An analysis of the pharma giant's balance sheet reveals three important takeaways.

1. J&J'S BALANCE SHEET
3 LESSONS FOR INVESTORS

2. JOHNSON & JOHNSON'S BALANCE
SHEET CASTS LIGHT ON THREE OF
THE PHARMA GIANT'S MOST
IMPORTANT TRAITS.

3. SIZE | LIQUIDITY | SOLVENCY

4. ASSETS & EQUITY
ARE THERE ENOUGH CURRENT
ASSETS (CASH & EQUIVALENTS) TO
COVER CURRENT LIABILITIES?
DOES EQUITY EXCEED DEBT?
SIZE | LIQUIDITY | SOLVENCY

5. THESE TRAITS GIVE INVESTORS A
SENSE OF JOHNSON & JOHNSON'S
GROWTH POTENTIAL, AS WELL AS OF
THE VULNERABILITY OF ITS
BUSINESS MODEL.

6. BEFORE DIGGING INTO THESE
TRAITS, LET’S BRIEFLY REVIEW THE
BALANCE SHEET ITSELF.

7. EQUITY
LIABILITIES
ASSETS
THE BALANCE SHEET
1. THE BALANCE SHEET
REVEALS A COMPANY’S
ASSETS, LIABILITIES,
AND OWNERS’ EQUITY
ON THE FINAL DAY OF A
FISCAL QUARTER OR
YEAR.
2. THIS IS WHY IT’S
OFTEN REFERRED TO AS
A SNAPSHOT OF A
COMPANY’S FINANCIAL
CONDITION.
3. THE “ACCOUNTING
EQUATION” HOLDS THAT
ASSETS MUST ALWAYS
EQUAL LIABILITIES PLUS
OWNERS’ EQUITY.

8. 1. SIZE

9. YOU PROBABLY WON'T BE
SURPRISED TO HEAR THAT JOHNSON
& JOHNSON IS ONE OF THE BIGGEST
COMPANIES IN AMERICA.

10. $284 billion
$133 billion
$72 billion $71 billion
Market
Capitalization
Total
Assets
Shareholders'
Equity
Revenue
(ttm)
4 WAYS TO MEASURE J&J'S SIZE
$284 billion
FOUND ON JOHNSON & JOHNSON'S BALANCE SHEET

11. 18TH41ST J&J IS THE 18TH BIGGEST
COMPANY ON THE S&P 500
BASED ON EQUITY.
IT'S THE 41ST LARGEST WHEN
MEASURED BY ASSETS.

12. THANKS TO JOHNSON & JOHNSON'S
ALREADY CONSIDERABLE SIZE, IT
ISN'T LIKELY TO GROW AS FAST AS,
SAY, A NEWLY LISTED GROWTH
STOCK.

13. 2. LIQUIDITY

14. THE CURRENT RATIO IS A COMMON WAY
TO MEASURE LIQUIDITY.

15. IT’S CALCULATED BY DIVIDING A
COMPANY’S CURRENT ASSETS BY ITS
CURRENT LIABILITIES.

16. $63 BILLION
$25 BILLION
= 2.51
J&J'S CURRENT
ASSETS
J&J'S CURRENT
LIABILITIES
J&J'S CURRENT RATIO

17. HOW DOES JOHNSON & JOHNSON'S
CURRENT RATIO COMPARE TO THAT
OF OTHER LARGE-CAP STOCKS?

18. -
1
2
3
4
5
6
← 100 BIGGEST S&P 500 COMPANIES →
←CURRENTRATIO→
54% OF S&P 500 COMPANIES
HAVE CURRENT RATIOS
BETWEEN 0.75 AND 2.0
THE CURRENT RATIOS OF THE 100
BIGGEST S&P 500 COMPANIES

19. IN SUM, BECAUSE JOHNSON &
JOHNSON'S CURRENT RATIO
EXCEEDS 2.0, IT'S MORE LIQUID (AND
THUS PRESUMABLY SAFER) THAN
THE TYPICAL LARGE-CAP STOCK.

20. 3. SOLVENCY

21. LAST BUT NOT LEAST IS SOLVENCY,
WHICH IS MEASURED BY THE DEBT-TO-
EQUITY RATIO.

22. THIS IS CALCULATED BY DIVIDING A
COMPANY’S DEBT BY ITS EQUITY.

23. $20 BILLION
$72 BILLION
= 0.28
J&J'S DEBT
J&J'S EQUITY
J&J'S DEBT-TO-
EQUITY RATIO

24. THERE’S NO HARD-AND-FAST RULE
WHEN IT COMES TO THE DEBT-TO-
EQUITY RATIO, THOUGH A SMALLER
RATIO (LESS THAN 1) IMPLIES THAT A
COMPANY IS BETTER POSITIONED TO
SURVIVE AN INTERUPTION TO ITS
REVENUE.

25. HOW DOES JOHNSON & JOHNSON'S
DEBT-TO-EQUITY RATIO COMPARE?
2.98
2.17
0.56 0.49
0.32 0.20 0.28
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
IBM MCD COST PG SLB XOM JNJ

26. BECAUSE J&J'S DEBT-TO-EQUITY
RATIO IS LESS THAN OR EQUAL TO
1.0, IT'S SAFE TO SAY THE COMPANY
IS SOLVENT.

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