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. The advantage of this ratio is that it related profit to the size of the business. The next factor which I evaluated was the gross profit margin of my selected company, which shows the gross profit made on sales turnover. For Johnson and Johnson in the year 2003, this was 70.91%. This is also a very encouraging factor of the company, because a higher profit margin is preferred. This is also the case with the Net Profit Margin, which is 23.8%. This shows that this company is in good control of their overheads. In most aspects, higher profit margins a much better than lower ones, and in almost all aspects, Johnson and Johnson has an extraordinary reporting of profitability.
I then evaluated the liquidity factors of the company. 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. Johnson and Johnson’s ration was a 1.4, which shows that although the company is not perfect in this aspect, few are, and the rating of 1.4 proves to be very satisfactory.
Last, I computed the activity ratios of the company. The Debtor Days of the company was 70.62 days. This is the period of time it will take the company to collect debts on average. This is also a very good reporting of the company’s financial stability because it shows that all of its debts can be collected in less than 2 and a half months. Companies greatly prefer short debt collections period such as 2 months because for a large company such as Johnson and Johnson, a large amount of days could imply the need to improve their credit control. 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.
