,210 28,011 13,552 11,616 83,389 1,324 77,608 1,340 (3,358) 82,961 86,297 77,570 160,960

Procter & Gamble Co. Year ending June 30 ( Figures in millions) As Reported Annual Cash Flow Cash & cash equivalents, beginning of year Cash from Operations Net earnings (loss) Depreciation & amortization Share based compensation expense Deferred income taxes Loss (gain) on sale of business Accounts receivable Inventories Accounts payable, accrued & other liabilities Other operating assets & liabilities Other operating activities Net cash flows from operating activities Cash from Investing Capital expenditures Proceeds from asset sales Acquisitions, net of cash acquired Change in investment securities Net cash flows from investing activities Cash from Financing Dividends to shareholders Change in short-term debt Additions to long-term debt Reductions of long-term debt Impact of stock options & other Treasury stock purchases Impact of stcok options & other financing activities Net cash flows from financing activities Effect of exchange rate changes on cash & cash equivalents Change in cash & cash equivalents Cash & cash equivalents, end of year

2007 6,693

2008 5,354

2009 3,313

10,340 3,130 668 253 -729 -389 -273 -157 592 13,435 -

12,075 3,166 555 1,214 432 -1,050 134 -1,239 527 15,814

13,436 3,082 516 596 -2,377 415 721 -742 -758 30 14,919

-2,945 281 -492 673 -2,483

-3,046 928 -381 -50 -2,549

-3,238 1,087 -368 166 -2,353

-4,209 8,981 4,758 -17,929 1,499 -5,578 -12,478 187 -1,339 5,354 -

-4,655 1,844 7,088 -11,747 1,867 -10,047 -15,650 344 -2,041 3,313

-5,044 -2,420 4,926 -2,587 -6,370 681 -10,814 -284 1,468 4,781

Procter & Gamble Co. Year ending June 30 ( Figures in millions) Projected Annual Cash Flow Cash & cash equivalents, beginning of year Operating Activities Net earnings (loss) Depreciation Amortization of intangables Deferred income taxes Accounts receivable Inventories Change in Prepaid expenses and other current assets Change in Accounts Payable Change in Taxes Payable Change in Accrued and other Liabilities Change in other non current liabilities Change in other non current assets Net cash flow from Operating Activities Cash from Investing Capital expenditures Change in investment securities Acquisitions, net of cash required Net cash flow from Investing acticities Cash fromFinancing Dividends to shareholders Change in short term debt Change in long term debt Proceeds from Stock option Treasury stock purchases Net Cash flow from Financing Activities Change in cash & cash equivalents Cash & cash equivalents, end of year

2010 4,781

2011 2,392

2012 2,883

2013 4,108

2014 4,546

12018 2530 620 303 -728 -512 -165 584 919 1,245 419 -165 17,788

11692 2805 663 377 -115 -205 -129 251 63 377 377 -173 15,959

12028 2909 647 414 -235 -227 -141 276 69 414 414 16,351

12389 3008 703 479 -274 -268 -164 319 80 479 479 16,980

12737 3126 724 500 -323 -276 -171 333 83 500 500 17,474

-3,282 -615 -4,652 -8,550

-3,408 -24 -3,616 -7,023

-3,546 -26 -3,607 -7,153

-3,705 -30 -3,841 -7,546

-3,872 -31 -3,837 -7,709

-5,326 -7,077 3,618 2,158 -5,000 -11,627 -2,389 2,392

-5,798 -865 902 2,315 -5,000 -8,445 491 2,883

-6,323 9 856 2,484 -5,000 -7,973 1,225 4,108

-6,907 216 1,028 2,666 -6,000 -8,997 437 4,546

-7,523 311 955 2,860 -6,000 -9,396 369 4,914

Procter & Gamble Co. Common Size Income Statement Net sales Cost of products sold Selling, general & administrative expense Operating income (loss) Interest expense Other non-operating income (expense), net Earnings (loss) before income taxes Total current provision (benefit) for income taxes Total deferred income tax provisions (benefits) Income taxes Net earnings (loss)

