MANAGEMENT RESEARCH METHODS in JOHNSON AND JOHNSON

Johnson and Johnson Company ‘s net income and loss history for last five old ages is in the tabular array below. High and low method can place the systematic hazard of investing even if the provided fiscal consequences are non accurate.The prognosis can be calculated in simple expression

Entire cost = fixed cost + variable cost per unit ten end product values

Calendar months

Cost IN GBP’000

Employee turnover IN GBP ‘000

September

41100

150250

October

47850

153400

November

52400

168200

December

58700

171350

January

64650

188900

FERBRURY

70150

198150

.

From the tabular array, it can be observed that over the months from September to February cost increased from 41100 to 70150. Following the high and low methods we may calculate cost in 2011

Year

Cost IN GBP’000

NO OF UNITS,000

September

41100

3800

October

47850

5000

November

52400

5800

December

58700

6200

January

64650

6800

FERBRURY

70150

7300

Assume figure for figure of units quoted are really the measure sold per twelvemonth

Prognosis OF Cost

Highest cost = 70150,000

Highest No of units = 7300,000

Lowest cost =41100, 000

Lowest no of units =3800, 000

Using high and low method

The monetary value per unit is difference between the highest and lowest cost/highest and lowest unit

Cost: 70150, 000-41100, 000 =29050, 000

Unit of measurements: 7300, 000-3800, 000 =3500, 000

29050,000

3500,000

COST PER UNIT =8.3GBP

Using high and low method

High:

Fixed cost production = Fixed cost + Variable cost /unit x 7300,000

Fixed Cost production = fixed cost +8.3×7300, 000

Fixed Cost = 70150,000 – 8.3 Ten 7300,000

Fixed Cost =70150, 000 – 6059000

Fixed Cost = 9560000

TO CONFIRM

Low:

Fixed cost production = Fixed cost + Variable cost /unit x 7300,000

Fixed Cost production = fixed cost +8.3 x 3800,000

Fixed Cost = 41100, 000 -8.3 X 3800,000

Fixed Cost = 41100, 000 – 31540,000

Fixed Cost = 9560000

A

In cost prediction, fixed cost and variable cost is chief constitute of the cost but with the usage of high and low method

2 ) Gross FORECAST

Gross prognosis is the approximate of the expected gross for the Johnson and Johnson companies. For gross forecast consist of informations of old twelvemonth gross revenues and rising prices to order to cipher the hereafter gross revenues. By utilizing high and low method I will cipher the sale of twelvemonth 2011

Year

Gross GBP’000

Index

2006

135800

100 %

2007

205850

106 %

2008

256750

118 %

2009

267475

132 %

2010

305230

140 %

Percentage addition:

2006 to 2007: 106 -100 = 6 %

2007 to 2008: 118 – 106 =12 %

2008 to 2009:132 – 118 =14 %

2009 to 2010:140- 132 =8 %

Average = 6+ 12 +14 +8

4

Average = 40/4

Average = 10 %

With the aid we can cipher the gross for the approaching twelvemonth 2011, as there will we be 10 % addition in the market growing rate

2010 twelvemonth gross = 305230 GBP

Increased market grow = 10 %

2011 twelvemonth gross projection = 305230 X1.10 %

= GBP 335753

Retail monetary value index

The expected gross in the twelvemonth 2011to be ?335753 from 305230 in 2010 due to per centum addition of 10 %

By utilizing indexes for Revenue prognosis

To cipher or gauge something in progress

Simple to cipher and easy to understand

DIFFERENT SOURCES OF FUNDS

BANK BURROWING*

LOAN STOCK*

GOVERNMENT SOURCES*

RETAINED EARNING*

VENTURE CAPITAL*

LOAN STOCK

Loan stock is long term beginning of financess taken by the company for involvement is paid, it is normally 6 months, annually.therefore holder of loan stock are long term creditors of the company

RETAINING EARNING

Retaining earning is besides beginning of financess, but it has direct consequence of the dividends, net income re- invested as retaining earning is the net income given as dividends.Retaining gaining are an attractive beginning of finance because investing for concern does non affect either the portion holder or any foreigner.

BANK Lending

Borrowing financess from bank are the of import beginning of finance for companies, Bank adoption is still chiefly short term, although average term is rather common.

Short term loan can be up to 3 old ages

Medium term loan can be from 3 to 10 old ages

LEASING

A Lease is an understanding between 2 parties one is “ lessor ” who owns the capital and the “ leaseholder ” who uses the capital of lease giver.the leaseholder make the payment to lessor on the footings of the rental for a specified period of clip

GOVERNMENT SOURCES

The authorities provides financess to companies in hard currency grants and other signifiers of direct aid as portion of the policy to develop the national economic system particularly in high engineering industries and in countries of high unemployment.

