Web research: Consolidated Statements of Cash Flows

Go to the website of Johnson & Johnson at http://www.jnj.com. Click on Annual Reports and Proxy under Investor Relations. Then open the most recent Annual Report and click on Financials. Click on Consolidated Financial Statements and then Consolidated Statements of Cash Flows. Examine the operating, investing, and financing activities sections.

What is the most significant source of cash for Johnson & Johnson? What is the most significant use of cash for Johnson & Johnson? Why do you think these sources and uses are significant for this company?

http://kucourses.com/ec/crs/default.learn?CourseID=3073466&Survey=1&47=4849309&ClientNodeID=404340&coursenav=2&bhcp=1

My Response:
Jill Stidd
20 Oct 08 10:22 PM MST

Initial Post: Jill Stidd

In 2007 it seemed most significant source of cash for Johnson & Johnson was from their pharmaceutical lines, with 41% of their sales at $24.9 billion dollars, Topamax increased it revenues the most at a large 21% and misc “other” had the most sales at 5.4 billion. Medical Devices and Diagnostics is the next in line with 35% of their sales at $21.7 billion dollars, vision care grew the most in this category with an 18% increase. However Depuy had the most sales in billions at 4.6.

I determined from my analysis of the statement of cash flows that the most significant use of cash was for retirement of short-term debt at $21,691. With all there research and development expenses I would think that it would produce some debt. However it seems they were very aggressive in paying that back. That always looks great to stockholders.

I thought I would give a stab at evaluation financial analysis of cash flows for Johnson and Johnson using the calculations we were given in our text page 712.

Cash flows from operating activitiesLess: Investments in fixed assets to maintain current productionFree cash flow$15,249 (Cash flows from operating activities) - $2,942 (Additions to property, plant and equipment) = $12,307 which is a positive cash flow and would because you would use this formula to evaluate retiring debt as just one example it seems they had enough cash flow to retire the amount of debt that they did.

Ethics discussion: Cash flow

Cash flow per share may appear to be a valuable measurement of the operating success of a business. However, it can be misinterpreted by users of the financial statements.

Linda Stern, president of Venician Fashions Inc., believes that reporting operating cash flow per share on the income statement would be a useful addition to the company’s just completed financial statements. The following discussion took place between Linda Stern and Venician Fashions’ controller, Ben Trotter, in January, after the close of the fiscal year.
Linda: I have been reviewing our financial statements for the last year. I am disappointed that our net income per share has dropped by 10% from last year. This is not going to look good to our shareholders. Isn’t there anything we can do about this?Ben: What do you mean? The past is the past, and the numbers are in. There isn’t much that can be done about it. Our financial statements were prepared according to generally accepted accounting principles, and I don’t see much leeway for significant change at this point.Linda: No, no. I’m not suggesting that we “cook the books.” But look at the cash flow from operating activities on the statement of cash flows. The cash flow from operating activities has increased by 20%. This is very good news—and, I might add, useful information. The higher cash flow from operating activities will give our creditors comfort.Ben: Well, the cash flow from operating activities is on the statement of cash flows, so I guess users will be able to see the improved cash flow figures there.Linda: This is true, but somehow I feel that this information should be given a much higher profile. I don’t like this information being “buried” in the statement of cash flows. You know as well as I do that many users will focus on the income statement. Therefore, I think we ought to include an operating cash flow per share number on the face of the income statement—someplace under the earnings per share number. In this way users will get the complete picture of our operating performance. Yes, our earnings per share dropped this year, but our cash flow from operating activities improved! And all the information is in one place where users can see and compare the figures. What do you think?Ben: I’ve never really thought about it like that before. I guess we could put the operating cash flow per share on the income statement, under the earnings per share. Users would really benefit from this disclosure. Thanks for the idea—I’ll start working on it. Linda: Glad to be of service.

How would you interpret this situation? Is Ben behaving in an ethical and professional manner?
http://kucourses.com/ec/crs/default.learn?CourseID=3073466&Survey=1&47=4849309&ClientNodeID=404340&coursenav=2&bhcp=1



My Response:
Jill Stidd
17 Oct 08 11:47 AM MST

Unless there is a law that I could not find in regards to reporting operating cash flow per share it seems that it is a used ratio by those that evaluate all the financial reports. This is an explanation that I took off the U.S. Securities and Exchange website for earning per share. “Income statements also report earnings per share (or “EPS”).

This calculation tells you how much money shareholders would receive if the company decided to distribute all of the net earnings for the period. (Companies almost never distribute all of their earnings. Usually they reinvest them in thebusiness.)”
(http://www.sec.gov/investor/pubs/begfinstmtguide.htm)

I might be confused on this question, however if reporting earnings per share is ethical than I do not see why it would not be ethical to report operating cash per share if nothing has been “cooked”.This is a section off another website that I found in terms of the calculation to find cash flow per share. I might point out the header that states” that this calculation measures a firm’s financial strength.” I can see why Linda saw the importance of putting cash flow per share on the income statement. Again unless there is something that I do not know about adding random sections to the income statement than I would think what she has requested is logical.

A measure of a firm's financial strength, calculated as follows:However I also acknowledge because this EPS can be easily manipulated, it would be important to question its accuracy. “Many analysts, as well as some of the greatest investors of all time, place more weight on cash flow per share than earnings per share. Because EPS is more easily manipulated, its reliability can at times be questionable. Cash, on the other hand, is difficult - if not impossible - to fake. You either have cash or you don't. Therefore, cash flow per share is a useful measure for the strength of a firm and the sustainability of its business model.”
(http://www.answers.com/topic/cash-flow-per-share)

From all that I read in this question it seems to me that Linda only wanted to high light what was positive on her company’s reports. She was not changing any figures and she had to clearly show what had dropped. It seems that she was clear that she did not to “cook” the books and she reinforced that to her controller. I would have to say I do not see anything unethical about either one of them as long as they were not altering any figures and only reporting the actual figures from the year’s business.

Ethics discussion: Bonds

Go to the website of Moody's Investors Service at http://www.moodys.com/. You will need to register at this site in order to access information. Once you have registered, login to the Moody's site. Then click on Ratings News, where you will see several announcements of recent bond rating changes. Open and read 3-4 of these announcements and note the reasons for the rating downgrades or upgrades.
If you were a bond investor, would you care if Moody's changed the rating on your bonds? Why or why not? If you were a bond issuer, would you care if Moody's changed the rating on your bonds? Why or why not?

My Response:
Jill Stidd
12 Oct 08 3:52 PM MST

Initial Post: Jill Stidd

After looking at the four or so announcements and notes it was obvious that Moody was very thorough in there analysis and reasons for their rating. Their descriptions were straight forward and easy to understand as to why they were downgrading or upgrading the ratings.After going to Mood’s website and researching the Moody company it was very interesting to go to their “about us” page and their rating philosophy, “that is why Moody's uses a multidisciplinary or "universal" approach to risk analysis, which aims to bring an understanding of all relevant risk factors and viewpoints to every rating analysis. We then rely on the judgment of a diverse group of credit risk professionals to weigh those factors in light of a variety of plausible scenarios for the issuer and thus come to a conclusion on what the rating should be. Several analytical principles guide that reasoning process.”
(http://www.moodys.com/moodys/cust/aboutmoodys/aboutmoodys.aspx?topic=rapproac)

I also found their ratings descriptions easy to understand and informative. (http://www.moodys.com/moodys/cust/AboutMoodys/AboutMoodys.aspx?topic=rdef&subtopic=moodys%20credit%20ratings&title=View+All+Rating+Definitions.htm)Some Basic Principles According to Moody Co.1. Emphasis on the Qualitative, 2. Focus on the Long-Term, 3. Global Consistency, 4. Level and Predictability of Cash Flow, 5. Reasonably Adverse Scenarios, 6. "Seeing Through" Local Accounting Practices.

I found it interesting in # 4 Level and Predictability of Cash Flow that this is their approach, “In every sector, the foundation of Moody's rating approach rests on the answer to one question: What is the level of risk associated with receiving full and timely payment of principal and interest on this specific debt obligation and how does that risk compare with that of all other debt obligations? When we speak of "risk to timely payment," we are measuring the ability of an issuer to generate cash in the future. Our analysis focuses, therefore, on an assessment of the level and predictability of an issuer's future cash generation in relation to its commitments to repay debtholders.”
(http://www.moodys.com/moodys/cust/aboutmoodys/aboutmoodys.aspx?topic=rapproach)

It seems given this description of how Mood’s ratio analysis works, along with the experts that are involved with this diagnosis that they have a reputation for accurate data. It seems that it is data that both the bond issuer and the bond investor would hold very valuable in terms of making decisions. The change in ratings would absolutely be important to both. Obviously and investor would think twice about a transaction with a company that has a low rating. However the low rating might indicate that an investor watch this company for a time to see If there are any good deals to be had. So it is a tool an investor can use on many levels. As for the bond issuer, well seeing how their company is being evaluated is always good information to have. As the saying goes, “someone from the outside looking inside”. They would not want a lower rating so I would assume it would be this kind of “watchdog” shall we say that might make a company think twice of inappropriate actions.

http://www.moodys.com/moodys/cust/aboutmoodys/aboutmoodys.aspx?topic=rapproac retrieved, October 12, 2008.http://www.moodys.com/moodys/cust/AboutMoodys/AboutMoodys.aspx?topic=rdef&subtopic=moodys%20credit%20ratings&title=View+All+Rating+Definitions.htm retrieved, October 12, 2008.

