Running Head: LTP COMPREHENSIVE FINANCIAL ANALYSIS PAPER
Learning Team Project: Comprehensive Financial Analysis Paper
Team A
George Bartus
Sarah Farner
Gina Gudowski
Thomas Keith
Siena Heights University
LDR 640 Financial Systems Management
Prof. Lihua Dishman
May 26, 2014
1
LTP COMPREHENSIVE FINANCIAL ANALYSIS PAPER
Abstract
The Walgreen Co. was founded in 1901 by Charles R. Walgreen in Chicago, Illinois
(Walgreens). Charles Walgreen built the Walgreen Co. from its initial 50 feet by 20 feet store to
the 8,688 Walgreens stores in operation today (Walgreens: our past). The massive growth of
Walgreens drug stores over the past century speaks to the overall financial strength of the
company; however, through a comprehensive financial analysis, utilizing the five basic groups of
financial ratios, this paper will examine the overall financial strength of the Walgreen Co. This
process will demonstrate that Walgreen Co is expected to grow in future years and will continue
to be a viable investment for investors of all types.
2
LTP COMPREHENSIVE FINANCIAL ANALYSIS PAPER
3
Regardless of the size, a corporation’s financial viability can be determined through
financial statement analysis. The income statement, balance sheet and statement of cash flows
are basic indicators of financial condition and are the end products of the financial accounting
process (Hawawini & Viallet, 2011). The balance sheet shows what a company owns and what
they owe at a given period of time (Hawawini & Viallet, 2011). The income statement is often
referred to as the “profit-and-loss” statement and determines the difference between a firm’s
revenues and expenses over a given period of time (Hawawini & Viallet, 2011). The statement
of cash flows report a company’s cash transactions over a given period of time (Hawawini &
Viallet, 2011).
The three basic financial statements are utilized to determine financial ratios, which are
tools used to compare the financial statements of various companies regardless of industry and
firm size.
Liquidity refers to a firm’s ability to turn assets into cash (Hawawini & Viallet,
2011). Liquidity ratios measure the capacity of the business to meet short term financial
commitments as they become due (Small Business Development Corporation).
Essentially, the
higher the value of the ratio, the better the firm can cover its short term debts (Investopedia).
There are two main types of liquidity ratios, the current ratio and the quick ratio. The
current ratio is obtained by dividing a firm’s current assets by its current liabilities. (Hawawini
& Viallet, 2011). The ratio determines whether a firm has enough current assets to meet its
short term obligations. The larger the current ratio, the more liquid the firm; however, the
current ratio should be at least greater than or equal to one (Hawawini & Viallet, 2011). The
quick ratio also determines whether or not a firm has enough current assets to meet its short term
obligations, however, this ratio excludes inventory (Hawawini & Viallet, 2011). As a result, the
quick ratio is a more conservative measure of liquidity.
LTP COMPREHENSIVE FINANCIAL ANALYSIS PAPER
4
Solvency is a firm’s ability to meet its long term cash obligations (Hawawini & Viallet,
2011). The solvency ratio quantifies the size of a company’s after tax income, excluding noncash depreciation expenses, and compares it to the total debt obligations of the firm (Hawawini
& Viallet, 2011). Also, it provides an assessment of the likelihood of a company to continue
congregating its debt obligations (Ready Ratios). The solvency ratio is calculated through
adding the after tax net profit and depreciation and dividing by total liabilities (Ready Ratios).
A firm with a solvency ratio of at least 20% is considered to be financially sound (Ready
Ratios). Firms with lower solvency a ratios are more likely to default on their debt.
Asset management ratios compare how well a firm uses its assets such as inventory,
accounts receivable, and fixed assets to generate sales and revenue (Ready Ratios).
There are
multiple types of asset management ratios, including total asset turnover which determines how
well a firm is managing all of their available assets in the form of sales generation. Accounts
payable turnover ratios help to determine how fast a company pays off its creditors (Ready
Ratios). The inventory turnover ratio is another asset management ratio that determines the
number of times inventory is sold or used in a given time period (Ready Ratios).
Profitability ratios refer to how successful a company is at running their business. They
determine if a company is making money, whether or not their profitability is in line with the
competition, and if their profit is going up or down (Morning Star, 2010). There are a few types
of profitability ratios, one of the most basic being return on equity. Return on equity measures a
firm’s return on investments by shareholders (Morning Star, 2010).
