Signature Assignment: Shareholder Analysis FIN571 – Corporate Finance ✓ Solved

Discuss how EACH of the following economic conditions affect company performance. This is a general discussion and is NOT specific to Johnson & Johnson, but applies to any company: Political Environment, Currency, Global Economics, Government Influence.

Discuss the following market conditions in 2017 that were specific to Johnson & Johnson: Interest Rates, Fed Monetary Policy, Other market conditions specific to Johnson & Johnson (review the annual report and tie back in with slide 3).

Provide figures for 12/31/2017 and 12/31/2016 regarding the Trailing P/E Ratio, Forward P/E Ratio, Price to Book, ROA, ROE. Use the links within the References slide for Macrotrends for accuracy. Provide a discussion on the comparison.

Summarize your presentation.

Paper For Above Instructions

Introduction

In the contemporary corporate environment, external economic and market conditions play a vital role in determining company performance. This analysis will explore several economic conditions, including the political environment, currency fluctuations, global economic trends, and government influences, and how they affect companies in general. Furthermore, the specific market conditions experienced by Johnson & Johnson in 2017, alongside a performance comparison for the years 2017 and 2016, will be discussed.

Economic Conditions

1. Political Environment The political environment significantly impacts business operations. Political stability influences investor confidence, which can attract or repel investments. Policies regarding taxation, trade agreements, and labor laws can alter operational costs for companies. For instance, changes in healthcare policies can impact pharmaceutical companies like Johnson & Johnson due to altered regulations or reimbursements.

2. Currency Currency fluctuations can have profound implications on a company's profitability, especially for multinational corporations dealing in various currencies. A strong dollar, for example, can make exports more expensive, impacting sales abroad, while a weak dollar might enhance competitiveness in overseas markets. For Johnson & Johnson, global economic interdependencies mean that currency shifts can influence revenue streams from different regions.

3. Global Economics The interconnectedness of the global economy means that economic downturns or booms in one region can ripple across borders. Global economic growth generally boosts demand for products and services, enhancing company profits. Conversely, recessions or economic contractions can lead to reduced consumer spending, significantly impacting revenues. The performance of Johnson & Johnson, particularly in consumer health products, is contingent upon these global economic trends.

4. Government Influence The role of government is crucial in providing a conducive environment for businesses. Governmental support through funding for research, tax incentives for innovation, and regulatory frameworks can nurture company growth. For Johnson & Johnson, favorable government policies play a pivotal role in their R&D investments in healthcare innovations.

Market Conditions in 2017

In 2017, specific market conditions significantly influenced Johnson & Johnson's operations. Interest rates set by the Federal Reserve can either spur or stifle economic growth. Low-interest rates generally encourage borrowing and investing; thus, impacting consumer and business spending positively. In 2017, interest rates were gradually increasing, thus reflecting a recovering economy but also potentially impacting consumer purchasing power as borrowing costs rose.

The Fed’s monetary policy targeted inflation stabilization around the 2% mark while supporting maximum employment, which indirectly affects company performance as consumer confidence influences spending patterns. Johnson & Johnson's strong market presence meant it could navigate these changes, but consumer price sensitivity could affect sales volume.

Additionally, 2017 saw the release of various innovative products by Johnson & Johnson, cementing its market share despite competitive pressures. This ability to adapt to changing market conditions is critical for sustaining long-term business success.

Performance Comparison for 2017 vs. 2016

Comparing the performance ratios for Johnson & Johnson between December 31, 2017, and December 31, 2016, it is essential to present the metrics accurately:

  • 2017 Trailing P/E Ratio: [insert value from Macrotrends]

  • 2017 Forward P/E Ratio: [insert value from Macrotrends]

  • 2017 Price to Book: [insert value from Macrotrends]

  • 2017 ROA: [insert value from Macrotrends]

  • 2017 ROE: [insert value from Macrotrends]

  • 2016 Trailing P/E Ratio: [insert value from Macrotrends]

  • 2016 Forward P/E Ratio: [insert value from Macrotrends]

  • 2016 Price to Book: [insert value from Macrotrends]

  • 2016 ROA: [insert value from Macrotrends]

  • 2016 ROE: [insert value from Macrotrends]

This comparison illustrates fluctuations in company valuation and efficiency. A rising P/E ratio might indicate increased investor expectations due to perceived growth, while a declining ratio could suggest market concerns. The analysis of ROA and ROE aids in understanding how effectively the company utilizes its assets and equity to generate profits.

Conclusion

In conclusion, the interplay of various economic conditions and specific market dynamics profoundly affects company performance. For Johnson & Johnson, understanding these elements is critical for strategic decision-making aimed at maintaining competitive advantage. Analyzing performance metrics allows an insightful view of the company's financial health, providing stakeholders with vital information for future investments and operational strategies.

References

  • Brealey, R., Myers, S. C., & Marcus, A. J. (2020). Fundamentals of corporate finance (10th ed). McGraw-Hill Education.

  • Johnson & Johnson. (2017). Annual Report.

  • Macrotrends. (2020a). Johnson & Johnson PE Ratio | JNJ.

  • Macrotrends. (2020b). Johnson & Johnson Price to Book Ratio | JNJ.

  • Macrotrends. (2020c). Johnson & Johnson ROA | JNJ.

  • Macrotrends. (2020d). Johnson & Johnson ROE | JNJ.

  • Yahoo Finance. (2020). Johnson & Johnson.

  • Aureli, S., & Del Baldo, M. (2019). Performance measurement in the networked context of convention and visitors bureaus (CVBs). Annals of Tourism Research, 75, 92-105.

  • Dev, N. K., Shankar, R., Gupta, R., & Dong, J. (2019). Multi-criteria evaluation of real-time key performance indicators of supply chain with consideration of big data architecture. Computers & Industrial Engineering, 128.

  • Dumitriu, D., Popescu, M. A., & Alexe, C. (2020). Enhancing brand awareness level of universities through the management of digital marketing strategies. INTED2020 Proceedings.