Johnson and Johnson Annual Report Review
Financial Report Review
Company: Johnson and Johnson
Consolidated Balance Sheets
Total Assets: $121,347,000,000
Total Liabilities: $56,521,000,000
Total Shareholder’s Equity: $64,826,000,000
Company’s Retained Earnings: 85,992,000,000
Shares of common stock the company has been authorized to issue: 4,320,000,000 shares
Shares the company has issued: 3,119,843,000 shares
Cash (cash and cash equivalents): $14,911,000,000
Decrease in cash and cash equivalents during 2012: $9,631,000,000
Increase in cash and cash equivalents during 2011: $5,187,000
Consolidated Statement of Earnings
Essentially, the term “consolidated” as used in this context is largely synonymous with the term “combined.” The company’s “consolidated income statements” and “consolidated balance sheets” bring together the financial statements of Johnson and its various subsidiaries.
In presenting financial information from both the current as well as the previous financial years, the company makes it easier for the users of the said financial information to compare performance over time. For investors (i.e. both existing and prospective shareholders), this could come in handy in the determination of not only the short-term but also the long-term viability of the company as an investment alternative.
Company’s net earnings for 2012: $10,853,000,000
The increase in Johnson and Johnson earnings in 2012 (in relation to the year 2011) could be an indication that the company has overcome some of the problems that brought about the 2010-2011 decrease in profitability. However, to be certain, it would be prudent to take into consideration other measures of profitability including but not limited to the return on assets (ROA) ratio. This ratio could help us determine the efficiency level of the company’s managerial team over the three-year period.
In comparison to the previous period’s net earnings figure of $13,334,000,000; Johnson and Johnson’s net earnings in 2011 decreased by $3,662,000,000 to $9,672,000,000. The net earnings figure however experienced a rebound in the year 2012 — by registering a 12.2% increase. Personally, I would have liked to see a more stable trend than we currently have. Modest (but consistent) growth in income over the three-year period would have been more comforting for me.
A number of items were responsible for the large decrease in net income during the two years under consideration at a time when the revenues increased by $3,443,000,000. To begin with, a $1,568,000,000 increase in the cost of products sold significantly affected Johnson and Johnson’s gross profit in 2011. Significant increases in some expense items like research and development expense and selling, marketing and administrative expenses as well as the costs associated with restructuring also decreased the company’s net income figure significantly. Whereas the cost of goods sold increased by 8.34% in the year 2011, the same increased by 6.38% in 2012. The impact the increase in the cost of goods sold had on the gross profit figure in 2012 was therefore less than the effect it had on the gross profit of 2011. Research and development expenses also increased minimally in 2012 in comparison to 2011. In the final analysis therefore, the increase in net income in 2012 was therefore more in line with the increase in revenues during the same period. This is unlike was the case during the previous year.
I feel that the item “other (income) expenses, net” has been explained and referenced fully in Johnson and Johnson’s financial statements. The explanation given on page 9 provides users of Johnson and Johnson’s financial statements with the information they could not have derived from the main reporting document. For instance, in this case, the reason for the significant decrease in the figure of “other (income) expenses, net” is explained sufficiently. This expanded explanation hence sufficiently serves its purpose, i.e. provide missing information to users of financial statements.
The net loss attributable to non-controlling interest was added back because Johnson and Johnson does not have a 100% claim on its subsidiaries’ net assets or earnings and as such, the said loss cannot be attributable to Johnson and Johnson. It is possible that before the year 2012, the company’s financial statements did not recognize minority shareholders’ claim and for this reason, there were no amounts shown in this particular category.
Part III — Consolidated Statements of Cash Flow
Johnson and Johnson’s net cash flow from operating activities for 2012: $15,396,000,000
Johnson and Johnson’s net cash flow from investing activities for 2012: $ (4,510,000,000)
Johnson and Johnson’s net cash flows from financing activities for 2012: $(20,562,000,000)
Part IV — Corporate Responsibility, Sarbanes-Oxley, and GAAP Related Questions
In my opinion, the statement signed by the company’s CFO and CEO should be explicit with regard to the role of management in the maintenance of effective internal controls. This in my view would reassure users of the presented financial statements that the management is indeed committed towards the enhancement of not only the reliability but also the integrity of its financial reporting system.
In the presentation of its opinion, the Independent Registered Public Accounting Firm clearly points out that it is convinced that Johnson and Johnson’s financial statements fairly present its (Johnson and Johnson’s) financial position (and that of its entities), and have been prepared in conformity with U.S. GAAP.
