Alex Claveria

ACC 101/ Mon-Wed 3:10-4:40

Final Report

Summary of Findings

After reviewing the financial statements for both companies Walgreens and

CVS I believe that CVS is the better investment. I think that CVS is the better
investment because as I look at their ratio analysis and common sized income
statement and balance sheet I see them with the upper hand. In the Ratio analysis
there werent many differences between the two companies, besides the working
capital. Walgreens working capital is 2038 and CVS is at 6062 so CVS has 3 times
more cash on hand to cover its debt, which is good to see as an investor. Besides
that the two were very similar in numbers for their ratios. When making my
decision I also took into consideration the common sized income statement and
common sized balance sheet. Well looking at the common sized income statement
and balance sheet I noticed that CVS sales were much higher than that of Walgreens
also they had a lower percentage of selling, general, and admin expenses. The
income before interest and taxes is higher that Walgreens and I also saw that CVS
does have a slightly higher Net income percentage than that of Walgreens. Over all
through looking at the ratio analysis and common sized income statement and
balance sheet is how I came to the conclusion of CVS being the better choose of
investment.

Financial Ratios
Ratio
Debt/Assest
Debt/Equity
Return on Equity
Profit Margin
Return on Assets
Working Capital
Current Ratio

Walgreens

CVS
0.455
0.835
0.132
0.03
0.07
2038
1.23

Financial Ratios Explanation

The first ratio is Debt/Assets and the purpose of the ratio is to measure
how much of the companys assets are being financed by debt. The
Debt/Equity ratio is the proportion of equity and debt the company is
using to finance its assets. Return on equity is the measurement of the
corporations profitability by revealing how much profit a company
generates with the money shareholders have invested. Profit Margin
measures how much out of every dollar of sales a company actually
keeps in earnings. Return on Assets is an indicator of how profitable a
company is relative to its total assets. Working Capital is where the
company looks to see if it has enough cash on hand to cover its debt.
The current ratio is mainly used to give an idea of the company's ability
to pay back its short-term liabilities with its short-term assets.

0.428
0.748
0.102
0.031
0.059
6062
2.27

Management Discussion & Analysis

Walgreens
The net earnings of 2012 decreased due to the lower sales. Net sales decreased by
.8% in 2012, compared to the increase of 7.1% in 2011. Front-end sales increased
3.6% in 2012 and 8.5% in 2011. Gross Margin as percent sales was 28.4% in 2012
and 2011. Selling, general and administrative expenses were 23.6% of sales in
2012, which came out to be a dollar increased by $317 millions or 1.9% over 2011.
Interest was a net expense in 2012 of $88 million, $71 million in 2011 and $85
million in 2010. The effective income tax rate was 37.0% for fiscal 2012, 36.8% for
2011, and 38.0% for 2010. Cash and cash equivalents were $1.3 billion at August
31, 2012, compared to $1.6 billion at August 31, 2011. Net cash provided by
operating activities was $4.4 billion at August 31, 2012, compared to $3.6 billion a
year ago.
CVS
Net revenues increased $16.0 billion in 2012 compared to 2011, and increased
$11.3 billion in 2011 compared to 2010. Gross profit increased $1.9 billion, or 9.5%
in 2012, to $22.5 billion, or 18.3% of net revenues, as compared to $20.6 billion, or
19.2% of net revenues in 2011. Gross profit increased $342 million, or 1.7% in 2011,
to $20.6 billion, or 19.2% of net revenues, as compared to $20.2 billion, or 21.1% of
net revenues in 2010. Operating expenses increased $1.0 billion, or 7.4% in the year
ended December 31, 2012, as compared to the prior year. Operating expenses as a

percent of net revenues improved approximately 90 basis points to 12.4% in the

year ended December 31, 2012. Net interest expense decreased $27 million during
the year ended December 31, 2012, which resulted from a reduction in our average
outstanding short-term and long-term debt. Income from continuing operations
increased $394 million or 11.3% to $3.9 billion in 2012. Income from continuing
operations increased $66 million or 1.9% to $3.5 billion in 2011 as compared to $3.4
billion in 2010.

Common Sized Income Statement

Common Sized Balance Sheet

Summary

The common sized income statement gives you a look at each companys

accounts as a percentage of values of sales. Which makes it easy to compare

between companies or between time periods. As you can see the COGS is at a high
percentage, with Walgreens and CVS having 71.6% and 81.7% respectively. So
CVSs sales cost of goods sold is higher than Walgreens. Their gross margin profits
as you can see are 28.3% for Walgreens and 18.2% for CVS. Walgreens receives
more profit through sales than CVS does. Selling, general and admin expenses are
23.5% for Walgreens and 12.4% for CVS. Which shows that Walgreens has a higher
percentage of expense compared to CVS. The net profit of each companys sales are
3.04% and 3.14% for Walgreens and CVS respectively. So there isnt much of a
difference between the two companies considering their net profits.
The common sized balance sheet shows you all items as a percentage of a
common base figure. Cash and cash equivalents for each company is 3.87% for
Walgreens and 2.08% for CVS, which shows how much for cash and cash
equivalents as a percent for total assets. It goes for all the other accounts for the
balance sheet. It compares each account to the total assets as a percentage. Some
big differences in the percentages between the companies are the retained earnings,
being 60.2% and 38% for Walgreens and CVS respectively. Another would be
Goodwill that is 6.4% for Walgreens and 40.0% for Goodwill.

Financial Statements
Walgreens

CVS