2007 100.00% 47.97% 31.83% 20.20% 1.71% 0.74% 19.23% 5.38% 0.33% 5.71% 13.52%

2008 100.00% 48.73% 30.81% 20.46% 1.76% 0.55% 19.25% 3.34% 1.45% 4.79% 14.46%

2009 100.00% 49.22% 30.38% 20.40% 1.72% 0.71% 19.39% 4.35% 0.75% 5.10% 17.00%

2010E 100.00% 47.29% 30.07% 22.65% 2.61% 0.17% 20.21% 0.00% 0.00% 5.31% 14.89%

2011E 100.00% 48.02% 30.85% 21.14% 2.28% 0.11% 18.96% 0.00% 0.00% 4.99% 13.97%

2012E 100.00% 48.27% 30.91% 20.83% 2.20% 0.12% 18.75% 0.00% 0.00% 4.93% 13.82%

2013E 100.00% 48.51% 31.00% 20.49% 2.15% 0.15% 18.49% 0.00% 0.00% 4.86% 13.63%

CV 100.00% 48.36% 31.47% 20.17% 2.14% 0.16% 18.20% 0.00% 0.00% 4.79% 13.41%

Procter & Gamble Co. Annual Balance Sheet-Common size Assets Current Assets Cash & cash equivalents Investment securities Accounts receivable Total inventories Deferred income taxes Prepaid expenses & other current assets Total current assets Long Term Assets Total property, plant & equipment Accumulated depreciation Net property, plant & equipment Goodwill Trademark & other intangible assets, net Net goodwill & other intangible assets Other non-current assets Total assets Liabilities & Shareholder Equity Current Liabilities Accounts payable Taxes payable Accrued & other liabilities Debt due within one year Total current liabilities Long Term Liabilities Long-term debt Deferred income taxes Other non-current liabilities Total liabilities Shareholder Equity Preferred stock Total Common Stock and Paid-in Capital Reserve for ESOP debt retirement Accumulated other comprehensive income (loss) Treasury stock, at cost Retained earnings (accumulated deficit) Total shareholders' equity (deficit) Total Liabilities and Shareholder equity

2007

2008

2009

2010E

2011E

2012E

2013E

CV

3.88% 0.15% 4.80% 4.94% 1.25% 2.39% 17.41% 25.16% 11.00% 14.16% 40.98% 24.36% 65.34% 3.09% 100.00%

2.30% 0.16% 4.70% 5.84% 1.40% 2.63% 17.03% 26.45% 12.12% 14.33% 41.51% 23.77% 65.28% 3.36% 100.00%

3.55% 0.00% 4.33% 5.10% 0.90% 2.37% 16.25% 27.18% 12.75% 14.43% 41.91% 24.18% 66.10% 3.22% 100.00%

1.71% 0.44% 4.69% 5.29% 1.17% 2.41% 15.71% 29.53% 14.10% 15.43% 42.01% 24.94% 65.64% 3.23% 100.00%

1.99% 0.44% 4.62% 5.25% 1.18% 2.42% 15.90% 31.05% 15.58% 15.47% 41.85% 23.54% 65.38% 3.24% 100.00%

2.73% 0.44% 4.60% 5.21% 1.18% 2.42% 16.58% 32.31% 16.92% 15.39% 41.46% 24.62% 64.79% 3.24% 100.00%

2.92% 0.45% 4.62% 5.20% 1.19% 2.44% 16.82% 33.73% 18.28% 15.45% 41.25% 24.49% 64.45% 3.27% 100.00%

3.05% 0.45% 4.67% 5.20% 1.20% 2.47% 17.04% 35.08% 19.61% 15.47% 41.08% 24.39% 64.19% 3.31% 100.00%

4.14% 2.45% 6.95% 8.72% 22.26% 0.00% 16.94% 8.71% 3.73% 51.63% 1.02% 45.66% 0.95% 0.45% 28.09% 30.28% 48.37% 100.00%

4.71% 0.66% 7.05% 9.09% 21.50% 0.00% 16.38% 8.20% 5.66% 51.74% 0.95% 44.66% 0.92% 2.60% 33.05% 34.02% 48.26% 100.00%

4.44% 0.54% 6.38% 12.10% 22.92% 0.00% 15.32% 7.97% 6.99% 53.20% 0.98% 48.30% 0.99% -2.49% 41.50% 42.50% 46.80% 100.00%

4.69% 1.17% 7.04% 6.61% 19.52% 0.00% 17.35% 8.21% 7.04% 52.13% 0.95% 48.11% 0.96% -2.40% 43.59% 45.77% 47.87% 100.00%

4.71% 1.18% 7.07% 5.79% 18.76% 0.00% 17.41% 8.25% 7.07% 51.48% 0.92% 48.13% 0.93% -2.32% 45.62% 48.34% 48.52% 100.00%

4.72% 1.18% 7.08% 5.58% 18.55% 0.00% 17.32% 8.26% 7.08% 51.20% 0.88% 47.96% 0.89% -2.23% 47.21% 50.30% 48.80% 100.00%

4.76% 1.19% 7.14% 5.53% 18.62% 0.00% 17.39% 8.33% 7.14% 51.49% 0.85% 48.03% 0.86% -2.16% 49.46% 52.10% 48.51% 100.00%

