Johnson & Johnson Annual Report Analysis

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2. Basic Parts to the Financial Report

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Basic

An annual report is intended to provide a snapshot of a business' performance with investors, potential investors and other stakeholders. It should provide enough information so that a potential investor understands the nature and scope of the business, its recent developments and future outlook.

Chairman's Letter

The letter from the chairman and CEO/president is appropriate to give to investors and other stakeholders that provides an overview of the past year's key developments. The chairman's letter should provide details about the successes as well as the challenges of the past year. It should also include the future outlook for the company, including insights about the market and growth opportunities.

Management Discussion and Analysis

The Management Discussion and Analysis is a section of the annual report that discusses different aspects of the business. Topics of discussion typically include new hires or appointments, new product introductions, updates on the progress of business acquisitions, product launches and other information management believes to be important to investors. It is an overview of the previous year's developments and how the company performed over that period.

Financial Statements

The financial statements comprise the meat of the annual report. This is where the company provides the numbers that investors use to determine how well the company performed financially. The financial statements consist of the income or profit and loss statement, balance sheet and statement of cash flows, for the previous year and prior years so investors can compare the performance from one year to the next. Publicly traded companies are required to provide the past three years of financial statements in their annual reports.

Auditors Report

When financial statements are finalized, they usually must contain an evaluation – an auditor's report - from a licensed accountant or auditor. This report provides an overview of the evaluation of the validity and reliability of a company or organization’s financial statements.

3. Summary of Chairman’s Statement

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Johnson & Johnson’s strategies are based on their broad and deep knowledge of the healthcare landscape in which they operate. They are aware of the need to evaluate their business against the changing healthcare environment and challenge themselves based on the results they deliver. The chairman goes on to say how populations of developed nations are aging rapidly, middle classes are expanding in many developing nations and patients are becoming increasingly involved in their own healthcare decisions. So their goal is to deliver an approach to meet the needs and expectations of their market.

Their broad base structure is a strategic choice, not just their heritage, and it is one that is grounded in performance. These strategic advantages not only benefit patients, providers and consumers but ultimately benefits the shareholders. This entails creating growth opportunities in the healthcare market, work with local governments and public health organizations to address pressing health challenges. They want to provide customer with a larger selection of products, solutions and partnership opportunities while improving outcome and reducing the cost of care.

Johnson & Johnson’s management has their focus on managing for the long term. The expectations of the healthcare market to grow 3-5% in the next five years, Johnson & Johnson has the object to grow at a faster rate than the market. They also want to have their earnings grow even faster than the sales growth. This will allow for a strong dividend yield for the shareholders. They have a capital allocation strategy in place that will allow them to capitalize on the right opportunities to create greater long term value for the shareholders. This will occur by paying dividends to the shareholders, acquisitions and other partnership opportunities and a share repurchase program.

With the strength of their leadership and talented, diverse employees and broad knowledge base, this will be the reason for the success of their strategies. Their goal is to attract and retain the best talent in order the deliver the best outcome.

The chairman, Alex Gorsky concludes with saying that they have the responsibility to lead in addressing those challenges facing every individual, family, community and country. With the team of board of directors and employees they will continue to move their company forward. Johnson & Johnson is well-positioned for the future

4. Analysis of Balance Sheet

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A balance sheet is the statement of the assets, liabilities, and capital of a business or other organization at a particular point in time, detailing the balance of income and expenditure over the preceding period. The most common use of the balance sheet is as the basis for ratio analysis, to determine the liquidity of a business.

JNJ’s balance sheet ending date is January 3, 2016. In 2015 assets totaled $133,411 which equaled total liabilities of $62,261 (in millions) plus the equity of $71,150. In 2014 the balance had assets of $130,358, liabilities of $60,606 and equity that totaled $69,752. All amounts are in millions.

Current Ratio

The current ratio is a liquidity ratio that measures a company’s ability to pay short-term and long-term obligations. It gives you an idea of JNJ’s ability to pay back its liabilities. It gives a rough measurement of a company’s financial health or liquidity. It shows the proportion of currents assets to current liabilities.

Per the annual report for 2015, the current ratio for JNJ was 2.17 and in 2014 it had a ratio of 2.23. In 2015, the current ratio worsened by a very small amount. JNJ has an acceptable current ratio for the industry which means it is a “healthy” business. Generally, in the industry the current ratio is usually between 1 and 3. The current industry current ratio is 2.84:1 and 2016 JNJ current ratio is 3.08:1. Johnson & Johnson is higher than the