Johnson & Johnson (NYSE:JNJ)

The income tax expense profile exhibits notable fluctuations over the five-year period. A review of currently payable taxes, deferred taxes, and the overall provision for taxes on income reveals distinct trends that warrant further investigation.

Currently Payable Taxes

Currently payable taxes increased from US$3,977 million in 2021 to US$5,447 million in 2022, representing a substantial rise. This was followed by a moderate increase to US$5,795 million in 2023, before declining to US$4,804 million in 2024 and further to US$4,239 million in 2025. The latter two years demonstrate a consistent downward trend in currently payable taxes.

Deferred Taxes

Deferred taxes began at a negative US$2,079 million in 2021 and became less negative, reaching negative US$1,663 million in 2022. However, deferred taxes then significantly decreased to negative US$4,059 million in 2023, before becoming less negative again in 2024 at negative US$2,183 million. A substantial shift occurred in 2025, with deferred taxes turning positive at US$1,538 million. This represents a significant reversal in the deferred tax position.

Provision for Taxes on Income

The provision for taxes on income increased considerably from US$1,898 million in 2021 to US$3,784 million in 2022. A significant decrease was then observed in 2023, with the provision falling to US$1,736 million. The provision increased again in 2024 to US$2,621 million, and experienced a substantial increase in 2025, reaching US$5,777 million. This indicates a volatile pattern in the provision for taxes on income, with considerable swings year-over-year.

The interplay between currently payable taxes and deferred taxes significantly influences the overall provision for taxes on income. The substantial increase in the provision in 2025 appears to be driven by a combination of decreasing currently payable taxes and a significant swing to a positive deferred tax position. The fluctuations observed throughout the period suggest potential changes in taxable income, tax rates, or the utilization of tax loss carryforwards and credits. Further investigation into the underlying drivers of these changes is recommended.

The effective income tax rate exhibited considerable fluctuation over the five-year period. While the U.S. federal statutory tax rate remained constant at 21.00%, the effective tax rate demonstrated a dynamic pattern, moving from a low of 8.30% to a high of 17.70%.

Initial Increase (2021-2022)

A substantial increase in the effective tax rate is observed between 2021 and 2022, rising from 8.30% to 17.40%. This represents a more than doubling of the rate within a single year. This shift suggests a change in the composition of income, potentially including a lower proportion of income benefiting from tax advantages or a shift in the geographic distribution of profits.

Subsequent Decline (2022-2023)

Following the peak in 2022, the effective tax rate decreased to 11.50% in 2023. This indicates a reversal of the factors that drove the increase in the prior year, possibly due to changes in income mix or the utilization of tax credits or deductions.

Further Fluctuation (2023-2025)

From 2023 to 2024, the effective tax rate increased to 15.70%, continuing the pattern of variability. The rate then rose again in 2025, reaching 17.70%. This final increase suggests a sustained trend towards a higher effective tax rate, though still below the 2022 peak. The consistent movement away from the initial 2021 rate implies ongoing changes in the company’s tax profile.

Discrepancy with Statutory Rate

Throughout the period, the effective tax rate consistently remained below the U.S. federal statutory rate of 21.00%. This difference indicates the presence of factors reducing the company’s tax burden, such as foreign income subject to lower tax rates, tax credits, deductions, or other tax planning strategies. The magnitude of this difference varied annually, reflecting the changing impact of these factors.

The observed fluctuations in the effective tax rate warrant further investigation to understand the underlying drivers and potential implications for future tax liabilities. A detailed analysis of the components of income and the utilization of tax benefits would provide valuable insights.

The composition of deferred tax assets and liabilities exhibits notable shifts over the five-year period. A general increase in deferred tax assets is observed, though tempered by the increasing application of valuation allowances in later years. Deferred tax liabilities demonstrate a more volatile pattern, with a significant increase in the final year of the observed period.

Deferred Tax Assets - Composition

Employee related obligations show a substantial decrease, falling from US$1,244 million in 2021 to US$54 million in 2025. Stock-based compensation remains relatively stable, fluctuating between US$651 million and US$717 million. A significant driver of deferred tax asset growth is the increase in R&D capitalized for tax purposes, rising from US$1,664 million to US$4,752 million. Net operating loss and tax credit carryforwards also contribute to the increase, growing from US$1,073 million to US$3,561 million. Undistributed foreign earnings show an increase initially, peaking at US$1,931 million, before decreasing to US$1,718 million. Reserves & liabilities show an increase from 2021 to 2023, then a decrease in 2024 and 2025. Inventory related deferred tax assets decreased significantly, falling from US$2,566 million to US$378 million.