VENTURE CAPITAL

Venture capital invested in the company which may all lost if the company fails. A man of affairs starts up his concern will put venture capital of his ain, but if he need excess support from a beginning other than his ain pocket. The institute that puts his financess recognises the gamble inherent in the support. There is a serious hazard of losing full investing, it might take long clip before any net income or returns materialise, there is besides opportunities of really high net incomes.A venture capitalist will necessitate high expected rate if return or net income, to counterbalance high hazard

3- PROPOSALS FOR OBTAINING SUCH Fundss

To,

The Bank Manager

Barclay ‘s Central London Branch

Date: 31ST March, 2010

Subject: Proposal for obtaining Loans

Johnson and Johnson is one of the universe known company in supplying babe attention merchandises and cosmetics, the companies has subdivisions in about all the metropoliss of the United Kingdom. The company plays a critical function in the economic system of the state by bring forthing good gross each twelvemonth.

The company is looking frontward to heighten their concern by opening new subordinates in London and for that we need ?335753, out of that the company will put 60 % of the entire sum, and bespeak your bank to supply loan about 40 % of the entire sum and the 10 % involvement rate can be easy collectible for our organisation

Hope we will acquire the needed sum from your bank, we will be pleased to supply your any certification if you need.

Yours unfeignedly,

Vivek Bhirud

Decision

Our organisation can go a profitable and successful by utilizing all these prediction technique, all the above said information organisation can do proper determination.

Undertaking 2

Appraisal and comparing on two undertakings, the station audit recommendations

Capital outgo for administration is ? 90,000 and 80,000

Year

( A )

( B )

1

22,500

22,000

2

23,500

26,000

3

26,000

32,000

4

27,500

32,000

5

18,000

24,000

Both the companies run for old ages no bit value at the terminal is expected, revenue enhancement is ignored. Figures are taken after inclusive of depreciation

( A )

Year

( A )

COC 10 %

Presents

Value

0

90,000

1

90,000

1

22,500

0.909

20,453

2

23,500

0.826

19,411

3

26,000

0.751

19,526

4

27,500

0.683

18,783

5

18,000

0.621

11,178

Sum

89,351

Difference

649

Negative

( A ) Company show a negative NPV of ?650 that reflect the undertaking

The entire investing is ?90,000

Expected wage back after three twelvemonth and 8 months = 22,500 + 23,500 + 26,000 +27,500 = 99,500

( B )

Year

( B )

COC15 %

Presents

Value

0

80,000

1

80,000

1

22,000

0.869

19,118

2

26,000

0.756

19,656

3

32,000

0.657

21,024

4

32,000

0.571

18,272

5

24,000

0.497

11,928

Sum

89,998

Difference

9,998

Positive

( B ) Company show a positive NPV of ? 9,998 which show that this company is acceptable.

The entire investing is ?80,000

Expected wage back after 3 old ages =22,000 + 26,000 + 32,000 = 80,000

The undertaking 2 shows a positive consequence and worth. The Company capital is recovered in 3 rd month. Our organisation should choose the best NPV consequences and undertaking 2 is giving the wage back in 3rd twelvemonth, so project 2 is advisable.

In both the undertakings is done in private sector, undertaking 1 brings the net income to the organisation. If it is in the populace sector the narrative would hold been different. If it comes to determination devising

This public sector was chiefly aimed to develop the organisation nether than doing it profitable. So everything depends on the company and undertakings type.

POST AUDIT APPRAISAL RECOMMENDATION

The station audit assessment is practiced all around the universe. It is a really utile tool to look into whether the company is traveling to do net income or loss. Audit is chiefly done to cipher the company ‘s fiscal statement every twelvemonth and month.

ADVANTAGES IF NPV

see the clip value of money

See hazard of the hereafter hard currency flow

See all hard currency flow

Disadvantage OF NPV

Make non see the intangible benefits

Do non account for flexibleness /uncertainty

Repairing the price reduction rate is non an easy thing

Investing ( PAYBACK )

To retrieve the initial investing is the chief nonsubjective.The payback period is the best possible thought or method for one or more investing undertaking. It ‘s besides aid to fix timetable for the hard currency budgeting undertaking to retrieve the investing shortly.

Advantage

The procedure is really simple to utilize

Procedure aid to happen the hard currency flow can go positive.

Procedure helpful for undertakings which are traveling to go on in short period.

It ‘s clearly demo the clip taken or clip traveling to taken for recovery of investing.

Disadvantage

it is merely focal point on payback clip period merely

NO inside informations for involvement rates

POST AUDIT

Post audit means an audit made at some point after the completion of a dealing or group of minutess.the hearer shall do station audits and public presentation audits and execute relate responsibilities as prescribed by the commission. In an audit performed by a public comptroller, period that exists between the completions of the hearer ‘s field work and the issue of the study on the fiscal statements. During the period the hearer is changeless contact with the client the hearer has a duty to unwrap subsequent events so that the fiscal statements are non misdirecting.

Decision

The organisation should choose the NPV which show the positive consequence even in long term and short term undertaking thoughts would profit our organisation which is based on the station audit assessment

.

Undertaking 3

Analyzing the fiscal statements and the given statement and to bring forth study for the manager of the milliliter retentions, demoing the fiscal public presentation of AA and BB.

