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Question 3 Partially correct 0.09 points out of 1.00 Flag question Question text Analysis and Interpretation of Profitability Balance sheets and income statements for Johnson & Johnson follow. Refer to these financial statements to answer the requirements. JOHNSON & JOHNSON, INC. Consolidated Statement of Earnings Years Ended ($ millions) 2008 2007 2006 $63,747 $61,095 $53,324 18,511 17,751 15,057 Gross profit 45,236 43,344 38,267 Selling, marketing and administrative expenses 21,490 20,451 17,433 7,577 7,680 7,125 181 807 559 -- 745 -- (361) (452) (829) 435 296 63 1,015 534 (671) 28,307 30,061 23,680 16,929 13,283 14,587 3,980 2,707 3,534 Sales to customers Cost products sold Research expense Purchase in-process research and development Restructuring Interest (income) Interest expense, net of portion capitalized Other (income) expense, net Earnings before provision for taxes on income Provision for taxes on income Net earnings $ 12,949 $ 10,576 $ 11,503 JOHNSON & JOHNSON, INC. Consolidated Balance Sheets ($ millions) December 28, December 30, 2008 2007 Assets Cash and cash equivalents $10,768 $7,770 Marketable securities 2,041 1,545 Accounts receivable trade, net 9,719 9,444 Inventories 5,052 5,110 Deferred taxes on income 3,430 2,609 3,367 3,467 34,377 29,945 4 2 Property, Plant and equipment, net 14,365 14,185 Intangible assets, net 13,976 14,640 Goodwill, net 13,719 14,123 5,841 4,889 2,630 3,170 $ 84,912 $ 80,954 $3,732 $2,463 Accounts payable 7,503 6,909 Accrued liabilities 5,531 6,412 Accrued rebates, returns and promotions 2,237 2,318 Accrued salaries, wages and commissions 1,432 1,512 417 223 20,852 19,837 Long-term debt 8,120 7,074 Deferred taxes on income 1,432 1,493 Employee related obligations 7,791 5,402 4,206 3,829 42,401 37,635 Prepaid expenses and other receivables Total current assets Marketable securities, noncurrent Deferred taxes on income Other assets Total assets Liabilities and Shareholders' Equity Loans and notes payable Accrued taxes on income Total current liabilities Other liabilities Total liabilities JOHNSON & JOHNSON, INC. Consolidated Balance Sheets ($ millions) December 28, December 30, 2008 2007 Shareholders' equity Preferred stock-without par value (authorized and unissued 2,000,000 shares) Less: common stock held in treasury, at cost Total Shareholders' equity Total liability and shareholders' equity 3,120 (4,955) (693) 55,280 57,707 19,033 14,388 42,511 Retained earnings 3,120 61,544 Accumulated other comprehensive income -- 63,379 Common stock-par value $1.00 per share -- 43,319 $ 84,912 $ 80,954 (a) Compute net operating profit after tax (NOPAT) for 2008. Assume that the combined federal and statutory rate is: 37.1%. (Round your answer to the nearest whole number.) 2008 NOPAT = $Answer 484 (b) Compute net operating assets (NOA) for 2008 and 2007. 2008 NOA = $Answer 3391 2007 NOA = $Answer 3652 (c) Compute RNOA, net operating profit margin (NOPM) and net operating asset turnover (NOAT) for 2008. Do not use NOPM x NOAT to caculate RNOA. (Do not round until your final answers. Round answers to two decimal places.) 2008 RNOA = Answer 16 % 2008 NOPM = Answer % 2008 NOAT = Answer 7.12 2.45 (d) Compute net operating obligations (NNO) for 2008 and 2007. Confirm the relation: NOA = NNO + Stockholders' equity. 2008 NNO = $Answer 1818 2007 NNO = $Answer 2441 (e) Compute return on equity (ROE) for 2008. (Round your answers to two decimal places. Do not round until your final answer.) 2008 ROE =Answer 31.8 % (f) Infer the nonoperating return component of ROE for 2008. (Use answers from above to calculate. Round your answer to two decimal places.) 