It is calculated by dividing
earnings after tax by owners’ equity (Hawawini & Viallet, 2011). Another basic profitability
ratio is gross margin, which is the amount of each dollar of sales that a company keeps in the
LTP COMPREHENSIVE FINANCIAL ANALYSIS PAPER
form of profit (Morning Star, 2010). Gross margin is obtained by dividing gross profit by sales
(Morning Star, 2010).
The final basic group of financial ratios is market value ratios. Market value ratios
determine the economic status of your company in the marketplace and are comprised of a few
ratios including earnings per share, price to earnings ratio, and market to book ratio. The
earnings per share ratio is a measure of a firms normalized earnings after tax (Hawawini &
Viallet, 2011). This ratio is calculated by dividing earnings after tax by the number of shares
outstanding (Hawawini & Viallet, 2011). The price to earnings ratio is the ratio of a firms
current share price compared to its current share earnings and is obtained by dividing the share
price by the earnings per share (Hawawini & Viallet, 2011). Finally, the market to book ratio
allows investors to see how much a firm is actually valued relative to the market value and is
obtained by dividing the share price by the book value per share (Hawawini & Viallet, 2011).
5
LTP COMPREHENSIVE FINANCIAL ANALYSIS PAPER
Walgreens- Balance Sheet
Cash and Equivalents
Receivables
Inventories
Other Current Assets
Total Current Assets
Property, Plant & Equipment, Gross
Accumulated Depreciation &
Depletion
Property, Plant & Equipment, Net
Intangibles
Other Non-Current Assets
Total Non-Current Assets
Total Assets
Liabilities & Shareholder Equity
Accounts Payable
Short Term Debt
Other Current Liabilities
Total Current Liabilities
Long Term Debt
Deferred Income Taxes
Other Non-Current Liabilities
Minority Interest
Total Non-Current Liabilities
Total Liabilities
Preferred Stock Equity
Common Stock Equity
Common Par
Additional Paid In Capital
Cumulative Translation Adjustment
Retained Earnings
Treasury Stock
Other Equity Adjustments
Total Capitalization
Total Equity
Total Liabilities & Stock Equity
Total Common Shares Outstanding
Preferred Shares
Treasury Shares
Basic Weighted Shares Outstanding
Diluted Weighted Shares Outstanding
6
Aug-13
2,106.00
2,632.00
6,852.00
284
11,874.00
18,181.00
Aug-12
1,297.00
2,167.00
7,036.00
260
10,760.00
17,160.00
Aug-11
1,556.00
2,497.00
8,044.00
225
12,322.00
15,834.00
Aug-10
1,880.00
2,450.00
7,378.00
214
11,922.00
15,019.00
6,043.00
5,122.00
4,308.00
3,835.00
12,138.00
1,307.00
7,752.00
23,607.00
35,481.00
12,038.00
1,286.00
7,217.00
22,702.00
33,462.00
11,526.00
1,212.00
377
15,132.00
27,454.00
11,184.00
1,114.00
168
14,353.00
26,275.00
4,635.00
570
2,750.00
8,883.00
4,477.00
600
2,067.00
0
7,144.00
16,027.00
0
19,454.00
80
1,074.00
0
21,523.00
-3,114.00
-109
23,931.00
19,454.00
35,481.00
946.6
0
81.58
946
955.2
4,384.00
1,319.00
0
8,722.00
4,073.00
545
1,886.00
0
6,504.00
15,226.00
0
18,236.00
80
936
0
20,156.00
-2,985.00
49
22,309.00
18,236.00
33,462.00
944.06
0
84.12
874.7
880.1
4,810.00
13
674
8,083.00
2,396.00
343
1,785.00
0
4,524.00
12,607.00
0
14,847.00
80
834
0
18,877.00
-4,926.00
-18
17,243.00
14,847.00
27,454.00
889.29
0
136.11
915.1
924.5
4,585.00
12
73
7,433.00
2,389.00
318
1,735.00
0
4,442.00
11,875.00
0
14,400.00
80
684
0
16,848.00
-3,101.00
-111
16,789.00
14,400.00
26,275.00
938.61
0
86.79
981.7
987.9
LTP COMPREHENSIVE FINANCIAL ANALYSIS PAPER
Walgreens-Income Statement
Sales
Cost of Sales
Gross Operating Profit
Selling, General, and Administrative Expenses
Research & Development
Operating Income before D & A (EBITDA)
Depreciation & Amortization
Interest Income
Other Income – Net
Special Income / Charges
Total Income Before Interest Expenses (EBIT)
Interest Expense
Pre-Tax Income
Income Taxes
Minority Interest
Net Income From Continuing Operations
Net Income From Discontinued Operations
Net Income From Total Operations
Extraordinary Income/Losses
Income From Cum. Effect of Acct. Change
Income From Tax Loss Carryforward
Other Gains / Losses
Total Net Income
Normalized Income
(Net Income From Continuing Operations,
Ex. Special Income / Charge)
Preferred Dividends
Net Income Available To Common
Basic EPS from Continuing Ops.