Part V: Summary of Statistical Data
Johnson and Johnson’s net earnings displayed steady growth from the year 2002 all the way to the year 2006. For the years that followed up to the most recent financial year, the net income figure became rather unpredictable with the said figure increasing in one year only to decrease in the next.
The net earnings decreased in the following years: 2007, 2009, and 2011.
If I were a Shareholder at Johnson and Johnson, the trend over the past ten years (with the exception of the first four years under consideration) would largely displease me. As an investor, I would be interested in not only the growth in the value of the shares I hold but also the return the company rakes in using the money I have entrusted to it. A decreasing (or unstable) return on equity would be a clear indicator that Johnson and Johnson is not making good use of the money I have contributed as a shareholder. In this case, I would start looking for a company with a more stable, predictable, and impressive return on equity.
Dividends paid per share
Throughout the period under consideration, the company managed to increase the dividends (per share) it paid to its shareholders year after year. The general trend with regard to the gradual increase in the dividends per share paid out to stockholders over the ten-year period can therefore be regarded impressive.
Throughout the period under consideration, Johnson and Johnson did not decrease the dividends it paid out per share.
If I were a shareholder at Johnson and Johnson, I would be pleased with the trend with regards to Johnson and Johnson’s dividends paying policy over the ten-year period. On this front, as a shareholder at Johnson and Johnson, I would be seeking to benefit from the stable growth in the payments made to me (in the form of dividends) year after year.
Market Price per Share
Johnson and Johnson’s market price per share over the ten-year period under consideration has been largely erratic, unpredictable, and unstable. This is more so the case given that the same keeps on increasing and decreasing over time.
If I were a shareholder at Johnson and Johnson, the trend over the ten-year period under consideration with regard to the company’s market price per share would largely displease me. This is particularly the case given that the market price per share is essentially an indicator of the price of an entity’s common stock in the marketplace. An unstable market price per share could therefore denote uncertainty in the marketplace with regard to the future performance of an entity. The fact that the trend indicates unstable and erratic capital growth would also displease me.
The market price per share of the company’s stock went down in the following years: 2003, 2005, 2008, and 2010.
$100 invested in Johnson and Johnson stock on Dec 31, 2012 would be worth $124.24 as of December 31, 2012.
To begin with, the growth of Johnson and Johnson’s stock price (in relation to net earnings) could have been suppressed by various supply and demand factors. These include but they are not limited to significant institutional selling and the actions of speculative investors. Secondly, negative investor attitudes, expectations, and sentiments could have also suppressed Johnson and Johnson’s stock price.
In my opinion, the information presented in footnote 18 would be beneficial to an individual keen on investing in Johnson and Johnson’s stock. This is particularly the case given that the said information clearly indicates the company’s key growth areas and segments- something which would come in handy in charting its future growth prospects in relation to those of competitors. This information could also be of great significance to the company’s competitors as they could use the said info to develop or come up with strategies to improve or enhance their competitiveness. The decision by the company to include the said information on its statement could have been influenced by the need to meet the expectations of other key stakeholders including but not limited to stockholders (existing and prospective), suppliers, and various statutory bodies.
In my opinion, it is clear that the change in the company’s diversification is of great concern in this case.
Three parts of the world where the company’s sales went up: United States, Western Hemisphere excluding U.S., Asia-Pacific, Africa
Part of the world where the company’s sales went down: Europe
Amount of treasury stock Johnson and Johnson owns as of December 31, 2012: 341,354,000
Total market value = number of outstanding shares of the company’s stock * company’s stock market price per share
Total market value = 2,778,489,000 * $69.48
Total market value = $193,049,415,700
Based on the figure above, it is clear that the total amount of money an individual or entity would have to pay to acquire control of the company is quite significant. To be exact, the said individual or entity would have to pay just over half of the total market value to acquire control. Although not an impossible feat, such an acquisition would go down in history as being one of the largest acquisitions ever made.
2012 profit margin = net earnings/sales = $10,853,000,000/$67,224,000,000= 0.161 or 16.1%
2011 profit margin = net earnings/sales = $9,672,000,000/$65,030,000,000 = 0.149 or 14.9%
The trend appears positive. The positive trend in this case was as a result of the $1,181,000,000 and $2,194,000,000 increase in net earnings and sales respectively within the two-year-period.
Johnson and Johnson. (2013). Johnson and Johnson Annual Report 2012. Retrieved from http://files.shareholder.com/downloads/JNJ/2686814943x0x644760/85FD0CFF-2305-4A02-8294-2E47D0F31850/JNJ2012annualreport.pdf
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