Running head: JOHNSON & JOHNSON
1
Johnson and Johnson Financial Analysis
Team C: Mandy Crabtree, Gina Fiorello, Cathy Seage, Steve Stowe
Siena Heights University
LDR640 Financial Systems Management
Professor: Lihua Dishman
May 25, 2014
JOHNSON & JOHNSON
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Abstract
In New Brunswick, New Jersey, in 1886, three brothers named Robert Wood Johnson,
James Wood Johnson, and Edward Mead Johnson founded the Johnson & Johnson Company.
Since the beginning, Johnson & Johnson gained the reputation of a leader in innovative
healthcare products. Johnson & Johnson, which employs approximately 128.700 people, has
been fortunate to experience adjusted earnings increases over 30 consecutive years and dividend
increases over 51 consecutive years.
Within the financial analysis of this paper, information on Johnson & Johnson will
provide a snapshot of last few years and the success that Johnson & Johnson has seen. Financial
information gained from the balance sheets, income statements, and the statement of cash flows
for the year 2013 is presented. A trend analysis of 12 select financial ratios from Johnson &
Johnson covering the years of 2011, 2012 and 2013 is provided. In addition, an analytical report
of Johnson & Johnson’s financial ratios are included to demonstrate an overview of the years
being analyzed.
Included within, is a peer group analysis using 12 financial ratios selected for Johnson &
Johnson and used as a comparison against business competitors Abbott Laboratories and Bayer
Healthcare. A diagnostic report will be included as an assessment of what Johnson & Johnson to
look for areas for financial improvement to sustain and increase profitability in the future years.
A conclusion will finish the paper summarizing the financial status of Johnson & Johnson along
with recommendations to satisfy the company and its shareholders.
Keywords: Johnson & Johnson, finance, financial analysis, financial ratios, trend analysis
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Table of Contents
Abstract
Pg. 2
Introduction
Pg. 4
Balance Sheet
Pg. 5
Statement of Income
Pg. 6
Statement of Cash Flow
Pg. 7
Financial Ratios
Pg.8-13
Trend Analysis
Pg.14-15
Comparison to Competitors
Pg.16-18
Global Performance and Assessment of Company
Pg.19-21
Conclusion
Pg. 22
References
Pg. 23
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Introduction
Johnson & Johnson is a global company, which consists of over 275 operating companies
in over 60 countries. Johnson & Johnson employs approximately 128,700 people and is the sixth
largest consumer health company. The following analysis will examine the company Johnson &
Johnson. This will look at their financial statements from the past two years and then compare
financial ratios to Industry competitors. First the financial statements from 2012 and 2013 will
provide the information needed to determine the financial ratios which examine the profitability
of the Company as well as the debt ration and earnings per share, this information is used by
investors to see if the Company would be a good choice for their investments. Twelve financial
ratios are examined, these include both liquidity ratios and profitability ratios.
JOHNSON & JOHNSON
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JOHNSON & JOHNSON AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
At December 29, 2013
(Dollars in Millions Except Share and Per Share Amounts)
Table 1
2013
Total current assets
56,407
Property, plant and equipment, net (Notes 1 and 4)
16,710
Intangible assets, net (Notes 1 and 5)
27,947
Goodwill (Notes 1 and 5)
22,798
Deferred taxes on income (Note 8)
3,872
Other assets
4,949
Total assets
$132,683
Liabilities and Shareholders’ Equity
Current liabilities
Loans and notes payable (Note 7)
$4,852
Accounts payable
6,266
Accrued liabilities
7,685
Accrued rebates, returns and promotions
3,308
Accrued compensation and employee related obligations
2,794
Accrued taxes on income
770
Total current liabilities
25,675
Long-term debt (Note 7)
13,328
Deferred taxes on income (Note 8)
3,989
Employee related obligations (Notes 9 and 10)
7,784
Other liabilities
7,854
Total liabilities
58,630
Shareholders’ equity
Preferred stock – without par value (authorized and unissued 2,000,000 shares)
Common stock – par value $1.00 per share (Note 12) (authorized 4,320,000,000 shares; issued
–
3.120
Accumulated other comprehensive income (Note 13)
(2,860)
Retained earnings
89,493
Less: common stock held in treasury, at cost (Note 12) (299,215,000 shares and 341,354,000 shares)
15,700
89,753
Total shareholders’ equity
Total liabilities and shareholders’ equity
74,053
$132,683
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JOHNSON & JOHNSON AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF EARNINGS
At December 29, 2013
(Dollars in Millions Except Share and Per Share Amounts)
Table 2
Sales to Customers
2013
$71,312
Cost of product sold
22,342
Gross Profit
48,970
Selling, marketing, and administrative expenses
21,830
Research and development expense
8,183
In-process research and development
580
Interest income
(74)
Interest expense, net of portion capitalized
482
Other (income) expense, net
Restructuring
Earnings before provision for taxes on income
2,498
-
15,471
Provisions for taxes on income
1,640
Net earnings
13,831
Add: Net loss attributed to noncontrolling interest
-
Net earnings attributable to Jonson & Johnson
13,831
Net earnings per share attributable to Johnson & Johnson
Basic
$4.92
Diluted
$4.81
Cash dividends per share
$2.59
Average shares outstanding
Basic
2,809.2
Diluted
2,877.0
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JOHNSON & JOHNSON AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
At December 29, 2013
(Dollars in Millions Except Share and Per Share Amounts)2013
Table 3
Cash flows from operating activities
Net earnings
Adjustments to reconcile net earnings to cash flows from operating activities:
Depreciation and amortization of property and intangibles
Stock based compensation
Noncontrolling interest
Venezuela currency devaluation
Asset write-downs
Net gain on equity investment transactions
Deferred tax provision
Accounts receivable allowances
Changes in assets and liabilities, net of effects from acquisitions:
Increase in accounts receivable
Increase in inventories
Increase in accounts payable and accrued liabilities
Increase in other current and non-current assets
Increase/(decrease) in other current and non-current liabilities
Net cash flows from operating activities
Cash flows from investing activities
Additions to property, plant and equipment
Proceeds from the disposal of assets
Acquisitions, net of cash acquired (Note 20)
Purchases of investments
Sales of investments
Other (primarily intangibles)
Net cash used by investing activities
Cash flows from financing activities
Dividends to shareholders
Repurchase of common stock
Proceeds from short-term debt
Retirement of short-term debt
Proceeds from long-term debt
Retirement of long-term debt
Proceeds from the exercise of stock options/excess tax benefits
Other
Net cash used by financing activities
Effect of exchange rate changes on cash and cash equivalents
Increase/(decrease) in cash and cash equivalents
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year
Supplemental cash flow data
Cash paid during the year for:
Interest
Interest, net of amount capitalized
Income taxes
Supplemental schedule of non-cash investing and financing activities
Issuance of common stock associated with the acquisition of Synthes, Inc.
Treasury stock issued for employee compensation and stock option plans, net of cash proceeds
Conversion of debt
Acquisitions
Fair value of assets acquired
Fair value of liabilities assumed and noncontrolling interest
Net fair value of acquisitions
Less: Issuance of common stock associated with the acquisition of Synthes, Inc.