Basic EPS from Discontinued Ops.
Basic EPS from Total Operations
Basic EPS from Extraordinary Inc.
Basic EPS from Cum Effect of Accounting
Change
Basic EPS from Tax Loss Carryf'd.
Basic EPS from Other Gains (Losses)
Basic EPS, Total
Basic Normalized Net Income/Share
EPS fr Continuing Ops.
EPS fr Discontinued Ops
7
Aug-13
72,217.00
49,815.00
22,402.00
17,543.00
0
4,859.00
1,283.00
0
484
0
4,060.00
165
3,895.00
1,445.00
0
2,450.00
0
2,450.00
0
0
0
0
2,450.00
Aug-12
71,633.00
50,125.00
21,508.00
16,878.00
0
4,630.00
1,166.00
0
0
0
3,464.00
88
3,376.00
1,249.00
0
2,127.00
0
2,127.00
0
0
0
0
2,127.00
Aug-11
72,184.00
50,606.00
21,578.00
16,561.00
0
5,017.00
1,086.00
0
434
0
4,365.00
71
4,294.00
1,580.00
0
2,714.00
0
2,714.00
0
0
0
0
2,714.00
Aug-10
67,420.00
47,414.00
20,006.00
15,518.00
0
4,488.00
1,030.00
0
0
0
3,458.00
85
3,373.00
1,282.00
0
2,091.00
0
2,091.00
0
0
0
0
2,091.00
2,450.00
2,127.00
2,714.00
2,091.00
2,450.00
2.59
0
2.59
0
2,127.00
2.43
0
2.43
0
2,714.00
2.97
0
2.97
0
2,091.00
2.13
0
2.13
0
0
0
0
0
0
0
2.59
2.59
2.56
0
0
0
2.43
2.43
2.42
0
0
0
2.97
2.97
2.94
0
0
0
2.13
2.13
2.12
0
LTP COMPREHENSIVE FINANCIAL ANALYSIS PAPER
Walgreens – Income Statement Cont’d
EPS fr Total Ops.
EPS fr Extraord. Inc.
EPS fr Cum Effect of Accounting Change
EPS fr Tax Loss Carfd.