Ethics discussion: Bonds

When corporations issue bonds, the buyers of those bonds (the investors) should try to determine the impact of the bond issuance on the expected earnings of the corporation.

General Electric Capital, a division of General Electric, uses long-term debt extensively. In early 2002, GE Capital issued $11 billion in long-term debt to investors, then within days filed legal documents to prepare for another $50 billion long-term debt issue. As a result of the $50 billion filing, the price of the initial $11 billion offering declined (due to higher risk of more debt).
Bill Gross, a manager of a bond investment fund, “denounced a ‘lack in candor’ related to GE’s recent debt deal. ‘It was the most recent and most egregious example of how bondholders are mistreated.’ Gross argued that GE was not forthright when GE Capital recently issued $11 billion in bonds, one of the largest issues ever from a U.S. corporation. What bothered Gross is that three days after the issue the company announced its intention to sell as much as $50 billion in additional debt, warrants, preferred stock, guarantees, letters of credit and promissory notes at some future date.”

In your opinion, did GE Capital act unethically by selling $11 billion of long-term debt without telling those investors that a few days later it would be filing documents to prepare for another $50 billion debt offering?

Source: Jennifer Ablan, “Gross Shakes the Bond Market; GE Calms It, a Bit,” Barron’s, March 25, 2002.

My Response:



It is true from CNNMoney that the 11 billion in bonds that were issued in 2002, CNNMoney states, “GE Capital sold $11 billion in global bonds Wednesday, the second-biggest U.S. issue ever as the company sought to lock in low financing costs before the economy recovers.” (http://money.cnn.com/2002/03/13/news/companies/ge-bonds/index.htm)

This article interestingly goes on to say that who else but WorldCom was the other company that has beat out GE is bond issues just a few months prior issuing 11.9 billion in bonds. Now is that not interesting, WorldCom.Not only did they then sell the 50 billion 3 month later, they had sold 3.5 billion in notes just one month before and on the heels of that released a expanded annual report, “It also comes five days after GE released an expanded annual report to soothe investors who have been jittery about sprawling companies with complicated accounting, such as Enron Corp. (ENE: Research, Estimates) and Tyco International Ltd.” (http://money.cnn.com/2002/03/13/news/companies/ge-bonds/index.htm).

Given the quote by CNN and the Quote in the ethics question by Bill Gross, there was a great deal of speculation about this deal. I also feel that from the quote in the CNN article that Yes, GE was very much aware of the “jitters” of there investors especially due to Enron, and Tyco international. So why would they make such a bold step 3 months later when ethics were being so scrutinized at that time.Even American Express Asset Management team had something to say about all of this, “But not everyone was cheered by the news. Tim Doubek, a portfolio manager at American Express Asset Management in Minneapolis, said the bonds could only hurt investors if negative news persists about accounting, corporate earnings and management.” (http://money.cnn.com/2002/03/13/news/companies/ge-bonds/index.htm)

In that GE could make this decision to sell another 50 billion on the heels of the 11 billion, they like some of the big corporations these days added fuel to the fire of public trust yet again! How unfortunate and unethical! What is it going to take to get all this type of behavior to stop? Look at the mess our economy is in at the present. How low do we have to go I ask?

(http://money.cnn.com/2002/03/13/news/companies/ge-bonds/index.htm), retrieved October 11, 2008,

Web Research: Dividends

Go to the website of General Electric Corporation at http://www.ge.com/en and find information about GE's dividend record. Click on For Investors and then Stock Information to find the current market price of a share of GE stock. Then click on Dividend History to find the record of dividends paid per share of GE stock. Calculate the dividend yield of GE's common stock.
Discussion Question

What is GE's dividend yield? Is this dividend yield what you might expect from an established company like GE? Is GE's record of paying dividends an attractive feature of its common stock? Why or why not?

My Response:
Jill Stidd
6 Oct 08 3:46 PM MST

Here are a few things that I found in my research on the press that was on the GE website, it was very interesting to see that GE is parent company of NBC, I did not know that. These website are just packed full of information that I never even knew existed.