Net cash paid for acquisitions
$13,831
4,104
728
–
108
739
(417)
(607)
(131)
(632)
(622)
1,821
(1,806)
298
17,414
(3,595)
458
(835)
(18,923)
18,058
(266)
(5,103)
(7,286)
(3,538)
1,411
(1,397)
3,607
(1,593)
2,649
56
(6,091)
(204)
6,016
14,911
$20,927
$596
491
3,155
–
743
22
$1,028
(193)
835
–
$835
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Analysis of Financial Ratios
Liquidity ratios are used to measure a company’s ability to pay off its short-term
obligations (Hawawini and Viallet, 2011). Two common liquidity ratios are the current ratio and
the quick ratio. The current ratio is used to determine a company’s liquidity, the larger the ratio
the more liquid a company is (Hawawini and Viallet, 2011). The current ratio formula is: current
ratio=current assets/current liabilities. Johnson & Johnson’s current assets are 56,407 and their
current liabilities are 25,675, therefore, their current ratio is 2.19696. Comparing Johnson &
Johnson to their top competitors, Abbott and Bayer reveals that Johnson & Johnson holds a
higher current ratio than both Abbott and Bayer. (Johnson & Johnson = 56,407 / 25,675 =
2.19696, Abbott = 19,247 / 9,507 = 2.02451, Bayer = 19,028 / 14,022 = 1.35701).According to
Hawawini and Viallet (2011), the closer the current ratio is to two, the better.
The quick ratio is also known as the quick assets ratio, and measures what remains after
eliminating illiquid inventories and prepaid expenses (Hawawini and Viallet, 2011). The quick
ratio formula is: quick ratio = (current assets-inventories) / current liabilities. Johnson &
Johnson’s quick ratio is 1.89013 (Johnson & Johnson: quick ratio = (56,407 - 7,878) / 25,675 =
48,529 / 25,675 = 1.89013). Abbot is slightly behind Johnson & Johnson with 1.74124 (Abbott:
quick ratio = (19,247 – 2,693) /9,507 = 16,554 / 9,507 = 1.74124), while Bayer lags behind with
.84860 (Bayer: quick ratio = (19,028 - 7,129) / 14,022 = 11,899 / 14,022 = .84860).
Debt ratios are used to determine financial leverage and its borrowing relative to its
equity financing (Hawawini and Viallet, 2011). Although there are many debt ratios the three
most popular debt ratios are: debt ratio (debt-to-asset ratio), debt-to-equity-ratio, and timesinterest-earned-ratio. The debt ratio compares debt to assets by using the following formula: debt
ratio (debt-to-asset-ratio) = total debt / total assets. Johnson & Johnson compared to Abbott and
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Bayer are: Johnson & Johnson: debt ratio (debt-to-asset-ratio) = 58,630 / 132,683 = .44188,
Abbott: debt ratio (debt-to-asset-ratio) = 10,181 / 42,953 = .23703, Bayer: debt ratio (debt-toasset-ratio) = 30,513 / 51,317 = .59460. The higher the ratio, the higher the risk the company has
taken on. Therefore, based on the information provided above, Bayer has the highest debt ratio
while Abbott has less than half of that of Bayer.
The debt-to-equity-ratio measures debt by owner’s equity and uses the following
formula: debt-to-equity-ratio (D/E ratio) = total debt /total equity. Johnson & Johnson’s debt-toequity-ratio (D/E ratio) = 58,630 / 74,053 = .79173, Abbott’s D/E ratio = 10,181 / 25,267 =
.40294 and Bayer = 30,513 / 20,804 = 1.46669. A high debt-to-equity-ratio may mean that a
company is financing its growth with debt.
The times-interest ratio is also known as the interest coverage ratio and is used to
determine how many times pre-tax profits covers interest expenses (Hawawini and Viallet,
2011). Times-interest-earned-ratio (TIE ratio) (interest coverage ratio) = EBIT / interest charges.
Johnson & Johnson: times-interest-earned-ratio = 15,471 / 482 = 32.09751, Abbott: timesinterest-earned-ratio = 2,521 / 157 = 16.05732, and Bayer: times-interest-earned-ratio = 4,934 /
550 = 8.97090. The lower the debt the better chance the company has from avoiding financial
risk such as bankruptcy.
Asset management ratios include inventory turnover ratio, fixed assets turnover ratio, and
total assets turnover ratio. Inventory turnover is used to compare cost of goods sold to ending
inventories. Inventory turnover ratio = COGS/inventories (COGS/ending inventories)
(COGS/average inventories). Johnson & Johnson’s inventory turnover ratio = 22,342 / 7,878 =
2.83599, Abbott = 10,040 / 2,693 = 3.72818, and Bayer = 19,347 / 7,129 = 2.71384. Higher
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inventory turnover ratios may suggest strong sales or ineffective buying, whereas low turnover
may suggest excessive inventory and poor sales.