EPS fr Other Gains (L)
EPS, Total
Diluted Normalized Net Inc/Shr
(Net Income From Continuing Operations,
Ex. Special Income / Charge)
Dividends Paid per Share
8
Aug-13
2.56
0
0
0
0
2.56
Aug-12
2.42
0
0
0
0
2.42
Aug-11
2.94
0
0
0
0
2.94
Aug-10
2.12
0
0
0
0
2.12
2.56
1.14
2.42
0.95
2.94
0.75
2.12
0.59
LTP COMPREHENSIVE FINANCIAL ANALYSIS PAPER
Walgreens – Statement of Cash Flows
Cash Flow From Operating Activities
Net Income (Loss)
Operating Gains/Losses
Extraordinary Gains / Losses
(Increase) Decrease In Receivables
(Increase) Decrease in Inventories
(Increase) Decrease In Other Current Assets
(Decrease) Increase In Payables
(Decrease) Increase In Other Current
Liabilities
(Increase) Decrease In Other Working Capital
Other Non-Cash Items
Net Cash From Continuing Operations
Net Cash From Discontinued Operations
Cash Provided By Investing Activities
Net Cash From Total Operating Activities
Sale of Property, Plant & Equipment
Cash Used for Investing Activities
Sale of Short-Term Investments
Purchases of Property, Plant & Equipment
Acquisitions
Purchases of Short-Term Investments
Other Cash from Investing Activities
Cash Provided by Financing Activities
Net Cash From Investing Activities
Issuance of Debt
Cash Used for Financing Activities
Issuance of Capital Stock
Repayment of Long-Term Debt
Repurchase of Capital Stock
Payment of Cash Dividends
Other Financing Charges, Net
Net Cash From Financing Activities
Effect of Exchange Rate Changes
Net Change in Cash & Cash Equivalents
9
Aug-13
Aug-12
Aug-11
Aug-10
2,450.00 2,127.00 2,714.00 2,091.00
-344
0
-434
0
0
0
0
0
-449
394
-243
124
321 1,083.00
-592
-307
18
-4
0
0
182
-439
384
167
527
-412
320
272
68
109
88
160
97
142
188
144
4,301.00 4,431.00 3,643.00 3,744.00
0
0
0
0
4,301.00 4,431.00 3,643.00 3,744.00
0
123
79
0
16
0
0 3,500.00
-1,212.00 1,550.00 1,213.00 1,014.00
-610
-536
-188
-779
-66
0
0
3,000.00
100
128
-203
19
-1,996.00 5,860.00 1,525.00 1,274.00
4,000.00 3,000.00
0
0
486
0
0
0
-4,300.00
0
-17
-576
-615 1,191.00 2,028.00 1,756.00
-1,040.00
-787
-647
-541
-27
148
250
196
-1,496.00 1,170.00 2,442.00 2,677.00
0
0
0
0
809
-259
-324
-207
LTP COMPREHENSIVE FINANCIAL ANALYSIS PAPER
10
Financial Ratio Analysis
We calculated twelve financial ratios for Walgreens during the 2013 fiscal year. The
ratios have been divided into five categories; liquidity, solvency, asset management, profitability,
and market value ratios. We independently calculated the ratios and will analyze the ratios
below.
Financial Ratios Walgreens
Current Ratio
Current assets/current liabilities
Quick Ratio
Cash+Accounts Receivable
Current Liabilities
Debt to Equity Ratio
Total Debt/Total Equity
Times Interest Earned Ratio
EBIT/Interest Expenses
Inventory Turnover
COGS/Ending Inventories
Total Assets Turnover Ratio
Sales/Total Assets
Earnings Per Share
EAT/# of shares of common stock outstanding
Debt to Asset Ratio
Total Debt/Total Assets
Return on Sales
EAT/Sales
Return on Assets
EAT/Total Assets
Return on Equity
EAT/Total equity
Price to Earnings Ratio
Price per share/Earnings per share
2013
1.336711
2012
1.234
2011
1.524
0.5333784
0.409
0.501
0.259432507 0.29568 0.16226
24.60606061 39.3636 61.4789
7.270140105 7.12408 6.29115
2.035371 2.14073 2.62927
2.588210437 2.25303 3.05187
0.377042277 0.50112
0.1955
0.03392553 0.02969
0.0376
0.069051041 0.06356 0.09886
0.12593811 0.11664
0.1828
22.4375 15.2934 11.2449
Liquidity ratios reflect an organizations ability to pay its debt. The current ratio divides
the current assets by the liabilities. Walgreens has $1.33 of assets to every dollar of liability
which is the current ratio. The quick ratio reflects an organizations ability to pay its current debt
LTP COMPREHENSIVE FINANCIAL ANALYSIS PAPER
as it due. The quick ratio excludes inventories and prepaid assets with Walgreens having a .53 to
1 quick ratio. Usually an organization can improve their quick ratio through better management
of their product cycle. A quick ratio below zero is less than desirable (Porter, 2011).
The debt to equity and times interested earned ratio were the solvency ratios used to
describe an organizations long term financial stability beyond paying their short term debt. The
debt to equity ratio was calculated by dividing the total debt by total equity which was .25 for
2013. For every dollar of capital the stock holders provided 25 cents was provided by creditors.
Walgreens may be placing a special emphasis to keep their debt significantly lower than the past.
The times earned interest ratio places an emphasis on payment owed on interest, specifically we
mentioned the organizations ability to meet the interest on current year payments out of current
year earning (Porter, 2011). The times interest earned ratio was 24.6 to 1. This means that for
every dollar Walgreens pays in interest they earn 21 more dollars. This is more than enough to
pay the interest for this current year.
