Johnson and Johnson is one of the world’s largest pharmaceutical companies whose analysis relative to the industry reveals information useful to prospective investors. With an impressive revenue base and massive holdings in assets, the organization has cemented its place as a force to reckon with. The company’s overall performance relative to the industry is better; however, examination of sectors in isolation reveals that it performs better in certain areas and worse in others. The company is less solvent than the industry average, with higher debt and debt-to-equity ratios, while its interest coverage is also higher (Ready Ratios, 2018). The Company also appears to be less liquid compared to the industry averages but presents higher profitability and activity. This raises questions on the amount of operational leverage available and how the current capital structure of the company contributes to its financial performance.
The current trends supported by analysts anticipate an appreciation of the company’s value, indicated by their statistical reports. The analysts offer a one year forecast that insinuates an appreciation of slightly above even percent relative to its previous price, consequently recommending that investors either hold or buy the stock. In addition to this, the reports indicate an anticipated increase in the earnings per share of JNJ stock (CNN Business, 2019). These recommendations are commensurate with the findings from industry versus JNJ financial analysis. The consensus is that the stock provides both elements of growth and value, making it a suitable recommendation for investors seeking to add these types of securities to their portfolios.
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A deeper examination into financial ratios with respect to liquidity, solvency, profitability, asset management, and financial leverage reveals how the company is performing in each segment. The company’s solvency can be examined using the debt-to-capital and debt-to-equity ratios, with the former standing at 0.24,0.34 and 0.32 from 2016-2018 (Macrotrends, 2018). The financial leverage will be examined using the debt-to-equity figures mentioned previously as well as the EBTIDA which has fallen steadily from 29.68 in 2016 to 28.84 in 2017 then 28.04 in 2018. The liquidity ratios examined are the quick and current ratios, with the former showing improvement at the end of 2018 at 1.08 relative to the previous year at 1.04, but still less than the 2016 figure of 2.04. The current annual ratios from 2016-2018 are 2.47, 1.41 and 1.47 respectively. The decline in 2017 would indicate a worrying trend with regards to its ability to meet short term requirements but the recent improvements indicate stability. The increase indicates that the company is more sustainable currently than it was three years ago.
The asset management ratios used are asset turnover and inventory turnover ratios. The former’s figures from 2016-2018 are 0.51, 0.48, and 0.53, respectively, indicating the same trend of a slight decrease in 2017 before an improvement. The latter are 2.7, 2.9 and 3.1; this indicates that the company’s ability to generate revenue from the assets its holds has increased. The market value ratios used are book-value-per-share and price-to-book-value ratios from 2016-2018, while the latter are 26, 22.42 and 22.24, while the former is 4.72, 5.79 and 6.08 (Stock Analysis, 2019). These results are indicative of the popular consensus by most analysts to either include the stock into one’s portfolio or hold it there for the foreseeable future. Given the climate and sentiments expressed, Johnson is a promising investment that would provide satisfactory and sustainable earnings.
References
JNJ - Johnson & Johnson Forecast - CNNMoney.com. (2019). Retrieved from: https://money.cnn.com/quote/forecast/forecast.html?symb=JNJ
Johnson & Johnson (JNJ) | Valuation Ratios. (2019). Retrieved from: https://www.stock-analysis-on.net/NYSE/Company/Johnson-Johnson/Valuation/Ratios
Johnson & Johnson Financial Ratios for Analysis 2005-2019 | JNJ. (2019). Retrieved from: https://www.macrotrends.net/stocks/charts/JNJ/johnson-johnson/financial-ratios
Johnson & Johnson: industry comparison and rating. (2018). Retrieved from: https://www.readyratios.com/sec/JNJ_johnson-johnson
