Case Study Discussion: Walgreen Co. Essay

Please discuss the followingReview the Balance sheet of the latest Walgreen Co. 10k Filing. Select two of the following questions to review/discuss1. Which circulating(prenominal) assets are the most significant?2. Which non- electric incumbent assets are the most significant?3. Asset the level of debt and risk that Walgreen has by looking only at the balance sheet. 4. value 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 then(prenominal) 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 take 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 tear down 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 in make love.6.Compute the current ratio and debt ratio for the past two years. underway Ratio =Current Assets Current LiabilitiesDebt Ratio =Total Liabilities Total Assets20112010Current Assets$12,322.00$11,922.00Current Liabilities$8,083.00$7,433.00Current Ratio1.521.6020112010Total Liabilities$12,607.00$11,875.00Total Assets$27,454.00$26,275.00Debt Ratio45.9%45.2%Current Ratio measures a smart sets ability to fee current liabilities as they s et about due. It is a measure of short-term liquidity, an indicator of how easily a company can pay amounts due for the next 12 months. A current confine greater than 1.0 is considered healthy as it indicates a company can meet all its upcoming expense for the next twelve months. With a debt ratio of 1.52, Walgreen appears truly health. Of concern, is the decrease from a2010 debt ratio of 1.60. Further investigation is warranted. If this trend continues it could indicate mismanagement of company assets. A look at the notes gives a clue into the causation for the decline. Note 4, Notes to Consolidated Financial Statements, state in 2011 Walgreen completed several acquisitions. Through the acquisitions, Walgreen assumed additional debt. The increase in liabilities explains the decrease in current ratio. With this in mind, current ratio is within acceptable limits.Debt Ratio indicates the percentage of the company financed by debt. It measures solvency, an indicator of a companys ab ility to pay back long term debt when due. A low debt ratio indicates less financial risk and strong solvency. Debt ratios greater than 100% indicate a company has too much debt and will have trouble paying back principal with interest. Walgreens debt ratio for 2011 is 45.9%, up 0.7% from 2010. Considering the increase in assets and liabilities from the acquisitions Walgreen completed in 2011, a 0.7% increase in debt ratio is acceptable. A debt ratio of 45.9% indicates Walgreen is solvent and should have no issues paying back long term debt as payments come due.ReferencesSchoenebeck, 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.