Johnson & Johnson (NYSE:JNJ)

The analysis of the financial ratios over the five-year period reveals several notable trends in the company's leverage and coverage metrics.

Debt to Equity

The debt to equity ratio generally decreased from 0.56 in 2020 to a low of 0.43 in 2023, indicating a reduction in reliance on debt financing relative to equity. However, in 2024, this ratio increased slightly to 0.51, suggesting a modest rise in leverage.

Debt to Equity (Including Operating Lease Liability)

This ratio closely follows the trend of the traditional debt to equity ratio but is slightly higher, reflecting the additional impact of operating lease liabilities. The ratio declined from 0.57 in 2020 to 0.44 in 2023, then rose to 0.53 in 2024, mirroring the previously noted pattern.

Debt to Capital

The debt to capital ratio showed a downward trend from 0.36 in 2020 to 0.30 in 2023, suggesting an improvement in the capital structure towards less leverage. In 2024, the ratio increased again to 0.34, indicating a partial reversal of this trend.

Debt to Capital (Including Operating Lease Liability)

Similar to the above, this ratio decreased from 0.36 in 2020 to 0.31 in 2023 before climbing to 0.35 in 2024, underscoring the effect of operating lease liabilities on the capital structure measures.

Debt to Assets

The debt to assets ratio has been relatively stable with minor fluctuations, starting at 0.20 in 2020, dipping to 0.18 in 2023, and returning to 0.20 in 2024. This stability suggests consistent asset financing strategies over time.

Debt to Assets (Including Operating Lease Liability)

This ratio showed a similar pattern to the traditional debt to assets ratio, with slightly higher values due to the inclusion of lease liabilities. It remained mostly steady, fluctuating between 0.18 and 0.22, indicating a consistent balance sheet composition.

Financial Leverage

The financial leverage ratio decreased from 2.76 in 2020 to 2.44 in 2022 and 2023, signifying a moderate reduction in reliance on debt relative to equity. A slight increase to 2.52 in 2024 suggests a marginal uptick in leverage.

Interest Coverage

Interest coverage exhibited high volatility. It peaked at 125.46 in 2021, indicating very strong ability to cover interest expenses, but then declined sharply to 20.51 in 2023 and modestly recovered to 23.10 in 2024. This downward trend over the last three years may point to reduced earnings or increased interest expenses.

Fixed Charge Coverage

Fixed charge coverage followed a similar pattern to interest coverage, increasing to 48.16 in 2021 before decreasing to 16.50 in 2023 and slightly improving to 18.47 in 2024. This indicates a weakening in the capacity to cover fixed obligations beyond just interest costs over the recent period.

Overall, the data shows a gradual decrease in leverage from 2020 to 2023 across most measures, with a reversal or stabilization in 2024. Coverage ratios portray a notable decline after 2021, hinting at increased expense burdens or decreased operating income impacting coverage ability. The inclusion of operating lease liabilities consistently elevates leverage ratios but does not alter the overall trend direction. These trends suggest a cautious approach to leverage with some emerging pressures on earnings capacity to cover fixed and interest charges in the latest years.

The analysis of the annual financial data reveals certain trends related to the company's debt, shareholders' equity, and leverage ratios over the five-year period.

Total Debt

The total debt exhibited some fluctuations throughout the years. It initially decreased from 35,266 million US dollars in 2020 to 33,751 million in 2021. However, there was a significant increase in 2022, reaching 39,659 million, followed by a notable decrease in 2023 to 29,332 million. In 2024, the debt rose again to 36,634 million US dollars, indicating some volatility in the company’s debt levels.

Shareholders’ Equity

Shareholders' equity steadily increased from 63,278 million US dollars in 2020 to 74,023 million in 2021, and further to 76,804 million in 2022. This upward trend reversed slightly in 2023 when equity declined to 68,774 million but then rebounded in 2024 to 71,490 million. Overall, equity maintained a generally positive trajectory with a minor setback in 2023.

Debt to Equity Ratio

The debt to equity ratio, a measure of financial leverage, followed a consistent pattern relative to the changes in debt and equity. The ratio decreased from 0.56 in 2020 to 0.46 in 2021, suggesting reduced leverage. It then increased to 0.52 in 2022 before dropping again to 0.43 in 2023, the lowest in the analyzed period, reflecting the reduction in debt relative to equity. In 2024, the ratio rose to 0.51, indicating a moderate increase in leverage compared to the previous year but still below the initial 2020 level.