The fixed assets turnover ratio is a measure of the efficiency of fixed assets management
(Hawawini and Viallet, 2011, p. 622). Fixed assets turnover ratio = sales/net fixed assets. Abbott
and Johnson & Johnson’s fixed asset turnover ratios are very close in calculation: Johnson &
Johnson = 71,312 / 76,276 = .93492, Abbott = 21,848 / 23,706 = .92162, Bayer = 40,157 /
32,289 = 1.24367. Total assets turnover ratio is usually more appealing when higher and is more
useful when comparing similar companies in the same industries. Total assets turnover ratio =
sales / total assets. Johnson & Johnson’s total assets turnover ratio = 71,312 / 132,683 = .53746,
Abbott = 21,848 / 42,953 = .50865, and Bayer = 40,157 / 51,317 = .78253.
Profitability is vital for a company’s survival. Three common profitability ratios are:
return on sales, return on total assets, and return on total equity. Hawawini and Viallet (2011)
state, return on sales (ROS) measures the profit generated by the firms sales (one dollar of sales).
Return on sales (ROS) (profit margin on sales) = EAT / sales. Johnson & Johnson’s ROS =
13,831 / 71,312 = .19395, Abbott = 2,576 / 21,848 = .11791, and Bayer = 3,186 / 40,157 =
.07934. Return on total assets is the measurement of profit generated by a dollar of assets
(Hawawini and Viallet, 2011, p. 144). Return on total assets (ROA) = EAT / total assets. Johnson
& Johnson’s ROA = 13,831 / 132,683 = .10424, Abbott = 2,576 / 42,953 = .05997, and Bayer =
3,186 / 51,317 = .06208. Lastly, return on total equity (ROE), measures the profit generated by a
dollar of equity and is used by shareholders to determine the equity capital they invested in the
firm (Hawawini and Viallet, 2011, p. 144). The formula for return on total equity is: return on
total equity (ROE) (return on net assets (RONA)) = EAT / total equity. Johnson & Johnson’s
ROE = 13,831 / 74,053 = .18677, Abbott = 2,576 / 25,267 = .10195, and Bayer = 3,186 / 20,804
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= .15314. In all three areas, ROA, ROE, and ROS Johnson & Johnson leads both Bayer and
Abbott.
The two most popular market value ratios are earnings per share (EPS) and price earnings
ratio (P/E ratio). Earnings per share shows the firms earnings after tax divided by total number of
shares outstanding- EPS = EAT/number of shares of common stock outstanding (Hawawini and
Viallet, 2011, p. 158). Johnson & Johnson’s EPS is as follows: EPS= 13,831 / 2,877 = 4.80743.
Bayer’s EPS = 3,186 / 825 = 3.86182. Abbott is much lower than both Bayer and Johnson &
Johnson: Abbott = 2,576 / 1,574 = 1.63659. The price to earnings ratio is also known as the
firm’s earnings multiple and is used to value a firm (Hawawini and Viallet, 2011). Price/earnings
ratio (P/E ratio) = price per share (PPS) / earnings per share (EPS), therefore, the P/E ratio for
Johnson & Johnson is = 92.35 / 4.80743 =19.20984. Abbott’s P/E Ratio = 38.33 / 1.63659 =
23.42065, and Bayer = 101.95 / 3.86182 = 26.39947.
