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Microsoft Excel LibreOffice Calc

Johnson & Johnson (JNJ)


Economic Value Added (EVA)

Difficulty: Advanced


Economic Profit

Johnson & Johnson, economic profit calculation

US$ in millions

Microsoft Excel LibreOffice Calc
12 months ended Dec 30, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 28, 2014
Net operating profit after taxes (NOPAT)1 hidden hidden hidden hidden hidden
Cost of capital2 hidden hidden hidden hidden hidden
Invested capital3 hidden hidden hidden hidden hidden
Economic profit4 hidden hidden hidden hidden hidden

Based on: 10-K (filing date: 2019-02-20), 10-K (filing date: 2018-02-21), 10-K (filing date: 2017-02-27), 10-K (filing date: 2016-02-24), 10-K (filing date: 2015-02-24).

2018 Calculations

1 NOPAT. See Details »

2 Cost of capital. See Details »

3 Invested capital. See Details »

4 Economic profit = NOPAT – Cost of capital × Invested capital
= hiddenhidden × hidden = hidden

Item Description The company
Economic profit Economic profit is a measure of corporate performance computed by taking the spread between the return on invested capital and the cost of capital, and multiplying by the invested capital. Johnson & Johnson’s economic profit declined from 2016 to 2017 but then increased from 2017 to 2018 not reaching 2016 level.

Net Operating Profit after Taxes (NOPAT)

Johnson & Johnson, NOPAT calculation

US$ in millions

Microsoft Excel LibreOffice Calc
12 months ended Dec 30, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 28, 2014
Net earnings hidden hidden hidden hidden hidden
Deferred income tax expense (benefit)1 hidden hidden hidden hidden hidden
Increase (decrease) in allowances for doubtful accounts2 hidden hidden hidden hidden hidden
Increase (decrease) in restructuring reserve3 hidden hidden hidden hidden hidden
Increase (decrease) in equity equivalents4 hidden hidden hidden hidden hidden
Interest expense, net of portion capitalized hidden hidden hidden hidden hidden
Interest expense, operating lease liability5 hidden hidden hidden hidden hidden
Adjusted interest expense, net of portion capitalized hidden hidden hidden hidden hidden
Tax benefit of interest expense, net of portion capitalized6 hidden hidden hidden hidden hidden
Adjusted interest expense, net of portion capitalized, after taxes7 hidden hidden hidden hidden hidden
(Gain) loss on marketable securities hidden hidden hidden hidden hidden
Interest income hidden hidden hidden hidden hidden
Investment income, before taxes hidden hidden hidden hidden hidden
Tax expense (benefit) of investment income8 hidden hidden hidden hidden hidden
Investment income, after taxes9 hidden hidden hidden hidden hidden
Net operating profit after taxes (NOPAT) hidden hidden hidden hidden hidden

Based on: 10-K (filing date: 2019-02-20), 10-K (filing date: 2018-02-21), 10-K (filing date: 2017-02-27), 10-K (filing date: 2016-02-24), 10-K (filing date: 2015-02-24).

2018 Calculations

1 Elimination of deferred tax expense. See Details »

2 Addition of increase (decrease) in allowances for doubtful accounts.

3 Addition of increase (decrease) in restructuring reserve.

4 Addition of increase (decrease) in equity equivalents to net earnings.

5 Interest expense on capitalized operating leases = Operating lease liability × Discount rate
= hidden × hidden = hidden

6 Tax benefit of interest expense, net of portion capitalized = Adjusted interest expense, net of portion capitalized × Statutory income tax rate
= hidden × 21.00% = hidden

7 Addition of after taxes interest expense to net earnings.

8 Tax expense (benefit) of investment income = Investment income, before tax × Statutory income tax rate
= hidden × 21.00% = hidden

9 Elimination of after taxes investment income.

Item Description The company
NOPAT Net operating profit after taxes is income from operations, but after removement of taxes calculated on cash basis that are relevant to operating income. Johnson & Johnson’s NOPAT declined from 2016 to 2017 but then increased from 2017 to 2018 not reaching 2016 level.

