Company DCF analysis file
Johnson & Johnson DCF Analysis
Johnson & Johnson’s DCF must separate the cash generated by medicines and medical technology from acquisition funding and litigation accounting. A large increase in reported profit does not establish an equally large increase in recurring cash. Start with a comparable sales-and-cost base, reconcile cash, then specify the operating and legal-payment assumptions.
Read product costs and research before using the profit margin
Fiscal years ended December 29, 2024 and December 28, 2025; consolidated continuing-business income scope. Amounts are $ millions unless a caption specifies otherwise. Source: annual financial statements. Reported lines retain the issuer’s scope; derived ratios use the displayed denominators.
| Measure | FY2024 | FY2025 |
|---|---|---|
| Sales | 88,821 | 94,193 |
| Product costs | 27,471 | 30,256 |
| Gross profit | 61,350 | 63,937 |
| Selling / marketing / administration | 22,869 | 23,676 |
| R&D | 17,232 | 14,665 |
| IPR&D impairment | 211 | 81 |
| Restructuring | 234 | 228 |
| Selected operating subtotal: derived | 20,804 | 25,287 |
| Net earnings | 14,066 | 26,804 |
| Gross margin: derived | 69.1% | 67.9% |
The selected subtotal deducts selling, research, IPR&D impairment and restructuring from gross profit. It excludes other income/expense and net interest; it is neither an issuer-reported operating-profit line nor an adjusted recurring measure. This definition matters because a legal reserve reversal can improve reported profit without improving product economics.
Forecast medicines after partner royalties and replacement-product support, and MedTech after procedure-driven utilization, product costs and selling effort. Treat acquired programs as cash-funded assets with a development path. A smoother earnings presentation does not remove the cost of replacing an eroding franchise.
Keep the two sales populations distinct
The annual results release separates the following business sales. Consumer Health is outside this continuing-business revenue population.
| Business | Sales |
|---|---|
| Innovative Medicine | 60,401 |
| MedTech | 33,792 |
| Consolidated | 94,193 |
Build the two revenue paths before choosing a group margin. Medicine mix can change the retained contribution after royalties, while an equipment placement and recurring procedure use have different cash implications. Do not allocate consolidated operating cash to the businesses merely in proportion to sales.
Trace earnings into cash and reinvestment
Reconciliation source: annual earnings and cash-flow statements. Subtotals below are checkpoints, not extra amounts to add. Grouped adjustments are calculated from the disclosed cash-flow lines.
| Step | FY2025 |
|---|---|
| Selected operating subtotal: derived | 25,287 |
| Other income plus net interest income | 7,294 |
| Income tax expense | -5,777 |
| Net earnings: subtotal | 26,804 |
| Depreciation / amortization | 7,503 |
| Other non-cash / reconciliation lines | 2,941 |
| Operating assets and liabilities | -12,718 |
| Operating cash: subtotal | 24,530 |
| Property additions | -4,832 |
| After property additions: derived | 19,698 |
Other reconciliation lines group stock compensation, write-downs, acquired-research charges, asset-sale gains, deferred tax and receivable allowances. The operating-balance group includes current and non-current assets and liabilities; calling all of it ordinary working capital would conceal important cash timing.
The annual investing statement separately records $17,541 million of business acquisitions and $385 million of acquired research and related milestones. Those transactions are outside the property-only residual. Decide how future purchased development enters the forecast instead of adding back research charges while omitting the investment that supports the assumed product cash.
Test retained medicine contribution, rather than sales alone
Illustration: hold Innovative Medicine sales at the historical level and change retained operating contribution by 0.5 percentage point. This is an assumed cost/mix change, not guidance, reported segment profit or an estimate of settlement cash.
| Assumed change | Sales basis | Pre-tax operating effect |
|---|---|---|
| Minus 0.5 percentage point | 60,401 | (302.0) |
| No assumed change | 60,401 | 0 |
| Plus 0.5 percentage point | 60,401 | 302.0 |
Apply an explicit operating tax assumption to the change, then trace inventory, receivables and launch investment. Keep the legal-payment schedule independent. Combining a favorable margin case with a zero legal-cash assumption would embed two separate judgments that should be visible to the reader.
Keep interim reporting separate from the annual basis
Q3 2026 covers 2026-06-29 through 2026-09-27 and was released 2026-10-13. Revenue was $25,399 million in this quarter. Source: official Q3 2026 results.
The later reporting discusses a proposed talc resolution and acquired research. Preserve its separate date and payment boundary. The annual reserve reversal is not a cash receipt, a final legal outcome or proof that future legal payments are zero.
Turn the financial basis into a DCF case
| Decision | Treatment |
|---|---|
| Operating case | Project medicine and MedTech economics separately; retain royalties, selling support and ordinary research. |
| Legal bridge | Separate reserve accounting, payment dates and remaining claims; avoid a cash deduction twice. |
| Acquisition perimeter | Distinguish partial-year acquired results, transaction funding and future development spending. |
| Enterprise cash | Start with operating earnings after explicit operating tax, then reconcile non-cash costs, reinvestment and operating balances. |
| Equity result | Reconcile valuation-date debt, available cash, other claims and dilution; no current per-share value is supplied here. |
Using reported operating cash as a starting point also requires a financing and tax bridge before calling it unlevered enterprise cash. Match that cash definition to the discount rate. A terminal case should retain enough development and physical investment for the proposed medicine and MedTech mix, rather than treating historical acquisitions as free replacement capacity.
The Johnson & Johnson company analysis explains the wider operating context. Use the company forecast tool and DCF calculator with explicit assumptions. Use the historical financials to define an explicit operating and reinvestment case, then supply valuation-date capital costs, claims and diluted shares. Check that each cash claim is counted once before deriving a per-share value.
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