Assignment
REQUIRED: WRITTEN PROJECT
Obtain the most recent annual report for two companies that operate in similar industries. The reports should contain at least three years of income statement data and two years of balance sheet data. CVS- 2015, 2016 annual report
1. Analyze at least three items on the income statement for your base company that would be important to an investor, and discuss whether your company's performance related to these items appeared to be improving, deteriorating, or remaining stable. Justify your answer.
2. Analyze at least three items on the balance sheet for your base company that would be important to an investor, and discuss whether your company's performance related to these items appeared to be improving, deteriorating, or remaining stable. Justify your answer.
The financial statements are critical in comparing the operations of different companies and determine which is operating more competitively. Viewing a company'sincome statement and balance sheet can help investorshaving a better idea of the company's overall position.
Income statement
Net revenues
The company's net revenues are improving over time that indicate the company is growing. According to the CVS income statement, the company reported net revenuesincreased $13.9 billion in 2015 compared to 2014 and net revenues increased $24.2 billion in 2016 compared to the prior year. During 2016, net revenues in CVS Pharmacy Services Segment increased 19.5% and net revenues in Retail Segment increased 12.6% compared to the prior year. These significant increases which benefited from the 2015 acquisitions of Omnicare and the pharmacies and clinics of Target. Moreover, the successful CVS Caremark® PBM selling season of 2015 led to growth in their membership base and claims in 2016.
Gross profit
CVS' gross profit increased $2.3 billion in 2016, to $28.9 billion, as compared to $26.5 billion in 2015. Gross profit increased $1.2 billion in 2015, to $26.5 billion, as compared to $25.4 billion in 2014. During 2015, the company increase gross profit by retaining existing clients, obtaining new business and maintaining or improving the rebates and/or discounts. Furthermore, in 2016, CVS increase gross profit by less cost of revenues. Cost of revenues includes: the cost of pharmaceuticals dispensed, either directly through our mail service and specialty retail pharmacies or indirectly through our pharmacy network; shipping and handling costs and the operating costs of mail service dispensing pharmacies, customer service operations and related information technology support.The company states that their gross profit will continue to benefit from the increased utilization of generic drugs.
Operating expenses
Based on CVS income statement, operating expensesincreased $1.4 billion in 2016 compared the prior year but the operating expenses as a percent of net revenues declined to 10.4% in 2016 compared to 11.1% in the prior year. The increase in operating expense was due to the acquisition of the Target pharmacy and clinic businesses in December 2015, the Omnicare acquisition in August 2015 and incremental store operating costs associated with a higher store count, partially offset by lower legal settlement costs in the year end 2016. The improvement in operating expenses as a percentage of net revenues in 2016 was due to expense leverage from net revenue growth (CVS, 2016).