Financial Analysis of Walgreens vs. Cvs
Executive Summary
The initial intent of this analysis was to identify changes in accounting methods within the financial statements of Walgreens and CVS, as well as to compare and contrast their financial statements, in order to draw conclusions about which company had better earnings. However, in the process of this analysis, with the exception of a minor change to lease accounting by Walgreens, there were no major changes in accounting methods identified. In examining the financial statements for these two drugstore industry leaders, the analysis shows that while each company conducts retail drugstore operations in similar ways, their business models for carrying out these operations greatly vary. These variances in business model led the analysis to focus on earnings from operations, operations costs, balance sheet analysis, cash flow analysis, inventory accounting, debt financing, retirement plans and benefits, and stock options. Of the differences that were explored, it was their level of conservatism that most separated these two companies. Walgreens chooses a more conservative approach to their operations by growing organically, while CVS assumes a riskier business model by growing through acquisitions. This fundamental difference in the two organizations cascades throughout their financial statements in the form of debt for CVS which is offset by growth of margins and profits; and in the form of a much healthier balance sheet for Walgreens. This analysis shows the results of each company's operations, the ramification of those operations on their financial statements, and the conclusion that because of their more conservative, less risky business model, Walgreens maintains a healthier operation, despite equally impressive growth by both companies. Ultimately, the value of each company is left for the investors to determine. The data, however, shows that Walgreens is winning the earnings race for drugstore/retail operations, despite CVS'
The initial intent of this analysis was to identify changes in accounting methods within the financial statements of Walgreens and CVS, as well as to compare and contrast their financial statements, in order to draw conclusions about which company had better earnings. However, in the process of this analysis, with the exception of a minor change to lease accounting by Walgreens, there were no major changes in accounting methods identified. In examining the financial statements for these two drugstore industry leaders, the analysis shows that while each company conducts retail drugstore operations in similar ways, their business models for carrying out these operations greatly vary. These variances in business model led the analysis to focus on earnings from operations, operations costs, balance sheet analysis, cash flow analysis, inventory accounting, debt financing, retirement plans and benefits, and stock options. Of the differences that were explored, it was their level of conservatism that most separated these two companies. Walgreens chooses a more conservative approach to their operations by growing organically, while CVS assumes a riskier business model by growing through acquisitions. This fundamental difference in the two organizations cascades throughout their financial statements in the form of debt for CVS which is offset by growth of margins and profits; and in the form of a much healthier balance sheet for Walgreens. This analysis shows the results of each company's operations, the ramification of those operations on their financial statements, and the conclusion that because of their more conservative, less risky business model, Walgreens maintains a healthier operation, despite equally impressive growth by both companies. Ultimately, the value of each company is left for the investors to determine. The data, however, shows that Walgreens is winning the earnings race for drugstore/retail operations, despite CVS'