Johnson and Johnson Analysis

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INTRODUCTION

Johnson and Johnson have revolutionized the way people think about health care, and has easily become the pinnacle of success by doing so. Pioneers of the health care industry and overall human health and well being, Johnson and Johnson is guided by its “Our Credo” and founding principle that “doctors and nurses should use sterile sutures, dressings and bandages to treat peoples wounds” (Johnson and Johnson - Our History).

Most of Johnson and Johnson's success can be attributed to its emphasis on decentralized management, which allows for greater focus as the company blankets 250 countries across the world (Johnson and Johnson - Strategic Planning). For the last 120 years, Johnson and Johnson have been on the forefront of
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Figure 2. 2006-2009 Revenue, Expenses, And Income Figures For All Business Segments

Ratio Analysis

Financial ratios provide a means to analyze the operations of a company in comparison to its industry and its historical results.

Liquidity Ratios

Johnson and Johnson has a current ratio of 1.8X which is the same as the current ratio for the industry. The quick ratio is 1.6X compared to the industry's 1.4X provides further evidence of the company's liquidity. This will provide needed working capital necessary to develop new products and finance potential acquisitions. (Ventureline)

Johnson and Johnson's receivables turnover ratio is currently 6.4X and mirrors the current industry average. It is also higher that it's three major competitors: Merck & Company, Novartis AG, and Pfizer, Inc. This high ratio indicates an efficient collection of credit sales, which minimizes the wait before funds are received and available for use.

Inventory turnover is currently at 3.6X and slightly better than the industry average of 3.5X. It is also nearly twice as high as its three major competitors. This provides a competitive advantage since there is not a high level of inventory that could be deemed obsolete due to new drug developments or decreased potency. In addition, capital is not tied up in maintaining inventories that do not provide any return.

Debt Ratios

The current times interest earned ratio for Johnson and Johnson is 25.1X compared to the
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