Valuation Allowances

Valuation allowances are not present in the earlier years but are introduced in 2023 at US$1,149 million, increasing to US$1,837 million by 2025. This suggests a growing uncertainty regarding the realization of certain deferred tax assets, particularly as the overall asset base expands. The increasing valuation allowance offsets a portion of the growth in deferred tax assets, resulting in a slower growth rate for net deferred tax assets.

Deferred Tax Liabilities - Composition

Depreciation of property, plant and equipment consistently contributes to deferred tax liabilities, remaining relatively stable between US$-858 million and US$-929 million. Goodwill and intangibles represent a substantial portion of deferred tax liabilities, with a significant increase in 2025 to US$-6,154 million, after a decrease in 2023. Undistributed foreign earnings contribute significantly to deferred tax liabilities, increasing from US$-1,461 million to US$-2,969 million. NCTI (Net CFC Tested Income) also represents a significant liability, decreasing from US$-4,853 million to US$-2,495 million. Miscellaneous U.S. deferred tax liabilities appear in 2023 and 2025.

Deferred Income Taxes

Deferred income taxes show a substantial increase from US$2,736 million in 2021 to US$8,013 million in 2023, before decreasing dramatically to US$83 million in 2025. This fluctuation suggests significant changes in temporary differences impacting taxable income.

Overall, the changes in deferred tax assets and liabilities reflect evolving business activities, tax regulations, and strategic decisions. The increasing valuation allowances warrant attention, as they indicate potential risks to the realization of deferred tax assets. The substantial increase in deferred tax liabilities in 2025, driven primarily by goodwill and intangibles and undistributed foreign earnings, requires further investigation to understand the underlying causes and potential implications.

The deferred tax asset balance decreased from 2021 to 2022, then exhibited relative stability before increasing significantly in 2023 and decreasing substantially in 2025. Conversely, deferred tax liabilities demonstrated a consistent decline from 2021 through 2023, followed by an increase in 2025. These movements suggest shifts in the recognition of future tax benefits and obligations.

Deferred Tax Assets

The deferred tax asset position began at US$10,223 million in 2021. A decrease to US$9,123 million was recorded in 2022. The balance remained relatively stable at US$9,279 million in 2023 before increasing to US$10,461 million in 2024. A significant decrease to US$6,874 million occurred in 2025. This fluctuation could be attributable to changes in temporary differences, such as those arising from depreciation, warranty obligations, or unrecognized losses, and/or changes in the realizability of existing deferred tax assets.

Deferred Tax Liabilities

Deferred tax liabilities decreased steadily from US$7,487 million in 2021 to US$6,374 million in 2022, and further to US$3,193 million in 2023. This continued to decline to US$2,448 million in 2024, before increasing to US$6,791 million in 2025. This pattern may indicate a reduction in taxable temporary differences, or the reversal of previously recognized liabilities. The substantial increase in 2025 warrants further investigation to determine the underlying cause.

The net deferred tax position (assets less liabilities) experienced considerable change over the period. In 2021, net deferred taxes were US$2,736 million (10,223 - 7,487). This decreased to US$2,749 million in 2022 (9,123 - 6,374), then increased to US$6,086 million in 2023 (9,279 - 3,193), US$8,013 million in 2024 (10,461 - 2,448), and finally decreased to US$86 million in 2025 (6,874 - 6,791). The significant swings in the net position highlight the dynamic nature of deferred tax accounting and its sensitivity to changes in underlying financial circumstances.

The financial information reveals a consistent adjustment downward across all balance sheet and income statement items presented between 2021 and 2025. These adjustments appear to relate to the removal of deferred tax assets and liabilities, impacting reported figures to arrive at adjusted values. The magnitude of these adjustments fluctuates year to year, but the directional impact is consistently negative on reported values.

Total Assets

Reported total assets increased from US$182,018 million in 2021 to US$199,210 million in 2025, with a dip in 2023 to US$167,558 million. However, the adjusted total assets show a similar pattern, albeit at lower values, ranging from US$171,795 million in 2021 to US$192,336 million in 2025. The difference between reported and adjusted assets remains relatively stable, averaging approximately US$10.2 billion over the period.

Total Liabilities

Reported total liabilities exhibited an increasing trend from US$107,995 million in 2021 to US$117,666 million in 2025, with a slight decrease in 2023. The adjusted total liabilities follow the same trajectory, ranging from US$100,508 million to US$110,875 million. The adjustment consistently reduces reported liabilities, with an average difference of approximately US$7.4 billion.

