Cvs Term Paper

TERM PROJECT
CVS
MAY 17, 2017

RAJVINDER SINGH
Dr. Sophie Zong
Table of Contents
I. Introduction ............................................................................................................................................ 3
II. Company of Interest ............................................................................................................................... 3
III. Competitors ............................................................................................................................................ 3
IV. Liquidity Ratios ....................................................................................................................................... 4
Current Ratio .......................................................................................................................................... 4
Quick Ratio ............................................................................................................................................. 5
V. Asset Management Ratios...................................................................................................................... 6
Inventory Turnover Ratio ....................................................................................................................... 6
Days Sales Outstanding (DSO) ................................................................................................................ 7
Fixed Asset Turnover Ratio ..................................................................................................................... 8
Total Asset Turnover Ratio ..................................................................................................................... 9
VI. Debt Management Ratios .................................................................................................................... 10
Debt Ratio ............................................................................................................................................. 10
Times Interest Earned Ratio (TIE) ......................................................................................................... 10
VII. Profitability Ratio .................................................................................................................................. 11
Profit Margin on Sales. ......................................................................................................................... 11
Basic Earning Power (BEP) .................................................................................................................... 12
Return on Total Assets ......................................................................................................................... 13
Return on Common Equity (ROE) ......................................................................................................... 13
VIII................................................................................................................................................ M
arket Value Ratios................................................................................................................................. 14
Price/Earnings (P/E) Ratio .................................................................................................................... 14
Price/Cash Flow Ratio ........................................................................................................................... 15
Market/Book Ratio ............................................................................................................................... 15
Book Value of Equity Per Share (BVPS) ................................................................................................ 16
IX. Du Pont Analysis ................................................................................................................................... 16
X. Forecast ................................................................................................................................................ 18
Methodology ........................................................................................................................................ 18
Pro Forma Income Statement .............................................................................................................. 19
Pro Forma Balance Sheet ..................................................................................................................... 19
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Conclusion ............................................................................................................................................ 20
XI. Appendix............................................................................................................................................... 21
Financial Ratios ..................................................................................................................................... 21
Ratio Forecasting .................................................................................................................................. 26
Pro Forma Income Statement .............................................................................................................. 27
Pro Forma Balance Sheet ..................................................................................................................... 27
Company’s Data.................................................................................................................................... 27
XII. References ............................................................................................................................................ 28
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Introduction
This term project is for Seminar in Financial Management course. The purpose of this project is
to conduct an in-depth ratio analysis of a firm’s performance in last five years and forecast its
performance of next year using the Pro Forma Analysis. From the finding of this project, I will
make a recommendation on whether the company’s stock is worth holding, buying, or selling.
Company of Interest
The Company I choose is CVS Health Corporation. The firs CVS store selling health and beauty
products opened in 1963 in Lowell, Massachusetts, by two brothers Stanley and Sidney
Goldstein and partner Ralph Hoagland. It stands for Consumer Value Stores. The industry that
CVS falls under is Drug stores and proprietary stores (SIC 5912). CVS Health is a pharmacy
health care provider and has three segments: Pharmacy services, Retail/LTC, and Corporate.
Pharmacy service provides pharmacy benefit management services. Retail/TIC sells prescription
drugs and a range of over-the-counter and personal care products such as: beauty and cosmetic
products. Corporate provides management and administrative services to support the overall
operations of Company. I selected CVS because of their high value, premium service, and
reputation in market.
Competitors
CVS Health Corporation is the top leading company under the SIC code of 5912 or NAICS code
of 446110. All the information provided in this project is based of Mergent Online database. As I
searched for the companies with the same SIC and NAICS code these companies showed up. Out
of all these companies I selected Rite Aid Corp. and Express Scripts Holding Co. because they
were the only ones that were close to what CVS’s revenue was. I did not select Walgreens
because it was acquired by Rite Aid.
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Ratio Analysis: CVS Health Corp. vs Rite Aid Corp. vs Express Scripts Holding Co.
Ratio analysis determines which company is in a stronger financial position. It is not possible to
answer this question without first standardizing each firm’s debt relative to total assets, earnings,
and interest.
Liquidity Ratios
Liquidity ratios show the relationship of a firm’s cash and other current assets to its current
liabilities. Liquidity ratios are used to determine if a company has the ability to pay its short-term
debt obligations, such as accounts payable, short term notes payable, accrued expenses, and long
term notes payable. The two liquidity ratios that will be determined in this project will be the
current ratio and the quick ratio.
Current Ratio
The current ratio is calculated by dividing current assets by current liabilities. The current ratio
tells us how many current assets a particular company will have to cover its short-term
obligations, or current liabilities. A current ratio of at least one or higher is required by any
particular company in any particular industry. This type of current ratio indicates that for each
dollar of a short-term debt obligation, the company has at least one dollar to pay off the debt.
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Figure 1: Current Ratio Comparison
Current Ratios
Years CVS Health Corp. Industry
Avg.
2012 1.44 1.34
2013 1.64 1.33
2014 1.37 1.23
2015 1.31 1.24
2016 1.18 1.15
Figure 1 shows that CVS is doing well as its current ratio is higher than industry average.
Compared to Express Scripts Holding whose current ratio has been on decline since 2012 and
had a turning point 2015 when it started coming back up. Even though CVS is above industry
average it has been in downwards slope since 2014. The cause of this could be that the company
is getting into financial difficulties where the company is borrowing money from banks, paying
bills slowly resulting in an increase of its liabilities. Looks as if CVS’s liabilities are rising faster
than its current assets resulting the current ratio to fall. This is not a good sign for the company.
But companies has a ratio that is above 1, which indicates that it has sufficient current assets to
meet the short-term debt obligations.
Quick Ratio
Quick ratio measures the ability of a company to pay its current liabilities when they come due
with only quick assets. Quick assets are current assets that can be converted to cash within 90
days or in the short-term. Quick Ratio is calculating by taking the difference of inventories from
current assets and dividing the remainder by current liabilities. This ratio also measures the
short-term solvency of a company. This ratio is also named “quick” ratio because it is never
certain that the inventory a company holds can be sold off as its fair market value in the event of
liquidation.
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Figure 2: Quick Ratio Comparison
Quick Ratios
Avg.
2012 0.57 0.55
2013 0.84 0.57
2014 0.64 0.51
2015 0.62 0.55
2016 0.6 0.60
Looking at this table we can say that CVS has quick ratio below 1. Looking at the chart above
we can say that from 2013-2015, CVS has been doing better than its competitors. Since all three
companies have a ratio below 1, we can assume the companies are holding their assets as a part
of their inventory. If the accounts receivable are collected then the company can pay off its
current liabilities without having to liquidate its inventory. Overall we can say that CVS has been
above industry average.
Asset Management Ratios

