8/13/2019 FIN Week 2 Discussion 1

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Discussion 1: Financial Statement, Cash Flow, and Taxes  A. Why is it important for financial managers to understand financial statements?

Financial information is the heart of the business as it can tell you what isworking and what is not working for the business as well as give you options tolook into to help grow the business. It is important to understand and can analyzethe financial statements of the business so you can manage and control yourfinances and make more informed decisions armed with facts, not intuition.

You should be able to understand and track the current financial health of yourbusiness without solely relying on your accountant. Some basic financial analysiscould include making comparisons of your actual financial performance withforecast targets, performance in past years, and industry averages.

I liked the analogy that I read about financial management is like taking care ofyour car. While the body of the car may look find on the outside what is under thehood and how it is working will determine if you are able to get where you needto be or dead on the side of the street. (entrepreneur.com).

B. This discussion assignment will allow for the completion of a ratioanalysis. It will also provide information that will be useful as you preparethe written report for Assignment

Steps 3 and 4:I reviewed the company I work with, CVS Caremark, as there are many changesfrom last year to this year going into effect from a new CEO to a placed focus onin store Pharmacy success. To large labor cuts in both the RX and FS staff andinventory. While the inventory controls have been so tight often the store will losecustomers due to inventory in not in stock do to warehouse is out of suppliesduring high demand periods. New system are being put the right inventory in theright markets thus helping to reduce tasks of manually ordering when items can

not be delivered due to outages. To receiving inventory prior and during salesevents rather than ordering 9 to 10 week prior to the event. However the laborcuts continue from last year to this year with hopes of increasing customerengagement and support. Store will experience longer lines to cut cost but till beinteresting to see how customer reaction. That being said looking at thenumbers, which in three days the company will release the results for 2013 inwhich I will be interested to see the impact has been for the past year. Previousyears there were many tools missing to help Regional, District and storemanagers make the call needed to support the business. This past year therewere many took to include a KPI daily report breaking down business intocategories. While this is odd that a company this size took so long to put simple

tools in place it will be see the return. The spreadsheet provided made it simpleand easy to see no wonder CVS stock continues to rise up over $70 per stockand is leading other companies with similar market spand. I cant wait to putWalgreens and Rite Aid in the same spreadsheet to see how they far.

Reviewing a lot of financial information can be overwhelming but in the exercise itwas quick and easy to see what was good and what was an opportunity for thecompany.

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Profitability and investment ratios are used to measure the company’s performance and the company efficiency in utilizing the resources to build wealthfor shareholders benchmarked with industry and competitors. While most of thearea improved the over all EBITDA margin% deteriorated.

The liquidity ration indicates how well a company position is placed to meet thecoming up obligations and without impending operations. From data below youcan CVS has improved with a current ratio of 17.07%, and maybe set for anotherseveral years of improvement as process are being transformed to be supportedwith technology meaning reports using predictive quantitative methods to bettersupport customers by having the right supplies in the right place.

Operating performance ratios looks at the assets that generate revenues,management efficiency using assets to make revenues. Where as debt ratiosanalysis the load risk faced by the company and shareholders, the higher thedebt-ratio to assets the higher the risk for the company to go into bankruptcy.This helps the investors to see the risk they might face by investing. As you cansee by CVS results (Debt ratio = Liabilities / Assets) their Debt ratio is -23.53%,there is little risk at this time as they continue to improve year over year. Thus itis no wonder that CVS stock continue to out perform others and is able togenerate more options in purchasing programs that will help grow the scriptbusiness.

Source of Data: Mergent Online Database, Strayer University Resource Center

Retrieved Jan 18, 2014

Profitability Ratios

ROA % (Net) Performance Improved 7.62%

ROE % (Net) Performance Improved 5.58%

ROI % (Operating) Performance Improved 10.80%

EBITDA Margin % Performance Deteriorated -20.67%

Calculated Tax Rate % Performance Improved -2.50%

Revenue per Employee Performance Improved 54.18%

Liquidity Ratios

Quick Ratio Performance Improved 14.00%

Current Ratio Performance Improved 17.07%

Net Current Assets % TA Performance Improved 84.74%

Debt Management

LT Debt to Equity Performance Deteriorated 4.35%

Total Debt to Equity Performance Improved -23.53%

Interest Coverage Performance Improved 9.35%

Asset Management 3.67%

Total Asset Turnover Performance Improved 25.33%

Receivables Turnover Performance Improved 12.69%

Inventory Turnover Performance Improved 19.98%

 Accounts Payable Turnover Performance Deteriorated 10.86%

 Accrued Expenses Turnover Performance Improved 10.51%

Property Plant & Equip Turnover Performance Improved 15.71%

Cash & Equivalents Turnover Performance Improved 22.30%

Per Share

Cash Flow per Share Performance Improved 91.58%

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Book Value per Share Performance Improved 27.47%

Resources:

Brigham, E., & Ehrhardt, M. (2014). Financial management . (14th ed.). Mason,Ohio: Cengage Learning.

Entrepreneur.com, 2012. Financial Management. Retrieved from:http://www.entrepreneur.com/article/21926. 

I agree, no one should rely just on a companies financial statement as it maybe

misleading depending on how they report and other who are in the same line of

business. You really have to do your own research, which takes time. The report can

show a company doing better than what the industry averages are but that doesn't

mean that they are the best to invest in. Recently as an HR Director we were looking

at why the large turn over at CVS in the management levels. We found that most

were going to Rite Aid, Target, Kroger, and Walgreens. The underlining reason was

labor cuts forcing the managers to work 60 to 70 hours a week on minimal salaries.

Yet other competitors paid the same or better and not allowing the managers to

work more than 45 hours a week. While this may not sound like something thatcould hurt CVS losing top talent in 65% of our stores will have an impact on front

store sales, operational readiness and customer service. In the past few months we

have cut labor in our pharmacy departments and are starting to see our Pharmacist

leave doe to labor cuts, and job description changes that state they must have

Business Acumen to manage the business. We all know as leaders in our industry or

as students obtaining our MBA that when talent leaves faster than it can be replaced

or built the company will have bigger issues sooner than later.

While CVS is reporting better operational controls and inventory management is it

really better or just large cuts. The main reason CVS continues to be one of the

leaders in their field is due to Express Scripts and other Script software they havebeen able to purchase or retain better contracts to help customers with

prescriptions. Reports tell you the results based on how a company is reporting

results but not really showing the strategy of neither how a company achieved those

results nor how they will continue to be able to continue going forward.

I worked for a company that was trying to expand via franchising, Pet Supplies Plus.

Originally they were trying to open 50 stores a year then the company was bought

out by IPC (Irvine Place Capital) who has helped companies such as Dots, New York

and Company, Vitamin Shoppe, and others expand. The company focus then change

to offer franchising to build the company quickly to expand the brand. This helped

the company save millions while still providing revenues to the corporation. Other

companies have seen huge success in franchising would be Hilton. They franchise

out the brand Hilton to places all over the world. To them it is a brand that has a

process that has proven to be successful for both the franchisee and the

corporations. Here is a link that will show you how quickly franchising helped built

Hilton into the large hotel and resort organization they are today.

http://www.entrepreneur.com/franchises/hiltonhotelsandresorts/284278-0.html