Profitability Ratio Analysis

Gross Margin

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Gross Margin ratio measures how profitable a company can sell it’s inventory. As we can see J & J has a ratio of 67.78% in the year 2012, 68.67% in the year 2013 and 69.40% in the year 2014. So we can say that J & J has an increasing Gross Margin Ratio in each year from 2012 to 2014 and it’s favorable to the business.

EBIT Margin

EBIT Margin ratio indicates the profitability of J & J before paying interest and taxes. Higher ratios are always preferable . So we can say Johnson & Johnson generates good EBIT ratios from the year 2012 to 2013.

Return on Assets

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Return on Assets shows how efficiently a company can manage it’s assets to produce profit. Higher ratio is favorable. As we can see from the above graph ROA of J & J are gradually increasing 8.94% to 10.42% to 12.45% for the year 2012, 2013 and 2014 respectively. All the three years generate healthy return.

Return on Equity

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Return on Equity measures how much profit each dollar of common stock holder’s equity generates. The above graph shows the rising tendency of ROE from the year 2012 to 2014. It also indicates that Johnson & Johnson is using it’s investor’s funds effectively because higher ratios are always better than lower ratios.

Return on Investment

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EPS

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Earning Per Share refers to the amount of net income earned per share of stock outstanding. As we can see J & J ‘s EPS for the year 2012 is 3.47, 4.43 in2013 and 5.23 in 2014. This means that if J 7 J distributed every dollar of income to it’s shareholders each share would receive 3 dollars in 2012, 4 dollars in 2013 and 5 dollars in 2014. Higher earning per share is always better because it proves that J & J has more profit to distribute to it’s shareholders.

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