2008 nonoperating return = Answer 16.7 % (g) Comment on the difference between ROE and RNOA. Which of the following statements best describes the inference from the difference between JNJ's ROE and RNOA? ROE>RNOA implies that JNJ's equity has grown faster than its NOA. The faster increase of equity compared to NOA allows higher dividends to be paid to JNJ's stockholders. RNOA greater than ROE implies that JNJ's stockholders are funding a significant amount of liquidity in the form of cash and investments in marketable securities. ROE>RNOA implies that JNJ has taken on too much financial leverage. The high financial leverage results in a higher interest rate on JNJ's debt, therefore the cost of debt is greater. ROE>RNOA implies that JNJ has increased its financial leverage during the period. The increase in financial leverage also increases JNJ's risk, therefore increasing the expected ROE by JNJ's stockholders. 1.00 points out of 1.00 Check 57,707 61,544 Total Shareholders' equity Total liability and shareholders' equity 19,033 14,388 42,511 Less: common stock held in treasury, at cost 43,319 $ 84,912 $ 80,954 (a) Compute net operating profit after tax (NOPAT) for 2008. Assume that the combined federal and statutory rate is: 37.1%. (Round your answer to the nearest whole number.) 2008 NOPAT = $Answer 6964 (b) Compute net operating assets (NOA) for 2008 and 2007. 2008 NOA = $Answer 41550 2007 NOA = $Answer 43539 (c) Compute RNOA, net operating profit margin (NOPM) and net operating asset turnover (NOAT) for 2008. Do not use NOPM x NOAT to caculate RNOA. (Do not round until your final answers. Round answers to two decimal places.) 2008 RNOA = Answer 1.62 % 2008 NOPM = Answer % 2008 NOAT = Answer 25.1 1.5 (d) Compute net operating obligations (NNO) for 2008 and 2007. Confirm the relation: NOA = NNO + Stockholders' equity. 2008 NNO = $Answer -961 2007 NNO = $Answer 220 (e) Compute return on equity (ROE) for 2008. (Round your answers to two decimal places. Do not round until your final answer.) 2008 ROE =Answer 30.17 % (f) Infer the nonoperating return component of ROE for 2008. (Use answers from above to calculate. Round your answer to two decimal places.) 2008 nonoperating return = Answer 6.8 % (g) Comment on the difference between ROE and RNOA. Which of the following statements best describes the inference from the difference between JNJ's ROE and RNOA? ROE>RNOA implies that JNJ's equity has grown faster than its NOA. The faster increase of equity compared to NOA allows higher dividends to be paid to JNJ's stockholders. RNOA greater than ROE implies that JNJ's stockholders are funding a significant amount of liquidity in the form of cash and investments in marketable securities. ROE>RNOA implies that JNJ has taken on too much financial leverage. The high financial leverage results in a higher interest rate on JNJ's debt, therefore the cost of debt is greater. ROE>RNOA implies that JNJ has increased its financial leverage during the period. The increase in financial leverage also increases JNJ's risk, therefore increasing the expected ROE by JNJ's stockholders. 1.00 points out of 1.00 Check Feedback Partially correct Question 3 Partially correct 0.09 points out of 1.00 Flag question Question text Analysis and Interpretation of Profitability Balance sheets and income statements for Johnson & Johnson follow. Refer to these financial statements to answer the requirements. JOHNSON & JOHNSON, INC. Consolidated Statement of Earnings Years Ended ($ millions) 2008 2007 2006 $63,747 $61,095 $53,324 18,511 17,751 15,057 Gross profit 45,236 43,344 38,267 Selling, marketing and administrative expenses 21,490 20,451 17,433 7,577 7,680 7,125 181 807 559 -- 745 -- (361) (452) (829) 435 296 63 1,015 534 (671) 28,307 30,061 23,680 16,929 13,283 14,587 3,980 2,707 3,534 Sales to customers Cost products sold Research expense Purchase in-process research and development Restructuring Interest (income) Interest expense, net of portion capitalized Other (income) expense, net Earnings before provision for taxes on income Provision for taxes on income Net earnings $ 12,949 $ 10,576 $ 11,503 JOHNSON & JOHNSON, INC. Consolidated Balance Sheets ($ millions) December 28, December 30, 2008 2007 Assets Cash and cash equivalents $10,768 $7,770 Marketable securities 2,041 1,545 Accounts receivable trade, net 9,719 9,444 Inventories 5,052 5,110 Deferred taxes on income 3,430 2,609 3,367 3,467 34,377 29,945 4 2 Property, Plant and equipment, net 14,365 14,185 Intangible assets, net 13,976 14,640 Goodwill, net 13,719 14,123 5,841 4,889 2,630 3,170 $ 84,912 $ 80,954 $3,732 $2,463 Accounts payable 7,503 6,909 Accrued liabilities 5,531 6,412 Accrued rebates, returns and promotions 2,237 2,318 Accrued salaries, wages and commissions 1,432 1,512 417 223 20,852 19,837 Long-term debt 8,120 7,074 Deferred taxes on income 1,432 1,493 Employee related obligations 7,791 5,402 4,206 3,829 42,401 37,635 Prepaid expenses and other receivables Total current assets Marketable securities, noncurrent Deferred taxes on income Other assets Total assets Liabilities and Shareholders' Equity Loans and notes payable Accrued taxes on income Total current liabilities Other liabilities Total liabilities JOHNSON & JOHNSON, INC. Consolidated Balance Sheets ($ millions) December 28, December 30, 2008 2007 Shareholders' equity Preferred stock-without par value (authorized and unissued 2,000,000 shares) Less: common stock held in treasury, at cost Total Shareholders' equity Total liability and shareholders' equity 3,120 (4,955) (693) 55,280 57,707 19,033 14,388 42,511 Retained earnings 3,120 61,544 Accumulated other comprehensive income -- 63,379 Common stock-par value $1.00 per share -- 43,319 $ 84,912 $ 80,954 (a) Compute net operating profit after tax (NOPAT) for 2008. Assume that the combined federal and statutory rate is: 37.1%. (Round your answer to the nearest whole number.) 2008 NOPAT = $Answer 484 (b) Compute net operating assets (NOA) for 2008 and 2007. 2008 NOA = $Answer 3391 2007 NOA = $Answer 3652 (c) Compute RNOA, net operating profit margin (NOPM) and net operating asset turnover (NOAT) for 2008. Do not use NOPM x NOAT to caculate RNOA. (Do not round until your final answers. Round answers to two decimal places.) 2008 RNOA = Answer 16 % 2008 NOPM = Answer % 2008 NOAT = Answer 7.12 2.45 (d) Compute net operating obligations (NNO) for 2008 and 2007. Confirm the relation: NOA = NNO + Stockholders' equity. 2008 NNO = $Answer 1818 2007 NNO = $Answer 2441 (e) Compute return on equity (ROE) for 2008. (Round your answers to two decimal places. Do not round until your final answer.) 2008 ROE =Answer 31.8 % (f) Infer the nonoperating return component of ROE for 2008. (Use answers from above to calculate. Round your answer to two decimal places.) 2008 nonoperating return = Answer 16.7 % (g) Comment on the difference between ROE and RNOA. Which of the following statements best describes the inference from the difference between JNJ's ROE and RNOA? ROE>RNOA implies that JNJ's equity has grown faster than its NOA. The faster increase of equity compared to NOA allows higher dividends to be paid to JNJ's stockholders. RNOA greater than ROE implies that JNJ's stockholders are funding a significant amount of liquidity in the form of cash and investments in marketable securities. ROE>RNOA implies that JNJ has taken on too much financial leverage. The high financial leverage results in a higher interest rate on JNJ's debt, therefore the cost of debt is greater. ROE>RNOA implies that JNJ has increased its financial leverage during the period. The increase in financial leverage also increases JNJ's risk, therefore increasing the expected ROE by JNJ's stockholders. 1.00 points out of 1.00 Check