Interpreting Financial Reports: Comprehensive Ratio Analysis

C4. Using data from CVS Corporation’s annual report in the Supplement to Chapter 16, conduct a comprehensive ratio analysis that compares the company’s performance in 2011 and 2010. If you have computed ratios for CVS in previous chapters, you may

 

 

 

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prepare a table that summarizes the ratios and show calculations only for the ratios not previously calculated. If this is the first ratio analysis you have done for CVS, show all your computations. In either case, after each group of ratios, comment on the perfor- mance of CVS. (Round to one decimal place.) Prepare and comment on the following categories of ratios:

 

■      Operating asset management analysis: current ratio, quick ratio, receivables turn- over, days’ sales uncollected, inventory turnover, days’ inventory on hand, payables turnover, days’ payable, and financing period (Accounts Receivable, Inventories, and Accounts Payable were [in millions] $5,457, $10,343, and $3,560, respectively, in 2009.)

 

■      Profitability and total asset management analysis: profit margin, asset turnover, and return on assets (Total assets were [in millions] $61,641 in 2009.)

 

■      Financial risk analysis: debt to equity ratio, return on equity, and interest coverage ratio (Total total shareholders’ equity was [in millions] $35,768 in 2009.)

 

■      Liquidity analysis: cash flow yield, cash flows to sales, cash flows to assets, and free cash flow

 

■      Market strength analysis: price/earnings (P/E) ratio and dividend yield