Financial Statement and Ratio Analysis of Johnson &

Johnson Company

Nawal Alshehhi

Abu Dhabi University, Email: 1064111@students.adu.ac.ae

Supervised by:

Professor Haitham Nobanee

Abstract

Financial statement and ratio analysis are used by the accounting managers to ascertain the

current performance and past year trends of an organization. In that context, this research

presents a ratio analysis over the financial data of Johnson & Johnson Company. The financial

data are collected from the Yahoo Finance website, which refers to the viability of the figures

used in this research. The liquidity ratio analysis reflects that the company acquires a high

margin of current liabilities which decreases the margin of current and quick ratio. The activity

ratio analysis of the company indicates that it gains a higher margin of turnover over its assets

which is around 52.03% in 2019. The debt ratio reflects a higher margin of risk for the business

in the future because of its higher availability of long-term debts. Based on the profitability, it is

found the company can earn over its all expenses. Whereas, the company faces a decline in

profitability in 2017 due to the high margin of income tax expenses.

1
Introduction

Johnson & Johnson is known as an American international corporation that develops and serves

pharmaceutical, medical, and consumer packaged goods (JNJ, 2020). The company has been

devoted in different research and innovative methods that the company may use for proper

implementation of different products that the company has been launching. The products are

mostly devoted to the young generation. The company operates as a holding company that

engages in the development and research, manufacturing, and selling of products within the

health care sectors. Johnson & Johnson provides various household medications towards its

customers such as Tylenol medications, Acuvue contact lenses, baby care products under the

brand of Johnson, beauty care products under the brand of Aveeno, Dabao, acetaminophen

products under Tylenol brand (JNJ, 2020)69. That influences the sales margin of the business in

consecutive years, which is increased to $82,059 million in 2019.

According to Yun et al., (2018), ratio analysis helps in the evaluation of data from the historical

and current financial statements of an organization. It is through this analysis that it allows a

proper understanding of the organization. This helps to understand the growth that the

organization has shown since the beginning and how well is it doing in its path towards success.

Ratio analysis helps in identifying the trend line of an organization’s performance over a period

which indicates whether the company profitable or not. Choi et al., (2018), predict that ratio

analysis is an important tool to identify every aspect of an organization which influences

decision making regarding the overall business health. Ratio analysis is also important for the

investors because it gives a clear picture of the company performance over a period which helps

to measure the future expectation of the company.

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Data and Methodology

Data sources indicate the way to collect the required data and accomplish research. It also means

that the data that must be collected from an official site as that site provides correct data for the

use in any projects. Therefore, it is a very important part of the project. This research is based on

the financial performance analysis of Johnson & Johnson Company. In that context, the data

source named Yahoo Finance is being used in this research. The collected data belong to the

recent four-year performance of Johnson & Johnson Company. To analyze the accounting ratio,

it is required to collect the data from the financial statements of Johnson & Johnson Company.

That indicates a higher margin of revenue for the business in 2019, which is around $82,059

million (Yahoo, 2020). Whereas, the data are also collected from the income statement and

balance sheet of the company for its recent four years of trade. The balance sheet indicates the

long term ethics and efficiency of the firm, which helps in achieving sustainability in the future

(Al Breiki & Nobanee, 2019). Income statement consists of the regular expenses and income of

the organization, which helps in maintaining the business ethics by mitigating the short term

obligations and gaining higher revenue (Alnuaimi & Nobanee, 2020). All the collected data and

figures are listed below:

