Financial Statement Analyses and Firm Valuation: Johnson & Johnson as a Case Study

Cheng Few Lee and Wen-Chi Yeh

Chapter 58 in Handbook of Investment Analysis, Portfolio Management, and Financial Derivatives:In 4 Volumes, 2024, pp 1853-1892 from World Scientific Publishing Co. Pte. Ltd.

Abstract: The main purpose of this chapter is to use Johnson & Johnson’s (JNJ) accounting information and market information to discuss the following three aspects concerning investment analysis: (i) financial ratio analyses, (ii) impact of intangible assets on Tobin Q estimates, and (iii) use of simultaneous model to forecast pro forma financial statements. Peter and Taylor (2017) have theoretically shown that intangible asset is one of the important factors in calculating Tobin Q. We use accounting information to calculate Tobin Q with and without considering intangible assets. Since JNJ’s intangible assets account for about 51% of its total assets, we review the Tobin Q’s alternative estimation and show how the intangible assets affect Tobin Q of JNJ. By using financial ratio and market information, we perform 20 equation models to forecast pro forma balance sheet and pro forma income statement.

Keywords: Financial Accounting; Financial Auditing; Mutual Funds; Hedge Funds; Asset Pricing; Options; Portfolio Analysis; Risk Management; Investment Analysis; Momentum Analysis; Behavior Analysis; Futures; Index Futures; CDCs; Financial Econometrics; Statistics; Financial Derivatives; Financial Accounting (search for similar items in EconPapers)
JEL-codes: G1 G11 G12 G3 M41 M42 (search for similar items in EconPapers)
Date: 2024
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