The $10,000 investment made into Johnson and Johnson is a good investment to have in your portfolio. This is because of the stable nature of Johnson and Johnson and the growth trend of the company. Based on the JNJ 10-Ks for the last 5 years ended Jan. 1, 2012, the revenue trend is growing. Revenues have trended favorably from $61,095 in the year ended Jan. 2007 to $65,030 in the year ended Jan. 1, 2012. The company is also operating efficiently showing the more stable aspect of this investment by keeping costs of goods sold at an average percent of 29.94% for the five years ended Jan. 1, 2012. The company is also well leveraged for growth. A good measure of this leverage is the Debt Ratio, which is a measure of the total liabilities of a company in proportion to the total assets.
The Debt Ratio will also expose the risks in the company’s debt-load by revealing the extent of assets that are financed with debt. The debt ratio for JNJ has trended from 2.00 in the year ended Dec. 28, 2008 to 2.01 Jan. 1, 2012 with an increase in the fiscal years ended Jan 2, 2011 and Jan 3 2010 to 2.22 and 2.15, respectively. These ratios show that the company has two assets for every one dollar of a liability the company has thereby showing that the company is financially stable and able to pay the obligations it has. Johnson and Johnson is also able to generate earnings from it’s invested capital. Return on asset (ROA) is a ratio that describes what earnings are generated from invested capital and is often referred to as return on investment.
From the years ended Dec. 28, 2008 through Jan 2, 2011, the company has had a consistent ROA percentage of 15.25%, 12.95%, and 12.96%, respectively. The ROA percentage decreased to 8.51% in the year ended Jan. 1, 2012 because of continued additions of assets through acquisitions that will continue to generate growth in the future. Market perception is also a valuable indicator when determining sound investments. The price to earnings ratio is a valuation of a company’s current market share price compared to its per-share earnings. Generally, a higher P/E ratio suggests that an investor can expect higher earnings growth in the future. The price to earnings ratio has increased substantially to 18.53 in the fiscal year ended Jan. 1, 2012 from the 12.75 price to earnings ratio in the year ended Jan. 2, 2011, as shown in the table below.
Lastly, most financially secure and stable companies offer dividends to their stockholders. A dividend is a distribution of cash, stock, or property in a portion of a company’s earnings. The cash dividends per share have trended favorably for investors looking to have a return on their investment from $1.62 in the year ended Dec. 28, 2007 to $2.25 for the year ended Jan. 1, 2012. In summary, Johnson and Johnson is continually investing into new consumer, pharmaceutical, and medical device fields which has created a large, well diversified company that is able to stay one step ahead of its competitors thereby creating a strong stable investment option for investors.
Courtney from Study Moose
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