Question

In: Accounting

Please provide a paragrpah (so that is sentences of three or more sentences in the specifed...

Please provide a paragrpah (so that is sentences of three or more sentences in the specifed areas mentioned below) of the Finacial Ratio Analysis for CVS and Walgreens. Please include the Current Ratio vs the Acid Test ratio, the Days sales in inventory vs. the inventory turn over in Days and the Days Sales in receivable vs. Accounts receivable turn over in days.

CVS

Balance Sheet

All numbers in thousands

Period Ending

12/31/2017

12/31/2016

12/31/2015

Current Assets

Cash And Cash Equivalents

1,696,000

3,371,000

2,459,000

Short Term Investments

111,000

87,000

88,000

Net Receivables

13,181,000

12,164,000

11,888,000

Inventory

15,296,000

14,760,000

14,001,000

Other Current Assets

945,000

660,000

722,000

Total Current Assets

31,229,000

31,042,000

29,158,000

Long Term Investments

-

-

-

Property Plant and Equipment

10,292,000

10,175,000

9,855,000

Goodwill

38,451,000

38,249,000

38,106,000

Intangible Assets

13,630,000

13,511,000

13,878,000

Accumulated Amortization

-

-

-

Other Assets

1,529,000

1,485,000

1,440,000

Deferred Long Term Asset Charges

-

-

-

Total Assets

95,131,000

94,462,000

92,437,000

Current Liabilities

Accounts Payable

15,472,000

14,883,000

14,319,000

Short/Current Long Term Debt

15,176,000

11,367,000

8,850,000

Other Current Liabilities

-

-

-

Total Current Liabilities

30,648,000

26,250,000

23,169,000

Long Term Debt

22,181,000

25,615,000

26,267,000

Other Liabilities

1,611,000

1,549,000

1,542,000

Deferred Long Term Liability Charges

2,996,000

4,214,000

4,217,000

Minority Interest

4,000

4,000

7,000

Negative Goodwill

-

-

-

Total Liabilities

57,440,000

57,632,000

55,202,000

Stockholders' Equity

Misc. Stocks Options Warrants

-

-

39,000

Redeemable Preferred Stock

-

-

-

Preferred Stock

-

-

-

Common Stock

17,000

17,000

17,000

Retained Earnings

43,556,000

38,983,000

35,506,000

Treasury Stock

-37,765,000

-33,452,000

-28,886,000

Capital Surplus

32,079,000

31,618,000

30,948,000

Other Stockholder Equity

-196,000

-336,000

-389,000

Total Stockholder Equity

37,691,000

36,830,000

37,196,000

Net Tangible Assets

-14,390,000

-14,930,000

-14,788,000

Income Statement

All numbers in thousands

Revenue

12/31/2017

12/31/2016

12/31/2015

Total Revenue

184,765,000

177,526,000

153,290,000

Cost of Revenue

156,220,000

148,669,000

126,762,000

Gross Profit

28,545,000

28,857,000

26,528,000

Operating Expenses

Research Development

-

-

-

Selling General and Administrative

-

-

-

Non Recurring

-

-

-

Others

-

-

-

Total Operating Expenses

-

-

-

Operating Income or Loss

9,517,000

10,366,000

9,475,000

Income from Continuing Operations

Total Other Income/Expenses Net

-208,000

-671,000

-21,000

Earnings Before Interest and Taxes

9,309,000

9,695,000

9,454,000

Interest Expense

1,041,000

1,058,000

838,000

Income Before Tax

8,268,000

8,637,000

8,616,000

Income Tax Expense

1,637,000

3,317,000

3,386,000

Minority Interest

4,000

4,000

7,000

Net Income From Continuing Ops

6,631,000

5,320,000

5,230,000

Non-recurring Events

Discontinued Operations

-8,000

-1,000

9,000

Extraordinary Items

-

-

-

Effect Of Accounting Changes

-

-

-

Other Items

-

-

-

Net Income

Net Income

6,622,000

5,317,000

5,237,000

Preferred Stock And Other Adjustments

-

-

-

Net Income Applicable To Common Shares

6,622,000

5,317,000

5,237,000

Walgreens

Income Statement

All numbers in thousands

Revenue

8/31/2017

8/31/2016

8/31/2015

Total Revenue

118,214,000

117,351,000

103,444,000

Cost of Revenue

89,052,000

87,477,000

76,691,000

Gross Profit

29,162,000

29,874,000

26,753,000

Operating Expenses

Research Development

-

-

-

Selling General and Administrative

23,605,000

23,873,000

22,085,000

Non Recurring

-

-

-

Others

-

-

-

Total Operating Expenses

-

-

-

Operating Income or Loss

5,557,000

6,001,000

4,668,000

Income from Continuing Operations

Total Other Income/Expenses Net

-11,000

-261,000

1,248,000

Earnings Before Interest and Taxes

5,546,000

5,740,000

5,916,000

Interest Expense

693,000

596,000

605,000

Income Before Tax

4,853,000

5,144,000

5,311,000

Income Tax Expense

752,000

953,000

1,032,000

Minority Interest

808,000

401,000

439,000

Net Income From Continuing Ops

4,078,000

4,173,000

4,220,000

Non-recurring Events

Discontinued Operations

-

-

-

Extraordinary Items

-

-

-

Effect Of Accounting Changes

-

-

-

Other Items

-

-

-

Net Income

Net Income

4,078,000

4,173,000

4,220,000

Preferred Stock And Other Adjustments

-

-

-

