Question

Please answer all question using a full paragraph, watch you grammar and syntax.

a. What is trend in Liquidity ratios of CVS over the last three years - Explain using ratios and three sentences?

b. What is trend in Liquidity ratios of Walgreens over the last three years - Explain using rations and three sentences?

c. Which company has had better Liquidity ratios over the last 3 years? Explain with ratios and three sentences

CVS

Balance Sheet

All numbers in thousands

Period Ending	12/31/2017	12/31/2016	12/31/2015
Current Assets
Cash And Cash Equivalents	1,696,000	3,371,000	2,459,000
Short Term Investments	111,000	87,000	88,000
Net Receivables	13,181,000	12,164,000	11,888,000
Inventory	15,296,000	14,760,000	14,001,000
Other Current Assets	945,000	660,000	722,000
Total Current Assets	31,229,000	31,042,000	29,158,000
Long Term Investments	-	-	-
Property Plant and Equipment	10,292,000	10,175,000	9,855,000
Goodwill	38,451,000	38,249,000	38,106,000
Intangible Assets	13,630,000	13,511,000	13,878,000
Accumulated Amortization	-	-	-
Other Assets	1,529,000	1,485,000	1,440,000
Deferred Long Term Asset Charges	-	-	-
Total Assets	95,131,000	94,462,000	92,437,000
Current Liabilities
Accounts Payable	15,472,000	14,883,000	14,319,000
Short/Current Long Term Debt	15,176,000	11,367,000	8,850,000
Other Current Liabilities	-	-	-
Total Current Liabilities	30,648,000	26,250,000	23,169,000
Long Term Debt	22,181,000	25,615,000	26,267,000
Other Liabilities	1,611,000	1,549,000	1,542,000
Deferred Long Term Liability Charges	2,996,000	4,214,000	4,217,000
Minority Interest	4,000	4,000	7,000
Negative Goodwill	-	-	-
Total Liabilities	57,440,000	57,632,000	55,202,000
Stockholders' Equity
Misc. Stocks Options Warrants	-	-	39,000
Redeemable Preferred Stock	-	-	-
Preferred Stock	-	-	-
Common Stock	17,000	17,000	17,000
Retained Earnings	43,556,000	38,983,000	35,506,000
Treasury Stock	-37,765,000	-33,452,000	-28,886,000
Capital Surplus	32,079,000	31,618,000	30,948,000
Other Stockholder Equity	-196,000	-336,000	-389,000
Total Stockholder Equity	37,691,000	36,830,000	37,196,000
Net Tangible Assets	-14,390,000	-14,930,000	-14,788,000

Income Statement

All numbers in thousands

Revenue	12/31/2017	12/31/2016	12/31/2015
Total Revenue	184,765,000	177,526,000	153,290,000
Cost of Revenue	156,220,000	148,669,000	126,762,000
Gross Profit	28,545,000	28,857,000	26,528,000
Operating Expenses
Research Development	-	-	-
Selling General and Administrative	-	-	-
Non Recurring	-	-	-
Others	-	-	-
Total Operating Expenses	-	-	-
Operating Income or Loss	9,517,000	10,366,000	9,475,000
Income from Continuing Operations
Total Other Income/Expenses Net	-208,000	-671,000	-21,000
Earnings Before Interest and Taxes	9,309,000	9,695,000	9,454,000
Interest Expense	1,041,000	1,058,000	838,000
Income Before Tax	8,268,000	8,637,000	8,616,000
Income Tax Expense	1,637,000	3,317,000	3,386,000
Minority Interest	4,000	4,000	7,000
Net Income From Continuing Ops	6,631,000	5,320,000	5,230,000
Non-recurring Events
Discontinued Operations	-8,000	-1,000	9,000
Extraordinary Items	-	-	-
Effect Of Accounting Changes	-	-	-
Other Items	-	-	-
Net Income
Net Income	6,622,000	5,317,000	5,237,000
Preferred Stock And Other Adjustments	-	-	-
Net Income Applicable To Common Shares	6,622,000	5,317,000	5,237,000