A firm’s asset management ratio is a measure of how effectively a firm is managing its assets. If
a company has excessive investments in assets, then its operating capital will be unduly high,
which will reduce its free cash flow and ultimately its stock price. However, if a company does
not have enough assets then it will lose sales, which will hurt profitability, free cash flow, and
the stock price. Therefore, it is important to have the right amount invested in assets. The three
types of asset management ratios that will be analyzed further are Inventory Turnover Ratio,
Days Sales Outstanding (DSO), and Fixed Asset Turnover Ratio.
Inventory Turnover Ratio

The inventory turnover ratio is defined as sales divided by inventories. High inventory ratios
may be relevant for the company, since the company is constantly generating sales throughout
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the year and replacing the old inventory with new inventory. On the other hand, low ratios may
not be relevant for the company, since the company is not effectively generating sales, which
means the company is holding inventory for long periods of time resulting in the costs of
carrying these specific inventories to be high.
Figure 3: Inventory Turnover Comparison
Inventory Turnover Ratio

Years CVS Health Industry
Corp. Avg.
2012 9.67 33.60
2013 9.45 23.17
2014 9.92 20.83
2015 9.78 20.46
2016 10.34 21.53
Looking at figure 3, we can say that CVS is way below the industry average which means CVS
is not selling its inventory fast enough to meet industry average. While its competitor Express
Script Holding Co. is able to sell of its inventory at a higher rate. CVS has been increasing since
2014 which is a good sign. If the numbers keep increasing then CVS will meet industry average
at one point and may pass it.
Days Sales Outstanding (DSO)