Cash Operating Taxes

Johnson & Johnson, cash operating taxes calculation

US$ in millions

Microsoft Excel LibreOffice Calc
12 months ended Dec 30, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 28, 2014
Provision for taxes on income hidden hidden hidden hidden hidden
Less: Deferred income tax expense (benefit) hidden hidden hidden hidden hidden
Add: Tax savings from interest expense, net of portion capitalized hidden hidden hidden hidden hidden
Less: Tax imposed on investment income hidden hidden hidden hidden hidden
Cash operating taxes hidden hidden hidden hidden hidden

Based on: 10-K (filing date: 2019-02-20), 10-K (filing date: 2018-02-21), 10-K (filing date: 2017-02-27), 10-K (filing date: 2016-02-24), 10-K (filing date: 2015-02-24).

Item Description The company
Cash operating taxes Cash operating taxes are estimated by adjusting income tax expense for changes in deferred taxes and tax benefit from the interest deduction. Johnson & Johnson’s cash operating taxes increased from 2016 to 2017 but then slightly declined from 2017 to 2018 not reaching 2016 level.

Invested Capital

Johnson & Johnson, invested capital calculation (financing approach)

US$ in millions

Microsoft Excel LibreOffice Calc
Dec 30, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 28, 2014
Loans and notes payable hidden hidden hidden hidden hidden
Long-term debt, excluding current portion hidden hidden hidden hidden hidden
Operating lease liability1 hidden hidden hidden hidden hidden
Total reported debt & leases hidden hidden hidden hidden hidden
Shareholders’ equity hidden hidden hidden hidden hidden
Net deferred tax (assets) liabilities2 hidden hidden hidden hidden hidden
Allowances for doubtful accounts3 hidden hidden hidden hidden hidden
Restructuring reserve4 hidden hidden hidden hidden hidden
Equity equivalents5 hidden hidden hidden hidden hidden
Accumulated other comprehensive (income) loss, net of tax6 hidden hidden hidden hidden hidden
Adjusted shareholders’ equity hidden hidden hidden hidden hidden
Construction in progress7 hidden hidden hidden hidden hidden
Current marketable securities8 hidden hidden hidden hidden hidden
Invested capital hidden hidden hidden hidden hidden

Based on: 10-K (filing date: 2019-02-20), 10-K (filing date: 2018-02-21), 10-K (filing date: 2017-02-27), 10-K (filing date: 2016-02-24), 10-K (filing date: 2015-02-24).

1 Addition of capitalized operating leases.

2 Elimination of deferred taxes from assets and liabilities. See Details »

3 Addition of allowance for doubtful accounts receivable.

4 Addition of restructuring reserve.

5 Addition of equity equivalents to shareholders’ equity.

6 Removal of accumulated other comprehensive income.

7 Subtraction of construction in progress.

8 Subtraction of current marketable securities.

Item Description The company
Invested capital Capital is an approximation of the economic book value of all cash invested in going-concern business activities. Johnson & Johnson’s invested capital increased from 2016 to 2017 but then slightly declined from 2017 to 2018.

Cost of Capital

Johnson & Johnson, cost of capital calculations

Fair Value1 Weights Cost of Capital
Equity2 hidden hidden ÷ hidden = hidden hidden × hidden = hidden
Debt3 hidden hidden ÷ hidden = hidden hidden × hidden × (1 – 21.00%) = hidden
Operating lease liability4 hidden hidden ÷ hidden = hidden hidden × hidden × (1 – 21.00%) = hidden
Total: hidden hidden hidden

Based on: 10-K (filing date: 2019-02-20).

1 US$ in millions

2 Equity. See Details »

3 Debt. See Details »

4 Operating lease liability. See Details »

Fair Value1 Weights Cost of Capital
Equity2 hidden hidden ÷ hidden = hidden hidden × hidden = hidden
Debt3 hidden hidden ÷ hidden = hidden hidden × hidden × (1 – 35.00%) = hidden
Operating lease liability4 hidden hidden ÷ hidden = hidden hidden × hidden × (1 – 35.00%) = hidden
Total: hidden hidden hidden

Based on: 10-K (filing date: 2018-02-21).

