Johnson & Johnson
Introduction
Johnson and Johnson (JNJ) is an international American company which manufactures medical and healthcare products for consumers and pharmaceutical and medical devices and diagnostic products. The company was found in 1886, and the company has more than 250 subsidiary companies in 57 countries and its products are sold more than 175 countries.
Corporate SWOT Analysis
Strength
Company’s sales has been stable for past five years which indicates JNJ is in strong position in the global market
JNJ’s business model is the adaptation of entrepreneurial values to keep the its strong position in the market
The company has independent offices all over the world and each of them operates differently. It helps the company efficiently in the global market because its business model enables JNJ to deal with various issues resulting from cultural differences.
Weakness
Increasing pressures to reduce the price of medical items in pharmaceutical market
Reduction in market demand due to the appearance of cheaper generic medical items.
Opportunity
JNJ purchased Pfizer’s Consumer Healthcare department in 2006. The acquisition becomes well promotion of the corporate growth as well as expands current and new market.
Lack of reliability to generic drug in developed countries due to safety issues
Possibility of the growth in product portfolio resulting from development of pharmacy products.
Threats
Expansion of generics markets which will lead reduce the company’s market share of the products and sales
Possible technological development of bio-products which kicks traditional pharmaceutical items out from the market.
JNJ’s Business Analysis
Gaining the consumer’s trust toward the company’s product is one of the ultimate goals of the pharmaceutical companies. Johnson & Johnson is one of the best known pharmaceutical companies in the world and consumers trust the company’s products are good and reliable. The arise of generic drugs in the market has influenced the company’s market share and sale, but due to the consumer’s reliability and safety on the product, it has not affected the company so much yet (however, the company’s sales has not grown so much in the past five years, so it can be concluded that the appearance of generic products has taken the company’s potential sales and market).
As we can see from the company’s balance sheet, its total long term asset has grown since 2005 which indicates company has greatly invested in the plant and new facility to keep and grow the company’s sale as well as the variety of products. According to the company’s report, JNJ has invested in more surgical products, advertisement via the internet, and bio-technology ventures than before. These investments will help the company to keep its market share and presence in the market. In addition to the investment in these fields, JNJ should invest more in alternative products such as food products because the company’s competitor has dominant market in different markets through mergers and acquisitions of the other companies like P&G’s production of healthcare products.
Johnson & Johnson’s business strategy is supported by its quality management system. This system monitors the performance of every factor of production and its business goal. Through the system, employees are able to get feedback of their performance and it motivates their performance as well. JNJ considers its quality management system clarifies their business goal and strategy, and it also helps the company to improve the performance continuously.
The company has a matrix framework of the corporate culture which enables the company to see world economy of scale and manage different country’s business operation. For example, when JNJ enters into new market, the company hires and recruits new workers who know well about the culture. As a result, the company is able to work well in the different markets.
Financial Analysis
|
ROE (Operating ROA + Spread * Net Financial Leverage) |
2005 |
2006 |
2007 |
2008 |
2009 |
|
27.3% |
32.9% |
28.3% |
28.9% |
Company’s return on equity (ROE) has been stable since 2005. But, ROE has dramatically declined since 2008 (from my BAV file) and this decline indicates the company has had some issues in its operation or some economic issues have affected the company. As a result, company has not used investor’s money not so efficiently ever than before. However, its ROE is still quite high, so it is still a profitable company for investors. JNJ’s lower ROE in 2008 was mainly caused by a drop in its spread and financial leverage. Lower spread implies the market became more competitive and the company had pressure to reduce the price of its products. The main reason of the pressure is the development of generic drugs and market’s competitiveness. Also, net financial leverage was dropped to 0.01 (in 2008) from 0.06 (in 2007) which represents company used invested money less efficiently than before.
Procter and Gamble Co.
Introduction
The Procter and Gamble Company (P&G) is a large manufacturing company of healthcare, beauty, and house care products which headquartered in Cincinnati, Ohio. According to the CNN Fortune report, the company was ranked as the 4th largest corporation in the US through market capitalization in the early 2010. P&G currently has more than 40 its corporate brand products which are manufactured in about 150 manufacturing plants in eighty countries and sold worldwide.