Walgreens

Income Statement

All numbers in thousands

Revenue	8/31/2017	8/31/2016	8/31/2015
Total Revenue	118,214,000	117,351,000	103,444,000
Cost of Revenue	89,052,000	87,477,000	76,691,000
Gross Profit	29,162,000	29,874,000	26,753,000
Operating Expenses
Research Development	-	-	-
Selling General and Administrative	23,605,000	23,873,000	22,085,000
Non Recurring	-	-	-
Others	-	-	-
Total Operating Expenses	-	-	-
Operating Income or Loss	5,557,000	6,001,000	4,668,000
Income from Continuing Operations
Total Other Income/Expenses Net	-11,000	-261,000	1,248,000
Earnings Before Interest and Taxes	5,546,000	5,740,000	5,916,000
Interest Expense	693,000	596,000	605,000
Income Before Tax	4,853,000	5,144,000	5,311,000
Income Tax Expense	752,000	953,000	1,032,000
Minority Interest	808,000	401,000	439,000
Net Income From Continuing Ops	4,078,000	4,173,000	4,220,000
Non-recurring Events
Discontinued Operations	-	-	-
Extraordinary Items	-	-	-
Effect Of Accounting Changes	-	-	-
Other Items	-	-	-
Net Income
Net Income	4,078,000	4,173,000	4,220,000
Preferred Stock And Other Adjustments	-	-	-
Net Income Applicable To Common Shares	4,078,000	4,173,000	4,220,000

Balance Sheet

All numbers in thousands

Period Ending	8/31/2017	8/31/2016	8/31/2015
Current Assets
Cash And Cash Equivalents	3,301,000	9,807,000	3,000,000
Short Term Investments	-	-	-
Net Receivables	6,528,000	6,260,000	6,849,000
Inventory	8,899,000	8,956,000	8,678,000
Other Current Assets	1,025,000	860,000	1,130,000
Total Current Assets	19,753,000	25,883,000	19,657,000
Long Term Investments	6,320,000	6,174,000	1,242,000
Property Plant and Equipment	13,642,000	14,335,000	15,068,000
Goodwill	15,632,000	15,527,000	16,372,000
Intangible Assets	10,156,000	10,302,000	12,351,000
Accumulated Amortization	-	-	-
Other Assets	506,000	467,000	4,092,000
Deferred Long Term Asset Charges	-	-	-
Total Assets	66,009,000	72,688,000	68,782,000
Current Liabilities
Accounts Payable	18,296,000	16,690,000	15,489,000
Short/Current Long Term Debt	251,000	323,000	1,068,000
Other Current Liabilities	-	-	-
Total Current Liabilities	18,547,000	17,013,000	16,557,000
Long Term Debt	12,684,000	18,705,000	13,315,000
Other Liabilities	4,223,000	4,045,000	4,072,000
Deferred Long Term Liability Charges	2,281,000	2,644,000	3,538,000
Minority Interest	808,000	401,000	439,000
Negative Goodwill	-	-	-
Total Liabilities	37,735,000	42,407,000	37,482,000
Stockholders' Equity
Misc. Stocks Options Warrants	-	-	-
Redeemable Preferred Stock	-	-	-
Preferred Stock	-	-	-
Common Stock	12,000	12,000	12,000
Retained Earnings	30,137,000	27,684,000	25,089,000
Treasury Stock	-9,971,000	-4,934,000	-3,977,000
Capital Surplus	10,339,000	10,111,000	9,953,000
Other Stockholder Equity	-3,051,000	-2,993,000	-216,000
Total Stockholder Equity	27,466,000	29,880,000	30,861,000
Net Tangible Assets	1,678,000	4,051,000	2,138,000

Answer 1

Liquidity ratio consists of Current ratio, Quick ratio, Cash ratio and Net working capital ratio.