Day's sales outstanding measures the average time it takes the company to collect payments from
its customers. It is calculated by dividing accounts receivable by average daily sales to find the
number of days’ sales that are tied up in receivables. A lower DSO means that a company can
convert its account receivables into cash very fast, and has a strict collection policy. A higher
DSO means that a company has to wait longer to convert its accounts receivable into cash, which
could mean that the company has a relaxed collection policy, which needs to be directed right
away.
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Figure 4: DSO comparison
DSO
Avg.
2012 18.56 15.59
2013 21.89 17.50
2014 24.12 18.55
2015 25.69 20.58
2016 24.73 21.71
Looking at figure 4, we can say that CVS is above industry average, which is not a good thing
for a company. Both of the competitors have been below industry average. Overall both of the
competitors been keeping the number below which means that their customers have been paying
on time. On the other hand, it looks as if CVS hasn’t been receiving payment from its customers
on time. They need to change their credit policy and expedite the collection of accounts
receivable.
Fixed Asset Turnover Ratio

The fixed assets turnover ratio measures how effectively the firm uses its plant, property, and
equipment to generate revenue. It is the ratio of sales to net fixed assets, or sales divided by net
fixed assets. A low ratio indicates that the company is not using its fixed assets effectively, thus
the company might have invested too much in fixed assets. A higher ratio is highly
recommended because this indicates that a company is using its fixed assets to its full extent in
order to generate sales.
Figure 5. Fixed Asset Turnover Ratio

Avg.
2012 14.4 39.73
2013 14.7 30.43
2014 15.96 30.48
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2015 16.4 33.43
2016 17.72 36.69
Looking at the chart above, we can say that CVS is not using its fixed assets effectively, only
Express Scripts Holdings Co. was able to meet industry average. Both CVS and Rite Aid were
far below industry average. Maybe CVS has invested too much in fixed assets. But we can also
see an increase in the number of CVS in recent years, which is a good sign for the company. It
shows that the company is getting close to industry average.
Total Asset Turnover Ratio

The total assets turnover ratio is calculated by dividing sales by total assets. If this ratio is below
the industry average, this indicates that the company is not generating a sufficient volume of
business given its total asset investment. Sales should be increased, some assets should be sold,
or a combination of these steps should be taken.
Figure 6. Total Asset Turnover Ratio
Total Assets Turnover Ratio

Avg.
2012 1.89 2.65
2013 1.84 2.41
2014 1.91 2.48
2015 1.83 2.36
2016 1.89 2.28
Looking at figure 6, we can state that CVS didn’t meet the industry average in all five years,
where one of its competitor did much better than CVS. Looks as if CVS was not generating
enough business. The company needs to increase its sales and maybe sell some of its assets to
meet industry average.
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Debt Management Ratios
Debt management ratios are those ratios that measure how well a company uses its debt service
or financial leverage to continue its operations and how well it can stay out of financial trouble
for long term. There are two types of debt management ratios that will be demonstrated: Debt
ratio and Times-Interest-Earned (TIE) ratio.
Debt Ratio
The Debt Ratio is defined as total liabilities to total assets is called the debt ratio, or sometimes
the total debt ratio. It measures the percentage of funds provided by current liabilities and long-
term debt.
Figure 7. Debt Ratio Comparison

Debt Ratio
Avg.
2012 0.36 0.77
2013 0.40 0.78
2014 0.43 0.79
2015 0.54 0.73
2016 0.57 0.74
Looking at the chart above, we can say that CVS was below industry average, which is a good
thing because it pretty much means that CVS did not use high amount of debt to finance its
assets and operation but on the other hand its compatriots did.
Times Interest Earned Ratio (TIE)

The times-interest-earned (TIE) ratio, also called the interest coverage ratio, is determined by
dividing earnings before interest and taxes (EBIT) by the interest expense. The TIE ratio
measures the extent to which operating income can decline before the firm is unable to meet its
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annual interest costs. Failure to meet this obligation can bring legal action by the firm’s creditors,
possibly resulting in bankruptcy.
Figure 8. TIE
TIE Ratio
Avg.
2012 12.98 5.96
2013 15.79 7.82
2014 14.67 7.62
2015 11.28 7.51
2016 9.77 6.39
Looking at Figure 8, we can say that CVS is above industry average which means its doing well.
While Rite Aid is doing very poorly because all the year its below which means it’s not meeting
its annual interest cost.
Profitability Ratio
Profitability is the net result of a number of policies and decisions. Profitability ratios are ratios
that show the combined effects of liquidity, asset management, and debt on operations
Profit Margin on Sales.

