Johnson & Johnson's Financial Performance

Liquidity ratios are used to determine the ability of a company to meet its current (short-term) obligations. Common measurements include the current ratio, the acid test ratio and the inventory to net working capital ratio. The current ratio (current assets divided by current liabilities) measures the extent to which the claims of short-term creditors are covered by assets that are expected to be converted to cash in a period roughly corresponding to the maturity of the liabilities. The acid test (also called the quick ratio) is the same as the current ratio, with the exception that inventory is deducted from the current assets. The acid test ratio measure the firm's ability to pay short-term creditors without relying on the sale of its inventory. The inventory to net working capital ratio measu

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's performance in this regard needs to be compared to the industry as a whole, which reduced its indebtedness over the same period. Where total debt to equity is 130 percent for Johnson & Johnson in 1992, it was merely 62 percent for the industry. As with the liquidity measures, this indicates that the company may be losing its ability to compete as increased amounts of its resources go toward servicing its debt.
Profitability ratios, gross operating margin, sales margin and return on assets, indicate how the company is able to translate its sales into profit for its owners. The gross margin measures the total profit available to cover internal operating expenses and yield a profit. High gross margins indicate that the company is able to minimize its cost of goods sold or maximize its revenues. The sales margin shows the after-tax profit on revenues. A low sales margin suggests that the company's costs may be excessive, or that its pricing strategy should be re-evaluated. Return on assets measures the company's return against its available assets. Net profit margin is also considered since it measures the ability of the company to be profitable after all expenses are deducted. Gross operating margin has remained remar
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