Chapter 5, Problem 1FSC

Financial Statement Analysis Case 1: Vertical Analyses of Johnson & Johnson and Pfizer Inc.

Pfizer Inc. is a US company that manufactures and distributes pharmaceutical and consumer healthcare products that are similar to those sold by Johnson & Johnson. Use the excerpts of Johnson & Johnson's and Pfizer's income statements to answer the following questions.

1. a. Compute each line item as a percentage of sales for both companies.
2. b. If sales are used as a measure of size_: which company is larger?
3. c. Which company has a higher cost of goods sold relative to sales?
4. d. Which company has higher selling, general, and administrate expenses relative to sales?
5. e. Which company has higher research and development expenses relative to sales?
6. f. Which company has a higher income from continuing operations relative to sales? Comment on the difference or lack of difference given other relationships observed.
7. g. Which company has a higher profit margin? Comment on the difference between the two companies.

			Johnson & Johnson		Pfizer
(amounts in millions)*' * The captions for some lines have been changed for consistency in comparing the two companies.			2016		2010
Net Sales			$71,890		$52,824
Cost of Goods Sold		21,685			12,329
Gross Profit		50,205			40,495
Selling. General, and Administrative Expenses		19,945			14,837
Research and Development Expenses		9,095			7,872
In-Process Research and Development		29			0
Amortization of Intangible Assets		-			4,056
Restructuring Charges Net		491			1,724
interest Expense		726			-
Interest Income		(368)			-
Other Expense (income) Net		___484			___3655
Income from Continuing Operations Before Income Taxes		19,803			8,351
Income Tax expense		___3,263			_1,123
Income from Continuing Operations	$16,540				$ 7,229
Income from Discontinued Operations, Net of Income Taxes	_____				___17
Net Income Before Noncontrolling Interests	$16,540			$ 7,246
Income Attributable to Noncontrolmg interests	_____			____31
Net income	$ 16,540			$ 7,215