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Compute and Interpret Coverage, Liquidity and Solvency Ratios Selected balance sheet and income statement information from CVS Health Corp. for 2014 through 2016 follows ($ millions). Total Current Assets Total Current Liabilities EBIT (Operating income) Interest Expense, Gross Total Liabilities Equity 2016 $31,042 $26,250 $10,338 $1,058 $57,628 $36,834 2015 29,158 23,169 9,454 838 55,234 37,203 2014 25,983 19,027 8,799 600 36,224 37,963 a. Compute times interest earned ratio for each year and discuss any trends for each. Round answers to one decimal place. Year TIE Ratio 2016 Answer 2015 Answer 2014 Answer b. Compute the current ratio for each year and discuss any trend in liquidity. Round answers to one decimal place. Year Current Ratio 2016 Answer 2015 Answer 2014 Answer Do you believe the company is sufficiently liquid? Explain. CVS’s current ratio has increased over the past three years and is greater than 1, indicating CVS is liquid. CVS’s current ratio has decreased over the past three years and it is currently less than 1 indicating CVS is not liquid. CVS’s current ratio has increased over the past three years, however, it remains less than 1 indicating CVS is not liquid. CVS’s current ratio has decreased over the past three years, however, it is greater than 1 indicating CVS is liquid. c. Compute the total liabilities-to-equity ratio for each year and discuss any trends for each. Round answers to one decimal place. Year Liabilities to Equity 2016 Answer 2015 Answer 2014 Answer d. What is your overall assessment of the company’s credit risk from the analyses in (a), (b), and (c)? CVS is a low credit risk as it has a low level of debt, is liquid and can easily meet its interest expenses. CVS is a low credit risk as its liabilities to equity ratio, current ratio, and times interest earned ratio have all decreased since 2014. CVS is a medium to high credit risk as its level of debt has increased and its current ratio and times interest ratio have decreased. CVS is a medium to high credit risk as its liabilities to equity ratio, current ratio, and times interest earned ratio have all increased since 2014.

Financial Management, Finance

  • Category:- Financial Management
  • Reference No.:- M92791926

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