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Financial Ratios
Liquidity Ratios:
Current Ratio = Current Assets / Current Liabilities
Johnson & Johnson: Current Ratio = 56,407 / 25,675 = 2.19696
Quick Ratio = (Current Assets - Inventories) / Current Liabilities
Johnson & Johnson: Quick Ratio = (56,407 - 7,878) / 25,675 = 48,529 / 25,675 =
1.89013
Solvency Ratio/Debt Management Ratios:
Debt Ratio (Debt-To-Asset-Ratio) = Total Debt / Total Assets
Johnson & Johnson: Debt Ratio (Debt-To-Asset-Ratio) = 58,630 / 132,683 = .44188
Debt-To-Equity-Ratio (D/E Ratio) = Total Debt / Total Equity
Johnson & Johnson: Debt-To-Equity-Ratio (D/E Ratio) = 58,630 / 74,053 = .79173
Times-Interest-Earned-Ratio (TIE Ratio) (Interest Coverage Ratio) = EBIT / Interest Charges
Johnson & Johnson: Times-Interest-Earned Ratio = 15,471 / 482 = 32.09751
Asset Management Ratios:
Inventory Turnover Ratio = COGS/Inventories (COGS/Ending Inventories) (COGS/Average
Inventories)
Johnson & Johnson: Inventory Turnover Ratio = 22,342 / 7,878 = 2.83599
Fixed Assets Turnover Ratio = Sales/Net Fixed Assets
Johnson & Johnson: Fixed Assets Turnover Ratio = 71,312 / 76,276 = .93492
Total Assets Turnover Ratio = Sales / Total Assets
Johnson & Johnson: Total Assets Turnover Ratio = 71,312 / 132,683 = .53746
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Profitability Ratios:
Return On Sales (ROS) (Profit Margin On Sales) = EAT / Sales
Johnson & Johnson: Return On Sales (ROS) = 13,831 / 71,312 = .19395
Return On Total Assets (ROA) = EAT / Total Assets
Johnson & Johnson: Return On Total Assets (ROA) = 13,831 / 132,683 = .10424
Return On Total Equity (ROE) (Return On Net Assets (RONA)) = EAT / Total Equity
Johnson & Johnson: Return On Total Equity (ROE) = 13,831 / 74,053 = .18677
Market Value Ratios:
Earnings Per Share (EPS) = EAT/Number Of Shares Of Common Stock Outstanding
Johnson & Johnson: Earnings Per Share (EPS) = 13,831 / 2,877 = 4.80743
Price/Earnings Ratio (P/E Ratio) = Price Per Share (PPS) / Earnings Per Share (EPS)
Johnson & Johnson: Price/Earnings Ratio (P/E Ratio) = 92.35 / 4.80743 =19.20984
13
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Trend Analysis
A look at financial ratios will give details as to how the company is performing.
Information obtained from Johnson & Johnson Annual Report and contained within Annual
Report is the Balance Sheet, Income Statement and Cash Flow Statements. Below, a Trend
Analysis for Johnson & Johnson is presented that includes comparisons of 2013, 2012, and 2011
ratios. The area displayed includes ratios for liquidity, assets management, solvency/leverage,
profitability, and market value. Additionally, graphical information regarding shareholder return
for a five-year period is included.
Table 4
Financial Ratios
Liquidity
Current Ratios
Quick Ratios
Asset Management
Inventory Turnover Ratio
Total Assets Turnover
Ratio
Solvency
Debt Ratios
Debt to Equity Ratios
Times-Interest-Earned
Ratio
Profitability
Return on Sales
Return on Total Assets
Return on Total Equity
Market Value
Earnings Per Share
Price/Earnings Ratio
2013
2012
2011
2.1
1.8
1.9
1.5
2.3
2.1
2.83
2.88
3.23
.537
.553
.572
0.44
0.79
0.46
0.87
0.49
0.99
32.09
25.89
21.64
0.193
0.104
0.186
0.196
0.086
0.162
0.148
0.085
0.169
4.80
19.20
3.74
18.00
3.48
18.79
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5-Year Cumulative Total Shareholder Return
Summary: Johnson & Johnson has been able to increase revenue year over year and for the last
three years the increase went from $61,587 to &71,312 (Currency in Millions of US Dollars).
Improvements in the category of COGS and expenses due to income taxes has allowed the
company to raise bottom line growth from &10.9B USD to $13.8B USD, which demonstrates
the continued success of Johnson & Johnson (Bloomberg Businessweek, 2014).