In summary, the company demonstrates a pattern of managing total debt and equity with some variability, impacting its leverage ratios. The overall trend suggests a focus on maintaining a moderate debt to equity balance, with fluctuations that might reflect strategic financing decisions or external financial conditions influencing the capital structure.

Total debt (including operating lease liability)

The total debt exhibits a fluctuating trend over the assessed periods. It decreased slightly from 36,366 million USD at the end of 2020 to 34,751 million USD by the end of 2021. However, the debt increased significantly in 2022, reaching 40,959 million USD, before declining again to the lowest point of 30,432 million USD in 2023. By the end of 2024, the debt rose once more to 37,834 million USD. Overall, the debt levels show volatility with no consistent upward or downward trajectory.

Shareholders’ equity

The shareholders' equity shows an overall increasing pattern from 63,278 million USD in 2020 to a peak of 76,804 million USD in 2022. Subsequently, equity declined to 68,774 million USD in 2023 but experienced a moderate recovery to 71,490 million USD by the end of 2024. Despite the fluctuations, the equity values remain significantly higher compared to the initial period, indicating growth over the five-year span.

Debt to equity (including operating lease liability)

The debt to equity ratio decreased from 0.57 in 2020 to 0.47 in 2021, reflecting a reduction in leverage. This ratio then increased to 0.53 in 2022, before dropping to the lowest level of 0.44 in 2023, indicating the strongest equity base relative to debt during the timeline. By 2024, the ratio increased again to 0.53. These changes indicate fluctuating leverage levels but suggest an overall tendency toward moderate leverage relative to equity.

The financial data indicates variable movement in both total debt and total capital over the five-year period examined. Total debt experienced fluctuations, initially decreasing from 35,266 million US dollars at the end of 2020 to 33,751 million US dollars in 2021. This was followed by a pronounced increase to 39,659 million US dollars in 2022 before declining again to 29,332 million US dollars in 2023. However, debt levels rose once more in 2024 to 36,634 million US dollars.

Total capital exhibited an overall upward trend with some periods of decline. Starting at 98,544 million US dollars in 2020, total capital increased steadily to 107,774 million US dollars in 2021, then further to 116,463 million US dollars by 2022. This peak was succeeded by a decrease to 98,106 million US dollars in 2023. In 2024, total capital witnessed another rise, reaching 108,124 million US dollars.

The debt-to-capital ratio, which reflects the proportion of debt used in the company's capital structure, showed moderate fluctuations within a relatively narrow range. Beginning at 0.36 in 2020, the ratio declined to 0.31 in 2021, slightly increased to 0.34 in 2022, then dropped to its lowest point of 0.30 in 2023, before rising back to 0.34 in 2024.

Overall, the data suggests a dynamic but controlled approach to leveraging, with the company adjusting its debt levels while maintaining a fairly stable capital base. The debt-to-capital ratio remained within a range indicating moderate reliance on debt financing relative to total capital. Such trends reflect responsiveness to changing financial conditions over the period while preserving balanced capital management.

Total Debt (Including Operating Lease Liability)

The total debt exhibited notable fluctuations over the observed periods. Initially, total debt decreased from US$36,366 million at the end of 2020 to US$34,751 million by the end of 2021. This downward movement was followed by a significant increase to US$40,959 million at the end of 2022. Subsequently, there was a sharp reduction in 2023 to US$30,432 million. However, total debt rose again in 2024, reaching US$37,834 million. This pattern indicates variability in leverage, reflecting possible shifts in financing strategies or operational needs.

Total Capital (Including Operating Lease Liability)

Total capital showed a generally upward trend with some volatility. Beginning at US$99,644 million at the end of 2020, it increased consistently to US$108,774 million in 2021 and US$117,763 million in 2022. In 2023, total capital decreased sharply to US$99,206 million, approximating the 2020 level. In 2024, it recovered to US$109,324 million. These fluctuations suggest changes in the capital structure, possibly influenced by changes in equity or debt financing, as well as operational factors affecting total capitalization.

