Colgate-Palmolive Company (Colgate) is a global leader in the consumer products industry. Colgate-Palmolive is a well established, global company in the personal products industry. Within Colgate-Palmolive, there are four distinct product segments: personal care, home care, oral care and pet nutrition. Colgate the Company markets its products in more than 200 countries and territories across the world. The company owns or leases approximately 330 properties which include manufacturing, distribution, research and office facilities worldwide of which about 60 properties are in the US and approximately 270 properties are in Overseas. It is headquartered at New York, the US.
When talking about financial statements of this company, we could start with analyzing income statement. Net sales represent aggregate revenue recognized during the period, and for the company, comparing two years 2009 and 2010 have increased from 2009 to 2010. The net result for the period of deducting operating expenses from operating revenues, which is operating profit slightly declined from 2009 to 2010. Income before income taxes has also slightly declined from 2009 to 2010, which is the same case as for Net income including non controlling interests. Net income attributable to Colgate-Palmolive Company has also declined from 2009 to 2010. Going on to the Balance sheets, there are several things noticeable. Colgate-Palmolive’s cash and cash equivalents declined significantly from 2009 to 2010. Receivables, net of allowances slightly declined from 2009 to 2010. Considering the Inventories for this company, there was an increase from 2009 to 2010. Total current assets have also slightly declined from 2009 to 2010. Total assets have definitely increased from 2009 to 2010. Referring to the liabilities, total current liabilities have increased, resulting total liabilities also to increase. Shareholders’ equity represent total of stockholders’ equity items, net of receivables from officers, directions owners, and affiliates of the entity including portions attributable to both the parent and non controlling interests if any. In case of this company shareholders’ equity slightly declined from 2009 to 2010. Talking about consolidated statements of comprehensive income, the cumulative translation adjustment has slightly declined from 2009 to 2010, which is the same case for Retirement plan and other retiree benefit adjustments. Comprehensive income attributable to Colgate-Palmolive Company has also slightly declined from 2009 to 2010. Considering the statement of cash flows, net cash provided by operations has declined from 2009 to 2010, and cash and cash equivalents at the end of the year has drastically declined.
Accounting policy is important to firms mostly because it structures the firm and the decisions they make. Colgate-Palmolive is in the personal products industry and focuses on certain accounting procedures to help enhance their productivity and ultimately resulting in profits. There are many factors which they have to consider in order to succeed: highly developed research and development, then promotional programs, marketing etc. Colgate’s management group uses estimates in accordance with generally accepted accounting principles. These estimates are involved with stock-based compensation, asset impairment, tax valuation allowances, and other contingency reserves. They have been chosen in order to forecast sales in the market. This is important for the firm because estimates leave Colgate vulnerable to market fluctuations. Colgate is conservative with the accounting policies. Instead of incorporating the expenses into gross profit, they decide to allocate them differently, therefore lowering the end cost of the resulting inventory. The preparation of financial statements is regulated by GAAP inside of the United States. However dealing with many accounting policies, management is allowed to use judgment and make estimates regarding many aspects of their company’s reports.
Capital structure entails dissecting the amount of debt financing a company incurs. There are a lot of benefits that come from debt financing, but finding the optimal level of debt should be influenced by the degree of risk a business has.
Debt to Equity ratio:
This ratio calculates the difference between how much of a company’s external financing comes from debt compared to the equity that it has generated. By showing the ratio between debt and equity we can see if the company is being financed by loand from banks or actually financing itself through equity.
Times interest earned
It is calculated by dividing net income before interest and taxes by interest expense. The higher the figure determined by ratio is, the fewer problems that company has paying the interest.
Debt Service Margin
In order to analyze it, operating cash flow is divided by the current portion of a company’s notes payable. The higher the figure, again, shows that liabilities that need to be paid are covered by cash from operations.
Referring to the important events for the business of the company, one that kind of pops out is event which was held in May 2011. It was reported on Business Wire1. Colgate-Palmolive provided a live webcast for the investors, who could access a live webcast of the presentation on the official site of the company. The main goal of this presentation is to fully inform the investors and possibly to attract new ones.
Year ended December 31,2010
Year ended December 31,2009
Accounts Receivable turnover
During the year ended December 31, 2010, the revenues of Oral, Personal and Home Care products accounted for 43%, 22% and 22%, respectively, of its total revenues. During 2010, the revenues of Pet Nutrition products accounted for 13% of the Company’s total revenues. In June 2011, it purchased Sanex personal care brand from Unilever PLC.
Year over year, Colgate-Palmolive Co. has seen net income shrink from $2.3B to $2.2B despite relatively flat revenues. A key factor has been an increase in the percentage of sales devoted to SGA costs from 34.46% to 34.79%.As a global company serving consumers in more than 200 countries and territories, the Company is routinely subject to a wide variety of legal proceedings. These include disputes relating to intellectual property, contracts, product liability, marketing, advertising, foreign exchange controls, antitrust and trade regulation, as well as labor and employment, environmental and tax matters.
There is no way in which we can know future about certain company, in this case about Colgate-Palmolive Company. However certain clues can help us realize the standing of the company and if it is safe to invest. In order to judge company’s current “health” and future prospects we should use accounts receivable and days sales outstanding. Accounts receivable, which represent the amount of money owed to the company and days sales outstanding – the number of days’ worth of sales owed to the company, by standing alone cannot tell us much, but by considering the trends in both of them sometimes we might get a look into the future. Sometimes problems with accounts receivable and days sales outstanding simply indicate a change in the business. But in the case when accounts receivable grow more quickly than revenue, or ballooning days sales outstanding, can suggest a desperate company that is trying to boost sales by giving its customers overly generous payment terms. If we ask ourselves why Colgate-Palmolive would do something like this, the answer is simple. As any other company they would try to make the numbers, since investors do not like revenue shortfalls and employees do not like to report them to their superiors.
After having said all of the above, final word could be that Colgate- Palmolive is the company that we can invest in. Even there is a decline of some of the ratios, if we look at the net income for the last 2 years, and include 2011 we can notice, there is a great increase (September 2009, net income was 590 M, September 2010, net income was 619M and September 2011, net income was 643M). The decrease of the ratios could be caused by the economic crisis or some other factors, but slowly the company is recovering and it can definitely be considered as a low risk investment.
1 Business Wire is a company that disseminates full-text news releases from thousands of companies and organizations worldwide to news media, financial markets, disclosure systems, investors, information web sites, databases and other audiences.