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What Investors Should Know About The Procter & Gamble Company’s (NYSE:PG) Financial Strength

Cole Patterson

The size of The Procter & Gamble Company (NYSE:PG), a US$191.94b large-cap, often attracts investors seeking a reliable investment in the stock market. Risk-averse investors who are attracted to diversified streams of revenue and strong capital returns tend to seek out these large companies. But, the health of the financials determines whether the company continues to succeed. Let’s take a look at Procter & Gamble’s leverage and assess its financial strength to get an idea of their ability to fund strategic acquisitions and grow through cyclical pressures. Note that this information is centred entirely on financial health and is a high-level overview, so I encourage you to look further into PG here. See our latest analysis for Procter & Gamble

How much cash does PG generate through its operations?

PG’s debt level has been constant at around US$31.59b over the previous year comprising of short- and long-term debt. At this current level of debt, PG currently has US$15.14b remaining in cash and short-term investments for investing into the business. Moreover, PG has generated US$12.75b in operating cash flow in the last twelve months, leading to an operating cash to total debt ratio of 40.37%, meaning that PG’s operating cash is sufficient to cover its debt. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In PG’s case, it is able to generate 0.4x cash from its debt capital.

Can PG pay its short-term liabilities?

At the current liabilities level of US$30.21b liabilities, it seems that the business has not been able to meet these commitments with a current assets level of US$26.49b, leading to a 0.88x current account ratio. which is under the appropriate industry ratio of 3x.

NYSE:PG Historical Debt June 21st 18

Does PG face the risk of succumbing to its debt-load?

With a debt-to-equity ratio of 64.24%, PG can be considered as an above-average leveraged company. This is not unusual for large-caps since debt tends to be less expensive than equity because interest payments are tax deductible. Accordingly, large companies often have lower cost of capital due to easily obtained financing, providing an advantage over smaller companies. We can test if PG’s debt levels are sustainable by measuring interest payments against earnings of a company. Ideally, earnings before interest and tax (EBIT) should cover net interest by at least three times. For PG, the ratio of 59.96x suggests that interest is amply covered. High interest coverage is seen as a responsible and safe practice, which highlights why most investors believe large-caps such as PG is a safe investment.

Next Steps:

Although PG’s debt level is towards the higher end of the spectrum, its cash flow coverage seems adequate to meet debt obligations which means its debt is being efficiently utilised. However, its lack of liquidity raises questions over current asset management practices for the large-cap. I admit this is a fairly basic analysis for PG’s financial health. Other important fundamentals need to be considered alongside. You should continue to research Procter & Gamble to get a more holistic view of the stock by looking at:

  1. Future Outlook: What are well-informed industry analysts predicting for PG’s future growth? Take a look at our free research report of analyst consensus for PG’s outlook.
  2. Valuation: What is PG worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether PG is currently mispriced by the market.
  3. Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.


To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned.