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, …show more content…
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 Walgreen can cover its short term obligation by 140%. The quick ratio indicates the company’s ability to cover its current obligations from cash, cash equivalents, and accounts receivable. It is a good indication of the reliance of the business on its conversion of inventory to pay current obligations. In the case of Walgreen, the ratio improved from 0.4 to 0.7. However, this is still less than 1 time, meaning that it only has 70% of its current obligations covered by assets that are easily converted to cash. Thus, indicating a heavy reliance on …show more content…
This decrease may be an indication that the company’s credit policies have become more lenient and could, in turn, increase the likelihood of not collecting receivables. While the 2015 turnover is not as efficient as 2013, the change is small and there is no need for concern at this time. The accounts receivable should be reviewed in more detail to determine if longer terms have been extended to key customers, or if there are accounts with deteriorating credit
Net working capital represents organization’s operating liquidity. In order to compute the net working capital, total current assets are divided from total current liabilities. When there is sufficient excess of current assets over current liabilities, an organization might be considered sufficiently liquid. Another ratio that helps in assessing the operating liquidity of as company is a current ratio. The ratio is calculated by dividing the total current assets over total current liabilities. When the current ratio is high, the organization has enough of current assets to pay for the liabilities. Yet, another mean of calculating the organization’s debt-paying ability is the debt ratio. To calculate the ratio, total liabilities are divided by total assets. The computation gives information on what proportion of organization’s assets is financed by a debt, and what is the entity’s ability to pay for current and long term liabilities. Lower debt ratio is better, because the low liabilities require low debt payments. To be able to lend money, an organization’s current ratio has to fall above a certain level, also the debt ratio cannot rise above a certain threshold. Otherwise, the entity will not be able to lend money or will have to pay high penalties. The following steps can be undertaken by a company to keep the debt ratio within normal
By lowering selling prices across the board, Opossumtown, Inc. reduced its inventory turnover ratio, cutting the number of days to sell inventory from 174 days to 104 days; that is a 40% improvement. Opossumtown, Inc. also cut the number of days it takes to collect its credit accounts from 68 to 44 days, again that is 35% better than the previous year. The company is able to do this while cutting its debt ratio by 10% and increasing its current ratio by 25%, making it appear more favorable in terms of liquidity. As promising as this may look, this is not the whole picture. Opossumtown, Inc. shows an 11% decline in gross profit as well as operating income ratios, and a 3% decrease on the profit margin ratio. The decline of these ratios is a result of the company’s new strategy of decreasing the selling price and increasing its marketing and selling expenses. Opossumtown, Inc. made some noteworthy advancements with the implementation of its new plan for 2014. However, based on the assessment of the balance sheet, income statement and the ratios, the corporation did not achieve its goal to increase operating income by 6% and net income by 4%. Opossumtown, Inc. was only able to grow its operating income by a little more than half of one percent and net income by
Analyzing Wal-Mart's annual report provides a positive outlook on Wal-Mart's financial health. Given the specific ratios and its comparison to other companies in the same industry, Wal-Mart is leading and more than likely continue its dominance. Though Wal-Mart did not lead in all numbers, its leadership and strong presence of the market cements the ongoing success. The review of the current ratio, quick ratio, inventory turnover ratio, debt ratio, net profit margin ratio, ROI, ROE, and P/E ratio all indicate an upbeat future for the company. The current ratio, which is defined as current assets divided by current liabilities, is a measure of how much liabilities a company has compared to its assets. Wal-Mart in the year of 2007 had a current ratio of .90, and as of January 2008 it had a current ratio of .81. The quick ratio, which is defined as current assets minus inventory divided by current liabilities, is a measure of a company's ability pay short term obligations. Wal-Mart in the year of 2007 had a quick ratio of .25, and as of January 2008 it had a ratio of .21. Both the current ratio and quick ratio are a measure of liquidity. Wal-Mart is not as liquid as its competitors such as Costco or Family Dollar Stores Inc. I believe the reason why Wal-Mart is not too liquid is because they are heavily investing their profits for expansion and growth. Management claims in their financial report that holding their liquid reserves in other currencies have helped Wal-Mart hedge against inflationary pressures of the US dollar. The next ratio to look at is the inventory ratio which is defined as the cost of sales divided by average inventory. In the year of 2007, Wal-Mart’s inventory ratio was 7.68, and as of January 2008 it was 7.96. Wal-Mart has a lot of sales therefore it doesn’t have too much a problem of holding too much inventory. Its competitors have similar ratios though they don’t have as much sales as Wal-Mart. Wal-Mart’s ability to sell at lower prices for same quality, gives them the edge against its competition. As of the year 2007, Wal-Mart had a debt ratio of .58, and as of January 2008, it had a debt ratio of .59. The debt ratio is calculated by dividing the total debt by its total assets. Wal-Mart has a lot more assets than it does debt so Wal-Mart is not overleveraged.
