Walgreen CompanyandCVS Corporationoperate national chains of drugstores that sell pre-
scription drugs, over-the-counter drugs, and other general merchandise such as greeting cards,
beauty and cosmetics, household items, food, and beverages. Walgreen operates 4,579 stores,
while CVS Corporation operates 5,375 stores. The following operating data (in thousands) were
adapted from the 2004 SEC 10-K filings of Walgreen and CVS.142 Chapter 3 Accrual Accounting Concepts
Case 3-1
Analysis of income statementsCase 3-2
Cash basis income statementFINANCIAL ANALYSIS AND REPORTING CASES
CVS Walgreen
Net sales $30,594,300 $37,508,200
Cost of sales 22,563,100 27,310,400
Gross profit $ 8,031,200 $10,197,800
Selling, general, and administrative expenses 6,079,700 8,055,100
Operating income $ 1,951,500 $ 2,142,700
Other income and (expense) (555,100) 33,600
Income before taxes $ 1,396,400 $ 2,176,300
Income taxes 477,600 816,100
Net income $ 918,800 $ 1,360,200- Prepare common-sized income statements for CVS and Walgreen.
- Compute the average sales per store for CVS and Walgreen. Round to the thousands.
- Analyze and comment on your results in (1) and (2).
- Broker recommendations are reported on Yahoo.com’s financial Web site. The recommen-
dations are ranked as follows:
Strong Buy 1
Buy 2
Hold 3
Sell 4
Strong Sell 5Based upon your answers to (2) and (3), would you expect the average broker recommen-
dation for CVS to be higher (less favorable), the same, or lower (more favorable) than for
Walgreen? Compare your assessment with the average broker recommendation on
Yahoo.com’s financial Web site (http://finance.yahoo.com/). To find the broker recommen-
dation, enter the stock symbols for CVS (CVS) and Walgreen (WAG) and click on “re-
search.”The following operating data (in thousands) were adapted from the 2004 SEC 10-K filings of
WalgreenandCVS:CVS Walgreen
2004 2003 2004 2003
Accounts receivable $2,007,300 $1,601,700 $1,169,100 $1,017,800
Accounts payable 3,942,600 3,166,000 4,077,900 3,420,500