Economic Analysis of Johnson & Johnson - Essay Example

Johnson & Johnson Submitted by: XXXXXXXX Number: XXXXXXX XXXXXXXXXX XXXXXXXXXX DD-MMM-YY Summary: This report aims at discussing the details of Johnson & Johnson Company. A detailed analysis of the economic conditions has been made. This includes the current economic environment within which the company works. Also to provide a better understanding of the company, a complete industry analysis has also been made. This provides a chance to understand the current standing of the company in the market and the threats and opportunities that the company faces. Also to gain a better understanding of the current market an analysis of the exchange it deals in as well. To do so the details like the SIC code and the industry code have been discussed. Also details of the competitors have been discussed. A detailed analysis of the financial ratios and a financial analysis have been made. Finally based on the analysis, recommendations have been drawn out for the company. Section 1: Economic Analysis: This report focuses on Johnson & Johnsons of USA. All the answers are based on the USA base of the company. a) Economy’s Condition: The current economic condition of USA is in recession. b) Benchmarks: The various benchmarks that need to be considered are: Bonds and other fixed income investment, The NASDAQ Stock market, Technology Stocks, International Stocks, Overall market, Japanese Market, and the Mortgage rates. The interest rate is the current interest rate that is offered. c) Factors affecting Johnson & Johnson: The major factor that affects the company is the economic conditions of the country. Also the external environment also plays a very essential role. d) External factors: Events across the world and the economic conditions are two very strong factors that affect the working of Johnson & Johnson. Other factors like the cost of things in the country i.e. the inflation levels of the country also plays a very important role in the decision making of the company. Section 2: Industry Analysis: a) Industry Profile: Johnson & Johnsons falls in the sector of Pharmaceutical Manufacture and Sales industry. b) Industry position: Johnson and Johnson is a part of an industry which is very cyclical. This majorly means that the businesses in this industry she a constant growth and a constant drops as well. c) Company profile: Johnson and Johnson has three major divisions, namely, Pharmaceutical, Professional and Consumer. The revenues from these three sections are exhibited in the graph below. The company has shown steady growth over the last 2 decades. This is illustrated in the growth profile shown below. d) Threats and Opportunities: The company faces major competition from Eli Lily, Novartis and Procter & Gamble. The market shares of these companies, based on their revenues are illustrated below to give a clear picture of the company’s position in the market and its customer base. It is evident that Johnson and Johnson has a considerable 30% market share; however it is imperative to note that Procter and Gamble takes the lead with over 40% of the market. Though Novartis has comparatively lesser share of the market, Eli Lily is continuously shown steady growth over these years and has control over 20% of the market. The market share also indicates the potential of the industry and that there is a lot of opportunities for Johnson and Johnson to exploit in terms of revenue and customer base. Another major opportunity for Johnson and Johnson is to enter into the segment of medical devices and diagnostics which will improve its customer base and diversify its activities. Section 3: Company / Industry Profile Analysis: a) Company History: The Company was started in 1885, when Robert Wood Johnson and Edward Mead Johnson together introduced the surgical dressings. The company was incorporated in 1887. b) Products & Services: The products and services of the company are mainly focused on the health industry. Johnson & Johnson provides a range of health care products for the comfort and care of the people around the world. The products range from simple baby products to the essentials of operating room and laboratories and even prescription medication. c) Exchange Listing: Johnson & Johnson is listed on the New York Stock Exchange. d) SIC Code: JNJ for the New York Stock Exchange (NYSE). The SIC for the industry in 2834. e) Competitors: Johnson & Johnson faces immense competition from three major players in the market. These include the companies like Eli Lily, Novartis and Procter & Gamble. f) Company Size: the company earns revenue of as much as USD 61.095 billion as of 2007. The operating income of the company has been recorded in 2007 was USD 13.283 billion. The company’s total assets total to as much as USD 80.954 billion and the total equity of almost USD 43.319 billion. The company employees as many as 119,200 employees as of 2008. g) Financial ratios: 5 Year Average   Return on Equity 27.50% Return on Assets 15.40% Return on Invested Capital 24.70% Gross Profit margin 75.80% Pre-Tax Profit Margin 25.80% Post-Tax Profit Margin 19.40% Net Profit Margin (Total Operations) 19.40% R&D as a % of Sales 12.30% Debt/Equity Ratio 0.11 Total Debt/Equity Ratio 0.17 h) Market Price of Stock: The stock price of the company as of 28th April 2009 is $ 51.09. i) Financial Analysis: The returns from Johnson and Johnson have been considerably higher when compared to the industry average, as shown below. Section 4: Recommendations: The main area that requires improvement in the case of Johnson and Johnson is marketing techniques adopted. The competitor, Procter and Gamble has adopted proactive marketing techniques and has revised their strategies over time, based on growth in technology and consumer behavior. Recently Johnson and Johnson revealed that it spends about 12.36% of the revenue on market research. However the research is not being put to effective use, as in the last year, though profits rose, the revenue was still taking a decline. Hence marketing strategies can be improved and more focused and personalized approach can be adopted to increase value to the customer and thus, effectively retaining them. Conclusions: Thus, Johnsons and Johnson has been analyzed from various perspectives and the possible recommendations are identified. Read More