Managerial Finance

Topics: Stock, Finance, Financial ratio Pages: 3 (856 words) Published: December 1, 2012
Michelle Seefeld
Managerial Finance
Learning Session 1 Written Assignment

Chapter 1 Discussion Question 6
What document is necessary to form a corporation?
A corporation is formed through articles of incorporation, which specify the rights and limitations of the entity (Block, Hirt, & Danielson, 2011). Web Exercise (pp. 22-23)
In summary, the credo for Johnson & Johnson challenges the company to put the needs and well-being of the customers first. The former chairman for the company, Robert Wood Johnson, crafted the Credo by himself in 1943, before the company became publicly traded and long before the term “corporate social responsibility” was even heard of (Johnson & Johnson Services, Inc., 2012). The Credo is considered a moral compass and a recipe for business success. This is proven by the fact that the company is one of only a handful of companies that have flourished through more than a century of change (Johnson & Johnson Services, Inc., 2012). a. Sales to Customers: 6% increase

b. Net Earnings: 27% decrease
c. Earnings per Share: 27% decrease
Generally speaking, in terms of sales to customers, Johnson & Johnson is growing by less than 10% per year. Chapter 2 Discussion Question 2
What is the difference between book value per share of common stock and market value per share? Why does this disparity occur?

Book value per share of common stock is computed by taking everything that the firm owns and subtracting the debt and preferred stock obligations. The remaining amount belongs to the common stockholder and represents net worth or book value (Block, Hirt, & Danielson, 2011). Market value per share is based on the price-earnings ratio and the earnings per share and is computed by multiplying the two numbers together. The disparity occurs because the P/E ratio is influenced by the earnings and the sales growth of the firm, the risk (or volatility in performance), the debt-equity structure of...

References: Block, S. B., Hirt, G. A., & Danielson, B. R. (2011). Foundations of Financial Management (14th ed.). New York, NY: McGraw-Hill/Irwin.
Johnson & Johnson Services, Inc. (2012). Our Credo Values. Retrieved from
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