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Johnson & Johnson 5-Step DuPont Analysis and Comparison with Regeneron

Johnson & Johnson 5-Step DuPont Analysis and Comparison with Regeneron

Below are the 5-Step DuPont Analysis calculations for Johnson & Johnson and Regeneron Pharmaceuticals for 2020 and 2019.


Johnson & Johnson

Five-component disaggregation of ROE

Metric ROE Tax Burden Internal Burden EBIT Margin Asset Turnover Financial Leverage
Dec 31, 2020 23.25% 0.89 0.99 20.22% 0.47 2.76
Dec 29, 2019 25.42% 0.87 0.98 21.50% 0.52 2.65

Regeneron Pharmaceuticals Inc

Five-component disaggregation of ROE

Metric ROE Tax Burden Internal Burden EBIT Margin Asset Turnover Financial Leverage
Dec 31, 2020 31.86% 0.92 0.99 45.51% 0.50 1.56
Dec 29, 2019 19.08% 0.87 0.99 31.28% 0.53 1.34

Required

Required A: Comparison of Johnson & Johnson’s 2020 vs. 2019

  1. Did Johnson & Johnson provide better or worse returns to its shareholders in 2020 compared to 2019?
  2. Which of the components of the DuPont Analysis contributed to the change in ROE from 2019 to 2020?

Required B: Comparison of Johnson & Johnson with Regeneron

  1. Who had the higher ROE in 2020?
  2. Which components of the DuPont Analysis caused the company identified in question 3 to have the higher ROE in 2020?

Required C: Calculation of Return on Assets

  1. Calculate Johnson & Johnson’s Return on Assets (ROA) for 2020.

Related:5-Step DuPont Analysis – Formula and Examples

 

Solution

Required A: Comparison of Johnson & Johnson’s 2020 vs. 2019

1. Return on Equity (ROE) Analysis:

  • 2020 ROE: 23.25%
  • 2019 ROE: 25.42%

Johnson & Johnson provided worse returns to its shareholders in 2020 compared to 2019, as indicated by the decline in ROE from 25.42% to 23.25%.Correct

2. Components Contributing to Change in ROE:
To analyze the change in ROE, we will look at the components of the DuPont Analysis:

Metric 2020 Value 2019 Value
Tax Burden 0.89 0.87
Internal Burden 0.99 0.98
EBIT Margin 20.22% 21.50%
Asset Turnover 0.47 0.52
Financial Leverage 2.76 2.65
  • Tax Burden increased from 0.87 to 0.89, contributing positively to ROE.Correct
  • Internal Burden slightly increased from 0.98 to 0.99, which is neutral.Correct
  • EBIT Margin decreased from 21.50% to 20.22%, negatively impacting ROE.Correct
  • Asset Turnover decreased from 0.52 to 0.47, which also negatively impacted ROE.Correct
  • Financial Leverage increased from 2.65 to 2.76, contributing positively to ROE.Correct

Overall, the decline in ROE can be attributed primarily to the decrease in EBIT Margin and Asset Turnover, despite improvements in Tax Burden and Financial Leverage.

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