A Study on the Relevance of Corporate Solvency – A Case Study of Procter & Gamble

In recent years, Chinese daily necessities companies have faced fierce market competition alongside rapid and steady growth. In order to strengthen their competitiveness and advantage in the market, the companies are constantly developing new products, expanding into new markets, and increasing their capital requirements. As debt ratios increase, the company’s financial risk increases, and it falls into more significant financial distress. By analyzing the solvency of the daily goods companies, it is possible to determine the current repayment capacity of the daily goods companies and to estimate whether they can repay their loans and interest. This paper is based on Procter & Gamble’s (P&G)’s financial data from 2017 to 2021, and short-term solvency and long-term solvency are selected for the analysis of P&G’s solvency. The short-term solvency analysis includes the current ratio, realization of inventory and receivables, and cash flow ratio. In contrast, the long-term solvency analysis includes gearing ratio, equity ratio, and interest coverage multiple to analyze the current problems of P&G’s solvency. The paper found that P&G has problems, such as a lack of financing channels and an unreasonable debt structure. Furthermore, it finally proposed corresponding improvement methods and measures for P&G. For example, P&G can exploit bank loans to adjust the corporate financing structure, improving the enterprise’s profitability. Moreover, optimize the overall debt structure to increase the efficiency of capital flow to enable P&G to develop in a long-term and healthy manner.