The sum of the cash flows from operating, investing, and financing
activities is the net increase or decrease in the firm’s cash. By detailing
changes in important financial statement line items, the statement of cash
flows reveals information that the balance sheet and income statement
cannot provide. We have discussed the annual balance sheet, income
statement, and sources and uses of funds for Johnson & Johnson during
the 1999–2003 period, and showed ratios using the WRDS database for
Johnson & Johnson and the median firm in the economy for selected
years during the 1970–2003 period. Financial data is reported quarterly
in the United States by most firms. The Johnson & Johnson quarterly bal-
ance sheets for four recent quarters are shown in Table 2.6, and quarterly
income statements in Table 2.7. The company’s quarterly returns on
sales, total assets, and equity are very large, as we saw when we com-
pared its ROE with the median firm ROE. As shown in Table 2.8, net in-
come is the primary source of net cash flow for the company during the
same four quarters, and dividends are the primary use or net cash out-
flow from financing.
In this chapter, we have introduced the reader to financial statements.
In the next chapter, we calculate additional ratios and estimate composite
indicators of the perceived financial health of firms. The composite indica-
tors are often used in credit-granting processes.
Sources and Uses of Funds 29
TABLE 2.7 Quarterly Johnson & Johnson Income Statements ($ millions)
Jun-04 Mar-04 Dec-03 Sep-03Net Sales 11,484.00 11,559.00 11,254.00 10,455.00
Cost of Goods Sold 3,162.00 3,367.00 3,508.00 2,980.00
Gross Profit 8,322.00 8,192.00 7,746.00 7,475.00
R&D Expenditure 1,182.00 1,095.00 1,489.00 1,177.00
SG&A Expense 3,711.00 3,640.00 4,054.00 3,428.00
Depreciation and Amortization N/A N/A N/A N/A
Nonoperating Income 58.00 92.00 215.00 154.00
Interest Expense 52.00 45.00 44.00 75.00
Income before Taxes 3,435.00 3,504.00 2,374.00 2,949.00
Provision for Income Taxes 977.00 1,011.00 529.00 877.00
Minority Interest (Liabilities) N/A N/A N/A N/A
Investment (Gain/Loss) N/A N/A N/A N/A
Other Income N/A N/A N/A N/A
Net Income before Extra Items 2,458.00 2,493.00 1,845.00 2,072.00
Extra Items and Disc. Operations N/A N/A N/A N/A
Net Income 2,458.00 2,493.00 1,845.00 2,072.00Data provided by Thomson, © Copyright 2004 Thomson.