Debt to Capital Ratio (Including Operating Lease Liability)

The debt to capital ratio exhibited moderate variation but remained within a range of 0.31 to 0.36 throughout the period. Starting at 0.36 in 2020, it decreased gradually to 0.32 in 2021, then increased to 0.35 in 2022. It fell again to the lowest point of 0.31 in 2023 before rising back to 0.35 in 2024. This ratio pattern aligns with the observed changes in total debt and capital, indicating periodic shifts in leverage but overall maintenance of a balanced capital structure over the five-year period.

Total Debt

The total debt experienced fluctuations over the five-year period. It increased from 35,266 million USD at the end of 2020 to 39,659 million USD at the end of 2022, reflecting a rising leverage trend during this interval. Subsequently, total debt declined significantly to 29,332 million USD by the end of 2023, indicating a reduction in debt obligations. However, by the end of 2024, the total debt rose again to 36,634 million USD, suggesting renewed borrowing or debt accumulation.

Total Assets

Total assets showed an overall growth trend between 2020 and 2024 despite some volatility. Beginning at 174,894 million USD at the end of 2020, assets increased gradually to reach a peak of 187,378 million USD at the close of 2022. This was followed by a noticeable decrease to 167,558 million USD as of the end of 2023, representing a contraction in asset base. By the end of 2024, total assets rebounded to 180,104 million USD, indicating a recovery or new asset acquisition during the recent year.

Debt to Assets Ratio

The debt to assets ratio, an indicator of leverage, demonstrated relatively stable behavior with only minor fluctuations. Starting at 0.20 in 2020, it slightly declined to 0.19 in 2021 and then increased to 0.21 in 2022, signaling a modest rise in debt relative to assets. The ratio decreased to its lowest point at 0.18 by the end of 2023, consistent with the observed reductions in total debt and assets during that year. By 2024, the ratio returned to 0.20, aligning again with levels seen at the beginning of the period. These shifts suggest dynamic but controlled financial leverage management over time.

Total Debt (Including Operating Lease Liability)

The total debt exhibits variability over the five-year period. After starting at approximately $36.4 billion in 2020, there was a slight decrease to around $34.8 billion in 2021. Debt then rose significantly in 2022 to nearly $41.0 billion, representing the peak within this timeframe. Subsequently, it decreased substantially to about $30.4 billion in 2023 before increasing again to roughly $37.8 billion in 2024. This fluctuation suggests active management of debt levels, possibly reflecting strategic financing decisions or responses to changing market conditions.

Total Assets

Total assets generally increased from about $174.9 billion in 2020 to approximately $187.4 billion in 2022, indicating asset growth over the initial years. However, there was a pronounced decline to around $167.6 billion in 2023, followed by a recovery to roughly $180.1 billion in 2024. This dip in 2023 could indicate asset disposals, write-downs, or other adjustments affecting the asset base, with a subsequent recovery suggesting possible asset acquisitions or revaluation.

Debt to Assets Ratio (Including Operating Lease Liability)

The debt to assets ratio remained relatively stable, fluctuating between 0.18 and 0.22 across the observed years. Starting at 0.21 in 2020, the ratio decreased to 0.19 in 2021, then increased to a peak of 0.22 in 2022. It subsequently dropped to 0.18 in 2023, its lowest value in the period, and rose again to 0.21 in 2024. These changes reflect the interplay between total debt and total assets, with the ratio indicating a moderately leveraged financial structure that experiences moderate shifts but remains within a consistent range.

The financial data demonstrates several notable trends over the observed five-year period. Total assets initially showed a steady increase from 174,894 million US dollars at the end of 2020 to a peak of 187,378 million in 2022. However, there was a significant decline in total assets in 2023 to 167,558 million, followed by a recovery to 180,104 million in 2024. This pattern suggests a possible divestiture or asset impairment event around 2023, with the company subsequently rebuilding its asset base.

Shareholders’ equity exhibited positive growth from 63,278 million US dollars in 2020 to 76,804 million in 2022, reflecting improved retained earnings or capital injections during that period. In 2023, equity declined to 68,774 million, mirroring the drop in total assets, before a slight recovery to 71,490 million in 2024. This fluctuation indicates that the company experienced a decrease in net assets alongside total assets but maintained a generally upward trajectory over the entire period.