3
Table 1: Financial Date (Johnson & Johnson company)

Item/Year 2019 2018 2017 2016

Current Assets 45,274,000 46,033,000 43,088,000 65,032,000
Current Liabilities 35,964,000 31,230,000 30,537,000 26,287,000
Inventories 9,020,000 8,599,000 8,765,000 8,144,000
Cash 19,287,000 19,687,000 18,296,000 41,907,000
Receivables 14,481,000 14,098,000 13,490,000 11,699,000
Total Assets 157,728,000 152,954,000 157,303,000 141,208,000
Total Liabilities 98,257,000 93,202,000 97,143,000 70,790,000
Total Equity 59,471,000 59,752,000 60,160,000 70,418,000
Sales 82,059,000 81,581,000 76,450,000 71,890,000
Cost of Goods
27,556,000 27,091,000 25,354,000 21,685,000
Sold
EBIT 20,970,000 21,175,000 19,122,000 21,165,000
Interest 318,000 1,005,000 934,000 726,000
Net Income 15,199,000 15,297,000 1,300,000 16,540,000
All Numbers in millions, Source: Yahoo Finance.

Ratio analysis is used by the accounting managers to identify the long term business ethics and

sustainability of an organization by identifying the overall financial health (Al Nuaimi &

Nobanee, 2019). This research is all about the analysis of key accounting ratios to identify the

trend in the financial performance of Johnson & Johnson Company from 2016 to 2019. This is

the proper analysis for the company as ratio analysis gets to the depth of the organization

investigates the different assets and liabilities. The ratio and profitability of the organization

provide a proper understanding of the whole company. Four major ratios are analyzed in this

research such as liquidity, activity, debt, and profitability ratios. Liquidity ratio helps in

addressing the day to day activities of an organization that refers to how a firm mitigate its short

term obligation by utilizing its current assets and inventories (Yameen, Farhan, & Tabash, 2019).

Activity ratios help in identifying the expected turnover of an organization over its assets and
4
trade receivable (Karkowska, 2018). The debt ratio helps in addressing the overall capital

structure of an organization to allocate its resources and delivers products or services (Charles,

2018). While observing the debt ratio of Johnson & Johnson Company, it is found that the

company has a higher margin of debt in 2019, which is around 62.30%. The profitability ratio

helps in addressing the net income of an organization over its business equity and assets.

Results and Discussion

Table2: Liquidity ratios of (Johnson & Johnson company)

Ratios/Year 2019 2018 2017 2016

Current Ratio 1.25 1.47 1.41 2.47
Quick Ratio 1.00 1.19 1.12 2.16
Cash Ratio 0.536 0.630 0.599 1.594

The current ratio of Johnson & Johnson:

Current Ratio
3

2.5

1.5

0.5

0
2019 2018 2017 2016

Figure 1: The current ratio of (Johnson & Johnson company)

The current ratio is the tool which helps in addressing the regular financial performance of the

company in recent years (Aydemir & Guloglu, 2017). While observing the current ratio margin
5
of Johnson & Johnson, it is found that the company faces a consecutive decline in that margin

due to an increase in current liabilities. As can be observed from the table given above. The ratio

has been seen to have decline over the years and in the current ratio it is quite clear how the

liquidity for the company has been decreasing over the years and has reached the current position

for the company. The current ratio margin of the company is around 1.25 in 2019 in comparison

to 2.47 in 2016. Based on the performance, it ensures that the company requires to utilize its

current assets to mitigate the current liabilities.

The quick ratio of Johnson & Johnson:

Quick Ratio
2.5

1.5

0.5

0
2019 2018 2017 2016

Figure 2: Quick ratio of (Johnson & Johnson company)

As for the ratio in the company that has already been seen decreasing, the other ratios are also

seen to have decreased as is prevalent in the table. The quick ratio margin of Johnson & Johnson

is also decreased to 1.01 in 2019 from 2.16 in 2016. Also, the quick ratio margin was around

1.19 and 1.12 in 2018 and 2017, respectively. That refers to the higher capability of the firm to

pay its current obligations in 2016, which faces a high decline in 2019 due to the higher margin

of current liabilities within the firm.

