Financial Analysis on Johnson & Johnson

Introduction:

Johnson & Johnson is the world's largest and most diverse company in the field of diagnostics. Moreover it comes eighth amongst pharmaceutical companies around the globe. It has more than 250 companies in 60 countries with about 129,000 employees. Worldwide headquarter is located at New Brunswick in New Jersey, USA.

Johnson and Johnson trade its products with an official symbol 'JNJ'. It was being traded for $68.35 to $69.36 on July 20, 2012 at New York Stock Exchange (NYSE) and closed at $68.63 with a decline of $0.90 or 1.29% as compared to the previous day. William C. Weldon is the Chairman, Board of Directors and Chief Executive Officer of Johnson and Johnson. JNJ showed sales of $65.0 billion from all over the world in the year 2011 with an increase of 5.6%. Approximately 25% of these sales were from the products which JNJ introduced within the last five years.

Discussion:

Growth:

Different organizations have different benchmarks to assess their returns or rates of growth. For instance an IT company would require higher annual rates of growth as compared to retail sales. Using historical growth rates is a simple method of estimating potential growth. However, higher growth rates do not mean constantly high growth in future; it varies depending on economic and industrial conditions. For example, in the time of recession, the auto industry would experience greater rates of revenue growth as compared to time of depression when people are more reluctant in buying cars (MSN Money).

Growth rates of Johnson and Johnson are discussed as follows:

Sales of recent quarter compared to last year same quarter, reveals that company sales has lowered by 0.7% while overall industry sales has lowered by 1.4%. S&P500 market index showed 8.5% increase in sales during the same period. This clearly shows that JNJ has performed 50 percent better in terms of sales as compared specifically to the industry in which it operates.

Net profit during the same periods have declined by 49.3 % in JNJ while in the industry the figure comes to positive 4.7%, this shows that operating costs of JNJ are more than the industry average. JNJ should focus on reducing their admin and selling expenses so to earn greater profits. Although S&P 500 companies showed positive increase by 25.4%.

When Sales of 5 year annual average is analyzed, JNJ showed just 4.05% increase while industry showed 6.93% increase and S&P Companies with 8.36% increase. Net income lowered by 2.63% while industry showed increase by 5.77% and S&P companies by 8.22%.

Five year annual averages of dividends, JNJ company itself raised the dividend percentage by 9.11% during these five years, however industry was able to raise the dividends just by8.03% and S&P companies raise their dividends just by 5.36%. It shows JNJ is concerned with more dividend payout or dividend yield.

Price Ratios:

Price Earnings ratio suggests investors expectations of higher returns in future compared to companies that have lower Price earnings. It is compared with the existing companies within the industry. It would not be useful to ...