Presented below are condensed financial statements adapted from those of two actual companies competing in the pharmaceutical industryJohnson and Johnson (J&J) and Pfizer, Inc. ($ in millions, except per share amounts).

Balance Sheets ($ in millions, except per share data)
	J&J				Pfizer
Assets:
Cash	$	10,641			$	5,801
Short-term investments		5,037				11,293
Accounts receivable (net)		7,589				9,790
Inventories		4,520				7,459
Other current assets		4,395				4,260
Current assets		32,182				38,603
Property, plant, and equipment (net)		12,338				20,779
Intangibles and other assets		17,214				70,539
Total assets	$	61,734			$	129,921
Liabilities and Shareholders' Equity:
Accounts payable	$	5,911			$	3,546
Short-term notes		2,756				10,435
Other current liabilities		8,218				13,113
Current liabilities		16,885				27,094
Long-term debt		3,830				6,630
Other long-term liabilities		5,852				22,847
Total liabilities		26,567				56,571
Capital stock (par and additional paid-in capital)		4,170				68,100
Retained earnings		38,738				37,117
Accumulated other comprehensive income (loss)		(730	)			230
Less: Treasury stock and other equity adjustments		(7,011	)			(32,097	)
Total shareholders' equity		35,167				73,350
Total liabilities and shareholders' equity	$	61,734			$	129,921
Income Statements
Net sales	$	45,607			$	48,933
Cost of goods sold		13,058				10,714
Gross profit		32,549				38,219
Operating expenses		20,617				29,340
Other (income) expensenet		(490	)			3,715
Income before taxes		12,422				5,164
Tax expense		3,727				1,549
Net income	$	8,695			$	3,615	*
Basic net income per share	$	2.77			$	0.57

* This is before income from discontinued operations. 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. Required: 1. For both companies, compute the ratios below.

For both companies, compute the ratios below.

	J&J		Pfizer
Receivables Turnover (#.##)		times		times
Average Collection Period (#)		days		days
Inventory Turnover (#.##)		times		times
Average Days in Inventory (#)		days		days
Profit Margin (#.##)%		%		%
Asset Turnover (#.###)		times		times
Return on Assets (#.#)%		%		%
Equity Multiplier (#.##)
Return on Shareholders' Equity (#.#)%		%		%

2. Evaluate and compare the two companies.

Analysis

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 turnover?

From the perspective of a common shareholder, which of the two firms provided a greater rate of return?

From the perspective of a common 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?