Financial Analysis of Walgreens Co.
... to 1 which to most investors doesn’t look good because it means that its current liabilities are greater than its quick assets. However, it doesn’t necessarily mean that Walgreen’s isn’t liquid. It simply means that they have a great deal of inventory or slow-moving inventory as opposed to a great deal of quick assets. None-the-less by evaluating the current ratio, Walgreen’s can be listed as a company that is highly liquid. Walgreen’s seems to be improving and growing each and every year. In 2004 its working capital was $3,686.50 (Dollars in millions). This means that the potential excess sources of cash that Walgreen’s has is $3,686.50 over its upcoming uses of cash. However, working capital is not a major determinant of how liquid a company is simply because the size of the working capital a company has depends on the size of the company. Walgreen’s also had a debt ratio of .38992 or 38.992% in 2004. To creditors this is appealing since the debt-ratio is a measure of long-term risk. The debt ratio is simply a ratio that determines the risk of a company not be able to pay off its debt. Having a debt ratio of 38.992%, Walgreen’s becomes more and more appealing to long-term creditors and to investors. Investors are more convinced that the company is stable and though there isn’t a great risk, there can still be a steady reward. The gross profit rate of Walgreen’s in 2004 was .2719 or 27.19%. The gross profit rate is simply “a measure of the profitabililty of the company’s products” (Williams, 2005). For most merchandising company’s, the gross profit rate of a particular company usually is between 20 and 50 percent depending on the types of products that are sold. Also, the gross profit rate tends to be stable under normal situations however a sudden change could mean that there will be a change in consumer demand (Williams, 2005). The gross profit rate is merely gross profit expressed as a percentage of net sales. The ability of a manager or a company to maximize its profits is essential in having a steady growth of the company over many years. One of the most important measurements of how a company has performed in a given year is its return on assets. “This ratio is used in evaluating whether management has earned a reasonable return with the assets under its control” (Williams, 2005). In 2004 Walgreen’s Co. had a ratio of 29.584% on its return on assets. Most successful companies today earn a return on assets of approximately 15% or more. With that being said, Walgreen’s has clearly established itself as a successful company, not simply because of its return on assets, but with that ratio being one of the main determiners of a successful company. “If a business is well managed and has good future prospects, management should be able to earn a return on assets that is higher than the company’s cost of borrowing” (Williams, 2005). Since Walgreen’s return on assets is nearly 30% it has proven that it is a well managed company and deserves the right to be labeled as a successful company in the year 2004. There are many methods and measurements that can be used to determine whether or not a company is highly liquid and if it is a profitable and successful company. However, the use of financial ratios is a method that can most easily determine the characteristics and profitability of a company. In 2004 Walgreen’s Co. clearly made a mark on what a successful company should look like at least in terms of measurements and ratios. Walgreen’s continued to follow its trends of previous years by increasing its cash assets, inventories, receivables, sales, etc. and continues to establish itself as a “powerhouse” in its respective industry. Given the recent trends of Walgreen’s Co. it appears that the company will continue to grow in future years and will stay on the path that it is currently on and that is a path towards even more success. Walgreen’s doesn’t seem to be slowing down in its growth following 2004 and its financial position should allow it to continue expanding into areas that will present themselves. All-in-all Walgreen’s Co. continues to experience earnings growth and with the analysis of its financial position through the use of financial ratios, Walgreen’s Co. performed amazingly in 2004 and will continue to do so into the future if previous trends continue. Works Cited The Value Line Investment Survey . Value Line Publishing, Inc; 789. Walgreen Co. April 1, 2005. United States Securities and Exchange ...