Question
Here are selected financial details for Johnson & Johnson and Merck & Co., Inc. for the fiscal year 2023: ($ millions) Johnson & Johnson Merck
Here are selected financial details for Johnson & Johnson and Merck & Co., Inc. for the fiscal year 2023:
($ millions) | Johnson & Johnson | Merck & Co., Inc. |
Net sales | $95,000 | $82,100 |
Cost of sales | 35,000 | 30,500 |
Gross profit | 60,000 | 51,600 |
Operating expenses: | ||
Selling, general, and administrative | 23,000 | 20,200 |
Research and development | 11,000 | 8,700 |
Operating income | 26,000 | 22,700 |
Interest and other (income) expense | 1,800 | 1,200 |
Interest and investment income | (600) | (400) |
Earnings before provision for income taxes | 24,800 | 21,900 |
Provision for income taxes | 7,500 | 6,800 |
Net earnings | $17,300 | $15,100 |
Required: a. Compute the return on equity (ROE), return on assets (ROA), and return on financial leverage (ROFL) for Johnson & Johnson and Merck & Co., Inc. Assume a tax rate of 35%. b. Break down the ROA into profit margin (PM) and asset turnover (AT) for both companies. Identify the primary drivers of their ROA. c. Assess the operating cash flow for both companies over the last three years. How does this impact their ability to invest in new projects? d. Evaluate the inventory turnover ratio for Johnson & Johnson and Merck & Co., Inc. What does it reveal about their inventory management efficiency? e. Compare the operating profit margins of Johnson & Johnson and Merck & Co., Inc. What insights can be drawn about their cost control and profitability?
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