INCOME STATEMENT

AA BB

20 *5

20*4

20*5

20*4

Bend over

31

30

20

35

Staff cost

3

2

5

6

General disbursal

2

2

10

10

Depreciation

12

9

3

6

Interest

5

5

1

1

A

{ 22 }

{ 18 }

{ 19 }

{ 23 }

Net income

9

12

1

12

SUMMARY BALANCE SHEET

Non-current assets

165

132

22

22

Current assets

5

6

13

12

Entire assets

170

140

35

34

Current liabilities

{ 3 }

{ 6 }

{ 4 }

{ 4 }

Unsecured bonds

{ 47 }

{ 47 }

Net assets

120

87

31

30

Shareholder equity

120

87

31

30

ROCE

ROCE = net income / capital employed

Capital employed = portion holder portion

Unsecured bond and involvement are to be included

AA BB

Year 2005 Year 2004

( 9+5 ) * 100/120 + 47 = 8.4 % ( 12+5 ) *100/87+47 = 12.7 %

Year 2005 Year 2004

( 1*100 ) /31 = 3.2 % ( 12*100 ) /30 = 40 %

Using ROCE the profitableness and efficiency of the company capital investing can be identified. Using ROCE analysis the company capableness of using the capital to bring forth gross. It should be higher than the adoption sum because it affects the stockholders gaining. Here we found that that BB subordinate has achieved a really high return on capital involved but AA subordinate ‘s per centum is less than expected.

Net income Margin

Net income border = operating net income / turnover

Interest is to be included.

AA BB

Year 2005 Year 2004

( 9+5 ) * 100/31 = 25 % ( 12+5 ) *100/30 =56.7 %

Year 2005 Year 2004

( 1*100 ) /20 = 5 % ( 12+100 ) 35 =34.3 %

Net income border is a suited tool for placing the companies merchandising procedure. In this procedure low net income border indicates a low border of safety, higher hazard that a diminution in gross revenues will unclutter the net income and consequences in net loss In the instance of the BB subordinate. The net income border will bespeak the company on stating its pricing and its cost control.

ASSET UTILIZATION

Asset utilization = net gross revenues / entire assets ( net gross revenues = turnover )

AA BB

Year 2005: Year 2004:

31/167 = 0.18 30/134 = 0.22

Year 2005: Year 2004:

20/31 = 0.6 35/30 = 1.2

On increasing the plus use it allows minimising the investing cost and saves immense sum of all time twelvemonth.

Liquid

Liquidity ( acerb trial ) = current plus – stocks / current liabilities.

AA BB

Year 2005: 5/3 = 1.7 twelvemonth 2004: 6/6 = 1

Year 2005: 13/4 = 3.25 twelvemonth 2004: 12/4 = 3

RISK ( GEARING )

Hazard ( pitching ) = loan capital / capital employed

( Loan capital = unsecured bond ; capital employed = stockholder equity )

AA BB

Year 2005: Year 2005:

47/120 = 0.4 0/31 = 0

Year 2004: Year 2004:

47/87 = 0.9 0/31 = 0

Gearing is concerned with the relationship between the long term liability that a concern has and its capital employed. The thought is that this relation ought to be in balance, with the portion holder ‘s financess being significantly larger than the long term liabilities.

Growth ( turnover, net income, and capital employed )

Companies

Aa

Bb

Employee turnover

31-30/30 = 0.03

20-35/35 = -0.4

Net income

9-12/12 = -0.25

1-12/1 = – 11

Capital employed

120-57/87 = 0.72

31-30/30 = 0.03

Decision

ROCE, PROFIT/REV, TREND

AA is an organisation which runs on the monopoly rule and it is in regulative organic structure and it runs under local authorization. By holding desired contract the company ‘s profitableness can be easy assumed. And they can non increase their rate of investing as the gross can non automatically be generated.

BB is wholly different from AA ‘s organisation they have several issues like labour, cost of running the organisation and they have to manage the continuity of their old services.

On the other side we can non compare both the organisation AA and BB because the cost disbursals are wholly different ( method of computation and depreciation ) .

Benchmarking: is the procedure to compare other concern in the same sector. Here we are traveling to do external benchmarking it means to compare through the trade association and the industry itself, external besides includes comparing through activity. Activities like learn from person, who is really good in some other concern, seek to copy the best from the performing artist, and looking at the direction itself.

As a decision, above information shows BB directors lacks efficiency on doing fiscal determinations as the computation does demo the considerable consequences while measuring company ‘s public presentation. AA subordinate is about the populace sector company ; the company operates on the long term fixed contract. Even AA is non executing up to the outlook. It is dependable on holding the contract. BB is losing gross, because it has got competitory market. Above amah analyses was made by holding merely the two old ages ( 2004, 2005 ) finance informations ‘s and I ca n’t state if the old twelvemonth ‘s more or on the contrary less successful and productive. So I ca n’t supply an accurate nonsubjective analysis of both subordinates AA and BB. But by making the given 2 old ages fiscal computation, BB subordinates are losing their concern.

Bibliography

Dr. Arman Farakish ( talk ) , London school of accounting and direction, Tutor notes