J&J'S BALANCE SHEET3 LESSONS FOR INVESTORS

JOHNSON & JOHNSON'S BALANCE

SHEET CASTS LIGHT ON THREE OF

THE PHARMA GIANT'S MOST

IMPORTANT TRAITS.

SIZE | LIQUIDITY | SOLVENCY

ASSETS & EQUITY

ARE THERE ENOUGH CURRENT ASSETS (CASH & EQUIVALENTS) TO

COVER CURRENT LIABILITIES?

DOES EQUITY EXCEED DEBT?

SIZE | LIQUIDITY | SOLVENCY

THESE TRAITS GIVE INVESTORS A

SENSE OF JOHNSON & JOHNSON'S

GROWTH POTENTIAL, AS WELL AS OF

THE VULNERABILITY OF ITS

BUSINESS MODEL.

BEFORE DIGGING INTO THESE TRAITS, LET’S BRIEFLY REVIEW THE BALANCE SHEET ITSELF.

EQUITY

LIABILITIES

ASSETS

THE BALANCE SHEET 1. THE BALANCE SHEET REVEALS A COMPANY’S ASSETS, LIABILITIES, AND OWNERS’ EQUITY ON THE FINAL DAY OF A FISCAL QUARTER OR YEAR. 2. THIS IS WHY IT’S OFTEN REFERRED TO AS A SNAPSHOT OF A COMPANY’S FINANCIAL CONDITION. 3. THE “ACCOUNTING EQUATION” HOLDS THAT ASSETS MUST ALWAYS EQUAL LIABILITIES PLUS OWNERS’ EQUITY.

1. SIZE

YOU PROBABLY WON'T BE

SURPRISED TO HEAR THAT JOHNSON

& JOHNSON IS ONE OF THE BIGGEST

COMPANIES IN AMERICA.

$284 billion

$133 billion

$72 billion $71 billion

Market

Capitalization

Total

Assets

Shareholders'

Equity

Revenue

(ttm)

4 WAYS TO MEASURE J&J'S SIZE

$284 billion

FOUND ON JOHNSON & JOHNSON'S BALANCE SHEET

18T

H4

1ST

J&J IS THE 18TH BIGGEST

COMPANY ON THE S&P 500

BASED ON EQUITY.

IT'S THE 41ST LARGEST WHEN

MEASURED BY ASSETS.

THANKS TO JOHNSON & JOHNSON'S

ALREADY CONSIDERABLE SIZE, IT

ISN'T LIKELY TO GROW AS FAST AS,

SAY, A NEWLY LISTED GROWTH

STOCK.

2. LIQUIDITY

THE CURRENT RATIO IS A COMMON WAY TO MEASURE LIQUIDITY.

IT’S CALCULATED BY DIVIDING A COMPANY’S CURRENT ASSETS BY ITS CURRENT LIABILITIES.

$63 BILLION

$25 BILLION= 2.51

J&J'S CURRENT

ASSETS

J&J'S CURRENT

LIABILITIESJ&J'S CURRENT RATIO

HOW DOES JOHNSON & JOHNSON'S

CURRENT RATIO COMPARE TO THAT

OF OTHER LARGE-CAP STOCKS?

-

1

2

3

4

5

6

← 100 BIGGEST S&P 500 COMPANIES →

←C

UR

RE

NT

RA

TIO

→

54% OF S&P 500 COMPANIES HAVE CURRENT RATIOS BETWEEN 0.75 AND 2.0

THE CURRENT RATIOS OF THE 100

BIGGEST S&P 500 COMPANIES

IN SUM, BECAUSE JOHNSON &

JOHNSON'S CURRENT RATIO

EXCEEDS 2.0, IT'S MORE LIQUID (AND

THUS PRESUMABLY SAFER) THAN

THE TYPICAL LARGE-CAP STOCK.

3. SOLVENCY

LAST BUT NOT LEAST IS SOLVENCY, WHICH IS MEASURED BY THE DEBT-TO-EQUITY RATIO.

THIS IS CALCULATED BY DIVIDING A COMPANY’S DEBT BY ITS EQUITY.

$20 BILLION

$72 BILLION= 0.28

J&J'S DEBT

J&J'S EQUITY

J&J'S DEBT-TO-

EQUITY RATIO

THERE’S NO HARD-AND-FAST RULE WHEN IT COMES TO THE DEBT-TO-EQUITY RATIO, THOUGH A SMALLER RATIO (LESS THAN 1) IMPLIES THAT A COMPANY IS BETTER POSITIONED TO SURVIVE AN INTERUPTION TO ITS REVENUE.

HOW DOES JOHNSON & JOHNSON'S

DEBT-TO-EQUITY RATIO COMPARE?

2.98

2.17

0.56 0.490.32 0.20 0.28

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

IBM MCD COST PG SLB XOM JNJ

BECAUSE J&J'S DEBT-TO-EQUITY

RATIO IS LESS THAN OR EQUAL TO

1.0, IT'S SAFE TO SAY THE COMPANY

IS SOLVENT.

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