Wed. Jun 7th, 2023

how much debt does johnson and johnson have

How Much Debt Does Johnson and Johnson Have?

Many companies face various financial hurdles, and debt can play an essential role in whether they will be able to overcome them or not.

Johnson & Johnson (NYSE:JNJ) is one of these firms with significant debt on its balance sheet.

Total Debt

When it comes to assessing financial health, total debt is one of the key metrics. It serves as an indication of both short- and long-term dependencies on external financing sources as well as liquidity needs in running day-to-day operations smoothly.

Total debt can be determined by adding together all liabilities of a company, such as short- and long-term loans, in one metric. This allows financial lenders to make informed decisions regarding whether or not a particular balance sheet meets criteria for additional loans.

Business leaders also can use it to measure how much of their operating cash flow is consumed annually by debt obligations – this metric is known as debt service coverage ratio or DSCR and measures how well debt payments cover its operating cash flow – it’s one of the most widely-used ratios on the market.

Investors can use this metric to assess a company’s financial health by comparing it against its industry average or against similar loan opportunities. A higher debt ratio suggests an increased risk of running out of funds to repay debts.

Financial leverage indicates a high level of risk within a company and can increase interest expenses and earnings per share while decreasing asset values, leading to its stock price falling as a result.

Johnson & Johnson boasts a multifaceted business model and one of the largest research and development budgets among pharmaceutical companies. It offers products in three distinct areas – pharmaceuticals, medical devices, and consumer products.

J&J’s diverse strategy provides it with the tools to weather economic cycles more effectively while continuing to offer consumers quality products. Furthermore, its adaptability provides them with opportunities in healthcare industry changes.

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Debt levels at the company have steadily increased over the last five years, reaching their highest debt to equity ratio ever in its most recent quarter (0.52). This indicates that debt financing may have been used aggressively to fuel expansion resulting in fluctuating earnings and revenue streams.

Total Liabilities

Investors frequently consider the amount of debt a company owes its creditors when making decisions about investments, as this allows them to assess whether too much leverage is being applied by the firm and understand if an economic downturn will negatively impact operations.

Johnson and Johnson’s (NYSE:JNJ) debt can serve as an indication of its level of risk, since debt often plays an essential role when filing bankruptcy proceedings.

Rising levels of debt can be hazardous to a company’s success when used to fund expansion plans, leading to volatile earnings and increasing debt payments.

Companies can address this issue in various ways. For instance, they could create a subsidiary to take over all talc lawsuits, then bankrupt it to limit how many claims have to be paid out.

Establish a trust to absorb any future claims before they’re filed – this could save considerable money over time but is unlikely to pass muster with courts.

Finally, a company can utilize its liquid assets to meet short-term liabilities through selling stock or cash assets. This strategy is particularly popular among companies with low debt to equity ratios as it helps lower leverage while still keeping debt levels sufficient to run the operations successfully.

J&J also has an expansive consumer business which contributes to its profits significantly.

Consumer Products Division. Consumer products generates approximately 30% of total company revenue and has been an impressive growth stock over recent years.

Johnson & Johnson may ultimately prevail in its talc lawsuits, yet this should not deter investors from investing in its stock.

Total Shareholders’ Equity

As part of any decision to purchase or sell shares in a company, debt levels should always be taken into consideration. Debt tells you how much leverage the business is using to support operations and will it survive an economic downturn.

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Johnson & Johnson (NYSE:JNJ), one of the largest health-care companies worldwide, boasts a $400 billion market cap. Operating through pharmaceuticals, medical devices and consumer product divisions respectively, it boasts an incredibly diversified business model that allows it to weather economic cycles more effectively than its rivals.

Research and development budget, making them one of the top players in the pharmaceutical industry. Their diversified portfolio features an e-commerce platform and investments in biotechnology.

However, J&J has been accused of selling talc-based baby powder that may lead to cancer. J&J lost several trials related to these claims and was ordered to pay billions of dollars in damages; consequently it filed for two-step bankruptcy on its talc business.

Total shareholders’ equity (TSE) measures the difference between a company’s assets and liabilities; investors use this measure of their financial health when assessing a firm. TSE can also be known as book value.

Formulas used to calculate shareholders’ equity are typically straightforward and can be drawn directly from a balance sheet. They take into account three components of shareholder equity: paid-in share capital, retained earnings and treasury stock.

An additional equation employing these same three components subtracts long-term liabilities from equity and adds several items, including anticipated gains that have yet to be realized and translation for foreign currency transactions.

Johnson & Johnson has significant debt, yet holds substantial shareholders’ equity. This gives it a significant cushion if it needs to file for bankruptcy or reorganize and allows it to keep operating even in times when economic conditions worsen or its stock price declines.

Cash & Liquid Assets

Cash & liquid assets play an integral part of a company’s balance sheet. They help meet short-term obligations while protecting against risks in the future and playing an essential role in determining how much debt should be taken on to finance its operations.

Cash is among the most liquid assets, meaning it’s easily converted to cash quickly; investors often view a company’s cash and liquid assets as an indicator of its financial health. Other forms of liquid assets may include accounts receivable, marketable securities and inventories.

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Accounts receivable is an asset which should be paid back by customers after completing their purchases, while inventories can easily be converted to cash.

These assets may help Johnson & Johnson meet its short-term obligations and pay back creditors in the future, but can also pose risks if not properly managed.

Cash and liquid assets are important indicators of a company’s overall financial health, but total liabilities and shareholder equity can provide more insight. Investors can use this metric to gauge how much leverage is being utilized to fund operations, as well as whether an impending financial crisis could negatively impact it.

The debt-to-equity ratio is an important indicator of a company’s financial health, measuring debt relative to total assets and can provide useful insights for traders.

An increased debt-to-equity ratio indicates that a company is highly leveraged and may pay substantial interest charges on its expenses, creating a volatile earnings statement.

At its core, understanding a company’s liquidity involves taking an objective look at its current and future financial obligations, its total liabilities and shareholders’ equity ratios can provide insight into how much leverage the firm uses to finance operations. With these figures at hand, investors can decide whether or not to purchase its stock.

Jeffrey Augers
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By Jeffrey Augers

Jeffrey Augers is a highly skilled and experienced financial analyst with over 12 years of experience in the finance industry. He has a proven track record of delivering exceptional financial insights and recommendations to clients, empowering them to make informed decisions and achieve their financial goals. Jeffrey holds a Bachelor's degree in Finance from the University of Michigan, and an MBA from the Wharton School of Business.