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# Cash Flow to Total Liabilities Ratio

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THE PROBLEM:

Calculate the Cash Flow to Total Liabilities Ratio and the Return to Net Operating Ratio
for Johnson and Johnson (2002)

1)

Here are the sites with the financial statements and data:

http://www.jnj.com/2002AnnualReport/financials/consolidated/index.htm

http://www.jnj.com/2002AnnualReport/financials/notes/index.htm

http://www.jnj.com/2002AnnualReport/financials/summary/index.htm

2)

=======================================
I have also attached the text pages with the example of how to calculate
the Cash Flow to Total Liabilities Ratio and the Return to Net Operating Ratio

These are initial calculations which I think are incorrect or incomplete:

(please refer to formulas in the two image files and solve
accordingly)

=======================================
Cash flow to total liabilities ratio:

Total Cash on Hand at end of year = 2,894,000,000
Total Liabilities = 17,859,000,000
2,894,000,000/17,859,000,000 = 0.1620 or

Net operating margin:

Net operating profit X 100 / net operating revenues
6,597,000,000 X 100/25,851,000,000
=25.0686

Return on total assets:
(Profit before taxation) X 100 / average total assets
9,291,000,000 X 100/40,556,000,000
=22.2984

Return on equity:
(Profit before taxation - taxation) X 100 / average equity
(9,291,000,000 - 2,694,000,000) X 100/22,697,000,000
=29.0268

---------------------------

In your solution, please make sure you follow the formulas in the two image files
AND tell me where you pulled in each number from.

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## SOLUTION This solution is FREE courtesy of BrainMass!

I obtained the following numbers by following the link provided:

http://www.jnj.com/2002AnnualReport/financials/consolidated/index.htm

Here are the calculations:

Cash Flow To Total Liabilities Ratio:

(Revenue - Expense) + Depreciation / Total Liabilities

Total Liabilities:

Total Current Liabilities = 11,449,000
Long Term Debt = 2,022,000
Deferred Tax Liability = 643,000
Employee Related Obligat. = 1,967,000
Other Liabilities = 1,778,000
Total Liabilities = 17,859,000

Above information obtained from the consolidated Balance Sheet.

Revenues (ie. sales) = 36,298,000
Expenses (ie. COGS) = 10,447,000

Above information obtained from the consolidated statement of earnings (ie. line 1 & 2).

Depreciation = 1,662,000

Above information obtained from the statement of cash flows (line 3).

Ratio Calculation:

(36,298,000 - 10,447,000) + 1,662,000 / 17,859,000
=1.5406 or 154%

Revenue - Expense / Net Operating Revenue

Net Operating Revenue:

Net operating revenue should refer to anything that is related to the operations of the company. Thus, cost of goods sold and selling & admin expense are considered to be related to operations, while something like interest expense would be related to the finance side of the business. As such, this is how I would arrive at the net operating revenue:

Take revenues minus cost of product sold minus selling & marketing expense minus research expense and minus purchased in process research and development expense. The total would then be:
revenue = 36,298,000
COGS = 10,447,000
Selling & Admin = 12,216,000
Research = 3,957,000
R&D = 189,000
Net Operating Revenue = 9,489,000

(36,298,000 - 10,447,000) / 9,489,000
=2.7243

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