1 US$ in millions

2 Equity. See Details »

3 Debt. See Details »

4 Operating lease liability. See Details »

Fair Value1 Weights Cost of Capital
Equity2 hidden hidden ÷ hidden = hidden hidden × hidden = hidden
Debt3 hidden hidden ÷ hidden = hidden hidden × hidden × (1 – 35.00%) = hidden
Operating lease liability4 hidden hidden ÷ hidden = hidden hidden × hidden × (1 – 35.00%) = hidden
Total: hidden hidden hidden

Based on: 10-K (filing date: 2017-02-27).

1 US$ in millions

2 Equity. See Details »

3 Debt. See Details »

4 Operating lease liability. See Details »

Fair Value1 Weights Cost of Capital
Equity2 hidden hidden ÷ hidden = hidden hidden × hidden = hidden
Debt3 hidden hidden ÷ hidden = hidden hidden × hidden × (1 – 35.00%) = hidden
Operating lease liability4 hidden hidden ÷ hidden = hidden hidden × hidden × (1 – 35.00%) = hidden
Total: hidden hidden hidden

Based on: 10-K (filing date: 2016-02-24).

1 US$ in millions

2 Equity. See Details »

3 Debt. See Details »

4 Operating lease liability. See Details »

Fair Value1 Weights Cost of Capital
Equity2 hidden hidden ÷ hidden = hidden hidden × hidden = hidden
Debt3 hidden hidden ÷ hidden = hidden hidden × hidden × (1 – 35.00%) = hidden
Operating lease liability4 hidden hidden ÷ hidden = hidden hidden × hidden × (1 – 35.00%) = hidden
Total: hidden hidden hidden

Based on: 10-K (filing date: 2015-02-24).

1 US$ in millions

2 Equity. See Details »

3 Debt. See Details »

4 Operating lease liability. See Details »


Economic Spread

Johnson & Johnson, economic spread calculation

Microsoft Excel LibreOffice Calc
Dec 30, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 28, 2014
Selected Financial Data (US$ in millions)
Economic profit1 hidden hidden hidden hidden hidden
Invested capital2 hidden hidden hidden hidden hidden
Ratio
Economic spread3 hidden hidden hidden hidden hidden

Based on: 10-K (filing date: 2019-02-20), 10-K (filing date: 2018-02-21), 10-K (filing date: 2017-02-27), 10-K (filing date: 2016-02-24), 10-K (filing date: 2015-02-24).

2018 Calculations

1 Economic profit. See Details »

2 Invested capital. See Details »

3 Economic spread = 100 × Economic profit ÷ Invested capital
= 100 × hidden ÷ hidden = hidden

Ratio Description The company
Economic spread The ratio of economic profit to invested capital, also equal to the difference between return on invested capital (ROIC) and cost of capital. Johnson & Johnson’s economic spread deteriorated from 2016 to 2017 but then improved from 2017 to 2018 not reaching 2016 level.

Economic Profit Margin

Johnson & Johnson, economic profit margin calculation

Microsoft Excel LibreOffice Calc
Dec 30, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 28, 2014
Selected Financial Data (US$ in millions)
Economic profit1 hidden hidden hidden hidden hidden
Sales to customers hidden hidden hidden hidden hidden
Ratio
Economic profit margin2 hidden hidden hidden hidden hidden

Based on: 10-K (filing date: 2019-02-20), 10-K (filing date: 2018-02-21), 10-K (filing date: 2017-02-27), 10-K (filing date: 2016-02-24), 10-K (filing date: 2015-02-24).

2018 Calculations

1 Economic profit. See Details »

2 Economic profit margin = 100 × Economic profit ÷ Sales to customers
= 100 × hidden ÷ hidden = hidden

Ratio Description The company
Economic profit margin The ratio of economic profit to sales. It is the company’s profit margin covering income efficiency and asset management. Economic profit margin is not biased in favor of capital-intensive business models, because any added capital is a cost to the economic profit margin. Johnson & Johnson’s economic profit margin deteriorated from 2016 to 2017 but then improved from 2017 to 2018 not reaching 2016 level.