Question

Compute, Disaggregate, and Interpret Competitors' Rates of Return Selected balance sheet and income statement information for the drug retailers CVS Health Corporation and Walgreen Co, follows. Assume tax rate of 35%. ($ millions) CVS Health Walgreen Sales revenue-2014 $139,367 $76,392 Interest expense-2014 600 156 Net income-2014 4,644 2,031 Total assets-2014 74,252 37,182 Total assets-2013 71,526 35,481 Stockholders' equity-2014 37,963 20,561 Stockholders' equity-2013 37,938 19,454 a. Compute the 2014 return on assets (ROA) for each company. (Round your answers to one decimal place.) CVS Health Walgreen ROA

Answer 1

a)	Average Assets = (beginning Assets + ending Assets)/2
		CVS Health	Walgreen
		= ( $71526+74252)/2	= ( $35481+37182)/2
		= $ 72889	= $ 36331.5
	Return On Assets = Net Income / Average Assets
		CVS Health	Walgreen
		= $4644/72889	= $2031/36331.5
		=6.4 %	=5.6 %
b)	Profit Margin = Net Income / Sales
		CVS Health	Walgreen
		= $4644/139367	= $2031/76392
		=3.3 %	=2.7 %
	Assets Turnover Ratio = Sales / average Assets
		CVS Health	Walgreen
		= $139367/72889	= $76392/36331.5
		=1.9 times	=2.1 times
c)
	Average Stockholders Equity = (beginning Stockholders Equity + ending Stockholders Equity)/2
		CVS Health	Walgreen
		= ( $37938+37963)/2	= ( $19454+20561)/2
		= $ 37950.5	= $ 20007.5
	Return On Stockholders Equity = Net Income / Average Stockholders Equity
		CVS Health	Walgreen
		= $4644/37950.5	= $2031/20007.5
		12.2%	10.2%
	ROFL = Return on equity - return on assets
		CVS Health	Walgreen
		=12.2% - 6.4%	=10.2% -5.6%
		=5.8%	=4.6%
	Let me know the wrong answer. Please upvote.