Procter & Gamble is a multi- billion dollar company that sells a variety of consumer products, such as Mr. Clean, Cheer, Crest, Vicks, Scope, Pringles, Folgers, Vidal Sassoon, and Zest. The company’s annual report contained the following information (in millions except per share data):
a. Retained earnings at June 30, 2012, totalled $ 75,349.
b. Net earnings for the year ended June 30, 2012, was $ 10,756.
c. The number of common shares outstanding at June 30, 2012, was 4,008.4 shares.
d. Dividends declared on common shares equalled $ 2.14 per share.
Required:
1. Compute the total amount of dividends declared by the company.
2. A shareholder observed that P& G has a sizeable amount of retained earnings and wondered why the company accumulated this amount instead of distributing it to its shareholders. Write a brief memo to explain why earnings have been retained by the company.
3. Compute the company’s EPS, assuming that P& G had not issued preferred shares. Is EPS a useful measure of performance? Explain.