Walgreens Financial Analysis
Not what you're looking for?
Can you help me get started with this assignment? ** REFER to financial analysis DOWN BELOW & Financial Data: ATTACHED **
3. Determine the firm's market ratios, including their price/earnings ratio, market-to-book ratio, and dividend ratios. Track this over the same period as the other ratios used in your analysis to identify changes and/or trends in the market perceptions of the firms.
4. Assess the working capital policy of the firm, including the degree of permanent financing for Working Capital, changes in working capital over time, its degree of liquidity, and its degree of solvency. How does the firm manage and finance its short-term assets and liabilities? How does this impact performance?
5. Calculate and discuss the firm's Cash Conversion Cycle.
--------------
A complete financial analysis of Walgreen's for a multi-year time period (e.g. 3-5 year). This financial analysis should include a ratio analysis, including examination of liquidity, activity, profitability, and leverage ratios. Further, the performance of the firm should be analyzed using the DuPont framework, comparative growth rates, common-size statements, and the strategic financing model. If industry ratios are available, they should be incorporated into the evaluation.
Walgreen Co., together with its subsidiaries, operates a chain of drugstores in the United States. The drugstores sell prescription and non-prescription drugs, and general merchandise. Its general merchandise comprises household items, personal care, convenience foods, beauty care, photofinishing, candy, and seasonal items. The company provides its services through drugstore counters, as well as through mail, telephone, and the Internet. As of August 31, 2009, Walgreen operated 7,496 locations comprising 6,997 drugstores, 377 worksite facilities, 105 home care facilities, 15 specialty pharmacies, and 2 mail service facilities in 50 states, the District of Columbia, Puerto Rico, and Guam. It also owned 33 strip shopping malls. The company was founded in 1901 and is based in Deerfield, Illinois. (Yahoo, 2009)
A Note on Ratio Analysis
Liquidity analysis
Current ratio measures the liquidity position of the organization. It indicates the ability to pay the short term obligations of the organization. It is computed by Current Assets/Current Liabilities.
Its liquidity is adequate as the Current ratio of Walgreens of 1.78 times though its slightly less than the ideal ratio of 2:1.
The other prominent liquidity ratio is quick ratio which measures the near term liquidity of the organization. It is computed by Quick Assets/Current Liabilities. This is related to the current ratio as it also tests the liquidity of the organization but for a shorter period. As per Investopedia "The quick ratio is more conservative than the current ratio because it excludes inventory and other current assets, which are more difficult to turn into cash."
Quick term liquidity of Walgreens is at .78 times which indicates that the company is under pressure as its Acid test ratio is less than the ideal ratio of 1:1. Thus it needs to utilize its quick assets in effective manner.
Debt Management/Solvency
Solvency ratios measures the long term solvency of the organization. Lower debt equity ratio indicates lower financial risk. Bank will prefer the organization to have lower debt equity ratio. Walgreens has zero debt which indicates highest financial safety.
Efficiency Ratios
Asset turnover and Inventory turnover:
Asset turnover indicates the utilization of the assets. The inventory turnover shows how rapidly the inventory is turning into receivables through sales. Generally a high turnover is indicative of good inventory management. Inventory turnover and asset turnover ratios have declined in the current year which is a cause of concern for the organization.
Receivables turnover:
The receivables turnover indicates efficiency in receivables management. Generally a high turnover is indicative of good inventory management. This is calculated by Sales/Receivables.
The company's receivable turnover has improved in the current year which is positive for the organization.
Profitability
Profit margin indicates the overall efficiency of the organization. This ratio is measured to evaluate the efficiency of company in terms of profit. Besides management of the company, creditors and owners are also interested in the profitability of the firm. Return on assets ratio describes the relationship between the profit and the total asset utilization.
Walgreen's profitability has improved which is positive. This is indicating that the organization's efficiency has improved.
e) Market ratios
The return on shareholder's equity is calculated to know see the profitability of owner's investment. It helps company to know how well the firm has used the resources of the owners. This information is of important interest to shareholders. The company's ROE can be compared with its competitor to analyze and anticipate the no. of investors would be interest in the company. Return on equity is average.
Other Factors:
Du Pont ratio
Company is following turnover path as its margins are lower and moreover its return on equity has declined as compared to the previous year of 2008. ( See excel file for details)
Growth rates
The company is having average growth rate in Sales and there is a marginal decline in Profits. This is a cause of concern.
References:
http://finance.yahoo.com/q/pr?s=WAG
http://moneycentral.msn.com/investor/invsub/results/statemnt.aspx?Symbol=WAG&lstStatement=Income&stmtView=Ann
http://moneycentral.msn.com/investor/invsub/results/compare.asp?Page=ManagementEfficiency&Symbol=US:WAG
Purchase this Solution
Solution Summary
Response helps in Walgreens Financial Analysis
Solution Preview
** See ATTACHED file(s) for complete details **
3. Determine the firm's market ratios, including their price/earnings ratio, market-to-book ratio, and dividend ratios. Track this over the same period as the other ratios used in your analysis to identify changes and/or trends in the market perceptions of the firms.
As per Investopedia "The P/E is sometimes referred to as the "multiple", because it shows how much investors are willing to pay per dollar of earnings. If a company were currently trading at a multiple (P/E) of 20, the interpretation is that an investor is willing to pay $20 for $1 of current earnings. High P/E suggests that investors are expecting higher earnings growth in the future compared to companies with a lower P/E. It's usually more useful to compare the P/E ratios of one company to other companies in the same industry, to the market in general or against the company's own historical P/E. It would not be useful for investors using the P/E ratio as a basis for their investment to compare the P/E of a technology company (high P/E) to a utility company (low P/E) as each industry has much different growth prospects."
Thus Price to Earning ratio indicates the confidence of market towards the company. It is calculated by Market price per share/ Earnings per share. Hence generally ...
Purchase this Solution
Free BrainMass Quizzes
Marketing Research and Forecasting
The following quiz will assess your ability to identify steps in the marketing research process. Understanding this information will provide fundamental knowledge related to marketing research.
Understanding Management
This quiz will help you understand the dimensions of employee diversity as well as how to manage a culturally diverse workforce.
Income Streams
In our ever changing world, developing secondary income streams is becoming more important. This quiz provides a brief overview of income sources.
Cost Concepts: Analyzing Costs in Managerial Accounting
This quiz gives students the opportunity to assess their knowledge of cost concepts used in managerial accounting such as opportunity costs, marginal costs, relevant costs and the benefits and relationships that derive from them.
Introduction to Finance
This quiz test introductory finance topics.