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Cash ratio of Johnson & Johnson:

Cash Ratio
1.8
1.6
1.4
1.2
1
0.8
0.6
0.4
0.2
0
2019 2018 2017 2016

Figure 3: Cash ratio of (Johnson & Johnson company)

Cash ratio helps to identify how an organization utilizes its cash balance to pay off current or

short term obligations (Li & Wang, 2017). In that context, the Cash ratio margin of Johnson &

Johnson is also going down in four consecutive years such as 1.59, 0.59, 0.630, and 0.53 in 2016,

2017, 2018, and 2019, respectively. The Cash ratio shows the percentage of cash that the

company has been possessing new implementation and better product quality. Also, from the

table, it is quite evidently shown how much the ratio has been decreasing. Based on the

performance, it ensures that the company does not introduce sufficient cash in 2019 to mitigate

current obligations.

Table 3: Activity ratios of (Johnson & Johnson company)

Ratios/Year 2019 2018 2017 2016

Inventory Turnover 3.05 times 3.15 times 2.89 times 2.66 times
Receivable Turnover 5.67 times 5.78 times 5.67 times 6.14 times

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 Total Assets
52.03% 53.34% 48.60% 50.91%
Turnover

Inventory Turnover of Johnson & Johnson:

Inventory Turnover
3.2
3.1
3
2.9
2.8
2.7
2.6
2.5
2.4
2019 2018 2017 2016

Figure 4:Inventory Turnover of (Johnson & Johnson company)

The Inventory Turnover margin of Johnson & Johnson quite remains in the past three years, such

as 3.05, 3.15, and 2.89 times in 2019, 2018, and 2017, respectively. The proper ratio of the

activities that the organization needs to give proper turnover ratio so that the organization can be

more efficient in their work. Inventory is important for the organization, but more inventory

means the demand has been decreased for the organization. Whereas, the inventory turnover was

around 2.66 times in 2016. That refers to the greater performance of the organization in terms of

transforming its inventory into sales.

Receivable Turnover of Johnson & Johnson:

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 Receivable Turnover
6.2
6.1
6
5.9
5.8
5.7
5.6
5.5
5.4
2019 2018 2017 2016

Figure 5: Receivable Turnover of (Johnson & Johnson company)

Receivable turnover indicates the required time in collecting the debts from the debtors (Abidi,

Soomro, Isani, & Abro, 2019). For the turnover to work properly for the organization, the

receivable method that the organization must follow to have a proper implementation.

Receivable turnover shows how much the organization receives at the end of the year. The

receivable turnover of Johnson & Johnson is impressive in recent years such as 5.78 and 5.67

times in 2018 and 2019, respectively. That refers to the capability of the organization to collect

its debts in a shorter time.

Total Assets of Johnson & Johnson:

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 Total Asset Turnover
54.00%
53.00%
52.00%
51.00%
50.00%
49.00%
48.00%
47.00%
46.00%
2019 2018 2017 2016

Figure 6: Total Asset Turnover of (Johnson & Johnson company)

Total Assets Turnover refers to the ability of an organization to gain a high margin of revenue

over its assets. Assets are an important part of any organization. It provides the organization with

the amount that they need to run their business properly and their expenses for the company. As

the organization is a big company and is focused on providing the best products to the clients.

The total assets turnover indicates a higher margin from the year 2016, which is around 50.91%.

In 2019, the company achieved 52.03% as assets turnover, which indicates the capability of the

organization to gain a high margin of revenue over its assets.

Table 4: Debt ratios of (Johnson & Johnson company)

Ratios/Year 2019 2018 2017 2016

Debt Ratio 62.30% 60.93% 61.76% 50.13%
Time Interest Earned Ratio 65.94 21.06 20.47 29.15

The debt ratio of Johnson & Johnson:

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 Debt Ratio

62.30% 60.93% 61.76%

50.13%

2019 2018 2017 2016

Figure 7: Debt Ratio of (Johnson & Johnson company)

The debt ratio is used to measure the number of debts of an organization by comparing it to its

assets (Yun, Lu, & Jiang, 2018). It is a ratio that shows how much the organization is in debt to

different agencies and banks for their production and research. The more the debt the more

problematic it is for the organization to repay or have better profits for the organization. The debt

ratio margin is improved consistently throughout the year, such as 61.76% in 2017, 60.93% in

2018, and 62.30% in 2019, which refers to the higher-margin debt availability within the firm.