Net Income Applicable To Common Shares

4,078,000

4,173,000

4,220,000

Balance Sheet

All numbers in thousands

Period Ending

8/31/2017

8/31/2016

8/31/2015

Current Assets

Cash And Cash Equivalents

3,301,000

9,807,000

3,000,000

Short Term Investments

-

-

-

Net Receivables

6,528,000

6,260,000

6,849,000

Inventory

8,899,000

8,956,000

8,678,000

Other Current Assets

1,025,000

860,000

1,130,000

Total Current Assets

19,753,000

25,883,000

19,657,000

Long Term Investments

6,320,000

6,174,000

1,242,000

Property Plant and Equipment

13,642,000

14,335,000

15,068,000

Goodwill

15,632,000

15,527,000

16,372,000

Intangible Assets

10,156,000

10,302,000

12,351,000

Accumulated Amortization

-

-

-

Other Assets

506,000

467,000

4,092,000

Deferred Long Term Asset Charges

-

-

-

Total Assets

66,009,000

72,688,000

68,782,000

Current Liabilities

Accounts Payable

18,296,000

16,690,000

15,489,000

Short/Current Long Term Debt

251,000

323,000

1,068,000

Other Current Liabilities

-

-

-

Total Current Liabilities

18,547,000

17,013,000

16,557,000

Long Term Debt

12,684,000

18,705,000

13,315,000

Other Liabilities

4,223,000

4,045,000

4,072,000

Deferred Long Term Liability Charges

2,281,000

2,644,000

3,538,000

Minority Interest

808,000

401,000

439,000

Negative Goodwill

-

-

-

Total Liabilities

37,735,000

42,407,000

37,482,000

Stockholders' Equity

Misc. Stocks Options Warrants

-

-

-

Redeemable Preferred Stock

-

-

-

Preferred Stock

-

-

-

Common Stock

12,000

12,000

12,000

Retained Earnings

30,137,000

27,684,000

25,089,000

Treasury Stock

-9,971,000

-4,934,000

-3,977,000

Capital Surplus

10,339,000

10,111,000

9,953,000

Other Stockholder Equity

-3,051,000

-2,993,000

-216,000

Total Stockholder Equity

27,466,000

29,880,000

30,861,000

Net Tangible Assets

1,678,000

4,051,000

2,138,000

Solutions

Expert Solution

1. Current Ratio vs Acid Test Ratio

CVS

Walgreens

2015

2016

2017

2015

2016

2017

Current Ratio = CA/CL

     Current Assets

29158000

31042000

31229000

19657000

25883000

19753000

     Current Liabilities

23169000

26250000

30648000

16557000

17013000

18547000

1.26

1.18

1.02

1.19

1.52

1.07

Acid Test Ratio = Quick Assets/CL

       Quick Assets = CA-Inventory

15157000

16282000

15933000

10979000

16927000

10854000

     Current Liabilities

23169000

26250000

30648000

16557000

17013000

18547000

0.65

0.62

0.52

0.66

0.99

0.59

2. Inventory Turnover in Days

CVS

Walgreens

2015

2016

2017

2015

2016

2017

Inventory turnover in Days

        Cost of Goods Sold

126762000

148669000

156220000

76691000

87477000

89052000

        Average Inventory {(opening + closing)/2}

14001000

14380500

15028000

8678000

8817000

8927500

     Inventory Turnover Ratio = COGS/Average Inventory

9.05

10.34

10.40

8.84

9.92

9.98

Inventory turnover in Days = 365/ Inventory turnover

40.31

35.31

35.11

41.30

36.79

36.59

3.  

CVS Walgreens
2015 2016 2017 2015 2016 2017
Accounts receivables turover in days
      Credit sales 153290000 177526000 184765000 103444000 117351000 118214000
     Average Accounts Receivables (openning + closing /2) 11888000 12026000 12672500 6849000 6554500 6394000
      Receivables turover= Credit sales/ average recivables 12.89 14.76 14.58 15.10 17.90 18.49
Accounts receivables turnover in days = 365/Receivables Turover Ratio 28.31 24.73 25.03 24.17 20.39 19.74

Note:

a) As the amount of credit sales is not given hence all the revenue amount has been assumed as credit sales.

b) The days sales in inventory or the inventory turn over in days is one and same thing.

c)  The days sales in receivable or accounts receivable turn over in days is one and same thing

SOLUTION: comment

Current, as well as acid test ratio of both the companies, is below the rule of thumb which is 2:1 fro current ratio and 1:1 for acid test ratio. But the Walgreen in a better situation as compared to the CVS, further the current and acid test ratio of CVS is deteriorated over the last three years. Inventory turnover in days shows that both the companies on average take 35 days to convert its inventory into sales and there is a decrease in the number of days to convert inventory into sales over the period of last three years. It shows that both the companies are increasing their efficiencies on account of inventory handling. but Receivables turnover ratio shows that Walgreen is more efficient in receivables management than CVS as it takes on average 20 days to collect receivables as compare to CVS that takes 25 days. Overall, it can be infered from ananlysis that Walgreen performing better than CVS.


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