Which companies are sharing good news in their financial reporting?
Procter
& Gamble, Avon, Unilever, and L’Oreal are all companies sharing good new in
their financial reports. Some highlights examined in the income statement and
balance sheet of these companies show: low cost of sales, high shareholder equity,
and increased debts.
Low Cost of Sales
Avon’s
cost of sales are low while revenue remains high, expressing increased profits.
The same can be said for P&G, who have record high net sales and comparatively
low sales cost. Investors might want to pay close attention to L’Oreal,
however. Currently, L’Oreal reports a negative cost of sales. This can be
attributed to the fact that L’Oreal owns most of the supply chain thus the cost
of sales comes from within the company itself. This is a great company to
invest in because as a result of no cost in sales, total profits are very high
and contributes to the high shareholders’ equity.
High Shareholder Equity
Shareholder
equity is very important when considering investing. As you look at the income
statement, comparing the shareholders’ equity to see if it is increasing or
decreasing can make or break an investment deal. P&G has one of the best
shareholder equity. In the last two years the equity has gone up over 10,000,
as scaled on the income statement. Similarly, Unilever’s basic share earnings
are 1.51 compared to two years ago when it was 1.21. The expansion of the
companies in different countries brings in more revenue allowing the stock to
increase giving more benefit to the shareholder. This same expansion that
allows higher equity, however, is a factor in debts increasing that occurs in
many of these companies.
Increased Debts
Increased
debts may seem like an immediate turn-off to investors but learning why the
debts are going up is important to look at. The main reasons debts in these
companies are due to extensive improvements being made within the industry,
which is positive. In regard to Avon, debt increased from 808,000 to 850,000.
This may seem like a large increase but cash assets are up and the cost of raw
materials are down. Additionally, land and building improvements are being
made, expressing where the debt money as result of. Unilever’s overall debt is
up but many of the short-term debts are being paid back and liabilities
associated with assets held for sale account for other debts but will soon be
gone as the assets are sold. L’Oreal has accumulated more debt because of an
increase in employee retirement obligations and related benefits. This shows
that L’Oreal not only observes its employees as assets but also ensures their
benefits. Overall, despite the increase in debt the reasons are beneficial to
the company thus encouraging other to invest.
Sources:
Your analysis of each company's financial statements is very in depth and will be very helpful when making our final recommendation. I think it's great how you made the point that the only reason the various companies' debts are going up is because of improvements. Obviously with their costs of sales declining, these companies will be able to repay these debts and will be better able to compete in the markets because they are making positive adjustments.
ReplyDeleteI found that Avon’s North American sales fell 20 percent to $2.11 billion last year from 2007. The decline pushed the North American unit to an operating loss in 2011. The company is worth only $8 billion today, down from $21.8 billion in June 2004. People say that the caused of this can be Avon’s direct sales model because in these days most Americans buy their cosmetics in stores. I think that maybe this is a reflection of Avon's low investing on cost of sales.
ReplyDeleteIt is interesting that even though there has been a decline iun the economy as a whole, these companies are continuing to thrive and grow, through reductions in production costs etc. Though as you pointed out, it is important to first look at a company's debt before deciding its financial state.
ReplyDelete