The financial leverage ratio, defined as total assets divided by shareholders' equity, declined from 2.76 in 2020 to 2.44 in 2022 and remained stable through 2023. It slightly increased to 2.52 in 2024. The downward trend until 2023 implies a reduction in the relative use of debt or liabilities financing compared to equity, which may reflect a more conservative capital structure or deleveraging efforts. The minor increase in 2024 indicates a slight return to higher leverage, though still below the initial 2020 level.

Total Assets

Increased steadily through 2022, dropped sharply in 2023, then partially rebounded in 2024.

Shareholders’ Equity

Grew consistently until 2022, declined in 2023, with a moderate recovery in 2024.

Financial Leverage

Decreased from 2020 to 2023 indicating less reliance on debt, with a slight uptick in 2024.

Overall, the data portrays a company that initially expanded its asset base and equity, improved its financial leverage position by reducing reliance on debt, experienced a setback or restructuring event in 2023 affecting both assets and equity, and began to recover in 2024 with a cautious increase in leverage. This pattern invites further investigation into specific operational or financial events during 2023 to fully understand the underlying causes.

Earnings before interest and tax (EBIT)

The EBIT showed a significant increase from 16,698 million US dollars in 2020 to a peak of 22,959 million in 2021. However, it slightly declined to 22,001 million in 2022 and further decreased to 15,834 million in 2023. In 2024, the EBIT partially recovered to 17,442 million, indicating some stabilization but remaining below the peak observed in 2021.

Interest expense, net of portion capitalized

The net interest expense remained relatively low and stable in 2020 and 2021 at 201 million and 183 million, respectively. A notable increase occurred in 2022, rising to 276 million, followed by a sharp increase in 2023 to 772 million. The level remained almost steady in 2024 at 755 million, implying a significant rise in financing costs starting from 2022 and sustaining thereafter.

Interest coverage ratio

The interest coverage ratio, which measures the ability to meet interest expenses from EBIT, was extremely strong in 2020 and 2021 at 83.07 and 125.46 times respectively, reflecting very comfortable coverage. It declined substantially in 2022 to 79.71, and experienced a dramatic drop in 2023 to 20.51. A slight improvement occurred in 2024, reaching 23.1 times, though coverage remains materially weaker compared to earlier years.

Earnings Before Fixed Charges and Tax

The earnings before fixed charges and tax displayed a notable increase from 16,998 million USD in 2020 to a peak of 23,259 million USD in 2021. Following this peak, a slight decline occurred in 2022 to 22,301 million USD, then a more pronounced decrease to 16,034 million USD in 2023. In 2024, there was a moderate recovery to 17,642 million USD. This pattern indicates an initial strong growth period followed by volatility and a partial rebound.

Fixed Charges

Fixed charges began at 501 million USD in 2020 and remained relatively stable through 2021 at 483 million USD. However, there was a noticeable increase in 2022 to 576 million USD, followed by a significant jump in 2023 to 972 million USD. In 2024, fixed charges slightly decreased but remained high at 955 million USD. This upward trend indicates increasing fixed financial obligations in the latter years, which could impact profitability and financial flexibility.

Fixed Charge Coverage Ratio

The fixed charge coverage ratio exhibited a downward trend over the periods analyzed. Starting from a strong position of 33.93 in 2020, the ratio improved in 2021 to 48.16, suggesting increased capacity to cover fixed charges from earnings. Subsequent years saw declining coverage ratios to 38.72 in 2022, a sharp drop to 16.5 in 2023, and a slight improvement to 18.47 in 2024. The significant decrease after 2021 points to increased risk and lower ability to cover fixed charges, primarily due to rising fixed charges coupled with fluctuating earnings.

Overall Analysis

The combined trends indicate a period of financial strength peaking in 2021, followed by increased pressure from higher fixed charges and decreasing earnings before fixed charges and tax. The reduction in coverage ratio highlights a potential risk relating to meeting fixed financial obligations. Although earnings recovered somewhat in 2024, fixed charges remained elevated, suggesting cautious monitoring of financial leverage and operational efficiency may be warranted moving forward.