Johnson and Johnson Corporate Analysis Term Paper

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Johnson & Johnson Corporate Analysis

The purpose of this paper is to introduce the reader to the Johnson and Johnson Corporation and its financial status. First, this paper will surmise a brief history of the company and its products. Second, this paper will explain Johnson and Johnson's operational conditions. It will explore what the company does and who the direct competition is at this time. The paragraphs below will examine these conditions and expectations of these conditions for the future. Third, this paper will explore current methods to assess the company's financial condition. These methods will include looking at Johnson and Johnson's annual report to conclude different financial indicators. The tools used will be ratio analysis and leverage analysis with a brief explanation of how these tools work. Fourth, there will be an evaluation of Johnson and Johnson. What have they done to maximize their potential? What are they planning on doing in the future to remain solid? Is their stock worth purchasing at this time? Lastly, there will be a recommendation for Johnson and Johnson. This recommendation will act as a strategic plan outlining ways to maximize their potential.

History

The development of the first ready-made, ready-to-use surgical dressings by Johnson and Johnson in the mid-1880s marked not only the birth of a company, but also the first practical application of the theory of antiseptic wound treatment. Up until then many doctors did not give air-born germs much thought (Johnson and Johnson, par. 1). It was the innovative thinking of Robert Wood Johnson and his brothers that made the company what it is today. (Johnson and Johnson, par. 7). Today the corporation of Johnson and Johnson compromises a family of over 200 companies worldwide marketing healthcare products worldwide in 175 countries. For the sake of this paper, it will look the corporation's domestic success and only touch on international activities.

Products

The company produces a wide range of products for the healthcare field. These products range from baby care, first aid and hospital products to prescription pharmaceuticals, diagnostics and products relating to family planning, dermatology and feminine hygiene. Recently, Johnson and Johnson entered other innovative fields of biotechnology and robotics. Many of these new products aid in bettering the lives of paralysis, fire and cancer victims. Their strong brand identity makes their products easily recognizable and this translates into sales.

Operational Conditions

What do they do?

What Johnson and Johnson does is continue to grow in a field that can be very competitive due to new technologies and medical breakthroughs. This requires expensive research and development but also the creative spirit to think outside the box. They have managed to differentiate themselves from their competition by diversifying their product line and portfolio by partnering and in some cases buying out other companies with these products. They have been able to do this only because of their international status and brand identity. Still at this time because of the United States economy, market competition, the rising costs of research and technology, Johnson and Johnson remains strong as a corporation to work for and invest in. According to Yahoo Finance, because of average financial numbers, where their future lie remains unseen.

The Marketplace

Johnson and Johnson does business within the healthcare sector and has industry membership in the major drug field. Because of the nature of this industry and the risk involved with drug manufacture, it can be very difficult to gage and predict its performance over time. Right now the drug industry is suffering the fallout from the recall of Celebrex. There are also other warnings being recently about other drugs such as Strattera. There has been much media scrutiny of the FDA and its prior approval of drugs like Accutane. What does this mean for the market and its companies? For the future, it may mean increased drug testing, which can be extremely costly, and time consuming. This may also mean looking to other markets such as Europe and Asia where the laws are different to take up the slack on the American market.

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The Competition

Johnson and Johnson's direct competition in the drug field is GlaxoSmithKline, Pfizer, Novartis AG and Abbott Laboratories to name a few. Part of the interesting element of the drug industry is that in recent years, the competition has grown. This expansion can be attributed to the explosion of new drugs available on the market for doctors to prescribe, a new attitude toward media advertising of these drugs and new laws protecting drug patents. These factors have made it even more important for Johnson and Johnson to set themselves apart with other innovative products.

Change and Expectation

It is expected that Johnson and Johnson's pursuit of the drug industry will continue. However, the company is fortunate to have product diversification (Johnson and Johnson, par 11-13) in its baby care, first aid and surgical products. With the current war in Iraq, these products come in handy and are constantly needed. Still due to the current status of the market, it is expected Johnson and Johnson will need to focus their drug sales in other markets and continue promoting other products to remain strong.

Financial Conditions

Current Methods

There are ways to assess the financial status of a company in order to know if the company is stable and worthy of investment. One way is to take a look at its most recent annual report. These reports can be found on Johnson and Johnson's web site and also the Yahoo Finance web site. These reports offer insight into the health of the company and can provide indicators for predict of future earnings. An example of such a report is below, downloaded from Yahoo Finance.

Financial Highlights

Fiscal Year Ends

28 Dec

Most Recent Quarter

30 Sept 2004

Profitability

Profit Margin (ttm)

19.93%

Operating Margin (ttm)

27.45%

Management Effectiveness

Return on Assets (ttm)

18.57%

Return on Equity (ttm)

32.02%

Income Statement

Revenue (ttm)

45.85B

Revenue per Share (ttm)

15.272

Revenue Growth (lfy)

15.30%

Growth Profit (ttm)

29.69B

Yahoo Finance, 2004.

What does all this really mean? By looking at the financial reports, one can use the numbers to assess the validity of stock and therefore, figure out if the company in strong. This would mean using ratio and leverage analysis as a method to understanding

Ratio Analysis and Leverage Analysis

Ratio and Leverage Analysis are tools used to accurately assess a company's status within the market. A ratio analysis can be done as a current ratio by taking the formula:

Current Assets

Current Liabilities (http://www.onlinewbc.gov/does/finance/fs_ratio1.html)

In this respect, one wants the assets to overweigh the liabilities. Johnson and Johnson's current ratio looks like this:

$22,995,000

$13,448,000 (Yahoo Finance.com)

Very clearly, this does say something about Johnson and Johnson's operating conditions. This means they are making more and spending less. Leverage Analysis is a debt to equity ratio to analyze the company's total liabilities or debt over the owner's equity. Many companies see their debt as a means to reinvest and this is not a good strategy. A company's true goal with debt is to pay it off and keep it low. The formula looks like this:

Total Liabilities (Debt)

Owner's Equity (http://www.onlinewbc.gov/does/finance/fs_ratio1.html)

Johnson and Johnson's looks like:

$21,394,000

$26,869,000 (Yahoo Finance.com)

It is pretty clear that investment in other technologies as well as the cost of drug invention has caused Johnson and Johnson to live with some debt. This is the high price of remaining competitive in such as marketplace.

Evaluation

. One can also take a look at the stock price to see any trends or changes during the year. Below, also from Yahoo Finance is Johnson and Johnson's latest stock chart.

From this chart, one can see how Johnson and Johnson's stock has progressed over the year from about $50 to $63.58 on Friday. This….....

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