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Comparison to Competitors
Liquidity Ratios:
Current Ratio = Current Assets / Current Liabilities
Johnson & Johnson: Current Ratio = 56,407 / 25,675 = 2.19696
Abbott: Current Ratio = 19,247 / 9,507 = 2.02451
Bayer: Current Ratio = 19,028 / 14,022 = 1.35701
Quick Ratio = (Current Assets - Inventories) / Current Liabilities
Johnson & Johnson: Quick Ratio = (56,407 - 7,878) / 25,675 = 48,529 / 25,675 =
1.89013
Abbott: Quick Ratio = (19,247 – 2,693) /9,507 = 16,554 / 9,507 = 1.74124
Bayer: Quick Ratio = (19,028 - 7,129) / 14,022 = 11,899 / 14,022 = .84860
Solvency Ratio/Debt Management Ratios:
Debt Ratio (Debt-To-Asset-Ratio) = Total Debt / Total Assets
Johnson & Johnson: Debt Ratio (Debt-To-Asset-Ratio) = 58,630 / 132,683 = .44188
Abbott: Debt Ratio (Debt-To-Asset-Ratio) = 10,181 / 42,953 = .23703
Bayer: Debt Ratio (Debt-To-Asset-Ratio) = 30,513 / 51,317 = .59460
Debt-To-Equity-Ratio (D/E Ratio) = Total Debt / Total Equity
Johnson & Johnson: Debt-To-Equity-Ratio (D/E Ratio) = 58,630 / 74,053 = .79173
Abbott: Debt-To-Equity-Ratio (D/E Ratio) = 10,181 / 25,267 = .40294
Bayer: Debt-To-Equity-Ratio (D/E Ratio) = 30,513 / 20,804 = 1.46669
Times-Interest-Earned-Ratio (TIE Ratio) (Interest Coverage Ratio) = EBIT / Interest Charges
Johnson & Johnson: Times-Interest-Earned-Ratio = 15,471 / 482 = 32.09751
Abbott: Times-Interest-Earned-Ratio = 2,521 / 157 = 16.05732
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Bayer: Times-Interest-Earned-Ratio = 4,934 / 550 = 8.97090
Asset Management Ratios:
Inventory Turnover Ratio = COGS/Inventories (COGS/Ending Inventories) (COGS/Average
Inventories)
Johnson & Johnson: Inventory Turnover Ratio = 22,342 / 7,878 = 2.83599
Abbott: Inventory Turnover Ratio = 10,040 / 2,693 = 3.72818
Bayer: Inventory Turnover Ratio = 19,347 / 7,129 = 2.71384
Fixed Assets Turnover Ratio = Sales/Net Fixed Assets
Johnson & Johnson: Fixed Assets Turnover Ratio = 71,312 / 76,276 = .93492
Abbott: Fixed Assets Turnover Ratio = 21,848 / 23,706 = .92162
Bayer: Fixed Asset Turnover Ratio = 40,157 / 32,289 = 1.24367
Total Assets Turnover Ratio = Sales / Total Assets
Johnson & Johnson: Total Assets Turnover Ratio = 71,312 / 132,683 = .53746
Abbott: Total Assets Turnover Ratio = 21,848 / 42,953 = .50865
Bayer: Total Assets Turnover Ratio = 40,157 / 51,317 = .78253
Profitability Ratios:
Return On Sales (ROS) (Profit Margin On Sales) = EAT / Sales
Johnson & Johnson: Return On Sales (ROS) = 13,831 / 71,312 = .19395
Abbott: Return On Sales (ROS) = 2,576 / 21,848 = .11791
Bayer: Return On Sales (ROS) = 3,186 / 40,157 = .07934
Return On Total Assets (ROA) = EAT / Total Assets
Johnson & Johnson: Return On Total Assets (ROA) = 13,831 / 132,683 = .10424
Abbott: Return On Total Assets (ROA) = 2,576 / 42,953 = .05997
17
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Bayer: Return On Total Assets (ROA) = 3,186 / 51,317 = .06208
Return On Total Equity (ROE) (Return On Net Assets (RONA)) = EAT / Total Equity
Johnson & Johnson: Return On Total Equity (ROE) = 13,831 / 74,053 = .18677
Abbott: Return On Total Equity (ROE) = 2,576 / 25,267 = .10195
Bayer: Return On Total Equity (ROE) = 3,186 / 20,804 = .15314
Market Value Ratios:
Earnings Per Share (EPS) = EAT/Number Of Shares Of Common Stock Outstanding
Johnson & Johnson: Earnings Per Share (EPS) = 13,831 / 2,877 = 4.80743
Abbott: Earnings Per Share (EPS) = 2,576 / 1,574 = 1.63659
Bayer: Earnings Per Share (EPS) = 3,186 / 825 = 3.86182
Price/Earnings Ratio (P/E Ratio) = Price Per Share (PPS) / Earnings Per Share (EPS)
Johnson & Johnson: Price/Earnings Ratio (P/E Ratio) = 92.35 / 4.80743 =19.20984
