Balance sheets and income statements for Johnson & Johnson follow. Refer to these financial statements to
answer the requirements.
JOHNSON & JOHNSON, INC.
Consolidated Statement of EarningsYears Ended ($ millions)200820072006Sales to customers$63,747$61,095$53,324Cost products sold18,51117,75115,057Gross profit45,23643,34438,267Selling, marketing and administrative expenses21,49020,45117,433Research expense7,5777,6807,125Purchase in-process research and development181807559Restructuring--745--Interest (income)(361)(452)(829)Interest expense, net of portion capitalized43529663Other (income) expense, net(1,015)534(671)28,30730,06123,680Earnings before provision for taxes on income16,92913,28314,587Provision for taxes on income3,9802,7073,534Net earnings$ 12,949$ 10,576$ 11,503
JOHNSON & JOHNSON, INC.
Consolidated Balance Sheets($ millions)December 28,
2007AssetsCash and cash equivalents$10,768$7,770Marketable securities2,0411,545Accounts receivable trade, net9,7199,444Inventories5,0525,110Deferred taxes on income3,4302,609Prepaid expenses and other receivables3,3673,467Total current assets34,37729,945Marketable securities, noncurrent42Property, Plant and equipment, net14,36514,185Intangible assets, net13,97614,640Goodwill, net13,71914,123Deferred taxes on income5,8414,889Other assets2,6303,170Total assets$ 84,912$ 80,954Liabilities and Shareholders' EquityLoans and notes payable$3,732$2,463Accounts payable7,5036,909Accrued liabilities5,5316,412Accrued rebates, returns and promotions2,2372,318Accrued salaries, wages and commissions1,4321,512Accrued taxes on income417223Total current liabilities20,85219,837Long-term debt8,1207,074Deferred taxes on income1,4321,493Employee related obligations7,7915,402Other liabilities4,2063,829Total liabilities42,40137,635Shareholders' equityPreferred stock-without par value (authorized and unissued 2,000,000 shares)----Common stock-par value $1.00 per share3,1203,120Accumulated other comprehensive income(4,955)(693)Retained earnings63,37955,28061,54457,707Less: common stock held in treasury, at cost19,03314,388Total Shareholders' equity42,51143,319Total liability and shareholders' equity$ 84,912$ 80,954
(a) Compute net operating profit after tax (NOPAT) for 2008. Assume that the combined federal and statutory rate is: 37.1%.
Treat other (income) expense, net as non-operating. Round your answer to the nearest whole number.
2008 NOPAT = $Answer
(b) Compute net operating assets (NOA) for 2008 and 2007.
2008 NOA = $Answer
2007 NOA = $Answer
(c) Compute RNOA, net operating profit margin (NOPM) and net operating asset turnover (NOAT) for 2008. Do not use NOPM x NOAT to caculate RNOA. (Do not round until your final answers. Round answers to two decimal places.)
2008 RNOA = Answer
2008 NOPM = Answer
2008 NOAT = Answer
(d) Compute net nonoperating obligations (NNO) for 2008 and 2007. Confirm the relation: NOA = NNO + Stockholders' equity.
2008 NNO = $Answer
2007 NNO = $Answer
(e) Compute return on equity (ROE) for 2008. (Round your answers to two decimal places. Do not round until your final answer.)
2008 ROE =Answer
(f) Infer the nonoperating return component of ROE for 2008. (Use answers from above to calculate. Round your answer to two decimal places.)
2008 nonoperating return = Answer
(g) Comment on the difference between ROE and RNOA. Which of the following statements best describes the inference from the difference between JNJ's ROE and RNOA?
ROE>RNOA implies that JNJ's equity has grown faster than its NOA. The faster increase of equity compared to NOA allows higher dividends to be paid to JNJ's stockholders.
RNOA greater than ROE implies that JNJ's stockholders are funding a significant amount of liquidity in the form of cash and investments in marketable securities.
ROE>RNOA implies that JNJ has taken on too much financial leverage. The high financial leverage results in a higher interest rate on JNJ's debt, therefore the cost of debt is greater.
ROE>RNOA implies that JNJ has increased its financial leverage during the period. The increase in financial leverage also increases JNJ's risk, therefore increasing the expected ROE by JNJ's stockholders.
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