In the asset management category we calculated the inventory turnover, and total asset
turnover ratios. The inventory turnover ratio represents how many times inventory is sold in a
period. Walgreens on average sells their inventory seven times a period. The total asset turnover
ratio for Walgreens was .2 and represents the relationship between net sales and total assets.
Walgreens has two times the sales than their average assets.
Profitability ratios calculated were return on sales, equity, and asset ratios. The return on
sales was 3 percent. Walgreens is earning 3 cents on each dollar of sales. Return on equity
expresses the amount earned on income from investments. The return on equity was 12 percent
which explains profitability from the owner’s perspective.
11
LTP COMPREHENSIVE FINANCIAL ANALYSIS PAPER
The market value ratios are expressed through the price per earnings and earnings per
share ratios. Earnings per share was $2.58 which means that each investors earned 2.58 per share
of stock that he or she purchased. The price to earnings ratio was calculated at 22.4 which means
that Walgreens is trading at 22 times its current earnings (Hawawini, 2011. p. 159).
Trend Analysis
The financial ratios for Walgreens were calculated using data from the income statement,
balance sheet and cash flow statement for the years 2011, 2012 and 2013. The current ratio
dipped from a high of 1.52 in 2011 to 1.34 in 2012 with a recovery of sorts in the third year
2013. The quick ratio exhibited a similar dip in 2012 but was close to .5 in all three years. The
current ratio should be above 1 and close to 2 to show profitability. The quick ratio is desired to
be as close to 1 as possible.
Walgreens debt to equity ratio averaged 24% for the fore mentioned three years with a
low of 16% and a high of 30%. This could be due to a move to leverage debt for tax purposes.
The Times Interest Earned ratio moved from a high of 66% in 2011 to a low of 25% in 2013
another trend based on borrowing. Inventory Turnover held steady at an average of 7.1 times per
year which is indicative of steady sales. The Total Asset Turnover ratio did move from a high of
2.7 in 2011 to a low of 2.03 in 2013 showing a downward reduction.
The recorded three years had a dipping trend for the Earning per Share with a high in
2011 dipping in 2012 and recovering in 2013. The Debt to Asset ratio showed an increase from
the base year to the middle year from 20% to 50% indicating borrowing in 2012. The Return on
sales held relatively steady at an average of 3.4% for the reported years. The Return on Assets
and Return on Equity dipped in 2012 but recovered nicely in 2013. The P/E ratio increased
nicely doubling from 2011 to 2013 to 22.4.
12
LTP COMPREHENSIVE FINANCIAL ANALYSIS PAPER
13
In conclusion, the indicators shown by the ratios discussed above describe a company
with competent management, a well thought-out capital structure achieving a large sales volume
with reasonable risk. The balance sheet shows steady earnings for the investors and an
increasing stock price.
Peer Group Analysis
Liquidity ratios:
Current Ratio
Current assets/current liabilities
Quick Ratio
Cash+Accounts Receivable
Current Liabilities
2013
1.336711
2012
2011
1.233662004 1.524434
0.533378363
0.408621876 0.501423
Liquidity Ratios
Current Ratio
Quick Ratio
1.71
Riteaid Corp
0.51
1.64
CVS Caremark Corp
0.93
1.33
Walgreens
0.53
(Market Watch, 2014)
Walgreens is looking at a steady price to earnings ratio for the past three years. You will
see that there was a slight change in 2012, and back up again in 2013. We can see future growth
LTP COMPREHENSIVE FINANCIAL ANALYSIS PAPER
14
expected for the company as the Quick ratio numbers rise. CVS Caremark is more favored when
compared to Walgreen in their liquidity. It is hard to determine if the differences are truly
showing the firm’s assets to liabilities. The current ratios are not always the most defined
reliability measure for liquidity (Viallet & Hawawini, 2011).