Shareholders’ Equity

Reported shareholders’ equity increased from US$74,023 million in 2021 to US$81,544 million in 2025, with a decrease in 2023. The adjusted shareholders’ equity mirrors this trend, ranging from US$71,287 million to US$81,461 million. The adjustment consistently lowers reported equity, averaging around US$2.7 billion.

Net Earnings

Reported net earnings were volatile over the period, peaking at US$35,153 million in 2023 and falling to US$14,066 million in 2024. Adjusted net earnings demonstrate a similar pattern, ranging from US$16,278 million to US$31,094 million. The adjustment consistently reduces reported net earnings, with an average difference of approximately US$2.5 billion. The largest adjustment occurred in 2023, reducing reported net earnings by US$4,059 million.

The consistent reduction in all reported figures through adjustments suggests a significant impact from deferred tax items. The adjustments do not appear to be directly correlated to fluctuations in reported net earnings, as the adjustment amount remains relatively stable despite earnings volatility. This indicates the adjustments are likely related to changes in deferred tax asset and liability valuations, potentially driven by changes in tax laws or accounting standards, rather than solely reflecting current period earnings.

The financial performance, as indicated by a set of key ratios, exhibits notable variations when deferred tax impacts are removed, resulting in adjusted figures. Generally, the adjusted ratios are modestly lower than their reported counterparts, suggesting that deferred taxes positively influence reported profitability and returns. However, the underlying trends remain largely consistent between the reported and adjusted metrics.

Profitability

Reported net profit margin demonstrates considerable fluctuation, peaking in 2023 at 41.28% before declining to 15.84% in 2024 and recovering to 28.46% in 2025. The adjusted net profit margin follows a similar pattern, though at lower levels, ranging from 17.15% to 36.51% over the same period. This indicates that deferred taxes contribute to the volatility observed in reported profitability. The difference between reported and adjusted margins remains relatively stable, averaging approximately 2.21 percentage points across the analyzed period.

Asset Efficiency

Reported total asset turnover shows a gradual decline from 0.52 in 2021 to 0.47 in 2025. The adjusted total asset turnover mirrors this trend, albeit at slightly higher values, decreasing from 0.55 to 0.49. The adjustment for deferred taxes appears to suggest a marginally more efficient use of assets. The difference between reported and adjusted asset turnover is consistently around 0.02-0.03.

Financial Leverage

Reported financial leverage remains relatively stable between 2.44 and 2.52 throughout the period. The adjusted financial leverage exhibits a similar pattern, with a slight increase to 2.67 in 2024 before decreasing to 2.36 in 2025. The impact of deferred taxes on financial leverage is minimal, with the adjusted ratio generally being slightly higher or lower than the reported ratio.

Returns on Equity and Assets

Reported ROE experiences significant swings, reaching a high of 51.11% in 2023 and falling to 19.68% in 2024, before recovering to 32.87% in 2025. The adjusted ROE follows a comparable trajectory, ranging from 21.98% to 49.60%. The difference between reported and adjusted ROE averages approximately 1.83 percentage points. A similar pattern is observed for ROA, with reported values fluctuating more widely than adjusted values. Reported ROA declines from 11.47% in 2021 to 7.81% in 2024, then increases to 13.46% in 2025. Adjusted ROA follows a similar trend, ranging from 9.13% to 19.65%. The consistent difference between reported and adjusted ROA suggests a systematic impact of deferred taxes on reported returns.

In summary, the removal of deferred tax effects results in lower, but consistently trending, profitability and return ratios. The impact on asset efficiency and financial leverage is less pronounced. The observed patterns suggest that deferred taxes contribute to the reported financial performance, but do not fundamentally alter the underlying trends.

The period under review demonstrates fluctuating performance in both reported and adjusted net earnings, which consequently impacts net profit margins. A notable divergence exists between reported and adjusted figures, suggesting the influence of specific items impacting reported earnings. The adjusted net profit margin provides a potentially more consistent view of underlying profitability.

Adjusted Net Profit Margin Trend

The adjusted net profit margin exhibited a decline from 20.05% in 2021 to 17.15% in 2022. A substantial increase followed in 2023, reaching 36.51%. However, this was followed by a significant decrease to 13.38% in 2024. The most recent year, 2025, shows a recovery to 30.09%, though it remains below the 2023 peak.

The volatility in the adjusted net profit margin suggests sensitivity to factors impacting adjusted net earnings. The large drop in 2024 warrants further investigation to identify the contributing factors. The recovery in 2025 indicates a potential stabilization, but continued monitoring is necessary.