The net profit margin, which is also called the profit margin on sales, is calculated by dividing
net income by sales. Many analysts break the income statement into smaller parts to identify the
sources of a low net profit margin by using the operating profit margin and the gross profit
margin. The operating profit margin is defined as EBIT divided by sales and the gross profit
margin is defined as sales minus cost of goods sold divided by sales.
Figure 9 Profit Margin on Sales

PM on Sale %
Avg.
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2012 3.15 1.05
2013 3.62 1.96
2014 3.33 2.11
2015 3.42 4.61
2016 3 2.32
Looking at figure 9. We can say that CVS is doing great because it’s above industry average,
where its competitors are not there yet. Also we can see that CVS numbers are fluctuating, but
as long as it's above industry average it’s a good sign for the company.
Basic Earning Power (BEP)

The basic earning power (BEP) ratio is calculated by dividing earnings before interest and taxes
(EBIT) by total assets. This ratio shows the raw earning power of the firm’s assets before the
influence of taxes and leverage, and it is useful for comparing firms with different tax situations
and different degrees of financial leverage.
Figure 10 Basic Earning Power (BEP)

BEP %
Avg.
2012 9.6 4.28
2013 10.52 5.43
2014 10.34 6.57
2015 9.21 7.10
2016 9.14 6.72
From the chart above we can say the CVS is above industry average. Which means its
generating income more effectively from its assets. CVS is getting high returns before taxes and
financial leverage.
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Return on Total Assets
The ratio of net income to total assets measures the return on total assets (ROA) after interest and
taxes. This ratio is also called the return on assets and is defined as net income available to
common stockholder divided by total assets.
Figure 11 Return on Total Assets
ROA %
Avg.
2012 5.93 1.54
2013 6.68 3.87
2014 6.37 4.56
2015 6.24 12.54
2016 5.64 4.59
CVS is above industry average which means it’s a good sign for the company. Its competitor
Rite Aid is below industry for about 4 years or so, we can say that this low return is due to the
company's low basic earning power. Except for 2015 when Rite Aid had high return on total
asset and resulted in increase in overall industry average.
Return on Common Equity (ROE)

The ratio of net income to common equity measures the return on common equity (ROE).
Stockholders invest to earn a return on their money, and this ratio tells how well they are doing
in an accounting sense.
Figure 12 Return on Common Equity (ROE)

ROE %
Avg.
2012 10.21 11.9
2013 12.14 5.21
2014 12.24 3.64
2015 13.94 -59.31
2016 14.33 28.83
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Looking at figure 12 we can say that stockholders in CVS are earning return on their money
faster. CVS is earning a lot more than its competitors from the money that investors have put
into CVS. CVS has done quite well in maximizing shareholder’s wealth.
Market Value Ratios

Market value ratios relate a firm’s stock price to its earnings, cash flow, and book value per
share. Market value ratios are a way to measure the value of a company’s stock relative to that of
another company.
Price/Earnings (P/E) Ratio

The price/earnings (P/E) ratio shows how much investors are willing to pay per dollar of
reported profits. Price/earnings ratios are higher for firms with strong growth prospects other
things held constant, but they are lower for riskier firms. The P/E ratio is calculated by dividing
the price per share by the earnings per share.
Figure 13 Price/Earnings (P/E) Ratio

