Economic and Market Analysis for Financial Performance

Economic and Market Analysis for Financial Performance

Evaluation of economic conditions

American pharmaceutical Johnson and Johnson Inc. conducts business globally. As a result, the company is exposed to a wide range of factors that affect how it performs in various markets. These elements include economic issues, which are crucial considerations for the company. Stable economies in rich nations, rising disposable incomes among target consumers, and rapid growth in developing nations are some examples of economic factors. In essence, these three elements represent an opportunity for the business, and as a result, they favorably impact it. One instance of how the organization is positively impacted is its evaluation of Asian countries’ high economic development rates (Lockamy III, 2017). As a result, Johnson and Johnson Inc. saw a rise in sales in these international nations. Our assignment writing help is at affordable prices to students of all academic levels and academic disciplines.

The legal environments present in these markets have hurt the company’s performance. The business has experienced legal challenges aimed at its procedures and principles. Notably, this particularly applied to their famous baby powder, which was accused of containing asbestos, a carcinogen (Livingston et al., 2021). Increased privacy restrictions imposed by the government, which require expensive regulatory compliance, have recently presented the corporation with another legal hurdle. Most industrialized nations where corporations conduct business have stable political environments and free trade policies, which define the market conditions there. In essence, the company benefits from stable economic situations, and the introduction of free trade possibilities in most economies gives the firm a competitive edge in cost-cutting. Contrarily, the company’s sales in China, one of the world’s greatest markets, have decreased due to major trade conflicts between the U.S. and China.

Comparison between Johnson and Johnson Inc.’s performance in the previous year and the current year

Johnson & Johnson Inc. had a productive year in 2021. The business was able to produce tens of billions of dollars in revenue. Also, the business attracted large investments from investors totaling billions of dollars. Particularly, the company generated revenue of 93.7 billion dollars. The company’s performance in the year can be identified across three dimensions. The company’s market performance can be identified in the increased demand for consumer packaged goods, pharmaceuticals, and medical devices. All three items were better in the year 2021 as compared to 2022. Notably, this can be associated with the increased competition in the market and stabilization after the Covid-19 pandemic.

The generation of huge amounts of cash was another significant success that Johnson and Johnson Inc. displayed in 2021 compared to 2022. Total revenue raised for the entire year was $93.7 billion, up 6% from the prior year. The large quantity of cash displayed on the company’s balance sheet is in the current assets’ cash component. When market conditions are considered, the company was able to raise this money because most of the nations where it does its business have favorable market conditions. One example of this is the stable state of the economy, which is defined by low rates of inflation in the U.S. and accessible interest rates for the common citizen.

Year-to-year performance of Johnson and Johnson Inc. in the past two years

The price-earnings ratio of Johnson and Johnson Inc. increased from 28.56 in 2020 to 21.90 in 2021. The metric indicates a company’s financial performance concerning market valuation. Thus, the company’s value decreased across the two years due to the increased dividend payout in 2021. Regarding the price-to-book ratio, the company’s value for this ratio declined from 6.55 to 6.08 across the two years. The decline connotes a reduction in financial valuation from existing investors. Essentially, this may discourage prospective investors from purchasing the company’s stock. The return on assets ratio decreased, suggesting a decline in the company’s capacity to utilize assets to increase earnings. The company’s stock price decrease in 2021 can be linked to the observed decline. The performance is still strong, as the industry prefers a ROA of between 5% and 20% (Myková & Hájek, 2017). The final measure of return on equity shows improved financial performance over the two years. Notably, this ratio increased from 23.97% to 30.41%, which is related to net income relative to equity. The ratio is higher than 15%, which is typically considered a desirable ratio value, suggesting great performance over the past two years.

References

Livingston, E. H., Malani, P. N., & Creech, C. B. (2021). The Johnson & Johnson Vaccine for COVID-19. Jama, 325(15), 1575-1575.

Lockamy III, A. (2017, July). An examination of external risk factors in Johnson and Johnson Inc.’s supply chain. In Supply Chain Forum: An International Journal (Vol. 18, No. 3, 1.177-188). Taylor & Francis.

Myšková, R., & Hájek, P. (2017). Comprehensive assessment of firm financial performance using financial ratios and linguistic analysis of annual reports. Journal International Studies, volume 10, issue: 4.

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A company’s financial reports are used for various reasons, including determining how the company is doing in the financial market. You decide to evaluate the effects of economic and market conditions on your company’s financial performance. Completing this exercise provides you with financial market research to present to your management team to inspire new KPIs and policies.

Economic and Market Analysis for Financial Performance

Assessment Deliverable

Use the previous year’s financial reports research you completed in Week 3.

Write a 2- to 3-page shareholder analysis in which you address the following:
Evaluate economic conditions that influence company performance. Consider political, environmental, currency (money), global economics, and government influence on economic conditions.
Compare market conditions from the previous year with the company’s performance for that same year. Conclude how the year’s market conditions influenced the company’s performance, such as interest rates, Federal Reserve Bank monetary policy changes, or other market conditions relevant to the company you selected.
Analyze year-over-year performance from the past two years. Consider key metrics or ratios such as trailing PE ratio, forward PE ratio, price to book, return on assets, and return on equity in your conclusions.