Case Study: Analyzing Walgreen's Financial Statements
M2D2 Case Study Discussion: Walgreen Co.
Please discuss the following:
Review the Balance sheet of the latest Walgreen Co. 10k Filing. Select two of the following questions to review/discuss:
1. Which current assets are the most significant?
2. Which non-current assets are the most significant?
3. Asset the level of debt and risk that Walgreen has by looking only at the balance sheet.
4. Evaluate the creditworthiness of Walgreen based on the balance sheet
5. Does Walgreen use off-balance sheet financing? Explain your answer.
6. Compute the current ratio and debt ratio for the past two years.
1. Which Walgreen current assets are the most significant?
In 2011, Inventories were the most significant current asset ($8,044 million). The Inventories section of Note 1, Notes to Consolidated Financial Statements, advises Walgreen Co. valued 2011 inventories with the last-in, first-out (LIFO) cost method. Had Walgreen elected to use the first-in, first-out (FIFO) cost basis for the 2011 inventories would have been greater by $1,587 million. GAAP permits companies to select which inventory accounting method they will use to report inventories (LIFO or FIFO). Companies must state the method selected in the financial statement notes. Most companies calculate the value for both methods and select the method with the lower tax liability. For the past couple of decades, costs have risen (inflation). LIFO has been a popular choice as it produces the largest cost of goods sold expense, the greater the expense deduction the lower the taxable income.
6. Compute the current ratio and debt ratio for the past two years.
Current Ratio =
Current Assets Current Liabilities
Debt Ratio =
Total Liabilities Total Assets
2011
2010
Current Assets
$12,322.00
$11,922.00
Current Liabilities
$8,083.00
$7,433.00
Current Ratio
1.52
1.60
2011
2010
Total Liabilities
$12,607.00
$11,875.00
Total Assets
$27,454.00
Please discuss the following:
Review the Balance sheet of the latest Walgreen Co. 10k Filing. Select two of the following questions to review/discuss:
1. Which current assets are the most significant?
2. Which non-current assets are the most significant?
3. Asset the level of debt and risk that Walgreen has by looking only at the balance sheet.
4. Evaluate the creditworthiness of Walgreen based on the balance sheet
5. Does Walgreen use off-balance sheet financing? Explain your answer.
6. Compute the current ratio and debt ratio for the past two years.
1. Which Walgreen current assets are the most significant?
In 2011, Inventories were the most significant current asset ($8,044 million). The Inventories section of Note 1, Notes to Consolidated Financial Statements, advises Walgreen Co. valued 2011 inventories with the last-in, first-out (LIFO) cost method. Had Walgreen elected to use the first-in, first-out (FIFO) cost basis for the 2011 inventories would have been greater by $1,587 million. GAAP permits companies to select which inventory accounting method they will use to report inventories (LIFO or FIFO). Companies must state the method selected in the financial statement notes. Most companies calculate the value for both methods and select the method with the lower tax liability. For the past couple of decades, costs have risen (inflation). LIFO has been a popular choice as it produces the largest cost of goods sold expense, the greater the expense deduction the lower the taxable income.
6. Compute the current ratio and debt ratio for the past two years.
Current Ratio =
Current Assets Current Liabilities
Debt Ratio =
Total Liabilities Total Assets
2011
2010
Current Assets
$12,322.00
$11,922.00
Current Liabilities
$8,083.00
$7,433.00
Current Ratio
1.52
1.60
2011
2010
Total Liabilities
$12,607.00
$11,875.00
Total Assets
$27,454.00
References: Schoenebeck, K. P., & Holtzman, M. P. (2010). Chapter 1 – Balance Sheet. In Interpreting and analyzing financial statements: A project-based appro2ach (pp. 38-39). Boston [u.a.: Prentice Hall. Ormiston, A., & Fraser, L. M. (2013). The Balance Sheet. In Understanding financial statements (10th ed., pp. 56-59). New York, NY: Pearson Education.