P/E Ratio
Avg.
2012 16.01 14.10
2013 19.14 21.30
2014 24.32 29.22
2015 21.07 16.44
2016 16.07 26.17
Figure 13 tells us that CVS has higher earnings ratios but they are lower for risk. But CVS P/E
ratio fluctuates from year to year and sometimes dipping below industry average. Resulting in
company being undervalued sometimes.
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Price/Cash Flow Ratio
Stock prices depend on a company’s ability to generate cash flows. Consequently, investors
often look at the price/cash flow ratio, where cash flow is defined as net income plus
depreciation and amortization. The price/cash flow ratio is calculated by taking the price per
share and dividing it by the cash flow per share.
Figure 14 Price/Cash Flow Ratio
Price/cash flow
Avg.
2012 9.28 7.76
2013 15.16 9.72
2014 13.84 12.37
2015 13.09 12.70
2016 8.46 8.53
Figure 14, shows us that CVS has been above industry averaging and all five years, meaning that
the company is doing well. CVS is overvalued, meaning the company is meeting all the
investors’ expectations and they are willing to pay more for it.
Market/Book Ratio
The ratio of a stock’s market price to its book value gives another indication of how investors
regard the company. Companies with relatively high rates of return on equity generally sell at
higher multiples of book value than those with low returns. The market/book ratio is calculated
by taking the market price per share and dividing it by the book value per share.
Figure 15 Market/Book Ratio

M/B
Avg.
2012 1.58 0.98
2013 2.23 1.38
2014 2.89 0.97
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2015 2.89 46.43
2016 2.27 6.35
Looking at figure above we can conclude that CVS has been increasing in their numbers over the
years and also been above average which tells us that company sells at higher multiple of book
value than those with lower values such as Rite Aid.
Book Value of Equity Per Share (BVPS)

BVPS divides common equity value by number of shares outstanding. With the help of BVPS
investors can determine whether company’s stock is undervalued. If company’s BVPS is
increasing, investors will view it as a good sign and will invest in the company because they will
the stock as more valuable resulting in increase in stock price.
Figure 16 Book Value of Equity Per Share (BVPS)
BVPS
Avg.
2012 30.63 18.78
2013 32.15 19.22
2014 33.3 19.58
2015 33.78 19.84
2016 34.71 20.69
Looking at figure above we can expect Investors like investing in CVS. Its BVPS is much
higher than its competitor Rite Aid, while Express Script is very close to CVS, its BVPS has
been dropping from 2012. But looking at chart above we can conclude that CVS’s BVPS has
been increasing from 2012 and its leader in Industry.
Du Pont Analysis
Du Pont Analysis CVS
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Years PM X TAT X EM = ROE
2012 3.15% X 1.87 X 1.75 = 10.28%
2013 3.62% X 1.77 X 1.89 = 12.10%
2014 3.33% X 1.88 X 1.96 = 12.23%
2015 3.42% X 1.64 X 2.52 = 14.08%
2016 3.00% X 1.88 X 2.56 = 14.44%
Du Pont Analysis RAD
2012 -1.41% X 3.55 X -2.85 = 14.25%
2013 0.47% X 3.59 X -2.88 = -4.80%
2014 0.98% X 3.68 X -3.29 = -

11.80%
2015 7.95% X 2.99 X 15.13 = 360.04

%
2016 0.54% X 2.73 X 19.40 = 28.46%
Du Pont Analysis ESRX
2012 1.42% X 1.62 X 2.48 = 5.69%
2013 1.80% X 1.94 X 2.45 = 8.57%
2014 2.02% X 1.88 X 2.68 = 10.14%
2015 2.46% X 1.91 X 3.06 = 14.38%
2016 3.42% X 1.94 X 3.19 = 21.10%
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The figures above shows the comparison for the Du Pont analysis. I did comparison of my target
company CVS, with its competitor Rite Aid and Express Scripts. Looking at my company’s Du
Pont analysis I can tell the biggest factor for my higher ROE compared to its completion is its
high Profit Margin. Company is in good financial health. Looking at total asset turnover I can
tell CVS is not using its assets as effectively to generate sales as its competitors are.
Forecast
My company I selected to do ratio analysis and future forecasting is CVS Health Corporation.
Through this project I created a financial forecasting for upcoming year. The forecast will be
used for financial planning purpose to determine a variety of different things. All the information
gathered by forecasting is used to determine whether an investor should invest or no invest in the
company.
Methodology
There are four different ways that managers can use to find pro forma analysis.
I. By looking at projected statements, they can assess whether the firm’s anticipated
performance is in line with the firm’s own general targets and with investors’
expectations
II. Pro forma statements can be used to estimate the effect of proposed operating changes,
enabling managers to conduct “what if” analyses
III. Managers use pro forma statements to anticipate the firm’s future financing needs
IV. Managers forecast free cash flows under different operating plans, forecast their capital
requirements, and then choose the plan that maximizes shareholder value.
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For this project, I will be forecasting CVS Health Corporation and will be using Percentage of
sales method. The percentage of sales method is used to determine any additional assets and
funds that would be needed to support the forecasting sales after that I will balance my balance
sheet using AFN, Additional Funds Needed.
Pro Forma Income Statement

