The Earnings Per Share (EPS) steadily increased over the years (except

for 2001) to nearly $4.00 per share in 2008 (compared to $1.38 in 1999) as
did the dividend payment. The dividend yield remained relatively constant
over the past years and is below the industrial average. A more detailed
fundamental analysis of the development of EPS and Dividends is shown in
the Calculated Ratios section below.

P/E ratio Source: Mergent Online, Yahoo Finance

35
30
25

P/E ratio

20

Industry Average

15
10
5
0
36312

36678

37043

37408

37773

38139

38504

38869

39234

39600

The Price to earnings (P/E) ratio has dropped steadily since 2001
indicating the decreasing growth potential of the company. By 2008 P&Gs
P/E ratio was very close to the current industry average. While one might
expect a very large company like P&G to have a lower P/E ratio than the
industry average (given a counterbalancing effect of small firms in the
industry), the fact that its P/E ratio is at the average indicates a potential
nimbleness that will allow the company greater future growth than might be
expected for a company of its size.

Sales (bn $) Source: Procter&Gamble

90
80
70
60
50
40
30
20
10
0
-10

Sales change (%)

Sales

36312 36678 37043 37408 37773 38139 38504 38869 39234 39600

P&G was able to increase its sales over the last ten years, which is a
very positive signal to the market. Whereas between 1999 and 2002, the
sales were rather constant ($40 bn.), they increased to over $80 bn. by
2008. Increasing sales by 100% within six years is quite impressive,
especially given the magnitude of the sales (growing from $40 bn. to $80
bn).

Change in Sales and Inflation Source: Mergent Online, Bureau of Labor Statistics
25
20
Sales change (%)

15

Change CPI
10
5
0
36678

37043 37408

37773

38139

38504

38869

39234

39600

-5

Over its recent period of steady sales growth, P&G was not simply
increasing its prices. The growth rate of its sales is much higher than the
inflation (change in the consumer price index). P&G was therefore really able
to expand its business. The significant increase in sales in 2006 can be
contributed to the acquisition of Gillette in late 2005.

Price and Book Value per share Source: Mergent Online

70
60
50
40

Price per Share

Book Value per Share

30
20
10
0
36312 36678 37043 37408 37773 38139 38504 38869 39234 39600

The Book Value per share was quite constant at about $5 between
1999 and 2005 and increased to $23 per share in 2008. This development is
rather surprising since the plowback ratio was quite constant over the 10
year period. The development is however favorable in the eyes of an investor
if a company has a very high Book Value per share (compared to the price
per share), the risk for the investor to lose money may be considered lower
(since it is backed by real value). In this case, however, the reason for
the increased Book Value is a significant increase in Goodwill (from $24bn.
to $89 bn.). The acquisition of the Gillette company in 2005 was the reason
for this significant change ($34.95 billion). Whether the shareholders are
exposed to less risk due to the higher Book Value per share may be
questioned.

The capital structure of P&G may be analyzed in a little more detail

here. The Debt ratio is relatively constant over the last years and has even
decreased. Though it is not possible to tell whether this Debt ratio is the
most economic for P&G, a constant debt ratio can be considered rather
favorable especially when the sales are increasing in such an astonishing
way. The Current ratio is rather constant too. After the acquisition of Gillette,
the Current ratio did improve between 2005 and 2006. After 2006, the
Current ratio decreased. The reason for the improvement is not known.
However, it seems as if the position Debts payable within a year which
accounts for over $11 bn. is closely linked to the acquisition of Gillette and
has the greatest impact on the Current ratio. The 2006 Annual Report stated
that the acquisition was partly financed through a three-year debt. We can
only speculate about this position. The Debt/Equity changed considerably
over the past years but finally decreased (acquisition Gillette). The
Debt/Equity ratio of the industry is 1.1. Since it is not known to which extent
Intangible Assets do contribute to this number in the industry, a general
conclusion shall not be given.