Assignment- Examining Cash Flow and Profitability

Concepts:

1. The difference between gross profit margin and net profit margin

Analysis

Refer to CVS' fiscal 2014 Statement of Cash Flows

1. Compare CVS' net earnings (net income) to Net Cash Provided by Operating Activities and explain the difference.

2. How much cash did CVS use for expenditures for land, buildings and equipment in 2014?

3. Did CVS pay out dividends? If so, what amount of dividends did CVS pay during the year?

4. Calculate Free Cash Flow (see text 642-643).

5. Compare to Walgreens (for the last 5 years) and the industry average (for the current year).

6. What conclusions can you draw about each company's need to raise funds from debt and equity and its ability to grow?

CVS Profitability:

1. Calculate profitability ratios (gross and net profit margin).

2. Compute to Walgreens (for the last 5 years) and the industry average (for the current year).

3. Comment on the increase or decrease in CVS' profitability, give reasons for any fluctuation (look at the components of the calculation for clues as to what caused the increase or decrease and example the management discussion for events that impacted the ratios.)

4. Calculate Basic and Diluted Earnings Per Share.

5. Compare to Walgreens (for the last 5 years) and the industry average (for the current year).

6. Comment on the increase or decrease in CVS' EPS, give reasons for any fluctuation (Look at the components of the calculation for clues as to what caused the increase or decrease and examine the management discussion for events that impacted the ratios).

7. How does CVS' profitability compare to Walgreens and to the industry?

Course References:

Morning Star Financial History

Directions for Locating the Data for the Five Year Information

1. financials.morningstar.com/ratios/r.html?t=CVS

2. Select Key Ratios

3. Scroll Down to the Section your need:

A. Profitability

B. Growth

C. Cash Flow

D. Financial Health

E. Efficiency Ratios

4. Repeat the procedure to get Walgreens by using; financials.morningstar.com/ratios/r.html?t=WBA

Directions for Locating Industry Averages

Please employ the preceding sites for the CVS and WBA Industry Average Information.

Text: Financial Accounting: Tools for Business Decision Making
Author: Kimmel, Weygandt, Kieso
Publisher: Wiley
Ed/Year: 7th/2013
ISBN-13 (hard cover): 978-1118162286
ISBN (e-text): 978-1118562178.