Corporate SWOT Analysis
Strength
Large numbers of brand portfolio( more than 300 brands)
Innovative product development
Talented workers and employee education systems
International distribution channels (sales in more than 80 countries)
Weakness
Target market of health care product is only for woman
Lack of feedback system (only look at product performance)
Difficulties in different cultures
Opportunity
Production of health care items for men
Promotion via the internet
Direct sales to customers
Threats
Competitive market characteristic (cheaper substitute products)
Expansion of competitor’s market share through merger and acquisitions
Rise in price of raw materials
P&G’s Business Analysis
P&G diversifies its brand portfolio, and each of them has pretty good sales all over the world. Also, company is one of the best known consumer’s healthcare and house care products, so consumers have reliability on its products. In addition, when we look at the company’s sales on BAV file, its sales had continuously grown by 2008 due to increasing in number of brands. The company also promotes corporate information regularly and it helps the company’s continuous improvement. Within the company, there is informal education program for workers by senior managers, and this culture motivates employees as well. Current issue of the company is weak feedback system of employee’s performance and difficulties in dealing with the other cultures and employees for the issue. So, P&G should have more employee training and education system in the company.
Gross Profit Analysis
|
2005 |
2006 |
2007 |
2008 |
2009 |
|
|
JNJ gross profit margin |
70.20% |
70.20% |
70.96% |
70.95% |
71.76% |
|
P&G gross profit margin |
49.55% |
50.46% |
51.17% |
51.45% |
50.88% |
|
Takeda gross profit margin |
80.97% |
81.42% |
81.18% |
81.01% |
81.60% |
|
JNJ cost of sales |
18,447 |
18,447 |
18,511 |
17,751 |
15,057 |
|
P&G cost of sales |
38,690 |
39,261 |
35,376 |
33,125 |
27,872 |
|
Takeda cost of sales |
214,629 |
140,382 |
71,336 |
138,834 |
221,270 |
|
JNJ sales |
61,897 |
61,897 |
63,747 |
61,095 |
53,324 |
|
P&G sales |
76,694 |
79,257 |
72,441 |
68,222 |
56,741 |
|
Takeda sales |
1,127,950 |
755,453 |
378,977 |
731,196 |
1,202,760 |
Gross profit margin = (sales – cost of sales) / sales
Among the three companies listed above, Takeda Pharmaceutical Company has the highest gross profit margin which indicates that Takeda’s business operation works more efficiently than the other two companies. For example, every dollar Takeda earns on its product, company is able to have around $0.8 at the end of the day.
Liquidity Analysis
|
2006 |
2007 |
2008 |
2009 |
2010 |
|
|
JNJ Current Ratio |
2.49 |
1.20 |
1.51 |
1.65 |
1.82 |
|
JNJ Quick Ratio |
1.83 |
0.67 |
0.95 |
1.08 |
1.34 |
|
JNJ Cash Ratio |
1.28 |
0.21 |
0.47 |
0.61 |
0.89 |
|
JNJ Operating Cash Flow Ratio |
1.23 |
0.89 |
0.74 |
0.82 |
|
|
P&G Current Ratio |
0.81 |
1.22 |
0.78 |
0.79 |
0.71 |
|
P&G Quick Ratio |
0.49 |
0.68 |
0.40 |
0.33 |
0.34 |
|
P&G Cash Ratio |
0.32 |
0.39 |
0.18 |
0.11 |
0.15 |
|
P&G Operating Cash Flow Ratio |
0.47 |
0.67 |
0.46 |
0.45 |
|
|
Takeda Current Ratio |
3.19 |
3.13 |
3.30 |
3.50 |
3.51 |
|
Takeda Quick Ratio |
2.31 |
2.25 |
2.43 |
2.63 |
2.64 |
|
Takeda Cash Ratio |
1.48 |
1.61 |
1.70 |
1.88 |
1.89 |
| Takeda Operating Cash Flow Ratio | 0.82 | 0.14 | 0.34 | 0.55 |
Among the three companies, Takeda Company has the highest liquidity in “current ratio”, “quick ratio”, and “cash ratio”, and Johnson & Johnson has the highest operating cash flow ratio. Takeda Company has the least chance to go bankruptcy because it is more likely able to pay the debt in the emergency. . Johnson & Johnson’s high operating cash flow represents the company pays the cash in operation instead of paying via the debt financing. Also, from the liability-to-equity ratio and debt-to-equity ratio below, we can see Takeda has much lower liability than its equity which indicates company collects enough money and spend it for its operation.