In order to forecasting sales I need to determine all the additional funds and necessary assets. I
also needed to find the growth rate for the upcoming year and then calculate the sales. The
forecasting sales for the upcoming year will be based on the average of sales growth for the last
five years. The average sales growth came out to be 9.67% for CVS. After I found the growth
rate then I used the most recent year sales amount and multiplied by one hundred percent plus
the growth rate percentage. Then I calculated COG'S (83.74%), S&A expense of (10.43%), and
non-operating expense (.01%). To find the interest expense, I used long term debts figures from
balance sheet of year before and then multiplied that with current interest expense from income
statement. After that I used long term debt from balance sheet and this time multiplied it with
current years. After I found both figures I just multiplied them to get our interest expense for pro
forma. It is assumed that CVS will keep the same dividend payout policy as it has right now. All
other income, expenses remained constant. Below is the appendix for the pro forma income
statement with and without AFN.
Pro Forma Balance Sheet

Balance sheet is a great tool to see the company's assets, liabilities, and equity. As being said
earlier balance sheet is needed for forecasting. For the current year I had to find assets by adding
the figures based off of balance sheet. Later I had to find the liabilities and finally at the end the
equity. It was hard as not all the information was present on balance sheet from mergent online,
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so at first my numbers were off. Then I looked at balance sheet on sec.gov and found that I was
missing short term debt. After that my balance sheet matched. Once done I calculated my AFN
and balanced by balance sheet.
Additional Funds Needed

Those funds required from external sources to increase the firm’s assets to support a sales
increase is what is known, as additional funds needed equation method, or AFN. The additional
funds needed (AFN) equation is: Required increase in assets-increase in spontaneous liabilities-
increase in retained earnings. If we start with the required new assets and then subtract both
spontaneous funds and additions to retained earnings, we are left with the additional funds
needed, or AFN. By solving for AFN I ended up with $53,376,000 of addition fund which I
plugged into my with AFN balance sheet and my balance sheet came out equal.
Conclusion
In conclusion, as we know that CVS it at the top of its competitors. I would tell investors to
invest in CVS. It has been doing much better than its competitors and is leader in its class. After
doing this project and going through all the ratios, I would say that CVS is not perfect in all parts
but it is better in majority of the ratios where its competitors failed. Its higher ROE deems it
overvalued because of its continuous high returns and bring wealth to shareholders.
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Appendix
Financial Ratios
Current Ratios
Years CVS Health Corp. Rite Aid Express Scripts Industry

Corp. Holdings Co. Avg.
2012 1.44 1.75 0.82 1.34
2013 1.64 1.71 0.64 1.33
2014 1.37 1.71 0.62 1.23
2015 1.31 1.7 0.7 1.24
2016 1.18 1.52 0.75 1.15
Quick Ratios

2012 0.57 0.45 0.63 0.55
2013 0.84 0.41 0.45 0.57
2014 0.64 0.43 0.46 0.51
2015 0.62 0.44 0.58 0.55
2016 0.6 0.57 0.62 0.60
Inventory Turnover
Ratio

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2012 9.67 6.14 84.99 33.60
2013 9.45 5.74 54.33 23.17
2014 9.92 5.92 46.66 20.83
2015 9.78 6.45 45.14 20.46
2016 10.34 8.21 46.04 21.53
DSO

2012 18.56 13.83 14.38 15.59
2013 21.89 13.96 16.66 17.50
2014 24.12 13.43 18.09 18.55
2015 25.69 13.28 22.78 20.58
2016 24.73 15.33 25.08 21.71

