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 P 5-12 Use of ratios to compare two companies in the same industry: Johnson and Johnson, Pfizer amounts). Required: LO7 Real World and relations 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? 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 tumover? 4. From the perspective of an ordinary shareholder, which of the two firms provided a grenter 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? Alle In. ROA Statements of Financial Position (5 in millions, except per share data) J&J Pfizer sale Assets: So TA Cash Short-term investments Accounts receivable net Inventones $ 5.377 4,146 6,574 3.588 5 1 520 10.432 8.275 5.837 Statements of Financial Position (S in millions, except per share data) sale J&J Pflaer TA Assets Cash Short-term investments Accounts receivable (net) Inventories Other current assets $ 5,377 4,146 6,574 3,588 3,310 $ 1,520 10,432 8,775 5,837 3.177 x NI Sals A- Current assets Property, plant, and equipment (net Intangibles and other assets Total assets 22,995 9,846 15,422 29,741 18.287 68.747 $48.263 $116,775 Bols measure the Profitsilih 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 NI Shies. Share capital par and additional issued capital) Retained earnings Accumulated other comprehensive income fossi Less: treasury shares and other equity adjustments Tota shareholders equity Total abities and shareholders equity 3,120 30.503 (590) (6,164) 67,050 29.382 195 (31.250) 26,869 65,377 $48.263 $116,775 Income Statements c Short-term notes Other current liabilities Bolum profitabil 1139 7,343 8,818 12.238 Current liabilities 13,448 23,657 Long-term debt Other long-term liabilities Total liabilities 2,955 4,991 5,755 21,986 21,394 51,398 NI Share capital pur 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 3,120 30,503 (590) (6,164) 67,050 29,382 195 (31,250) Sh.Es. 26,869 65,377 $48,263 $116,775 Income Statements POSE $41,862 12,176 $ 45,188 9,832 Net Sales Cost of goods sold Gross profit Operating expenses Other income expense_net 29,686 19,763 (385) 35,356 28,486 3,610 shoes. E.M= TA Income before takes Tax expense 10,308 3,111 3.260 1,621 $ 7,197 $ 1,639 Net nome $ 2.42 $ 22 3-1 Basic net income per share offe fively ont comemoscontred operations t debor (inscreve when you start using