Valuation Report On Walgreen's Co

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Valuation report on Walgreen's Co


Financial Analysis - Multiyear Analysis and Comparison

While the subject of the paper may be Walgreen Company, it would not be very fair to speak only of said subject without making any comparisons to other firms of a similar nature. Furthermore, that comparison should span multiple years of the same category of information - this would need to be done in the interest of fairness. So, for this analysis and comparison of Walgreen Company, we must also study CVS Caremark Corporation. This comparison should make perfect sense to most of the population. After all, is there not typically a Walgreen's across the street from a CVS/Pharmacy? In addition to making perfect sense, both Walgreen Co and CVS Caremark CO are the two biggest players in the services sector, drug store industry. No other true competitor can come close to Walgreen and CVS' market caps, which are $37.27 billion and $44.84 billion, respectively.

After reviewing the income statements, cash flows, and balance sheets for 2010, 2009, and 2008 sufficient data has been recorded and computed that should allow for a fair portrayal of both companies' financial position. The information gathered in the process of researching these companies can be found in appendices A (Walgreens) and B (CVS). We will now be examining and discussing the profitability, assets, liquidity, market value, and debt of both companies in side-by-side comparisons. As mentioned earlier, this comparison will include the last three years of financial information for both companies.

3.1 - Profitability

The return on assets and the return on equity are in favor of Walgreens. In both ratios, Walgreens has had higher value than CVS even when it trends downward. In 2008-2009 Walgreens trended downward while CVS trended upward. In 2009-2010, it was the opposite. Even though the numbers differ, they were still relatively close at the close of the 2010 fiscal year: return on assets was 0.13 (W) and 0.10 (C), return on equity was 0.16 (W) and 0.10 (C). (See charts below.)

Also with regard to profitability, the profit margin of Walgreens dropped in 2008-2009 from 0.4 to 0.3 where it remained throughout the 2009-2010 fiscal year. CVS also began 2008 with a 0.4 profit margin, which it was able to maintain throughout 2009 and 2010.

Furthermore, the basic earnings at CVS have been slowly and steadily declining while the basic earnings at Walgreens were very slowly trending upward in 2009-2010 after a decline from 0.27 to 0.23 in 2008-2009. (See charts below.)

3.2 - Assets

The inventory turnover ratio at Walgreens has been steadily climbing since end of year 2008 while it has been on the decline at CVS since 2009. If both companies have no change in their trends in 2010-2011, it is possible that Walgreens will be able to have an even turnover and create a wider gap between their turnover and the apparently trending downward CVS turnover ratio. (See chart below.)

Assets are a vital determining element of a company's financial ...
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