Johnson & Johnson (NYSE:JNJ)

The carrying amount of total borrowings exhibited considerable fluctuation over the five-year period. An initial increase was followed by a decrease and subsequent rise, indicating dynamic debt management practices. A detailed examination of the components reveals specific trends.

Loans and Notes Payable

Loans and notes payable demonstrated a substantial increase from 2021 to 2022, rising from US$3,766 million to US$12,771 million. This was followed by a significant decrease in 2023 to US$3,451 million, and a further increase in 2024 to US$5,983 million. The trend continued upward in 2025, reaching US$8,495 million. This suggests active borrowing and repayment cycles, potentially linked to specific investment or operational needs.

Long-Term Debt

Long-term debt, excluding the current portion, generally decreased from 2021 to 2023, moving from US$29,985 million to US$25,881 million. However, it then increased notably in 2024 to US$30,651 million and continued to rise in 2025, reaching US$39,438 million. This indicates a shift towards increased reliance on long-term financing in the later years of the period.

Total Borrowings

Total borrowings initially increased from US$33,751 million in 2021 to US$39,659 million in 2022. A substantial decrease was observed in 2023, with the total falling to US$29,332 million. Subsequently, total borrowings increased in both 2024 and 2025, reaching US$36,634 million and US$47,933 million respectively. The overall trend suggests a period of increased debt followed by a reduction, and then a renewed increase, potentially reflecting strategic financing decisions and evolving capital requirements.

The combined effect of these trends resulted in a net increase in total borrowings from 2021 to 2025. The fluctuations in each component suggest a proactive approach to debt management, potentially involving refinancing, new issuances, and repayments aligned with business cycles and investment opportunities.

Interest costs incurred by the company demonstrate a significant upward trend over the five-year period. While fluctuations are present, the overall trajectory indicates increasing financial obligations related to debt financing. A breakdown of the components contributing to these costs reveals details regarding capitalization practices.

Overall Interest Costs

Interest costs incurred rose from US$232 million in 2021 to US$1,085 million in 2025. The most substantial increase occurred between 2021 and 2023, nearly quadrupling within two years. Growth moderated in subsequent years, but continued to show an overall increase.

Interest Expense, Net of Capitalization

The net interest expense, representing the portion recognized in current earnings, also exhibited a strong upward trend. It increased from US$183 million in 2021 to US$971 million in 2025. The largest year-over-year increase was observed between 2022 and 2023, rising from US$276 million to US$772 million. The rate of increase slowed in 2024 and 2025, but remained positive.

Capitalized Interest Expense

Interest expense capitalized, representing costs added to the value of assets under construction, also increased over the period, though at a less dramatic rate than the net interest expense. It rose from US$49 million in both 2021 and 2022 to US$114 million in 2025. This suggests a growing level of qualifying asset expenditure. The increase from 2023 to 2024 was notable, moving from US$70 million to US$79 million.

The consistent increase in both net interest expense and capitalized interest expense suggests a combination of factors, potentially including increased borrowing, higher interest rates, and/or a greater volume of projects qualifying for interest capitalization. Further investigation into the company’s debt structure and capital expenditure plans would be necessary to determine the primary drivers of these trends.

The interest coverage ratios demonstrate a significant shift over the observed period. Initially strong, both metrics experienced declines before showing signs of stabilization and modest improvement in later years.

Interest Coverage Ratio (without capitalized interest)

The interest coverage ratio, excluding capitalized interest, began at 125.46 in 2021. A substantial decrease was noted in 2022, falling to 79.71. This downward trend continued into 2023, with the ratio reaching a low of 20.51. A slight recovery occurred in 2024, increasing to 23.10, followed by further improvement to 34.55 in 2025. While the ratio has increased in the most recent two years, it remains considerably lower than the level observed in 2021.

Adjusted Interest Coverage Ratio (with capitalized interest)

The adjusted interest coverage ratio, incorporating capitalized interest, mirrored the trend of its counterpart. Starting at 98.96 in 2021, it decreased to 67.70 in 2022. The most pronounced decline occurred between 2022 and 2023, with the ratio dropping to 18.81. Similar to the other ratio, 2024 saw a modest increase to 20.91, and this positive momentum continued into 2025, reaching 30.92. The adjusted ratio also remains significantly below its initial value in 2021.

Comparative Analysis

The difference between the two ratios remained relatively consistent throughout the period, reflecting the impact of capitalized interest. The adjusted ratio consistently reported lower values than the ratio excluding capitalized interest, as expected. The parallel trends suggest that the factors influencing the ability to cover interest expenses affected both calculations similarly. The recovery observed in 2024 and 2025 was present in both ratios, indicating a potential stabilization of earnings relative to interest obligations.

The substantial declines in both ratios between 2021 and 2023 warrant further investigation to understand the underlying causes. The subsequent improvements in 2024 and 2025, while positive, suggest a need for continued monitoring to ensure sustained recovery in interest coverage.