Presented below are condensed financial statements adapted from
those of two actual companies competing in the pharmaceutical
industry—Johnson and Johnson (J&J) and Pfizer, Inc. ($ in
millions, except per share amounts).
Balance Sheets ($ in millions, except per share data) |
|||||||
J&J | Pfizer | ||||||
Assets: | |||||||
Cash | $ | 16,779 | $ | 11,244 | |||
Short-term investments | 6,144 | 12,400 | |||||
Accounts receivable (net) | 8,894 | 11,095 | |||||
Inventories | 5,744 | 9,603 | |||||
Other current assets | 5,790 | 5,655 | |||||
Current assets | 43,351 | 49,997 | |||||
Property, plant, and equipment (net) | 15,542 | 23,983 | |||||
Intangibles and other assets | 19,518 | 72,843 | |||||
Total assets | $ | 78,411 | $ | 146,823 | |||
Liabilities and Shareholders' Equity: | |||||||
Accounts payable | $ | 7,126 | $ | 4,761 | |||
Short-term notes | 4,835 | 12,514 | |||||
Other current liabilities | 9,343 | 14,238 | |||||
Current liabilities | 21,304 | 31,513 | |||||
Long-term debt | 4,955 | 7,755 | |||||
Other long-term liabilities | 6,959 | 23,954 | |||||
Total liabilities | 33,218 | 63,222 | |||||
Capital stock (par and additional paid-in capital) | 5,520 | 69,450 | |||||
Retained earnings | 48,683 | 47,062 | |||||
Accumulated other comprehensive income (loss) | (910 | ) | 275 | ||||
Less: Treasury stock and other equity adjustments | (8,100 | ) | (33,186 | ) | |||
Total shareholders' equity | 45,193 | 83,601 | |||||
Total liabilities and shareholders' equity | $ | 78,411 | $ | 146,823 | |||
Income Statements | |||||||
Net sales | $ | 50,422 | $ | 53,748 | |||
Cost of goods sold | 14,192 | 11,848 | |||||
Gross profit | 36,230 | 41,900 | |||||
Operating expenses | 21,715 | 30,438 | |||||
Other (income) expense—net | (625 | ) | 3,850 | ||||
Income before taxes | 15,140 | 7,612 | |||||
Tax expense | 4,542 | 2,284 | |||||
Net income | $ | 10,598 | $ | 5,328 | * | ||
Basic net income per share | $ | 3.22 | $ | 0.38 | |||
* This is before income from discontinued operations.
Evaluate and compare the two companies by responding to the
following questions.
Note: Because two-year comparative statements are
not provided, you should use year-end balances in place of average
balances as appropriate.
Required:
1. For both companies, compute the ratios
below.
For both companies, compute the ratios below.
|
2. Evaluate and compare the two
companies.
|
Receivables Turnover = Sale / Accounts Receivable
J&J = 50,422 / 8,894 = 5.67
Pfizer = 53,748 / 11095 = 4.84
Average Collection Period = 365 / Receivables Turnover
J&J = 365 / 5.67 = 64.37 Days
Pfizer = 365 / 4.84 = 75.41 Days
J&J appears more efficient in collecting its accounts receivable
Inventory Turnover = Cost of goods sold / Inventory
J&J = 14192 / 5744 = 2.47
Pfizer = 11848 / 9603 = 1.233
Average Days in Inventory = 365 / Inventory Turnover
J&J = 365 / 2.47 = 147.77 Days
Pfizer = 365 / 1.233 = 296.03 Days
J&J appears more efficient in managing its inventory
Profit Margin = Net Income / Net sales
J&J = 10598 / 50422 = 21.02%
Pfizer = 5328 / 53748 = 9.91%
J&J had greater earnings relative to resources available
Asset Turnover = Sales / Total Assets
J&J = 50422 / 78411 = 0.643
Pfizer = 53748 / 146823 = 0.366
Return on Assets = Net Income / Total Assets
J&J = 10598 / 78411 = 13.52%
Pfizer = 5328 / 146823 = 3.63%
No the two companies have not achieved their respective rates of return on assets
Equity Multiplier = Total Assets / Total Equity
J&J = 78411 / 45193 = 1.74
Pfizer = 146823 / 83601 = 1.76
Return on Shareholders' Equity = Net Income / Total Equity
J&J = 10598 / 45193 = 23.45%
Pfizer = 5328 / 83601 = 6.37%
From the perspective of a common shareholder J&J provided a greater rate of return
Presented below are condensed financial statements adapted from those of two actual companies competing in the...
Presented below are condensed financial statements adapted from those of two actual companies competing in the pharmaceutical industry—Johnson and Johnson (J&J) and Pfizer, Inc. ($ in millions, except per share amounts). Balance Sheets ($ in millions, except per share data) J&J Pfizer Assets: Cash $ 10,641 $ 5,801 Short-term investments 5,037 11,293 Accounts receivable (net) 7,589 9,790 Inventories 4,520 7,459 Other current assets 4,395 4,260 Current assets 32,182 38,603 Property, plant, and equipment (net) 12,338 20,779 Intangibles and other assets...
Presented below are condensed financial statements adapted from those of two actual companies competing in the pharmaceutical industry, Johnson and Johnson (J&J) and Pfizer, Inc. ($ in millions, except per share amounts). Balance Sheets ($ in millions, except per share data) J&J Pfizer Assets: Cash $ 9,959 $ 5,184 Short-term investments 4,914 11,170 Accounts receivable (net) 7,444 9,645 Inventories 4,384 7,233 Other current assets 4,240 4,105 Current assets 30,941 37,337 Property, plant, and equipment (net) 11,982 20.423 Intangibles and other...
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