Financial Analysis of Walgreens vs. Cvs Essay

7298 WordsApr 5, 200730 Pages
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…show more content…
The chart in Table 2 shows the edge Walgreens maintains over CVS and how that edge has been maintained with time. Revenues From 2002 to 2005, Walgreens reported a compounded annual growth rate of 10.1%, growing to $42.2 billion in total revenues. This strong revenue growth was primary driven by organic expansion through new store openings. Since 2002, Walgreens has added 1070 net new stores (22% increase) while CVS has added 1,384 net new stores (25% increase), of which 86%, or 1200 of CVS' store additions, were due to the 2004 acquisition of Eckerd. As a result, although CVS reported an impressive 21% increase in sales from 2004 to 2005 compared to Walgreens 12.5% (a decline from 15.3% in 2003 to 2004), it was primarily due to CVS experiencing the full effect of the mid-2004 acquisition of the 1200 Eckerd stores. Table 3 shows the year-over-year comparison of Walgreens total revenues to CVS'. The significance of this chart is the upward growth of both companies as well as the increasingly large gap Walgreens has maintained over CVS. Gross Margins As shown in Table 4 on the next page, Walgreens was able to improve its gross margin by a total of 1.4% from 26.5% during 2002 to a record high of 27.9% during fiscal 2005. On the other hand, although CVS achieves lower gross margins than Walgreens, CVS was also able to improve its gross margins by a total of

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