4.81% 1.20% 7.22% 5.54% 18.77% 0.00% 17.40% 8.42% 7.22% 51.81% 0.82% 48.22% 0.83% -2.09% 51.54% 53.61% 48.19% 100.00%

Procter & Gamble Co. Year ending June 30 ( Figures in millions) Value Drivers NOPLAT Income before income taxes(EBT) (+)Interest Expense (-)Non Operating Interest income EBITA Less: Taxes on EBITA Total Income Tax provision (+) Tax shield on interest Exp (-)Tax on non operating Income Total adjusted taxes on EBITA Plus Change in deffered taxes NOPLAT INVESTED CAPITAL +Normal cash +Accounts Receivables +Inventories +Prepaid expenses & other current assets -Accounts payable -Taxes payable -Accrued & other liabilities Net Operating working Capital +Net property, plant & equipment +Other non-current assets +Trademark & other intangible assets, net -Other non-current liabilities + Value of Operating Leases Net Invested Capital ROIC(NOPLAT/Net Invested capital) NOPLAT Net Invested Capital ROIC Free Cash Flow(NOPLAT-Net Investment) NOPLAT Change in Invested Capital Free Cash Flow(NOPLAT-Net Investment) ECONOMIC PROFIT Invested Capital Beginning ROIC WACC ECONOMIC PROFIT Cash On hand Normal cash Excess Cash Short Term Investments Non Operating assets

2007 14,710 1304 564 15,450 1304 343 148.3 1499 -455 13,496 1530 6,629 6,819 3,300 5,710 3,382 9,586 -400 19,540 4,265 33,626 5,147 1228 53,112 13,496 51,156 26.38% 13,496 1,955 11,541 51,156 26% 7.33% 9745 5,354 1530 3,824 202 4,026

2008 16,078 1467 462 17,083 1467 386 121.5 1731 -495 14,857 1670 6,761 8,416 3,785 6,775 945 10,154 2,758 20,640 4,837 34,233 8,154 1398.4 55,712 14,857 53,112 27.97% 14,857 2,601 12,256 53,112 28% 7.33% 10962 3,313 1670 1,643 228 1,871

2009 15,325 1358 560 16,123 1358 357 147.3 1568 -250 14,305 1581 5,836 6,880 3,199 5,980 722 8,601 2,193 19,462 4,348 32,606 9,427 1368 50,550 14,305 55,712 25.68% 14,305 -5,163 19,468 55,712 26% 7.33% 10219 4,781 1581 3,200 0 3,200

2010E 16,580 2144 143 18,581 2144 564 37.7 2671 303 16,213 1641 6,564 7,392 3,364 6,564 1,641 9,846 910 21,573 4,513 34,881 9,846 1369 53,400 16,213 50,550 32.07% 16,213 2,850 13,363 50,550 32% 7.33% 12506 2,392 1641 751 615 1,367

2011E 16,151 1944 90 18,005 1944 511 23.7 2431 377 15,950 1704 6,679 7,597 3,493 6,815 1,704 10,223 731 22,375 4,685 34,036 10,223 1370 52,976 15,950 53,400 29.87% 15,950 -424 16,375 53,400 30% 7.33% 12034 2,883 1704 1,179 639 1,818

2012E 16,622 1946 106 18,462 1946 512 27.8 2430 414 16,446 1773 6,914 7,824 3,634 7,091 1,773 10,637 644 23,136 4,875 37,005 10,637 1371 56,395 16,446 52,976 31.04% 16,446 3,420 13,027 52,976 31% 7.33% 12561 4,108 1773 2,335 665 3,000

2013E 17,127 1996 143 18,980 1996 525 37.7 2483 479 16,975 1853 7,188 8,092 3,798 7,410 1,853 11,116 552 24,050 5,095 38,115 11,116 1372 58,068 16,975 56,395 30.10% 16,975 1,673 15,302 56,395 30% 7.33% 12839 4,546 1853 2,693 695 3,388

CV 17,615 2068 157 19,526 2068 544 41.3 2571 500 17,455 1936 7,512 8,368 3,969 7,744 1,936 11,616 489 24,899 5,324 39,259 11,616 1373 59,728 17,455 58,068 30.06% 17,455 1,659 15,796 58,068 30% 7.33% 13197 4,914 1936 2,978 726 3,704

