Walgreens vs Cvs Accounting
Compared to the industry average, CVS and Walgreen’s ROA are much higher. However, Walgreen’s ROA is higher than CVS’s; which means that the latter is not benefiting as much from its assets as Walgreens does. In 2008, Both Companies have less ROA than 2004. In 2008, Walgreen’s has the least ROA during the five years of Data as it has struggled to maintain its level. Walgreen’s ROA hovers around 10%, where CVS’s ratio has a downward trend. It is important to note that the ratio Return on Assets is derived by multiplying Profit Margin by Total Asset Turnover.
Return on Equity measures a firm’s efficiency at generating profits from every unit of shareholders’ equity (also known as net assets or assets minus liabilities). ROE shows how well a company uses investment funds to generate earnings growth. Both companies have extremely higher ROE compared to the industry average. Once again, Walgreen is taking more advantage of its shareholders’ equity than CVS. From 2004 to 2008, Walgreen had a stable ROE that reached its highest in 2007 ( 18. 38%). On the other hand, CVS’ ROE went down significantly in 2007 from around 13% to about 8. . Keep in mind ROE equals ROA multiplied by Leverage (Assets/Equity).
This being said CVS’s drastic downward jump can be explained not by its ROA (it stays fairly constant as we saw previously) but instead by it’s leverage. CVS greatly increased the amount of debt used to finance business operations between the years 2006 and 2007 jumping from around $9,900 to $31,000. Why CVS made this decision exactly is unknown.
An interest coverage ratio below 1 indicates the company is not generating sufficient revenues to satisfy interest expenses. Obviously, they both have enough revenues to cover their interest expenses as CVS’s lowest recorded value was 9. 8, and the only available record of Walgreen’s is 115. Conclusion: Regarding the main ratios covered in this study, it seems that Walgreens is has an edge over CVS, not taking into account that Walgreens is larger than CVS. Walgreens has greater Returns on Assets, Return on Equity, as well as Profit margin.
In other words, Walgreens is efficiently generating more profits from every unit of shareholders’ equity and debt and is benefiting more from the investment funds to generate earnings growth, and maintained a sufficiently higher amount of solvency. Also, Walgreens is generating more profits from its assets than CVS does. Although both companies’ profit margin is somewhat close, Walgreens has a greater profit margin than CVS. From 2004 to 2007, Walgreens had a greater profit margin than CVS.