Financial analysis Essay Example | Topics and Well Written Essays - 500 words

Financial analysis - Essay Example The current ratios of Merck & Co are ideal, being generally slightly greater than 1. The quick ratio measures whether the firm has enough liquid resources to meet its current liabilities by excluding stock from the current assets in the current ratio (Wood, 1994, p. 418). In this regard, Johnson & Johnson is performing better than its competitors. Its quick ratios for the recent 4 years are slightly greater than 1 while those for its competitors are generally below 1. The debt/equity ratio shows the proportion of long term debt to internal financing. The debt/equity ratios of Johnson & Johnson are at ideally low levels of between 0.05 to 0.11, which are lower than that of the industry average at 0.23. The debt/equity ratios of Procter & Gamble are quite high, ranging from 0.59 to 0.81. However, they are lower than the industry average of 1.01. The debt/equity ratios for Merck & Co., though not as good as those for Johnson & Johnson are reasonable at between 0.27 and 0.33. The leverage ratio shows the amount of assets that a dollar of equity finances. The leverage ratio of Johnson & Johnson at 1.5 to 1.8 are ideal being lower than the industry average of 2.1 and also those of its competitors that range from around 2 to 3. The interest coverage from continuing operations shows the extent to which profit may fall before the firm will not be able to meet its interest charges. When this happens the firm faces being taken over or being wound up. Again, the interest coverage from continuing operations for Johnson & Johnson is excellent. It shoots up from 59 in 2002 to an extremely ideal figure of 253.8 in 2005, especially in light that the industry average is only 27.4. The interest coverage from continuing operations for Procter & Gamble is not as good as that of Johnson & Johnson. It ranges from 12.1 to 14.4 and the data exhibits a downward trend. The interest coverage from continuing operations for Merck & Co also not as good