|
JNJ Liability-to-equity ratio |
0.521 |
0.794 |
0.869 |
0.997 |
0.872 |
|
P&G Liability-to-equity ratio |
2.33 |
1.157 |
1.067 |
1.068 |
1.132 |
|
Takeda Liability-to-equity ratio |
0.339 |
0.351 |
0.333 |
0.318 |
0.313 |
|
JNJ Debt-to-equity ratio |
0.069 |
0.168 |
0.22 |
0.279 |
0.287 |
|
P&G Debt-to-equity ratio |
1.317 |
0.606 |
0.53 |
0.528 |
0.586 |
|
Takeda Debt-to-equity ratio |
0.002 |
0.01 |
0.002 |
0.002 |
0.002 |
Portfolio Analysis
|
|
Portfolio Variance |
Portfolio Risk |
|
|
Maximum return |
4.34% |
0.24% |
4.91% |
|
Minimum return |
0.21% |
0.16% |
3.99% |
|
3.5% return |
3.5% |
.15% |
3.92% |
|
US Govt Bond (5yr) |
2.43% |
— |
— |
|
JPN Govt Bond (10yr) |
0.51% |
— |
— |
|
Takeda |
Johnson |
P&G |
|
|
Expected return |
3.49% |
0.21% |
4.34% |
|
Average |
-0.13% |
-0.22% |
0.65% |
|
Variance |
0.36% |
0.16% |
0.24% |
|
SD |
5.99% |
3.99% |
4.91% |
|
Beta |
0.21 |
0.56 |
0.09 |
|
Weight |
||
|
Takeda |
JNJ |
P&G |
|
17.032% |
16.895% |
66.073% |
For the investment decision, I used not only company’s financial information using BAV file but also portfolio analysis tool which I did on assignment #2. According to the result above, P&G has the highest expected return with relatively higher risk and Johnson & Johnson has the lowest expected return with the lowest risk. If I invest fully in P&G, I will get maximum return 4.34% from my investment. But, in the real world, anything will happen, so I decided to reduce my investment default risk by diversifying my investment weight. 3.5% portofolio return is the most appropriate in my case since I can diversify my investment very good as shown on the right hand. 3.5% is much higher than both 5-year Japanese and U.S. government bond, so my investment is highly profitable with little risk.
From the result of portfolio analysis, I decided to invest as follows:
|
Weight |
||||
|
Takeda |
JNJ |
P&G |
Total |
|
|
$17,032 |
$16,895 |
$66,073 |
$100,000 |
|
|
Weight |
||||
|
Takeda |
JNJ |
P&G |
Total |
|
|
$8,032 |
$25,895 |
$66,073 |
$100,000 |
|
Long-term asset of JNJ and P&G have dramatically increased each year. This is because these two companies invest in new plants and development of new products and their increase in the assets indicates they are willing to win the current competitive market characteristics. Especially, JNJ has invested in bio-technology recently according to its company report. In the future, price of raw materials will be higher than current price and the market will be more competitive, so the two companies’ investment plans are good to keep staying the strong position in the market. However, Takeda will be in trouble if the company will not do something special like the two companies. I recommend the company to invest on development of new different products such as healthcare products due to its strong reputation as medical manufacturing companies. Because of Takeda’s lack of investment plan for the future market, I justified my investment assumptions as follows.
Katsuya Nonogawa
DELL Inc.
The strength of Dell is cost efficiency. Dell’s marketing method, direct to customer business model, is very unique. Dell does not have inventory, BTO style (Built to order). Dell starts building up the PC after orders from customers, so the Dell can provide their products with cheaper price. In addition, Dell can customize their products as customer’s request. This unique style differentiates from other competitors and the reason why Dell can keep their sales top-class in the world.
The weakness of Dell is that Dell is not protected patent or copyright technology, so the other competitors of Dell can share its technology. This weakness can be defeated to the strengths of Dell and they depend on their component supplier.
The opportunities of selling Dell products are lot. In developed countries, most people have to own their computer. Especially, business people real time information and they have to work with PC. The demand of PC is higher and that will increase. On the other hand, in most developing countries, people do not use PC. However, the demand of PC will be increased in these areas. Like China, the demand of PC would be increased with growth of GDP. Moreover the network of Dell is very broad over the world. In the world the number of PC user increase and exceed 1 billion by 2010. The threat is competitors which sell their product cheaper price. The HP and Acer sold their product with cheaper price. HP has similar strength with Dell. In addition the cost of PC component is increased, so the price of PC of Dell also increased. Dell has sold their product cheaper price but Dell cannot keep their price cheaper. The other competitor will emerge like Acer and HP because of higher demand of PC in developing country.
Dell has unique sold method and it makes their products price cheaper but the environment of PC companies, components and competitors, is tough competition. Actually, Dell’s revenue is lower than analyst expectation. This is not Dell’s problem. Other environment affects Dell’s sales. That is why Dell’s growth rate will be declined. In addition, the price of Dell’s product will be higher, so the profits will be also decreased. Now Dell’s share price is $15.22 but the estimation of share price of Dell is $8.99, so the share price of Dell will goes down, so we should not invest Dell.