Abbott: Price/Earnings Ratio (P/E Ratio) = 38.33 / 1.63659 = 23.42065
Bayer: Price/Earnings Ratio (P/E Ratio) = 101.95 / 3.86182 = 26.39947
The financial ratios calculated for Johnson & Johnson, Abbott, and Bayer allow for easy
comparison of these competitive companies. Many categories gave similar numbers when
comparing the companies, such as: ROE-Johnson & Johnson and Bayer differ by .03363, and
fixed asset ratio- Johnson & Johnson and Abbott differ by only .0133. Johnson & Johnson’s
financial data shows the lead they have over Abbot and Bayer in multiple areas. Johnson &
Johnson may not lead in all categories but the financial data supports why the company has been
successful.
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Company’s Global Performance
One focus of Johnson & Johnson is their global project to advance human health and well
being. Their global health initiative helps to promote disease awareness and health wellness.
They work to send HIV treatments to third world countries to reach populations untouched by
modern medicine. Their goal is to “attain good health, free from the spread of disease, achieve
access to quality and affordable health care and benefit from infrastructure and capacity to meet
current and unmet needs” (Johnson & Johnson, 2014.). Johnson & Johnson has an Innovation
Center in London where scientists, entrepreneurs and others companies have access to new
technology and science. They come together to develop new medicines to treat more patients.
They come together across many different aspects of the world and their own fields to explore
uncharted fields in order to create new medicines for the future. These methods are truly
innovative.
Assessment of Company
In 1982, Johnson and Johnson were confronted with an ethical dilemma where seven
people from Chicago’s west side died. During the investigation, it was determined that the
deaths were from the use of Extra-Strength Tylenol capsules laced with cyanide (Kaplan, 2011).
In the case study, Johnson & Johnson and the Worldwide Recall of Tylenol there are
three different ethical issues. The first issue is the consumer. Johnson & Johnson have a
responsibility to the doctors, nurses, and patients who use their products. Once it was known
that the deaths were related to Tylenol, Johnson & Johnson had a duty to respond to the incident
so there were no more deaths associated with their product.
The second issue is with the stakeholders. The recall for Tylenol included
approximately 31 million bottles of Tylenol, with a retail value of more than 100 million dollars
JOHNSON & JOHNSON
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(Kaplan, 2011). Stakeholders thought that Johnson & Johnson should have narrowed their recall
to the Chicago area to limit the amount of losses they would incur.
The third issue was to the union workers, the employees. With the recall of over 100
million dollars of products, many thought that the company would never recover. The
employees had to be concerned that their jobs may be in jeopardy or there may need to be some
concessions.
Johnsons and Johnson quickly identified the problem they were forth coming with
authorities and assisted in the investigation. At a large cost to their company, they removed the
product until they could fix the problem. The incident resulted in improved industry-wide
product safety standards, including tamper-proof seals, and increased security at manufacturing
plants (Drolet, 2011). With a new pricing plan, and various other measures Johnson & Johnson
quickly recovered from the incident.
