Johnson & Johnson Corporate and Financial Analysis

Introduction

The purpose of this paper is to introduce the reader to Johnson & Johnson Corporation and its financial status. First, it offers a brief history of the company and its products. Second, it explains Johnson & Johnson's operational conditions — what the company does and who its direct competition is. The sections below examine these conditions and expectations for the future. Third, the paper explores current methods for assessing the company's financial condition, including a review of Johnson & Johnson's annual report and the use of ratio analysis and leverage analysis. Fourth, there is an evaluation of Johnson & Johnson: what the company has done to maximize its potential, what it plans to do in the future to remain solid, and whether its stock is worth purchasing at this time. Finally, there is a recommendation for Johnson & Johnson, structured as a strategic plan outlining ways to maximize the company's potential.

History and Products

The development of the first ready-made, ready-to-use surgical dressings by Johnson & Johnson in the mid-1880s marked not only the birth of a company, but also the first practical application of the theory of antiseptic wound treatment. Up until that point, many doctors did not give airborne germs much thought (Johnson and Johnson, par. 1). It was the innovative thinking of Robert Wood Johnson and his brothers that made the company what it is today (Johnson and Johnson, par. 7). Today, the Johnson & Johnson corporation comprises a family of over 200 companies worldwide, marketing healthcare products in 175 countries. For the purposes of this paper, the focus will be on the corporation's domestic success, with only brief reference to international activities.

The company produces a wide range of products for the healthcare field. These products span baby care, first aid, and hospital supplies, as well as prescription pharmaceuticals, diagnostics, and products relating to family planning, dermatology, and feminine hygiene. Recently, Johnson & Johnson has entered the innovative fields of biotechnology and robotics, with many new products aimed at improving the lives of people affected by paralysis, burns, and cancer. The company's strong brand identity makes its products easily recognizable, and this recognition translates directly into sales.

Operational Conditions

Johnson & Johnson continues to grow in a field that can be highly competitive due to new technologies and medical breakthroughs. This requires expensive research and development, as well as the creative spirit to think outside the box. The company has managed to differentiate itself from competitors by diversifying its product line and portfolio — partnering with, and in some cases acquiring, other companies with complementary products. This has been possible largely because of Johnson & Johnson's international reach and brand identity. Despite pressures from the U.S. economy, market competition, and the rising costs of research and technology, Johnson & Johnson remains a strong corporation in which to work and invest. According to Yahoo Finance, however, average financial numbers leave the company's future trajectory somewhat uncertain.

Johnson & Johnson operates within the healthcare sector, with industry membership in the major pharmaceutical field. Because of the nature of this industry and the risks involved in drug manufacturing, it can be very difficult to gauge and predict performance over time. At the time of this writing, the drug industry was dealing with the fallout from the recall of Celebrex, along with new warnings being issued about other drugs such as Strattera. There has also been significant media scrutiny of the FDA and its prior approval of drugs like Accutane. For the future, this regulatory climate may mean increased drug testing requirements — which can be extremely costly and time-consuming — and may also mean looking to other markets, such as those in Europe and Asia, where different laws may help offset losses in the American market.

Johnson & Johnson's direct competition in the pharmaceutical field includes GlaxoSmithKline, Pfizer, Novartis AG, and Abbott Laboratories, among others. Part of what makes the drug industry particularly interesting is that competition has grown significantly in recent years. This expansion can be attributed to the explosion of new drugs available for doctors to prescribe, a new attitude toward direct-to-consumer media advertising of pharmaceuticals, and new laws protecting drug patents. These factors have made it even more important for Johnson & Johnson to distinguish itself through innovative products beyond the pharmaceutical space.

It is expected that Johnson & Johnson's pursuit of the pharmaceutical market will continue. However, the company is fortunate to have product diversification (Johnson and Johnson, par. 11–13) across its baby care, first aid, and surgical product lines. With the ongoing conflict in Iraq at this time, these products are in constant demand. Still, given the current state of the pharmaceutical market, it is expected that Johnson & Johnson will need to focus drug sales in international markets while continuing to promote its other product lines in order to remain strong.