Finance Project

Introduction

The following report analyses Johnson and Johnson from a third party perspective. The report will commence with an overview of operations followed by an evaluation of the company; its financial performance, capital structure, and dividend policy. Additionally we aim to provide advice to potential investors based on relevant financing theories to whether or not it is a good company to invest in.

Overview of Johnson and Johnson

As an American multinational, Johnson & Johnson (J&J) is a manufacturer dealing with pharmaceuticals, medical devices and consumer packaged goods. These products have since become household names and have been trusted by consumers at a global level. Having being founded in 1886 and its incorporation in 1887, the company has had a good track record from the time when it was still a private company to when it started trading publicly.

Although J&J has its headquarters established in New Jersey, the multinational has 250 subsidiaries that are operational in 57 countries globally. The market reach of the organization is also vast. The products of J&J are sold in over 175 countries globally. The vast number of employees (128,100 in 2013) has enabled the company to reach great heights in its operations. In the year 2013, the company’s total revenue was $71.312 billion with an operating income of $ 15.471 billion. J&J has been one of the best investments for the people since 1944 when the company listed its shares on the New York Stock Exchange. The company can boast of consecutive dividend increase for the last 51 years and adjusted earnings increases for 30 consecutive years. Compared to other fortune 500 companies, J&J has been able to generate 8.9% total return on investments in the last decade co...

... middle of paper ...

... structure of the enterprises should increase. Although J&J have a stagnant debt to equity ratio in the last two years there is an upward trend visible(see appendix).

Nature of Industry

Pharmaceuticals are also located in a highly cyclical industry. Governments worldwide cut healthcare spending to revive public budgets and so companies like Johnson and Johnson cannot afford to become overextended with debt in the face of an inevitable downturn in the economy sales and profits.

Management Attitudes

Different management attitudes bring about varying capital structures. Management are conservative or aggressive depending upon their outlook on risk. Both management styles exercise different judgments. In the case of Johnson and Johnson management are conservative and use less debt, whereas management with an aggressive approach is more likely to use debt to grow profits.