Johnson & Johnson acted correctly in removing the product from all stores worldwide.
Johnson & Johnson immediately alerted consumers across the nation, via the media not to
consume any type of Tylenol product. They advised consumers not resume using their product
until they could determine the extent of the tampering (Kaplan, 2011). I agree with Kaplan who
stated this was unusual for a large corporation facing a crisis.
The reason we speak about the history of Johnson & Johnson and the Tylenol incident is
that this tragic incident shows the commitment of Johnson and Johnson to do good business.
Johnson & Johnson went a long way to take care of the customer. Many think this is the reason
that Johnson & Johnson has been so successful.
Johnson & Johnson’s pharmaceuticals business generated $22.4 billion in sales last year,
36 percent of the company’s total revenue, and it ranks and the world’s eighth largest
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pharmaceutical company and the fifth largest biotech company (Johnson & Johnson Highlights
Strategies for Growth Through Differentiated Medicines, Transformational Pipeline and Global
Product Launches, pr. 2, 2011). Johnson & Johnsons pharmaceutical business has taken a
disciplined management approach to increasing its efficiency in order to invest in its pipeline and
new product launches. For example, the pharmaceuticals business has seen a significant increase
in productivity over the past two years based on the ratio of sales per employee, and continues
investing in R & D at higher rates than its competitive set (Johnson & Johnson Highlights
Strategies for Growth Through Differentiated Medicines, Transformational Pipeline and Global
Product Launches, pr. 2, 2011).
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Conclusion
Through this collaborative effort, we (Seage, Firoello, Crabtree, and Stowe) have shown
that Johnson and Johnson is a company that is at the forefront of the pharmaceutical industry.
They have not only shown they have a sound financial stronghold they are an organization with
integrity. Through a crisis that cost them millions they did the right thing at rebounded stronger
than ever.
The pharmaceutical market is at an estimated $850 billion globally and expected
to more than $1 trillion by 2015 (Johnson & Johnson Highlights Strategies for Growth Through
Differentiated Medicines, Transformational Pipeline and Global Product Launches, pr. 3, 2011).
Johnson and Johnson has expanded their operations and has launched six new products. Early on
when Johnson and Johnson was dealing with the Tylenol crisis they turned to their “credo” to
guide them through the process.
The credo was written in the mid-1940’ s by Robert Wood Johnson, the company’s
leader for 50 years. Little did Johnson know, he was writing an outstanding public relations
plan. Johnson saw business as having responsibilities to society that went beyond the unusual
responsibilities to: ‘ consumers and medical professionals using its products, employees, the
communities where it’s people work and live, and its stockholders’. Johnson believed that if his
company stayed true to these responsibilities, his business would flourish in the end. He felt his
credo was not only moral, but profitable as well (Kaplan, 2011). As we have shown with the
information provided it appears Robert Wood Johnson was correct in his beliefs.
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References
Bloomberg Businessweek (05/23/2014). Johnson & Johnson (JNJ: New York).
http://investing.businessweek.com/research/stocks/financials/financials.asp?ticker=JNJ
Drolet, D. (2011). 80s Tylenol scare still a model crisis case study. PR Week. Retrieved from
http://www.prweekus.com/80s-tylenol-scare-still-a-model-crisis-casestudy/article/203351/
Hawawini, G., & Viallet, C. (2011). Finance for executives: Managing for value
creation. Mason, OH: Cengage Learning
Kaplan, T. (2011). The Tylenol crisis: How effective public relations saved Johnson & Johnson.
Retrieved from
http://www.aerobiologicalengineering.com/wxk116/TylenolMurders/crisis.html
Johnson & Johnson Highlights Strategies for Growth Through Differentiated Medicines,
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Johnson & Johnson Highlights, Global Health (2014) retrieved from URL
http://www.jnj.com/caring/citizenship-sustainability/strategic-framework/global-health