CVSHealth Financial Analysis
We have the horizontal and vertical analyses (from 2011 to 2014) ofCVS Health in our hands. These analyses showed the year-by-yearcomparison of the key financial figures from CVS Health’s IncomeStatement and Balance Sheet. This paper will talk about CVS’vertical and horizontal analysis along with the analysis of itsliquidity ratios.
CVS’ salesrevenues grew by 13.02%, 2.86% and 9.05% from 2011 to 2012, from 2012to 2013 and from 2013 to 2012 consecutively. This growth can beattributed to the increased sales volumes of the company. From 2011to 2014, the demand for prescription drugs among the elderly peopleincreased significantly. In addition, CVS introduced some specialtydrugs during this period that sold well in the market and the recentreforms in the healthcare sector were in the favor of CVS. All thesefactors resulted in the boost in CVS’ sales.
Now, if we look at CVS’ Balance sheets, we can see that thecompany’s current assets increased by $7390 million from 2011 to2014, which shows the company’s growing financial stability. At thesame time, CVS’ total assets increased by $9710 million. Theincrease in CVS’ current and fixed assets in these 4 years is themain reason behind this growth. Nevertheless, the company’s totalcurrent liabilities and long-term debts also increased from 2011 to2014. During this period, the company’s total liabilities rose by$9830 million. However, from 2011 to 2014, CVS’ total shareholders’dropped slightly. This is because the company bought back some of itscommon stocks during this period. The 2011-2014 balance sheets of thecompany also prove the fact that CVS mostly relies on EquityFinancing. This is a good sign for CVS and it signals the company’sincreasing financial stability and strength.
In 2012, CVS’COGS accounted for 83% of its sales revenues. But, CVS managed tokeep these costs down to 81% in 2013 and 2014. From 2011 to 2014,CVS’ interest expenses increased by $23 million due to a slightincrease in the company’s short and long-term debts. However, thecompany’s Net Income also grew during this period and this ismostly because of CVS’ rising sales revenues and decreasing COGS.In the 2012-2014 period, the company’s interest expense remainedsteady (0.4% of Sales). Same thing can be said about its net income,which accounted for around 3.2% the whole time.
About 30% ofCVS’ total assets was current assets in 2012 and they made upalmost 35% of its total assets in 2014. Around 43% of CVS’s totalassets was contributed by its total liabilities in 2012 and thispercentage rose to 49% in 2014. This shows the company’s growingreliance on debt-financing. On the other hand, the contribution ofCVS’ total shareholders’ equity to its total assets decreasedfrom 57% to 51% between 2012 and 2014. The reason behind thecompany’s declining shareholders’ equity was discussed above.
Next, we have theliquidity ratios of the company. In 2012, CVS’ current ratio was1.44, which was significantly higher compared to its key competitorsin the industry (1.23 for Walgreens Boots Alliance Inc. and 1.09 forMcKesson Corp.). In 2013, CVS’ current ratio increased to 1.64 andthen dropped to 1.37 in 2014. Compared to CVS, both Walgreens BootsAlliance Inc. and McKesson Corp.’s current ratio increasedgradually during this period and in 2014, Walgreens’ current ratio(1.38) was slightly higher than that of CVS. From the ratio analysis,the same trend can be seen in the quick ratios of all three of thesecompanies during this period. Both McKesson and Walgreens’ workingcapital turnover was higher than CVS in these 3 years. But, whileCVS’ working capital increased slightly during this period, theother two companies’ working capital went in the opposite direction("CVS Health Corp. (CVS) – Short-Term (Operating) Activity").Finally, we can see a whopping rise (10.8 from 2012 to 2014) in CVS’defensive interval ratio, which signals the noticeable improvement inthe company’s liquidity.
"CVS HealthCorp. (CVS) – Short-Term (Operating) Activity". StockAnalysis on Net- NYSE. N.p., 2016. Web. 31 May 2016.