1.Aviation and jet enginesAviation and jet engines aren't the only way GE will try to tap this market, but they are a key: China is slated to open more than 40 new airports by 2010 -- at the end of 2006, the country had 147 -- and another 55 or so by 2020. The country's evolving airport geography is like a treasure map that pinpoints where the government is going to make massive investments. (http://www.fastcompany.com/magazine/125/all-systems-go.html)
2. NBC ratings for the olympicsRatings for NBC, the GE-owned television network and the holder of Olympic television rights in the United States, soared with each breathtaking performance by the Baltimore Bullet after a controversial decision to turn tradition on its head and stage the swimming finals in the morning so that the medal moments could fall sweetly into American prime time. (http://business.timesonline.co.uk/tol/business/industry_sectors/media/article4576410.ece
3. GE Gas turbines for olympicsTwo of General Electric's 9FA gas turbines have been installed in Beijing's Taiyanggong power plant, which will supply electricity, heat and air conditioning to the central area of the Olympic Games in August.( http://www.marketwatch.com/news/story/how-china-power-olympic-games/story.aspx?guid=%7B43798B25-F2A1-499A-AA93-BDE9A9FD147E%7D&dist=msr_27)
4. Wind powerIn March, GE Energy announced it had secured a $1 billion deal to supply 750 megawatts of wind turbines -- enough to power about 200,000 households.

(http://www.reuters.com/article/domesticNews/idUSN1835150320080519?pageNumber=2&virtualBrandChannel=10112)http://www.fastcompany.com/magazine/125/all-systems-go.html retrieved October 5, 2008http://www.marketwatch.com/news/story/how-china-power-olympic-games/story.aspx?guid=%7B43798B25-F2A1-499A-AA93-BDE9A9FD147E%7D&dist=msr_27 retrieved October 5, 2008http://business.timesonline.co.uk/tol/business/industry_sectors/media/article4576410.ece retrieved October 5, 2008http://www.reuters.com/article/domesticNews/idUSN1835150320080519?pageNumber=2&virtualBrandChannel=10112 retrieved October 5, 2008

Ethics discussion: Dividends

When stockholders receive money from the corporation in which they hold stock, it is usually the result of dividends being declared and paid or the stock being repurchased by the corporation. When the stockholder is also an employee of the corporation, the stockholder also is also paid a salary. But other opportunities for the stockholder/employee to receive money may arise, and these may present an ethical dilemma for the corporation and its board of directors.

Bernie Ebbers, the CEO of WorldCom, a major telecommunications company, was having personal financial troubles. Ebbers pledged a large stake of his WorldCom stock as security for some personal loans. As the price of WorldCom stock sank, Ebbers’ bankers threatened to sell his stock in order to protect their loans. To avoid having his stock sold, Ebbers asked the board of directors of WorldCom to loan him nearly $400 million of corporate assets at 2.5% interest to pay off his bankers. The board agreed to lend him the money.
Comment on the decision of the board of directors in this situation.

http://kucourses.com/ec/crs/default.learn?CourseID=3073466&Survey=1&47=4849309&ClientNodeID=404340&coursenav=2&bhcp=1

My Response:
Jill Stidd
3 Oct 08 3:03 PM MST

Initial post: Jill Stidd

From our text I would like to start by defining the role of the board of directors, “the stockholders control of the corporation is by electing a board of directors. This board meets periodically to establish corporate policies. It also elects the chief executive officer (CFO) and other major officers to manage the day to day corporation’s affairs.” (Warren, Reeve, and Duchac, p.569)

I do know that it is the board’s responsibility to create the policies and procedures for the corporation it is not stated if there was any policy around how the employee could use the stock. I do not think that the CFO can purchase stock from the corporation unless it is treasury stock provided by the corporation. So the stock initial sale was approved by the board of directors that we know. I it seems that the CFO could use the stock in any manner he chose given that the policies of the company did not state otherwise. We were asked to look at the ethics box on page 579, in this instance the dean of the school of business stated that the professor should not use his own money to purchase stock since he was “affiliated” with the program he was researching and had an unfair advantage of information.

I really do not see where this applies to our discussion, unless there is some conflict of interest that we are not aware of. From previous chapters part of internal controls is that there should be a red flag if there is evidence that someone in charge of financials is in financial trouble, strong potential for fraud, especially if it is the CFO! This could be in violation of Sarbanes and Oxley Act in regards to internal controls. The board of directors should have been taking stronger measures to monitor the CFO and certainly not loaning this amount of money to him. However, the board of directors has the authority to do so, given the ethics box on page 569, there is a possibility that the loan amount, should the CFO default and stock holders find out could file a suite that the director’s personal assets could be responsible to.

I am sure the board of directors saw some “benefit” of 2.5% interest on $4,000.00, again we are not given all the terms of the loan to know exactly how much they could collect in interest!!! The stockholders would not see this as ethical I am sure and public trust would be compromised as was Erron, WorldCom and Fannie Mae.Warren, Reeve, and Duchac, Accounting. P. 569, 578,579.

Telluride Watch Article

Scroll down to Koffe with Kandee...and see the article about my expereice with pioneering a Waldorf preschool initiative...Titled..."A Feeling of Celebrating Together Is Very Unique in Today's World".

http://www.telluridetoday.com/watch/111502.html#k