Procter & Gamble Co. Year ending June 30 ( Figures in millions) WACC Calculations Under Funded Pension Value of Debt( Annual Report 09) Cost of Debt Beta(Bloomberg) MRP Risk Free rate( 30 year Treasury) Effective Tax rate Share Price ( 5 march 2010) Market cap( 5 march 2010) Preffered shares outstanding Price of preferred stock(Annual report 2009 page 66) Value of preferred Total capital( E+P+D) Cost of Equity After Tax cost of debt Cost of Preferred WACC 3,798 37,834 5.80% 0.59 4.50% 4.64% 26.30% $ 63.69 185,430.00 1,324.00 $ 12.96 17,159 240,423 7.30% 4.27% 14.50% 7.33%

15.7%

77.1%

7.1% 100.0%

Procter & Gamble Co. Year ending June 30 ( Figures in millions) Discounted Cash Flow / Economic Profit analysis WACC Terminal Growth Rate CV ROIC Cost of Equity DCF Model No of periods ahead FCF PV(FCF) PV(FCF) Total +PV( Non Operating) -PV of Debt -PV of Operating Leases -PV of ESOP -Value of preferred - value of underfunded Pension - Value of contractual Obligations PV of Equity No of Shares Outstanding Price per share on 1 July 2009 Price per share on 6 March 2010 7.33% 3% 30.06% 7.30% 2010E 1 13,363 12450 321,901 1367 37834 1329 5633 17159 3798 3897 253618 2,952.20 86 89.54 2011E 2 16,375 14213 2012E 3 13,027 10535 2013E 4 15,302 11529 CV 4 362,565 273173

Economic Profit Model No of periods ahead ROIC EP PV of EP Total PV Invested Capital PV of Operations +PV( Non Operating) -PV of Debt -PV of operating Leases -PV of ESOP -value of preferred - value of underfunded Pension - Value of contractual Obligations PV of Equity No of Shares Outstanding Price per share on July 2009 Price per share on 6 March 2010

2010E 1 32% 12506 11651 271351 50,550 321,901 1367 37834 1329 5633 17159 3798 3897 253,618 2,952 86 89.54

2011E 2 30% 12034 10446

2012E 3 31% 12561 10158

2013E 4 30% 12839 9673

CV 4 30% 304497 229422

Procter & Gamble Co. Year ending June 30 Dividend Discount Model WACC CV Dividend Growth Rate Cost of Equity

7.33% 4% 7.30% 2010E 1 4.11 1.80 1.68 67.47 $ 70.32 2011E 2 4.04 1.98 1.72 2012E 3 4.18 2.18 1.77 2013E 4 4.35 2.40 1.81 CV 4 4.51 80.16 60.48

No of periods ahead EPS Expected Dividend PV Total PV of Expected Dividends on 1 July 2009 Expected value on 6 March 2010

Procter & Gamble Co. Year ending June 30 Relative Multiple Symbol CHD CLX CL ENR AVP KMB Average PG Company Name Church & Dwight Co. Inc. Clorox Corporation Colgate-Palmolive Co. Energizer Holdings Inc. Avon Products Inc Kimberly Clark Stock Price EPS 2010E P0/E1 Price / Revenue 67.18 3.98 16.88 1.87 61.31 4.24 14.46 1.56 82.94 4.85 17.10 2.72 57.95 5.23 11.08 1.00 31.26 2.05 15.25 1.27 60.61 4.91 12.34 1.31 14.52 1.62 $63.69 28.08 4.11 15.48

Procter and Gamble Revenue / Share Share price on 1 July 2009 PE Price/ Revenue Share price on 6 March 2010 Relative PE Relative Price/ Revenue

59.72 45.54

$ $

62.25 47.47

Procter & Gamble Co. Year ending June 30 ( Figures in millions)

Operating and Capital Lease Obligations Capital Leases 0 0 0 0 0 0 0 405 Operating Leases 305 272 223 202 176 442 1620 291 1329

Years Ended April 30, 2010 2011 2012 2013 2014 Thereafter Total Minimum Payments Less: Interest PV of Minimum Payments

Capitalization of Operating Leases Pre-Tax Cost of Debt Number Years Implied by Year 6 Payment Lease Commitment 305 272 223 202 176 442 5.80% 1 PV Lease Payment 288.3 243.0 188.3 161.2 132.8 315.1 1329

Year 1 2 3 4 5 6 & beyond PV of Minimum Payments

Procter & Gamble Co. Year ending June 30 ( Figures in millions)

VALUATION OF OPTIONS GRANTED IN ESOP

Ticker Symbol Current Stock Price Risk Free Rate Current Dividend Yield Annualized St. Dev. of Stock Returns Average Exercise Price 44.93

pg 63.26 4.80% 2.80% 21.00% Average Remaining Life (yrs) 5.40 $ 5.40 $ B-S Option Price