Relationship between Reported and Adjusted Margins

Reported net profit margin generally tracks the adjusted net profit margin, but with greater amplitude. The difference between the two margins varies annually, indicating that items impacting reported net earnings are not consistently applied or are of varying magnitude. In 2023, the reported margin significantly exceeded the adjusted margin, while in 2024, the gap narrowed considerably, with the reported margin being only slightly lower than the adjusted margin.

The observed patterns suggest that while underlying profitability, as represented by the adjusted net profit margin, experiences fluctuations, the reported profitability is subject to additional influences. Understanding the nature of these influences is crucial for a comprehensive assessment of financial performance.

Year-over-Year Changes

From 2021 to 2022, the adjusted net profit margin decreased by 2.90 percentage points. A substantial increase of 19.36 percentage points occurred between 2022 and 2023. The period from 2023 to 2024 saw a dramatic decrease of 23.13 percentage points. Finally, from 2024 to 2025, the adjusted net profit margin increased by 16.71 percentage points.

These year-over-year changes highlight the dynamic nature of profitability and the importance of analyzing performance over multiple periods. The significant swings observed necessitate a deeper dive into the underlying drivers of these changes.

An examination of the provided financial information reveals trends in both total asset figures and associated turnover ratios over a five-year period. Reported total assets experienced initial growth, followed by a decline and subsequent recovery, while adjusted total assets mirrored this pattern. The total asset turnover ratios, both reported and adjusted, generally decreased throughout the period.

Reported Total Assets

Reported total assets increased from US$182,018 million in 2021 to US$187,378 million in 2022, representing a growth of approximately 2.9%. A subsequent decrease was observed in 2023, falling to US$167,558 million. Assets then rose again in 2024 to US$180,104 million, continuing to US$199,210 million in 2025, indicating a recovery and further expansion.

Adjusted Total Assets

Adjusted total assets followed a similar trajectory to reported total assets. An increase from US$171,795 million in 2021 to US$178,255 million in 2022 was followed by a decline to US$158,279 million in 2023. Subsequent increases were noted in 2024 (US$169,643 million) and 2025 (US$192,336 million), mirroring the trend in reported total assets.

Reported Total Asset Turnover

The reported total asset turnover ratio exhibited a consistent downward trend over the five-year period. Starting at 0.52 in 2021, it decreased to 0.51 in both 2022 and 2023, then further to 0.49 in 2024, and finally to 0.47 in 2025. This indicates a decreasing efficiency in generating sales relative to the level of reported assets.

Adjusted Total Asset Turnover

The adjusted total asset turnover ratio also demonstrated a declining trend, though less pronounced than the reported ratio. It began at 0.55 in 2021, decreased to 0.53 in 2022, increased slightly to 0.54 in 2023, then decreased to 0.52 in 2024, and finally to 0.49 in 2025. The adjusted ratio consistently remained higher than the reported ratio throughout the period, suggesting that the adjustments to total assets result in a more favorable turnover metric.

The convergence of the reported and adjusted total asset turnover ratios towards the end of the period suggests that the impact of the asset adjustments is diminishing. The overall downward trend in both ratios warrants further investigation to understand the underlying drivers of decreasing asset efficiency.

An examination of the financial information reveals trends in both reported and adjusted asset and equity figures, impacting calculated financial leverage ratios over the five-year period. Reported total assets decreased from 2021 to 2023, then increased in 2024 and 2025, while adjusted total assets followed a similar pattern, albeit with slightly lower values. Shareholders’ equity, both reported and adjusted, exhibited a decline from 2021 to 2023 before recovering and increasing through 2025.

Adjusted Financial Leverage – Overall Trend

Adjusted financial leverage remained relatively stable between 2021 and 2023, fluctuating around 2.41 to 2.52. A notable increase was observed in 2024, reaching 2.67, before decreasing to 2.36 in 2025. This suggests a period of increased financial risk in 2024, followed by a reduction in that risk by the end of the period.

Relationship between Adjusted and Reported Leverage

Reported financial leverage generally remained higher than adjusted financial leverage throughout the period. The difference between the two ratios was minimal in 2021, 2022, and 2023, but widened in 2024 and narrowed again in 2025. This indicates that adjustments to the asset base and equity have a more pronounced effect on the leverage calculation in certain years.

Asset and Equity Adjustments

The consistent difference between reported and adjusted figures for both total assets and shareholders’ equity suggests the presence of items impacting the reported values that are removed in the adjusted calculations. The magnitude of these adjustments varied annually, influencing the adjusted financial leverage ratio. The largest adjustments occurred in 2023 and 2024.

The increase in adjusted financial leverage in 2024, coupled with the subsequent decrease in 2025, warrants further investigation into the nature of the adjustments made to assets and equity during those periods. The overall trend suggests a dynamic capital structure, with adjustments impacting the perceived level of financial risk.