A goal that would be attainable for Walgreens to achieve in the next two years would be to implement more Take Care Clinics into more of the stores throughout the country. Providing a clinic located in the Walgreen’s facility, reaches out to persons to have their prescription needs filled at the attached pharmacy. Pharmacists work closely with the physicians at the Take Care Clinic to provide the proper medications for the patients and can counsel more closely with the physician to any partic...
Looking at the individual ratios seen in exhibit 1 and comparing it to the industry average shown in exhibit 2 gives a sense of where this company stands. Current ratio and quick ratio are really low and have been decreasing. For 1995, the current ratio is 1.15:1, which is less than the industry average of 1.60:1, however to give a better sense of where this stands in the industry, as seen in exhibit 3, it is actually less than the average of the bottom 25% of the industry. The quick ratio is 0.61 is less than the industry is 0.90. Both these ratios serve to point out the lack of cash in this company. The cash flow has been decreasing because, it takes longer to get the money from customers, but the company still needs to pay for its purchases. Also, the company couldn’t go over the $400,000 loan limit, so they were forced to stretch their cash.
If a bank wanted to look at the big picture when making their decision to give out loan to a company, they would look at the Cash Ratio, because cash is the most important of all assets, it provides the bank or creditor an idea of the likelihood of the company being able to pay them back on the loan. In the comparison between Home Depot and Lowe’s we find that the trends are very similar to the quick ratio with Home Depot having more cash to cover its liabilities than Lowe’s. As expected, the cash ratios are lower than the quick ratios, because short-term investments and receivables are taken out of the equation. Over the past six years, both companies’ cash ratios have been declining with an average of 0.186 for Home Depot while the average
This paper will compare CVS Company to Walgreens and Rite Aid based on their financial performance for the year 2014 and 2013.
Business strategies concentrate on enhancing the competitive position of business unit’s or corporation’s goods or services among the particular market (Thomas Wheelen and David Hunger, 2012). Walgreens advocates a role for community pharmacy to provide unsurpassed approach to high quality, affordable health and wellbeing products and services. The nurse practitioners and pharmacists can offer professional care to customers with lower overall health care costs, which make the company become differentiation. This win-win business strategy helps the company to reinforce its customer loyalty and to intensify position reputation in customers’ minds.
Quick Ratio – Constant grow for the last three years. From 3.56 in 2001 to 3.76 in 2002 to 4.17 in 2003. The reason of grow is constant increase in Current Assets.
For both companies, the debit to asset ratio decreased over time. For both years though, Walgreens had less liabilities compared to assets. In the long term this is good. A company needs to be able to have little debt and something to fall back on such as assets when times are tough. This shows solvency, the capability of a business
I worked for the drugstore chain Walgreens in the early 2000’s and was involved in a situation where employees were asked to perform work off the clock. The incident occurred when Walgreens was preparing to open a new store in Los Banos, Ca. The company had a tight deadline for getting the store to an operational state, requiring huge tasks in a short amount of time. As the scheduled opening date approached it was clear the store was not on track to be ready for business by the opening date. Management and lower level employees were all feeling the pressure to do work faster and harder in order to catch up.
In regards to the corporation’s balance sheet, it is necessary to place an importance on liquidity ratios to demonstrate the company’s ability to pay its short term obligations such as accounts payable and notes that have a duration of less than one year. These commonly used liquidity ratios include the current ratio, quick ratio, and cash ratio. All three ratios are used to measure the liquidity of a company or business. The current ratio is used to indicate a business’s ability to meet maturing obligations. The quick ratio is used to indicate the company’s ability to pay off debt. Finally the cash ratio is used to measure the amount of capital as well short term counterparts a business has over its current liabilities.
With the Walgreen's proposed acquisition of Rite Aid, we posed 3 questions to our members. Here are the questions and the results:
High current ratio is a clear indication that company is able to meet its current liabilities and manages very well its liquidity position. However, quick ratio will provide a better view.
Rondo's Current Ratio is a steady at 2.0 compared to the industry average of 1.4. This indicates the company will not have a problem covering its current liabilities. Rondo's quick ratio is also steady at 1.4. The company can cover its short-term debt 1.4 times over without selling off its inventory. Rondo's performance is good in this area.