Financial Management- Financial and Market Ratios

EXECUTIVE SUMMURY

After carrying out a ratio analysis of JNJ , a number of inferences can be drawn . The firm is operating profitably as the profitability ratios surpass the industrial average . However , the trend is declining

The company however is not financially stable owing to its low current quick and debt ratios . But on the other hand it is effectively utilizing its assets to generate sales revenue . It has high inventory and accounts receivable turnovers compared to those of the industrial average

The management ought to improve the JNJ 's profitability through a

cost reduction mechanism . They also need to invest in projects that generate positive net present values for the benefit of the shareholders

INTRODUCTION

This report on financial ratio analysis is aimed at measuring the general performance of JNJ . The ratios would help users to get an in- depth understanding of the company 's profitability , financial stability and efficiency with which it is utilizing its assets to generate sales revenue . For the management , their objective would be on how to improve on poor areas and maintain good performance . Its intended users are : the management of the JNJ , customers , employees and the government , who would use it for taxation purposes . The sources of the data used have been the published financial statements i .e . the Profit and loss accounts and the balance sheets of the past four years . The restaurant specializes in the sale of foods and drinks to a wide range of customers

REPORT

Financial Performance

2006 2007

Profitability

a ) Gross profit Gross profit

Sales 38 ,267 X100

53 ,324 71 .8 43 ,344 X100

61 ,095 90 .7

b ) Net Profit Net Profit

Sales 11 ,053 X100

53 ,324 20 .7 10 ,576 X100

61 ,095 17 .3

c ) Return on Owner 's Equity (ROI Net Profit

after tax

Equity 10 ,576 X100

39318 26 .9 11 ,053

43319 25 .5 d ) Return on br 70556 20 .7 13283

80954 16 .4

e ) Debt Ratio br 70556 44 .4 37635

80954 46 .5

Debt /equity EQUITY 31 ,238

39 ,318 79 .4 37 ,635

43 ,319 86 .9

Current Ratio

Current Assets

Current Liabilities 22975

19161

1 .2 times 29945

19837

1 .5 times

Acid Test / Quick Ratio

Current Assets - Stocks

Current Liabilities

22975-4889

19161

0 .9 times 29945-5110

19837

1 .3 times

Cash Ratio

Cash Marketable Securities

current Liabilities

7770 1545

19161

0 .5 times 4083 1

19837

0 .2 times

Inventory turnover

Cost of sales

Average inventory

15057 (4889 3959 /2

3 .4 times 17751 (5110 4889 /2

3 .6 times

Average inventory days

365

Inventory turnover

365

3 .4

108 days 365

3 .6

102 days

Receivable turnover

sales

Average receivables

53324 (10806 8855 /2

5 .4 times 61095 (12053 10806 /2

3 .4 times

Average collection days

365

Receivable turnover

365

5 .4

68 days 365

5 .3

69 days

Interest cover

EBIT

Interest

14 ,650

63

232 .5 times 13 ,579

296

45 .9 times

Dividends per share No . of shares Earnings per share No...