Analysis Of The Walgreen Co. 's Financial Performance During The Periods Of 2012

Analysis Of The Walgreen Co. 's Financial Performance During The Periods Of 2012

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Spring 2016

Walgreen Co.

The following represents an analysis of the Walgreen Co.’s financial performance during the periods of 2012 through 2014. In preparing the analysis, historical financial statements were reviewed and financial ratios calculated based on those, which are included in Exhibits to this analysis. The calculations are utilized to provide additional insight regarding the ability of Walgreen Co.’s leadership to effectively operate the business. Leadership’s strategic plan for the company, along with comparative information of competitors within the industry, are important elements to consider in addition to the information provided herein.
While sales are increasing, and operating profit margin is increasing during the period, there are items within the financial statements that merit further analysis. High level analysis of the balance sheet indicates that Walgreen is able to meet current liabilities with current assets. However, upon further analysis of the inventory, the historical financial statements indicate a dependency on inventory conversion to meet these current obligations. Also, the leverage is low, which provides opportunity to finance expansion, capital expenditures, or potential acquisitions. Walgreen has access to capital through the issuance of stock as well. However, rates of return are trending down during the period of 2012 through 2014. Below is further evidence to support these observations.

Liquidity Ratios

As shown in Exhibit 2, the current ratio, as well as the quick ratio is improved from 2012 to 2014. The improvement in the current ratio during the period demonstrates an increase in the company’s ability to meet its current obligations. The ratio of 1.4, up from 1.2, means that Wal...

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...ixed, which is seen in Exhibit 3 in the common size view. Fixed assets have decreased from 36% to 33% of total assets. The details of whether capital expenditures are being reduced as part of the strategy, or is there another reason that investment in property, plant, and equipment is being reduced when considering the balance sheet structure. Also, in the same Exhibit, there is a line item labeled as “other assets,” which has increased from 31.9% to 34.1% of total assets. Or, as shown in the historical financial statements on Exhibit 1, an increase of $2 billion. Given the significance of the investment in this category, the type of purchases should be examined. The ability of Walgreen Co. to provide value from the investment, as well as the marketability of the assets represented in this category is an important factor in assessing the performance of the company.

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