P 4-13 Use of ratios to compare two companies in the same industry 10410 Presented below are condensed financial statements adapted from those of two actual companies competing in the pharmaceutical industry -Johnson and Johnson (J\&J) and Pfizer, Inc. (\$ in millions, except per share amounts). Required: Evaluate and compare the two companies by responding to the following questions. Note: Because two-year comparative statements are not provided, you should use year-end balances in place of average balances as appropriate. 1. Which of the two companies appears more efficient in collecting its accounts receivable and managing its inventory? 2. Which of the two firms had greater earnings relative to resources available? 3. Have the two companies achieved their respective rates of return on assets with similar combinations of profit margin and turnover? 4. From the perspective of a common shareholder, which of the two firms provided a greater rate of return? 5. From the perspective of a common shareholder, which of the two firms appears to be using leverage more effectively to provide a return to shareholders above the rate of return on assets? Balance Sheets ( $ in millions, except per share data) J\&J Pfizer Assets: Cash Short-term investments Accounts receivable (net) Inventory Other current assets Current assets Property, plant, and equipment (net) Intangibles and other assets Total assets Liabilities and Shareholders' Equity: Accounts payable Short-term notes Other current liabilities. Current liabilities Long-term debt Other long-term liabilities Total liabilities s 17,305 1,982 14,481 9,020 2,48645,27417,65894,796$157,728 \$ 8.544 1,202 26.21835,964 26.494 35,799 98.257 $1,305 8,525 8,724 8,283 5,966 32,803 13,967 $167,489120,719$4,220 16.195 37,30416.889 35,955 30,783 Total liabilities Common stock (par and additional paid-in capital) Retained earnings \begin{tabular}{rr} \hline 98,257 & 104,042 \\ \hline 3,120 & 87,896 \\ 110,659 & 97,670 \\ (15,891) & (11,640) \\ (38,417) & (110,479) \\ \hline$99,471 & 63,447 \\ \hline$157,728 & $167,489 \\ \hline \end{tabular} Income Statements Net sales Cost of goods sold Gross profit Operating expenses Other (income) expense-net Income before taxes Income tax expense Net income Basic net income per share $82,05927,55654,50334,6502,52517,3282,209$15,119$5,72 \$ 51,750 10,219 41,531 20.271 3,578 17.682 1.384 $16,298$2.92 TThs is before income fiem discertinued operations..

1. P 4-13 Use of ratios to compare two companies in the same industry 10410 Presented below are
condensed financial statements adapted from those of two actual companies competing in the
pharmaceutical industry -Johnson and Johnson (J&J) and Pfizer, Inc. ($ in millions, except per
share amounts). Required: Evaluate and compare the two companies by responding to the
following questions. Note: Because two-year comparative statements are not provided, you
should use year-end balances in place of average balances as appropriate. 1. Which of the two
companies appears more efficient in collecting its accounts receivable and managing its
inventory? 2. Which of the two firms had greater earnings relative to resources available? 3.
Have the two companies achieved their respective rates of return on assets with similar
combinations of profit margin and turnover? 4. From the perspective of a common shareholder,
which of the two firms provided a greater rate of return? 5. From the perspective of a common
shareholder, which of the two firms appears to be using leverage more effectively to provide a
return to shareholders above the rate of return on assets?
Balance Sheets ( $ in millions, except per share data) J&J Pfizer Assets: Cash Short-term
investments Accounts receivable (net) Inventory Other current assets Current assets Property,
plant, and equipment (net) Intangibles and other assets Total assets Liabilities and Shareholders'
Equity: Accounts payable Short-term notes Other current liabilities. Current liabilities Long-term
debt Other long-term liabilities Total liabilities s 17,305 1,982 14,481 9,020
2,48645,27417,65894,796$157,728 $ 8.544 1,202 26.21835,964 26.494 35,799 98.257 $1,305
8,525 8,724 8,283 5,966 32,803 13,967 $167,489120,719$4,220 16.195 37,30416.889 35,955
30,783
Total liabilities Common stock (par and additional paid-in capital) Retained earnings
begin{tabular}{rr} hline 98,257 & 104,042 hline 3,120 & 87,896 110,659 & 97,670
(15,891) & (11,640) (38,417) & (110,479) hline$99,471 & 63,447 hline$157,728 &
$167,489 hline end{tabular} Income Statements Net sales Cost of goods sold Gross profit
Operating expenses Other (income) expense-net Income before taxes Income tax expense Net
income Basic net income per share $82,05927,55654,50334,6502,52517,3282,209$15,119$5,72
$ 51,750 10,219 41,531 20.271 3,578 17.682 1.384 $16,298$2.92 TThs is before income fiem
discertinued operations.