Time Interest Earned Ratio of Johnson & Johnson:

Times Interest Earned Ratio

70
60
50
40
30
20
10
0
2019 2018 2017 2016

Figure 8: Times Interest Earned Ratio of (Johnson & Johnson company)

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The Time Interest Earned Ratio increases to 65.94 in 2019, which indicates the ability of the firm

to meet with its interest obligations. It is the ratio that can be earned by getting some interest

based on how much the organization has invested previously. That also indicates that the

company has higher earnings over its annual interest obligations.

Table 5: Profitability ratios of (Johnson & Johnson company)

Ratios/Year 2019 2018 2017 2016

Return on Equity 25.56% 25.60% 2.16% 23.49%
Return on Assets 9.64% 10% 0.83% 11.71%
Profit Margin 18.52% 18.75% 1.70% 23.01%

Return on Equity of Johnson & Johnson:

Return on Equity
30.00%
25.00%
20.00%
15.00%
10.00%
5.00%
0.00%
2019 2018 2017 2016

Figure 9: Return on Equity of (Johnson & Johnson company)

The Return on Equity (ROE) margin of the company is quite consistent in 2018 and 2019 with a

margin of 25.60% and 25.56%. Returns are important for the organization. The reason being if

the returns are not their then it becomes quite difficult for the organization to work on and

provide better outcomes for the organization. Whereas, the ROE margin of the business is around

2.16% in 2017 which decreases due to lesser net profit.

Return on Assets of Johnson & Johnson:

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 Return on Assets
14.00%
12.00%
10.00%
8.00%
6.00%
4.00%
2.00%
0.00%
1 2 3 4

Figure 10: Return on Assets of (Johnson & Johnson company)

Return on Assets (ROA) margin of the company also remains consistent in 2018 and 2019,

which is around 9.64% and 10% in 2019 and 2018. Returns on assets provide the interest that

they may receive as they are getting from having an asset to look into. Whereas, the ROA

margin is also reduced to 0.83% in 2017 that indicates the fell of the business on utilizing its

assets.

Profit Margin of Johnson & Johnson

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 Profit Margin
23.01%

18.52% 18.75%

1.70%
2019 2018 2017 2016

Figure 11: Profit Margin of (Johnson & Johnson company)

The profit margin of the company quite impressive in the past few years except in 2017, which is

around 1.70%. The Profit margin is a margin below which the organization neither makes a

profit nor does it make any loss. The organization only survives in that year, the company paid a

higher margin of interest tax expenses of $16,373 million, which decreases the margin of net

income.

Conclusion

Johnson & Johnson consists of its pharmaceutical segment and offers various range of products

in several therapeutic areas such as infectious disease, pulmonary hypertension, immunology,

metabolic disease, oncology, neuroscience, and cardiovascular disease. The organization is for

the young generation. The products that the organization makes are for the different skins that a

baby has. All their products include methods that are less harmful or rather harmless to the skin

and body of the baby. The data are collected from Yahoo Finance indicates overall current and

fixed assets, inventories, equity, and liabilities, which are collected from the balance sheet of the

company. Whereas, the revenue, cost of goods sold, EBIT, interest expenses, and Net Income are

14
collects from the income statement of the company. The liquidity ratio helps in addressing the

liquidity position of the organization regarding its capacity to mitigate current obligations that

need improvement. Activity Turnover helps in addressing the fault in the business which is

required to turn its inventory and assets further into sales. The debt ratio margin indicates a

higher margin of debt availability within the organization, which increases the high margin of

risk for the business. Whereas, profitability ratio shows greater performance in the past two years

of the organization.

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