The period under review demonstrates fluctuations in both reported and adjusted net earnings, alongside corresponding changes in shareholders’ equity, impacting return on equity (ROE) calculations. A comparison of reported and adjusted figures reveals the influence of certain accounting adjustments on overall financial performance metrics.

Net Earnings Trend

Reported net earnings experienced a decrease from 2021 to 2022, followed by a substantial increase in 2023. A significant decline occurred in 2024, with a partial recovery observed in 2025. Adjusted net earnings mirrored this pattern, though the magnitude of change differed slightly each year. The largest difference between reported and adjusted net earnings occurred in 2023, suggesting a considerable impact from the adjustments made.

Shareholders’ Equity Trend

Reported shareholders’ equity generally increased from 2021 to 2022, decreased in 2023, increased again in 2024, and experienced a more substantial increase in 2025. Adjusted shareholders’ equity followed a similar trajectory, with consistent differences from the reported values. The adjusted equity values were consistently lower than the reported equity values, indicating the adjustments reduced the equity base.

Reported ROE Analysis

Reported ROE exhibited a decline from 2021 to 2022, a dramatic increase in 2023, a sharp decrease in 2024, and a subsequent increase in 2025. The 2023 peak was significantly higher than all other years in the period. This volatility directly correlates with the fluctuations in reported net earnings.

Adjusted ROE Analysis

Adjusted ROE mirrored the trend of reported ROE, though the percentage values were consistently lower. The adjusted ROE also showed a decrease from 2021 to 2022, a substantial increase in 2023, a decrease in 2024, and an increase in 2025. The difference between reported and adjusted ROE highlights the impact of the accounting adjustments on the perceived profitability of shareholders’ equity.

ROE Discrepancy

The difference between reported and adjusted ROE remained relatively consistent across the years, typically ranging between 1.5 and 2 percentage points. This suggests that the adjustments consistently lowered the calculated ROE, providing a more conservative view of profitability. The largest discrepancy was observed in 2023, coinciding with the largest difference in net earnings.

In summary, the financial performance metrics demonstrate considerable volatility over the five-year period. The adjustments made to net earnings and shareholders’ equity consistently resulted in lower ROE figures, indicating a more conservative assessment of profitability. The significant fluctuations observed in both reported and adjusted ROE warrant further investigation into the underlying drivers of these changes.

The period under review demonstrates fluctuating financial performance as measured by reported and adjusted return on assets. Reported net earnings experienced volatility, beginning at US$20,878 million in 2021, decreasing to US$17,941 million in 2022, then significantly increasing to US$35,153 million in 2023, followed by a substantial decline to US$14,066 million in 2024, and a subsequent rise to US$26,804 million in 2025. Adjusted net earnings mirrored this pattern, though with differing magnitudes, starting at US$18,799 million, decreasing to US$16,278 million, increasing to US$31,094 million, decreasing to US$11,883 million, and rising to US$28,342 million.

Reported Return on Assets (ROA)

Reported ROA exhibited considerable variation. It began at 11.47% in 2021, decreased to 9.57% in 2022, peaked at 20.98% in 2023, then fell sharply to 7.81% in 2024, and recovered to 13.46% in 2025. This suggests a strong correlation with the fluctuations in reported net earnings.

Adjusted Return on Assets (ROA)

Adjusted ROA followed a similar trend to the reported ROA, though generally at slightly lower percentages. It started at 10.94% in 2021, decreased to 9.13% in 2022, increased to 19.65% in 2023, decreased to 7.00% in 2024, and increased to 14.74% in 2025. The consistency between the reported and adjusted ROA trends indicates that adjustments to net earnings and total assets do not fundamentally alter the overall performance picture.

Reported total assets initially increased from US$182,018 million in 2021 to US$187,378 million in 2022, then decreased to US$167,558 million in 2023, before increasing to US$180,104 million in 2024 and further to US$199,210 million in 2025. Adjusted total assets followed a similar pattern, beginning at US$171,795 million, increasing to US$178,255 million, decreasing to US$158,279 million, increasing to US$169,643 million, and finally reaching US$192,336 million. The asset base appears to be dynamic, potentially influenced by strategic acquisitions, divestitures, or changes in accounting practices.

The largest fluctuations in both reported and adjusted ROA occurred between 2023 and 2024, coinciding with a significant decrease in reported and adjusted net earnings. This suggests that profitability has a substantial impact on the observed ROA. The recovery in ROA between 2024 and 2025 aligns with the increase in net earnings during the same period.