FIN 320 Final Project Financial Analysis Report

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Southern New Hampshire University *

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Finance

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Jun 9, 2024

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FIN 320 Final Project Financial Analysis Report Shantavia Burr Southern New Hampshire University Fin 320-Principle Of Finance Yinfei Chen April 21, 2024 Financial Analysis, Financial Evaluation, and Financial Recommendations 1. Financial Analysis A. Financial Calculations: Using the latest quarter’s financial statements for your chosen business and the Financial Formulas spreadsheet, calculate the financial formulas below to assess the business’s financial health.  Working capital: o The working capital for Johnson & Johnson is $9,333,000. With a working capital of $9,333,000, it indicates that the company has significant resources available to cover its short-term obligations and to fund its day-to-day operations. This suggests a healthy financial position in the short term.  Current ratio: o The current ratio for Johnson & Johnson is 1.21, with a current ratio of 1.21 it means that the company has $1.21 in current assets for every $1 in current liabilities. A current ratio above 1 generally indicates that a company has more current assets than current liabilities, which suggests a healthy liquidity position. It implies that Johnson & Johnson has sufficient short-term assets to cover its short-term liabilities.  Debt ratio: o For Johnson & Johnson, with a debt ratio of 0.571, it means that approximately 57.1% of the company's assets are financed with debt. A lower debt ratio generally indicates greater financial stability, as it suggests that the company relies less on debt financing.  Earnings per share: o For Johnson & Johnson, with an EPS of $14,603.41, it indicates a positive sign for investors, indicating that the company is effectively managing its operations and generating value for shareholders. However, it's important to consider the trend of EPS over time to assess the company's growth potential.  Price and earnings ratio: o For Johnson & Johnson, with a P/E ratio of 6.48, it means that investors are willing to pay $6.48 for every $1 of earnings per share. 1

A low P/E ratio of 6.48 may indicate that the company's stock is undervalued relative to its earnings. Investors may view this as an opportunity to buy into the company at a lower price relative to its earnings potential.  Total asset turnover ratio: o With a total asset turnover ratio of 512.82, it means that the company generates $512.82 in sales revenue for every dollar of total assets. A high total asset turnover ratio like 512.82 indicates that Johnson & Johnson is efficiently using its assets to generate sales revenue. It suggests that the company is effectively managing its assets to drive revenue growth.  Financial leverage: o A financial leverage ratio of 2.41 indicates that Johnson & Johnson's assets are financed primarily through debt, with a proportion of debt being 2.41 times greater than equity. This level of leverage suggests that the company has a significant reliance on debt to finance its operations and investments.  Net profit margin: o A net profit margin of 0.412 for Johnson & Johnson means that the company earns a profit of $0.412 for every dollar of revenue generated. In percentage terms, this would be 41.2%. A net profit margin of 0.412 indicates a relatively healthy level of profitability. It suggests that Johnson & Johnson is effectively managing its costs and expenses relative to its revenue, resulting in a substantial portion of revenue translating into profit.  Return on assets: o A return on assets of 211.69 for Johnson & Johnson indicates that the company is generating significant profits relative to its total assets. A high ROA like 211.69 suggests that Johnson & Johnson is efficiently utilizing its assets to generate profits. It indicates that the company's management is effectively deploying its resources to generate returns for shareholders.  Return on equity: o A return on equity of 511.01 for Johnson & Johnson indicates that the company is generating significant returns for its shareholders relative to the amount of equity invested. A high ROE can enhance investor confidence in the company's ability to generate returns. It may lead to higher stock valuations and attract investment capital. B. Working Capital Management: o With a working capital management of $9,333,000, Johnson & Johnson can efficiently cover its short-term financial obligations while maintaining operational agility and flexibility. This level of working capital ensures that the company has ample liquidity to meet its day-to-day operational needs, such as purchasing raw materials, funding production processes, and managing inventory levels. Additionally, it provides a buffer against unexpected expenses or fluctuations in cash flow, enabling the company to navigate market uncertainties and capitalize on growth opportunities more effectively. By effectively managing its working capital at this level, Johnson 2

& Johnson can sustain its operational excellence, support ongoing investments in research and development, and maintain its position as a leader in the healthcare industry. An example of this is with sufficient working capital, Johnson & Johnson can optimize its inventory levels to ensure that it has the right number of raw materials, work-in-progress, and finished goods on hand. This allows the company to meet customer demand efficiently without overstocking or understocking, reducing carrying costs and minimizing the risk of obsolete inventory. C. Financing: Businesses typically finance their operations and expansion through a combination of internal and external sources of capital. Internally, they utilize retained earnings, generated from profits reinvested into the company, to fund day-to-day activities and strategic investments. Effective management of working capital, including optimizing cash flow from receivables, inventory, and payables, also contributes to internal funding. Externally, businesses may seek external financing options such as debt financing, through loans or bonds, to access additional capital for expansion projects, acquisitions, or capital expenditures. Equity financing, including issuing shares to investors or seeking venture capital funding, provides another avenue for businesses to raise capital for growth initiatives. By strategically leveraging a mix of internal and external funding sources, businesses can sustain operations, drive growth, and enhance shareholder value while managing financial risk. D. Short-Term Financing: Potential short-term financing sources with a liability amount of $44,370,000 could assist Johnson & Johnson in raising necessary funds to enhance its financial health by providing quick access to capital for immediate needs. One option is through short-term bank loans or lines of credit, allowing the company to borrow funds for short periods to bridge cash flow gaps or finance urgent expenses. Commercial paper issuance, a form of unsecured short-term debt, offers another avenue for raising funds quickly, leveraging the company's strong creditworthiness. Additionally, trade credit arrangements with suppliers could be utilized to negotiate extended payment terms, allowing Johnson & Johnson to delay cash outflows and preserve liquidity. By strategically utilizing these short-term financing sources, Johnson & Johnson can address liquidity needs, capitalize on growth opportunities, and strengthen its financial position in the short term while maintaining long-term sustainability. E. Bond Investment: o Investing in corporate bonds can offer Johnson & Johnson both benefits and risks. On the benefit side, corporate bonds typically provide a fixed income stream through regular interest payments, offering predictable cash flows that can be used to fund various operational needs or investment initiatives. Additionally, corporate bonds often have higher yields compared to government bonds, potentially providing attractive returns for the company's investment portfolio. Moreover, investing in corporate bonds can diversify Johnson & Johnson's investment holdings, reducing overall portfolio risk. However, there are also risks associated with corporate bond investments. One major risk is credit risk, where the issuer may default on its debt obligations, leading to potential losses for the investor. Johnson & Johnson must carefully assess the creditworthiness of the bond issuer to mitigate this risk, considering factors 3

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