2012 14.4 13.25 91.55 39.73
2013 14.7 13.37 63.22 30.43
2014 15.96 13.25 62.22 30.48
2015 16.4 13.10 70.78 33.43
2016 17.72 14.16 78.20 36.69
Total Assets Turnover Ratio
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2012 1.89 3.50 2.55 2.65
2013 1.84 3.52 1.86 2.41
2014 1.91 3.64 1.88 2.48
2015 1.83 3.36 1.9 2.36
2016 1.89 3.05 1.91 2.28
Debt Ratio

2012 0.36 1.35 0.6 0.77
2013 0.40 1.35 0.59 0.78
2014 0.43 1.31 0.63 0.79
2015 0.54 0.99 0.67 0.73
2016 0.57 0.95 0.69 0.74
TIE Ratio

2012 12.98 0.31 4.58 5.96
2013 15.79 1.25 6.41 7.82
2014 14.67 1.7 6.49 7.62
2015 11.28 2.11 9.13 7.51
2016 9.77 1.7 7.7 6.39
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PM on Sale %

2012 3.15 -1.41 1.42 1.05
2013 3.62 0.47 1.8 1.96
2014 3.33 0.98 2.02 2.11
2015 3.42 7.95 2.47 4.61
2016 3 0.54 3.42 2.32
BEP %

2012 9.6 -.53 3.77 4.28
2013 10.52 .11 5.66 5.43
2014 10.34 3.6 5.76 6.57
2015 9.21 4.82 7.26 7.10
2016 9.14 2.47 8.56 6.72
ROA %

2012 5.93 -4.86 3.55 1.54
2013 6.68 1.64 3.3 3.87
2014 6.37 3.57 3.74 4.56
2015 6.24 26.76 4.63 12.54
2016 5.64 1.65 6.47 4.59
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ROE %

2012 10.21 15.36 10.13 11.9
2013 12.14 -4.68 8.16 5.21
2014 12.24 -10.91 9.58 3.64
2015 13.94 -205.11 13.23 -59.31
2016 14.33 51.97 20.2 28.83
P/E Ratio

2012 16.01 -3.23 29.51 14.10
2013 19.14 13.67 31.08 21.30
2014 24.32 31.38 31.95 29.22
2015 21.07 3.84 24.42 16.44
2016 16.07 49.69 12.76 26.17
Price/cash flow

2012 9.28 5.57 8.44 7.76
2013 15.16 1.87 12.13 9.72
2014 13.84 9.14 14.14 12.37
2015 13.09 12.47 12.54 12.70
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2016 8.46 8.29 8.83 8.53
M/B

2012 1.58 -0.54 1.89 0.98
2013 2.23 -0.58 2.49 1.38
2014 2.89 -3.05 3.07 0.97
2015 2.89 133 3.41 46.43
2016 2.27 14.21 2.57 6.35
BVPS

2012 30.63 -2.88 28.58 18.78
2013 32.15 -2.72 28.23 19.22
2014 33.3 -2.18 27.62 19.58
2015 33.78 0.06 25.67 19.84
2016 34.71 0.55 26.81 20.69
Ratio Forecasting
Ratio Forecasting 2016 2017 Ind. Avg.
2016
Current Ratio 1.18 0.42 1.15
Quick Ratio 0.6 0.22 0.6
Inventory TO Ratio 10.34 12.03 21.53
26 | P a g e
DSO 24.73 25.01 21.71
Fixed Asset TO 17.72 17.44 36.39

Ratio
TA TO Ratio 1.89 2.8 2.28
Debt Ratio 0.57 0.44 0.74
TIE Ratio 9.77 46.48 6.39
Profit Margin % 3 23.23 2.32
BEP % 9.14 7.02 6.72
ROA % 5.64 6.5 4.59
ROE % 14.33 13.43 28.83
Pro Forma Income Statement