Range of Outstanding Options Range 1 Total

Number of Shares 259 259 $

21.72 $ 29.51 $

Value of Options Granted 5,633

5,633

44.93

Procter & Gamble Co. Sensitivity Analysis of DCF and EP Model WACC 7.33% 68.72 74.36 81.16 89.54 100.11 113.84 132.42

89.54 1.5% 2.0% 2.5% 3.0% 3.5% 4.0% 4.5%

5.00% 131.68 151.81 179.99 222.26 292.70 433.60 856.28

6.00% 96.69 107.55 121.50 140.11 166.16 205.23 270.35

6.50% 84.46 92.80 103.23 116.64 134.52 159.55 197.09

7.50% 66.11 71.35 77.65 85.35 94.97 107.34 123.83

8.00% 59.05 63.31 68.35 74.39 81.78 91.02 102.89

8.50% 53.01 56.51 60.60 65.43 71.23 78.32 87.18

CV

Gr ow

th

89.54 15% 20% 25% 30% 35% 40% 45%

5.00% 196.85 209.53 217.13 222.26 225.83 228.54 230.65

6.00% 123.80 131.94 136.82 140.11 142.40 144.14 145.50

6.50% 102.92 109.77 113.87 116.64 118.57 120.03 121.17

WACC 7.33% 78.81 84.16 87.38 89.54 91.05 92.20 93.09

7.50% 75.07 80.20 83.27 85.35 86.79 87.89 88.74

8.00% 65.32 69.85 72.56 74.39 75.67 76.64 77.40

8.50% 57.33 61.38 63.80 65.43 66.57 67.44 68.11

RO I

BETA

89.54 0.40 0.45 0.50 0.59 0.60 0.65 0.70

0.475 120.53 114.17 108.35 99.04 98.09 93.55 89.33

0.48 116.83 110.62 104.95 95.88 94.95 90.52 86.41

0.485 113.13 107.08 101.55 92.71 91.80 87.49 83.48

COGS 0.49 109.43 103.54 98.15 89.54 88.66 84.46 80.56

0.495 105.73 100.00 94.76 86.38 85.52 81.43 77.63

0.5 102.03 96.46 91.36 83.21 82.38 78.40 74.71

0.505 98.33 92.91 87.96 80.04 79.23 75.37 71.78

89.54 5.00% 6.00% 6.50% 7.33% 7.50% 8.00% 8.50%

29.5% 243.06 154.06 128.64 99.28 94.74 82.87 73.16

30.0% 236.12 149.41 124.64 96.04 91.61 80.05 70.59

30.5% 229.19 144.76 120.64 92.79 88.48 77.22 68.01

SGA 31.0% 222.26 140.11 116.64 89.54 85.35 74.39 65.43

31.5% 215.32 135.46 112.64 86.30 82.22 71.57 62.86

32.0% 208.39 130.80 108.64 83.05 79.09 68.74 60.28

32.0% 208.39 130.80 108.64 83.05 79.09 68.74 60.28

AC C

Procter & Gamble Co. Year ending June 30 ( Figures in millions) Sanity Checks Liquidity Ratios Current Ratio Quick Ratio Cash Ratio Activity Ratios Days Sales outstanding Asset Turnover Financial leverage Ratios Debt Ratio Interest coverage Profitability Ratios Return on Assets Gross Profit ratio Payout Policy Ratio Payout Ratio 2007 =Current Assets/Current Liabilities =(Current assets-Inventory)/Current Liabilities =(Cash + Cash equivelent)/Current Liabilities 0.78 0.59 0.17 2008 0.79 0.56 0.11 2009 0.71 0.52 0.15 2010E 0.80 0.55 0.09 2011E 0.85 0.54 0.11 2012E 0.89 0.55 0.15 2013E 0.90 0.59 0.16 2014E 0.91 0.60 0.16

=Accounts Receivable/(Annual sales/365) =Net sales/ Total assets

31.64 0.55

29.55 0.58

26.95 0.59

29.20 0.59

28.62 0.59

28.47 0.59

28.32 0.60

28.32 0.60

= Debt/Total Assets =EBIT/Interest Charges

0.26 11.28

0.25 10.96

0.27 11.28

0.24 7.73

0.23 8.31

0.23 8.54

0.23 8.58

0.23 8.52

=Net Income/Total Assets =Gross Profit/ Net Sales

0.07 52%

0.08 51%

0.10 51%

0.09 53%

0.08 52%

0.08 52%

0.08 51%

0.08 52%

=Dividend/EPS

40%

38%

37%

44%

49%

52%

55%

59%