Johnson & Johnson researches, develop, manufactures, and sells various hygiene and healthcare products worldwide. It has over 250 subsidiaries in over 60 countries, and products are sold in over 175 countries (James et al., 2019). This paper presents a detailed analysis of the influence of external factors on the company’s activities, its performance on the stock exchange, and the correlation of the influence of interest rate on financial performance. The considered company Johnson & Johnson is presented in modern realities; all information is taken from scientific and news sources. Previously, an experimental calculation was carried out with various interest rates to see in detail the influence of this factor on free cash flow indicators and assess their consequences.
First of all, the calculations showed an inverse relationship between the market interest rate and free cash flows through the present value. The higher rate reduced this financial performance, consequently affecting the company’s current capabilities and partly its liquidity or ability to meet its short-term obligations (Díaz & Escribano, 2020). The smaller one in the market, in turn, allows significantly increasing the present value compared to other indicators, which gives the organization flexibility in planning and potential expansion opportunities. However, a small interest rate has negative consequences: available borrowed money gives similar opportunities to competitors, significantly increasing the need for constant development, often with shrinking margins (Hanzlík & Teplý, 2022). Manufacturing companies like Johnson & Johnson then face the threat of new players in each of their diversified product divisions.
With a growing market and money available, companies are better off short-term at the expense of long-term planning. Investing is no longer a priority due to the low-interest rate on deposits, in connection with which companies allocate more money to circulation. This stage should be seen as an opportunity and a need for potential development paths. A high-interest rate, in turn, forces companies to take a wait-and-see attitude. As a rule, its increase in the market by more than 2% is dictated by external factors, the effect of which, as a rule, cannot be predicted. In this case, the money is taken out of the flows and can be sent to save in deposits or investments as their price rises significantly.
For the market as a whole, this situation is a test of companies’ flexibility, mobility, and reactivity. Johnson & Johnson used the crisis of 2020 to invest in property, plants, and equipment, while in 2017, they sold many investment assets to offset low sales and income (Macrotrends, 2022). Such actions reflect the reactionary and, in some fortunate cases, proactive activity characteristic of a period of high-interest rates. Accordingly, in numerical terms, the average interest rate is a balance between two market conditions, where the assessment already depends on the company’s strengths and the context of the surrounding situation.
Despite the past years’ pandemic and global crises, Johnson & Johnson has consistently paid dividends on shares. At the same time, payments are growing in line with the growth in net income, which was significantly increased in 2021 due to the optimization of production, reflected in gross profit and cost of goods sold (Macrotrends, 2022). Accordingly, the company will work out any problem in the stock market to one degree and overcome it with the most excellent probability due to the long-term history of an impeccable reputation. Moreover, the majority of Johnson & Johnson’s revenue comes from pharmaceuticals and medical devices, which, in the face of the spread of the virus and the increase in public attention to health, allows it to maintain a leading position even in times of crisis (Alhosnai et al., 2021). In the event of a global recession, such a company will be more likely to survive with minimal losses.
The most apparent external factor for the company is the geopolitical situation in the east of Europe, where an armed conflict broke out. As a result, to maintain its reputation, Johnson & Johnson left the Russian market, significantly leading to a drop in revenue and the need to rebuild an established supply chain in this direction (Johnson & Johnson, 2022). The impact on financial indicators can only be predicted so far since the 2022 financial statements will be released only next year. However, it is safe to say that after a successful 2021, maintaining the same level of net income will be highly positive. The company will likely respond to the withdrawal from the market by selling assets, which will affect cash flow statements while possibly increasing operating costs for restructuring logistics routes. At the same time, the drop in the value of a company’s shares may not be due to an increase in reputational and responsible issues as determinants of investor attractiveness in the modern world (Ziyadin et al., 2019). Finally, increasing long-term liabilities through lending is possible if revenues fall significantly. In this case, as discussed above, the macroeconomic indicator of the market interest rate will play an important role, which to a certain extent, can determine the different vectors of the organization’s development.
References
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