Current Ratio = current assets/current liabilities.

Quick Ratio = quick assets/current liabilities.

Cash Ratio = total of cash, bank & marketable securities/ current liabilities.

Net working capital ratio = (working capital/total assets) x 100

(All numbers in thousands)

1. Liquidity ratio of CVS of past three years.

Current ratio: -

Dec 2015 = 29,158,000/23,169,000

= 1.26 times

Dec 2016 = 31,042,000/26,250,000

= 1.18 times

Dec 2017 = 31,229,000/30,648,000

= 1.02 times

Quick ratio: -

Dec 2015 = (29,158,000-14,001,000)/23,169,000

= 0.65 times

Dec 2016 = (31,042,000-14,760,000)/26,250,000

= 0.62 times

Dec 2107 = (31,229,000-15,296,000)/30,648,000

= 0.52 times

Cash ratio: -

Dec 2015 = (2,459,000+88,000)/23,169,000

= 0.11 times

Dec 2016 = (3,371,000+87,000)/26,250,000

= 0.13 times

Dec 2017 = (1,696,000+111,000)/30,648,000

= 0.06 times

Net working capital ratio: -

Dec 2015 = [(29,258,000-23,169,000)/92,437,000] x 100

= 6.58%

Dec 2016 = [(31,042,000-26,250,000)/94,462,000] x 100

= 5.07%

Dec 2017 = [(31,229,000-30,648,000)/95,131,000] x 100

= 0.61%

Trend in liquidity ratios of CVS is that it is continuously declining from past three years. It shows that the paying off capacity of the current liabilities of CVS is declining year by year. Current ratio is performing below the ideal position of 2 times, Quick ratio is performing below the ideal position of 1 times, Cash ratio dropped by 50% in 2017 and Networking capital ratio was drastically fallen to 0.6% in 2017 from 6.5% in 2015 which also shows the ill position of company in case of liquidity.

2. Liquidity ratio of Walgreens of past three years.

Current ratio: -

Dec 2015 = 19,657,000/16,557,000

= 1.18 times

Dec 2016 = 25,883,000/17,013,000

= 1.52 times

Dec 2017 = 19,753,000/18,547,000

= 1.06 times

Quick ratio: -

Dec 2015 = (19,657,000-8,678,000)/16,557,000

= 0.66 times

Dec 2016 = (25,883,000-8,956,000)/17,013,000

= 0.99 times

Dec 2107 = (19,753,000-8,899,000)/18,547,000

= 0.58 times

Cash ratio: -

Dec 2015 = 3,000,000/16,557,000

= 0.18 times

Dec 2016 = 9,807,000/17,013,000

= 0.57 times

Dec 2017 = 3,301,000/18,547,000

= 0.18 times

Net working capital ratio: -

Dec 2015 = [(19,657,000-16,557,000)/68,782,000] x 100

= 4.5%

Dec 2016 = [(25,883,000-17,013,000)/72,688,000] x 100

= 12.2%

Dec 2017 = [(19,753,000-18,547,000)/66,009,000] x 100

= 1.82%

Trend in liquidity ratios of Walgreens is that it fluctuated in 2016 else it is stable by 2015 & 2017. Excluding the effect in 2016 ratios indicate that the paying off capacity of the current liabilities of Walgreens is declining year by year. Current ratio is performing below the ideal position of 2 times, Quick ratio is performing below the ideal position of 1 times, Cash ratio is also very low which shows that capacity to immediately pay off current liabilities is very low. Net working capital ratio is low which shows Walgreens is running its business operations with very low working capital compared to total assets.

3. Overall considering all the liquidity ratios calculated above Walgreen has had better liquidity ratios compared to CVS.

Current ratio is more or like same in both the companies fluctuating slightly but still better in Walgreens

Quick ratio is better of Walgreens

Cash ratio is better of Walgreens

Net working capital ratio is better of Walgreens

Therefore, in all liquidity ratios Walgreens is performing better than CVS.