Solvency:
Debt to Equity Ratio
Total Debt/Total Equity
Times Interest Earned Ratio
2013
0.259432507
2012
2011
0.295678877 0.162255
24.60606061
39.36363636 61.47887
EBIT/Interest Expenses
The Debt to Equity Ratio can be very informative on how a company is investing the
growth of their company. Financially we do not want to see a high ratio, which would be
showing much of the company is being funded with financing. This is clear sign that the
company might be struggling. Walgreens ratio is in a very safe area, 0.25 in 2013, and .16 in
2011. When analyzing the financial statements in the industry, Walgreens compares fairly
average and financially strong in today's market. The times interest earned ratio will indicate
how many times the firms pretax operating profits are covering its interest expenses. (Viallet &
Hawawini, 2011) In regards to the industry and Walgreens we would like to see Walgreens have
the higher ratio because the higher the firms ratio the more capable it is to meet it it's interest
payments according to MarketWatch.com. CVS Caremark has a lower ratio in 2013 at .13 which
is comparable to other competitors (Market Watch, 2014).
Asset Management:
Inventory Turnover
COGS/Ending Inventories
Total Assets Turnover Ratio
Sales/Total Assets
2013
7.270140105
2012
7.12407618
2011
6.291149
2.035371
2.140726795 2.629271
LTP COMPREHENSIVE FINANCIAL ANALYSIS PAPER
15
Asset-management is a very important aspect to look at when analyzing a company's
financial statement and their financial ratios. When you look at a company’s asset-management
we will be able to indicate how successful a company is in utilizing its assets to generate
revenues verses that asset turnover ratios are most desired by a company. Companies with a
higher ratio in the asset turnovers category the more sales the company is generating from its
assets. (Viallet & Hawawini, 2011) Walgreens currently has an inventory turnover of the 7.27
and a total asset turnover ratio of 2.3. From measuring this we can see how efficiency and buying
practices for inventory management is profiting the company. It wills also shows the gross profit
which is earned each time inventory is turned over. According to CSI market.com Walgreens is
currently number 3 within the industry. The website also stated that "Walgreens Co. inventory
turnover ratio sequentially increased to a new company high in the last quarter (February 2014).
(CSIMarket)
Profitability:
Return on Sales
EAT/Sales
Return on Assets
EAT/Total Assets
Return on Equity
EAT/Total equity
2013
0.03392553
2012
2011
0.029693019 0.037598
0.069051041
0.06356464
0.098856
0.12593811
0.11663742
0.182798
LTP COMPREHENSIVE FINANCIAL ANALYSIS PAPER
16
Profitability Ratios 2014
10.1
Riteaid Corp
3.19
12.16
CVS Caremark Corp
Return on Equity
6.69
Return on Assets
12.99
Walgreens
7.1
0
5
10
15
(Market Watch, 2014)
The first area we will look at in the profitability ratios is the return on equity. Return on
equity measures how efficiently a firm can use the money from shareholders to generate profits
and grow the company. Walgreens return at equity ratio as 12.99. This is slightly higher than the
CVS Caremark Corp. 12.16 and higher than Rite aid Corp. 10.1. What investors look at when
analyzing this ratio is a high number ratio. Walgreens is currently staying strong in this category
and compared to its top competitors are running the business on a equal level with return on
equity. (Viallet & Hawawini, 2011)The next profitability ratio we are going to look at is the
return on assets. According to Market Watch Walgreens is at a 7.1 CVS Caremark sits at a 6.69
and Rite aid corp. is at a 3.19 for 2014. This ratio measures the net income produced by total
assets dear. This is done by comparing the income to the average total assets. (Market Watch,
2014)This will measure how efficiently a company can manage its assets to produce profits
during a certain period. Similar to return on equity would like to also see high numbers and the
return on assets category. Walgreens is again above the industry average. This means that
LTP COMPREHENSIVE FINANCIAL ANALYSIS PAPER
17
Walgreens is currently effectively managing assets at this time to produce a greater amount of
net income (Viallet & Hawawini, 2011).