Pro Forma Balance Sheet
Company’s Data
27 | P a g e
References
Finance Formulas. (2017, May 1). Retrieved from financeformulas.net: http://financeformulas.net/Book-
Value-per-Share.html
Investopedia. (2017, May 1). Retrieved from Investopedia.com:

http://www.investopedia.com/terms/b/bvps.asp
Laidre, A. (2010, November 2). The Importance of Financial Ratios . Retrieved from iplanner:
http://www.iplanner.net/business-financial/online/how-to-articles.aspx?article_id=financial-
ratios
Mergent Online. (2017, March 10). Retrieved from mergentonline.net:

http://www.mergentonline.com.libproxy.csustan.edu/companyfinancials.php?pagetype=asrepo
rted&compnumber=13391&period=Annuals&dataarea=BS&range=7&currency=AsRep&scale=1
&Submit=Refresh
MorningStar. (2017, April 17). Retrieved from financials.morningstar.com:

http://financials.morningstar.com/ratios/r.html?t=CVS
MSN Money. (2017, May 1). Retrieved from msn.com: https://www.msn.com/en-

us/money/stockdetails/financials/fi-126.1.BGFV.NAS
Nasdaq. (2017, April 27). Retrieved from nasdaq.com:

http://www.nasdaq.com/symbol/cvs/financials?query=balance-sheet
Sec. (2016, August 5). Retrieved from sec.gov: https://www.sec.gov/cgi-

bin/viewer?action=view&cik=64803&accession_number=0000064803-17-000006&xbrl_type=v#
Xplaind. (2017, May 4). Retrieved from xplaind.com: http://xplaind.com/531544/basic-earning-power-

ratio
28 | P a g e

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TERM PROJECT

MAY 17, 2017

because it was acquired by Rite Aid.

current ratio and the quick ratio.

meet the short-term debt obligations.

above industry average.

Asset Management Ratios

Days Sales Outstanding (DSO), and Fixed Asset Turnover Ratio.

Inventory Turnover Ratio

carrying these specific inventories to be high.

Figure 3: Inventory Turnover Comparison

Inventory Turnover Ratio

at one point and may pass it.

Days Sales Outstanding (DSO)

Fixed Asset Turnover Ratio

order to generate sales.

Figure 5. Fixed Asset Turnover Ratio

Fixed Asset Turnover Ratio

shows that the company is getting close to industry average.

Total Asset Turnover Ratio

or a combination of these steps should be taken.

Figure 6. Total Asset Turnover Ratio

Total Assets Turnover Ratio

meet industry average.

ratio and Times-Interest-Earned (TIE) ratio.

Figure 7. Debt Ratio Comparison

Times Interest Earned Ratio (TIE)

possibly resulting in bankruptcy.

its annual interest cost.

Profit Margin on Sales.

margin is defined as sales minus cost of goods sold divided by sales.

Figure 9 Profit Margin on Sales

Basic Earning Power (BEP)

and different degrees of financial leverage.

Figure 10 Basic Earning Power (BEP)

common stockholder divided by total assets.

Figure 11 Return on Total Assets

asset and resulted in increase in overall industry average.

Return on Common Equity (ROE)

Figure 12 Return on Common Equity (ROE)

Market Value Ratios

Price/Earnings (P/E) Ratio

the price per share by the earnings per share.

Figure 13 Price/Earnings (P/E) Ratio

company being undervalued sometimes.

share and dividing it by the cash flow per share.

Figure 14 Price/Cash Flow Ratio

Figure 15 Market/Book Ratio

value than those with lower values such as Rite Aid.

Book Value of Equity Per Share (BVPS)

investors can determine whether company’s stock is undervalued. If company’s BVPS is

the stock as more valuable resulting in increase in stock price.

Figure 16 Book Value of Equity Per Share (BVPS)

been increasing from 2012 and its leader in Industry.

2012 3.15% X 1.87 X 1.75 = 10.28%

2013 3.62% X 1.77 X 1.89 = 12.10%

2014 3.33% X 1.88 X 1.96 = 12.23%

2015 3.42% X 1.64 X 2.52 = 14.08%

2016 3.00% X 1.88 X 2.56 = 14.44%

Du Pont Analysis RAD

Years PM X TAT X EM = ROE

2012 -1.41% X 3.55 X -2.85 = 14.25%

2013 0.47% X 3.59 X -2.88 = -4.80%