Financial statement analysis
Below is the financial data for three years i. e. from 2005 to 2007. The income statement and balance sheet were analyzed and their common size analysis is presented as follows: Current assets have remained almost the same throughout the 3 years besides minute fluctuations. Similarly Property, plant and equipment have also remained quite the same. However intangible assets saw a considerable decrease in 2006 which further decreased in 2007 although only by 1%.
Accounts payable have seen a constant but little increase which is probably due to increase in business activity. Short-term debt increased significantly in 2006, however it reduced considerably in 2007. Both Long-term Debt and Other liabilities have seen a little fluctuation during the three years as well. (Reuters, n. d. ) Costs of Sales have almost remained the same throughout the 3 years, infact it reduced in 2007 despite the increase in business activity. Similarly, Selling, General & Admin. Expenses have also remained somewhat the same.
However, both Operating and Net Profit saw a slight fall in 2006 but increased yet again in 2007. Liquidity improved although both current and quick ratios dropped by a trivial 5 % in 2006 but both of them improved in 2007 by 20% and 14% respectively. Similarly, Debt-to-Equity which had been quite high in 2006 reduced in 2007 by 10%. Interest cover decreased considerably in 2006 by 22% but saw a similar increase in 2007. Profitability ratios were the same with negligible fluctuations. Inventory turnover saw a gradual decline of 13% from 2005 to 2007.
Colgate had performed fairly well in all areas in 2005, but its performance deteriorated a little bit in 2006. However in 2007 it recovered and infact improved in the almost all areas. On the whole, Colgate-Palmolive outclassed the industry performance. Colgate has managed to maintain a better liquidity position than the industry. Similarly, its profitability has been much ahead of the industry. However the only area where Colgate-Palmolive hasn’t performed well is the collection of its receivables i. e.
the duration it takes to convert its receivables into cash is below industry average. Although it is not much of an area of concern yet but if Colgate doesn’t ensure efficient debt collection, this could result in substantial bad debts later. A sound liquidity position is crucial for the survival of companies , as it has been noticed over the years that many profit-making concerns closed down because their cashflow position was not feasible. As for Colgate it improved both its current and quick ratios in 2007.
Although both these ratios had slightly dropped in 2006 as can be seen in Fig 1. 1 below. As calculated above Colgate’s shares might be overvalued on NYSE as per the stock information available on 11th February 2009. In any event Colgate has performed fairly well over the years, however this year could prove to be tough one for it i. e. the company might perform badly. But then almost every company is going through a turmoil in the current recession infact many have got bankrupt for example, Citibank.
Therefore, keeping Colgate-Palmolive’s past performance in focus shareholders should hold on to their investments at least till next year because selling them now would most probably result in loss since almost all major stock markets are performing badly and NYSE is no exception.
Berk. J, DeMarzo. P. (2007). Corporate Finance: International Edition. Pearson Addison Wesley Brigham. F. E, Louis. G (1994). Financial Management: Theory and Practice. Dryden Press Colgate-Palmolive. (n. d. ). Welcome to our History. Retrived on 11th February, 2009 from: https://www.colgatepalmolive.com/en/us/corp/about/history