Walgreens

Unit 5 Individual Project

Presented in Partial Fulfillment

Of the Requirements for the Class

ACG320- Financial Accounting

By

DeLaura B. Todd

AIU Online

20 September 2006

Walgreens Pharmacy

Historical Highlights

In 1901 Charles R. Walgreen Sr. purchased the Chicago drugstore he had been working in as a pharmacist. In 1916 nine stores incorporated as Walgreen Co. By 1927 the Walgreen Co. stock went public. In 1946 Walgreens acquired its first foreign property when the company bought out a Mexican retailer.

In 1950 Walgreens started self-service instead of clerk service stores in the Midwest and by 1953 was the largest self-service retailer in the country. In 1960 Walgreens went to market in Puerto Rico. In 1975 Walgreens reached $100 million in sales.

Walgreens has been an innovator in many things like child resistant drug containers, the first Intercom computers, next-day photofinishing, and installation of point-of-sales scanning to speed checkouts. Walgreens also offered drive-through pharmacy, and Intercom Plus, an advanced computer system to speed the prescription filling process.

By 1999 Walgreens.com, a comprehensive online pharmacy, began offering customers a convenient and secure way to take care of many pharmaceutical and healthcare needs online. This site also provided Mayo Clinic Health Information, a trusted source on health and wellness information. In 2002 they became the first drugstore chain to offer prescription labels in multiple languages, currently 14 languages. In 2004 large-type prescription instructions was introduced for those with vision impairment.

Now, in 2006, Walgreens new computer system for filling prescriptions, Intercom Plus, links all the stores into a single network via the largest private user of satellite technology (second only to the United States government). Walgreens offers touchtone and online prescription refills, 24-hour stores, flu shots, cash machines, and phone cards as added services to their customers. They also offer pharmacy benefit management, mail service, home care and specialty pharmacy services through its Walgreen Health Services division.

What makes the Walgreen Co. different?

Walgreens' financial success is directly related to its decisions to keep up with technical innovations while reacting quickly to their customers changing needs. The new innovations for this year are "Dial a pharmacist", which offers translation assistance to its customers in 14 languages over the phone, and solar power is to be built into 100 of their stores and two of their distribution centers, to provide 30 to 50% of their energy requirements. There is also the Vision System which allows the company to scan and verify prescriptions from one store to another, and interstate signs to direct drivers to a Walgreens 24-hour pharmacy.

They offer health care beyond the traditional pharmacy. During the hurricanes Katrina and Rita besides offering medical assistance through the pharmacies that were quickly reopened, Walgreens gave $9 million in prescriptions free to assist the displaced victims. They have acquired a company by the name of Senior Med which deals strictly with assisted-living homes, for which Walgreens will be providing all the prescriptions. They are also acquiring small regional infusion (IV's) businesses to expand their health-care coverage.

Walgreens' Company Ratios

August 31, 2005 ( In Millions)

Current Ratio = current assets/ current liabilities

1.9 $8,316.50 $4,481.00

inventory turnover ratio* = cost of goods sold/ average inventory

5.9 $30,413.80 $5,165.65

accounts receivable turnover ratio ** = credit sales/ average accounts receivable

0.28 $55.40 $396.50

debt to equity ratio = total liabilities/ total shareholders' equity

0.64 $5,719.10 $8,889.70

return on assets = net income/ average total assets

0.18 $2,455.60 $13,975.45

return on equity = net income/ average common stockholders' equity

30.66 $2,455.60 $80.10

gross margin percentage = gross profit total sales

0.28 $11,787.80 $42,201.60

*Walgreens use the last-in, first-out (LIFO) method of inventory valuation.

** Credit card and debit card receivables from banks, which settle within two business days, of $55.4 million at August 31, 2005

These Ratios Indicate

"A very high current ratio is good because it means the assets are there to repay the debt, however a very high current ratio may indicate that the company is maintaining higher levels of inventory and receivables than it should." (Horngren et, 2006, pg 555). A short-term investor or an analyst would be interested in the current ratio because it helps the readers of financial statements assess a business entity's liquidity.

In order to relate sales levels to inventory levels sales managers measure inventory turnover. Management and financial analyst like to monitor the firm's ability to control Accounts Receivable. One measure of the ability to control Accounts Receivable is the accounts receivable turnover. This ratio indicates how rapidly collections occur. "Potential creditors often use debt to equity ratios to measure the extent to which the company has used borrowing to finance its activity." (Horngren et, 2006, pg 415). An analyst would use the ROA or return on assets to assess a firm's use of assets independently of how it financed those assets. Many analysts observe the return on equity or ROE ratio