Market Ratios:
2013
2012
2011
Price to Earnings Ratio
22.4375
15.29338843 11.2449
Earnings Per Share
2.588210437
2.253034765 3.051873
EAT/# of shares of common stock outstanding
P/E Price to Earning
Riteaid Corp
33.48
CVS Caremark Corp
20.14
Walgreens
Price to Earning
22.43
0
10
20
30
40
Walgreens is currently enjoying financial strength in the price-to-earnings ratios if you
see the chart above the price-to-earnings ratio it will be the stock price divided by the last 12
months of earnings-per-share the P/E ratio used to measure the type of premium will be paying
for a stock (Morning Star, 2014). This is also a good way to define future growth for the
company. When we evaluate Walgreens and it's top competitors such a CVS Caremark and Rite
Aid corporation we can see that Rite Aid has higher P/E Ratio while Walgreens and CVS have a
lower P/E ratio compared to the industry average this is a high indication to the stockholders that
LTP COMPREHENSIVE FINANCIAL ANALYSIS PAPER
they might be paying a premium for the stocks future earnings we want to see the company
sitting below both the industry average at this time (Viallet & Hawawini, 2011).
Analytical Report
When we evaluate Walgreens financial statement and compare it to the industry average
we have found that Walgreens compares highly in many categories. The company is financially
strong in today's market. If we look at the financial statements using the above charts and graphs
complied for the Walgreens Company you will see that their sales growth rate has increased
since this time last year. We are currently seen a gross margin of 29.24 and operating margin a
5.25. Both numbers are significant looking at the operating trends that Walgreens is currently
experiencing. Market Watch has rated Walgreens with a .67% growth in the drug in retail
industry and a 1.07% growth in the retail sector. With the uptrend that Walgreens is currently
seeing we can expect that this next year will be a profitable year for Walgreens. (Market Watch,
2014)
Assessment and Recommendations
Walgreens has a strong position in the national drug store marketplace. The company has
been moving into a more diverse retail posture by offering more than the prescription, health and
beauty product lines. This movement into an increased component posture has not affected the
major indicators of performance such as gross margin and operating margin. The management
team has maintained a safe debt to equity ratio and a times interest earned ratio that are favorable
when compared to the industry averages. The price to earnings ratio has steadily increased in the
last four years while still remaining below the industry average. All ratios show that there is
much to like for investors in Walgreens.
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LTP COMPREHENSIVE FINANCIAL ANALYSIS PAPER
The movement to a more diversified product offering has increased all financial
indicators leading to the recommendation that management continue to try new offerings based
on local buying habits. A trial location should be used to assess the concept of the neighborhood
store, bringing back the old time personal service at the friendly drug store. This may create a
movement branding the company as different from the competition and generating a competitive
advantage. With the competent financial management shown and steady growth Walgreens
should maintain a more competitive profile in marketplace.
Conclusion
The determination of Charles R. Walgreen grew a single Chicago drug store into a
national chain, and his vision has enabled the Walgreens to become one of the largest drug store
chains in the county. Walgreen’s marketing and creativity has contributed to their growth and
success; however, it is their solid financial management that has enabled the chain to maintain
their reputation as strong, stable and growing with a positive outlook for investors.
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References
CSIMarket. (n.d.). Retrieved from http://csimarket.com/stocks/singleEfficiency
it.php?code=WAG
Hawawini, G. & Viallet, C. (2011). Finance for Executives. Managing for value creation.
Mason: South-Western Cengage Learning
Investopedia (n.d.). Liquity ratios. Retrieved from http://www.investopedia.com/terms/l/
liquidityratios.asp
Market Watch. (2014, May). Retrieved from http://www.marketwatch.com
Morning Star (2010) Profitability Ratios. Retrieved from
http://news.morningstar.com/classroom2/course.asp?docId=145093&page=6
Morning Star. (2014, May). Retrieved from http://financials.morningstar.
com/competitors/industry-peer.action?t=WAG&region=usa&culture=en-US&owner
Country=USA
Porter, G. A., & Norton, C. L. (2011). Using financial accounting information: the alternative to
debits and credits (7th ed.). Mason, OH: South-Western/Cengage Learning.
Small Business Development Corporation (n.d.) Liquidity Ratios. Retrieved from
https://www.smallbusiness.wa.gov.au/liquidity-ratios
Ready Ratios (n.d) Asset management. Retrieved from
http://www.readyratios.com/reference/asset/
Ready Ratios (n.d). Solvency ratios. Retrieved from http://www.readyratios.com/reference
/analysis/solvency.html
Walgreens. (2010 to 2013). Retrieved from NASDAQ: http://www.nasdaq.com/symbol/
wag/financials
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Walgreens (n.d.) Walgreens: our past. Retrieved from http://www.walgreens.com/topic/about
/history/hist5.jsp
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