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Business Studies Case Study: Johnson & Johnson Pharmaceutical Company

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Johnson & Johnson Pharmaceutical Company Below are the rations which I used to evaluate my company: Probability Return on Capital Employed - 34% Gross Profit Margin - 70.91% Net Profit Margin - 23.8% Liquidity Current Ratio or Current Assets Ratio - 1.71 Acid Test - 1.4:1 Efficiency Debtor Days or Trade Debtor - 70 days Stock Turnover - 3.39 times The first factor which I evaluated was the return on capital employed regarding the profability of my company. After completing the formula, I was told that my company had 34%. This is a very good factor of my company because generally, the higher this number is, the better it means your company is doing in this aspect. ...read more.


The first factor which I evaluated was the current assets ratio which was reported to be 1.71:1. This is a very good ratio because 1.5-2 are considered very satisfactory ratings. A business operating below 1.5 may face capital problems such as overtrading while a business operating over 2:1 may imply that too much money is tied up unproductively. Johnson and Johnson is in the perfect middle range of these two factors. I then performed the acid test which is a more severe test of liquidity, but it does not treat stocks as a liquid asset because the stocks of a company are not guaranteed to be sold. A superior ratio to achieve in this factor is a 1:1 rating because it implies that the company has adequate liquid resources. ...read more.


The final ratio which I computed was the Stock Turnover. For this particular company it was 3.39 times. This figure represents the amount of times during the year that Johnson and Johnson sells the value of their stocks. It also shows that the profit on the sale of the company's stock is earned more quickly, and as a result the business can operate on lower margins. After analyzing all of the data from the profit & loss account and balance sheet of my company, I have come to the conclusion that they are a financially strong and stable pharmaceutical company and I will surely invest in them on the Stocks Quest game. My date has concluded that their performance, liquidity, and activity rations are excellent, and they have proven to be a well-operated and financially stable company. ...read more.

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