Financial Statement Review-Walgreens

Posted: October 17th, 2013

Financial Statement Review-Walgreens

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Financial Statement Review-Walgreens

Introduction

Walgreens is the largest drug chain store in America and one of the largest in the world. The company employs over 240,000 workers in all its American stores. For the past 37 years, Walgreens has registered record sales in all its retail outlets. The company has also collaborated or acquired other drugstore chains such as drugstore.com hence creating wider customer coverage and greater sales. The company’s financial performance The Company’s financial results for the 2010/2011 and the 2011/2012 fiscal year show significant increases in major financial variables.

Comparison and Financial Trends

The total revenue for the 2011/12 fiscal year amounted to $ 71.633 billion this was less than the total revenues earned in the previous year. The FY 2010/11 registered total revenue of $ 72.184 billion. The Total revenue was thus $ 551 million less than that of the previous year. The company therefore posted a 0.8% reduction in revenue during the year. This represented a significant fall in the earnings of the financial year. The cost of goods sold during FY 2010/11 was $ 51.689 billion while that of the proceeding year was $ 51.291 billion. This represented a 0.7% change in the direct cost of goods sold during that particular year. Like the Total revenue, the cost of goods sold showed a decline compared to the previous year.

The accounts receivables of the company for the year ended August 31, 2011 were $ 2. 497 billion while those of August 31, 2012 were $ 2.167 billion. This represented a difference of $ 330 million compared to the previous year. This difference represented a 13% decline in the money owed to the company. There was also the same trend in the inventory although in this section there was a larger percentage reduction. The inventory levels of the company in FY 2010/11 were $ 8.044 billion while that of the subsequent year was $ 7.036 billion. There was thus a reduction in inventory of $ 1.008 billion compared to the previous year. This constituted a 12% change in inventory. The amount of goods the company was holding for resale had posted a significant reduction. There was also a major reduction in the value of the account payables of the company. According to the balance sheet for the FY 2010/11 the accounts payable as per August 31, 2011 amounted to $ 4.81 billion. Accounts payable for FY 2011/12 amounted to $ 4.384 billion. There was thus a reduction in the values by 8%. This shows that moneys owed by the company to other individuals had reduced considerably.

Analysis and Review

The changes in total revenue and the cost of goods sold during the two years posted decimal changes. The receivables, payables and inventory however registered relatively greater percentage reductions. The 0.8% and 0.7% change in revenues and COGS represented a small change compared to the 13%, 12% and 8% in receivables, inventory and payables respectively. The change in actual revenue amounts for the two years shows that the total amount had reduced albeit by a small margin. Several factors might have contributed to the decline in revenue. There was a significant reduction in purchases during that fiscal year. One reason that might explain this is the company abandonment of the express scripts network early in the beginning of FY 2011/12. This move meant that customers who were previously loyal to Walgreen through express scripts were lost. This loss of customers led to a reduction in goods sold during the year compared to the previous year.

The decline in Cost of Goods sold might have resulted from the dispute between Walgreen and Express scripts (Brown 2012). The loss of customers may have prompted the company to reduce production of goods during the year due to the declining demand. The low production level meant that the amount of goods available for sale was much lower than if there was enough demand. The decline in customers can also explain the fall in receivables. When the company is experiencing a dip, in general sales of goods and services the number of people who owe the company reduce. In most cases, potential debtors are usually company customers, distributors and clients. When distributors and customers shift their allegiance to other drugstores the amount of debts owed to the company reduce.

The inventory levels and payables also declined in FY 2011/12 due to the same reasons. When the relationship with Express Scripts faced difficulties, the production levels in the company reduced due to the anticipated reduction in demand. A decline in production meant that the amount of goods available for sale also reduced. This caused a decline in inventory levels. While FY 2010/11 was a productive year with boom sales, the subsequent year faced a shock decline. Due to this shock decline and the subsequent reduction in production, the company had to cut down on its credit transactions. Purchasing of products on credit was not necessary since the company had to cut down on its production spending. The dispute with Express scripts was therefore a major factor in the decline in profits during the year.

The relationship between inventories, payables and cost of goods sold, accounts receivable and revenues is very important in the management of organizational finances. The knowledge of their interplay enables managers to make useful financial decisions. For instance, the knowledge that a change in inventory and causes changes in both payables and cost of goods sold expenses is important in the case of Walgreens.

References

Brown, A. (2012, Oct 28). Sickly Walgreen gets another Dose of Lower Profits. Forbes. Retrieved from http://www.forbes.com/sites/abrambrown/2012/09/28/sickly-walgreen-gets-another-dose-of-lower-profits/

n.p. (2012). Walgreen Co (WAG New York). Bloomberg Businessweek. Retrieved from http://investing.businessweek.com/research/stocks/financials/financials.asp?ticker=WAG&dataset=balanceSheet&period=A&currency=native

Walgreens: Annual Reports/Proxies. (2012). Retrieved from http://investor.walgreens.com/annual.cfm