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Financial Statement Analysis-Part 2

The healthcare sector was reeling during the early pandemic but post covid
it has seen an interesting turnaround. These healthcare companies are citing
revenue from shots and Covid-19 tests and higher vaccine reimbursement
rates. So it would be interesting to do a Financial Statement Analysis of 2 of
the top healthcare companies CVS Health and Walgreens.

> CVS Health Corporation (previously CVS Corporation and CVS Caremark

Corporation) is an American healthcare company that owns CVS Pharmacy,
a retail pharmacy chain; CVS Caremark, a pharmacy benefits manager;
and Aetna, a health insurance provider, among many other brands. The
company's headquarters is in Woonsocket, Rhode Island.
Some Facts:
1. CVS is a player in the pharmacy, insurance and benefits management
businesses.
2. The company has over 9,900 retail pharmacy locations and over 1,100
walk-in clinics.
3. CVS has over 105 million plan members for its pharmacy benefits and 37
million health insurance product customers.
4. One in three Americans interact with CVS on a yearly basis. Over 70% of
the U.S. population lives within three miles of a CVS store.

> Walgreens Boots Alliance. is an Anglo-Swiss-American holding com-

pany headquartered in Deerfield, Illinois that owns the retail phar-
macy chains Walgreens and Boots, as well as several pharmaceutical manu-
facturing and distribution companies. The company was formed on Decem-
ber 31, 2014, after Walgreens purchased the 55% stake in Alliance
Boots that it did not already own. Walgreens had formerly operated solely
within the United States and its territories, while Alliance Boots operated a
more multinational business. The company began trading on the NASDAQ
on December 31, 2014 under the symbol WBA.
Some Facts:
1. Walgreens has a presence in more than 25 countries and operates over
21,000 stores across its holding companies. In the U.S., Walgreens has
over 9,000 stores.
2. Around 78% of the U.S. population lives within a five-mile radius of a
Walgreens-owned store.

The intent of this analysis is to compare and contrast the financial state-
ments of the above two companies, in order to draw conclusions about
which company is a better investment.During the analysis , we have tried to
find out relative valuation of the two companies by looking at  the following
ratios. As a result of the analysis of the key financial ratios of the company,
we have established the following. The financial condition of CVS Health Cor-
poration in 2021 is  Better than the financial condition of Walgreens Boots
Alliance"

Walgreens
Which firm has
Ratio CVS Boots Al- What is the ratio
stronger ratio?
liance

Current Ratio 0.88 0.72 The current ratio is a liquid- I believe CVS has better
ity ratio that measures a current ratio than wal-
company's ability to pay greens.
short-term obligations or
those due within one year.

Net Profit Margin 0.03 0.02 The net profit margin, mea-
sures how much net income
or profit is generated as a
percentage of revenue.
For every $1 sales CVS
has $.03 in profit which
is slightly better than
compared to Walgreens
at $ .02

Total Asset Turnover Ratio 1.26 1.57 Asset turnover, total asset Walgreens produces
turnover, or asset turns is a more sales per dollar as-
financial ratio that measures set as compared to CVS
the efficiency of a com-
pany's use of its assets in
generating sales revenue or
sales income to the com-
pany.

Gross Profit Percentage 0.40 0.21 Gross profit earned on each CVS has $ 0.40 gross
sale profit from every $1 of
good sold which is little
better than Walgreens at
$ 0.21

Return on Asset 0.03 0.03 How profitable a company Both firms have similar
is in relation to its total as- profit for every $1 in as-
sets. sets
 Walgreens
Which firm has
Ratio CVS Boots Al- What is the ratio
stronger ratio?
liance

Accounts Receivable 12.65 27.12 This ratio gives the business
Turnover a solid idea of how effi-
ciently it collects on debts
owed toward credit it ex-
tended, with a lower num-
ber showing higher effi-
ciency.
Walgreens collects their
receivables about 27.12
times per year that
means it takes only
13.45 days to collect on
a receivable which is
higher in case of CVS
that is 28.8 days.

Inventory Turnover 9.70 12.99 Ratio shows how many
times a company has sold
and replaced inventory dur-
ing a given period.
Walgreens turns over
their inventory 12.99
times per year which is
faster than cvs at 9.70
times.

Fixed Asset Turnover 22.91 10.59 Ratio that indicates how
well or efficiently a busi-
ness uses fixed assets to
generate sales.  
For every $1 of fixed as-
set, CVS generates
$22.91 in sales which is
higher than walgreens
which is at $10.59 so
cvc is better.

Accounts Payable Turnover 14.85 9.81 The ratio is used to measure
how effective a company is
at extending credits and col-
lecting debts.
CVS turns over their AP
14.85 times a year. So
the average age of CVS
payables is
(365/14.84=24.57 days)
which is shorter than the
days before walgreens
(365/9.81=37.20 days)
gets paid.

Times Interest Earned 1.15 4.51 A company's TIE indicates Walgreens generates
its ability to pay its debts. $4.51 income for every $
expense they have so
they are better position
to cover their interest ex-
pense than CVS which
has $1.15.
 Walgreens
Ratio CVS Boots Al- What is the ratio
liance
Debt to Equity Ratio 2.10 2.40 The debt-to-equity ratio is a
financial ratio indicating the
relative proportion of share-
holders' equity and debt
used to finance a company's
assets
Earning Per Share 6 2.94 How much profit a com-
pany makes for each share
of its stock
Dividend Yield 2.20 1.91 Percentage of a company's
share price that it pays out
in dividends each year.
Quality of Income Ratio 2.31 2.21 How much cash does each
dollar of net income gener-
ate
Capital Acquisition Ratio 7.25 4.03 The capital acquisition ratio
reflects the company's abil-
ity to finance capital expen-
ditures from internal
sources.
Free Cash Flow 13120 2559 Represents the cash a com-
pany generates after ac-
counting for cash outflows
to support operations and
maintain its capital assets.
Which firm has
stronger ratio?
CVS has $2.10 of debt
that means their assets
are financed with equity
more however walgreens
has $2.40 of debt or to
say their assets are more
financed with debt
which is risky so CVS is
better.
For every share out-
standing CVS earn $6
which is far better than
walgreens at $2.94
Again Dividend yield is
better for CVS than
Walgreens
For every $ of NI, CVS
generated $2.31 in cash
which is a fair amount
better than walgreens at
$2.21
CVS generates $7.25 in
cash from operations for
every $1 of PPE pur-
chased which puts them
in a better position of
purchasing PPE further
in cash. Walgreens is
$4.03 in cash from oper-
ations which is lower
than CVS.
CVS has significantly
more FCF or money for
additional capital expen-
diture than walgreens.
iAkanksha Shahi