10 CHAPTER 5 283 Income Measurement and Profitability Analysis Presented below are condensed financial statements adapted from those of two actual companies competing in the pharmaceutical industry-Johnson and Johnson J&J) and Pfizer, Inc. (S in millions except per share amounts). Required: Evaluate and compare the two companies by responding to the following questions. Note: Because two-year comparative statements are not provided, you should use year-end balances in place of average balances as appropriate. 1. Which of the two companies appears more efficient in collecting its accounts receivable and managing its inventory? 2. Which of the two firms had greater earnings relative to resources available? Have the two companies achieved their respective rates of return on assets with similar combinations of profit margin and turnover? 4. From the perspective of an ordinary shareholder, which of the two firms provided a greater rate of return? 5. From the perspective of an ordinary shareholder, which of the two firms appears to be using leverage more effectively to provide a return to shareholders above the rate of return on assets? cials Statements of Financial Position (s in millions, except per share data) J&J Pfizer TA Assets: Cash Short-term investments Accounts receivable (net) Inventories Other current assets $ 5,377 4,146 6.574 $ 1,520 10,432 8,775 5,837 3,177 3,588 3,310 Current assets Property, plant, and equipment (net) Intangibles and other assets 22,995 9,846 15,422 29,741 18,287 68,747 Total assets $48,263 $116,775 peasure the fitis;cich Liabilities and Shareholders' Equity: Accounts payable Short-term notes Other current liabilities $ 4,966 1,139 7.343 $ 2,601 8,818 12,238 Current liabilities 13,448 23,657 Long-term debt Other long-term liabilities 2,955 4,991 5,755 21,986 Total liabilities 21,394 51,398 67,050 29,382 3,120 30,503 (590) (6,164) 195 Share capital (par and additional issued capital) Retained earnings Accumulated other comprehensive income (loss) Less: treasury shares and other equity adjustments Total shareholders' equity Total liabilities and shareholders' equity (31,250) Shoes 26,869 65,377 $48,263 $116,775 Income Statements $41,862 12,176 $ 45,188 9,832 Sh.Es Net sales Cost of goods sold Gross profit Operating expenses Other (income) expensenet Income before taxes Tax expense 29,686 19,763 (385) 35,356 28,486 3,610 10,308 3,111 3,260 1,621 Net income $ 7,197 $ 1,639 Basic net income per share $ 2.42 $ .22 This s before come from discontinued operations. 1 effectively when you start using debor (increased that will lead to Rose > Ron