Financial Management I
Assignment 1
Assignment 1: Annual Report Analysis
Instructions
You are the CFO of a family owned beauty care manufacturing firm and are looking to partner with a large
drug retailer to be the exclusive retailer of your product line. Your CEO has narrowed the field down to two
retailers and is requesting your analysis and guidance. She has asked you to do a financial review of
recent results from CVS Health Corp (NYSE: CVS) and Rite Aid Corp (NYSE: RAD). The results are
attached separately on an excel sheet.
NEED: Executive Memo of the analysis
Financial Management I
Assignment 1
Executive Memo
Present a synopsis of the analysis (from the excel sheet) in an executive memo you would feel comfortable
turning in to your CEO or to Jack. You may organize the memo as you see fit, but it must follow the
principles of good business communication.
For your executive memo, answer the following questions:
1. Profitability/Net Income Margins
• What are the after-tax net income margins (i.e., net profit margins) for both companies?
• How do they compare?
• Who achieves the higher net income margin? Why?
Tip: Analyze the major cost structure line items in the income statement (COGS, SG&A,
interest, other, and taxes) as percentages of net sales, so you can identify reasons for better
net income margins. Identify and comment on the differences. You may not know why a
particular cost item like COGS is higher or lower, and that’s okay. Your CEO only wants to
know which cost-structure items are higher or lower for each company.
2. Inventory Management
• Who does a better job managing their inventory (Inventory Days on Hand ratio)?
• What are their respective 3-year trends for Inventory DOH?
• What options could the company consider to improve inventory management?
3. Cash Is King
• How much net cash from operations did each company generate last year?
• Which company has done a better job generating cash from operations?
• In layman’s terms, how is each company spending their cash with respect to reinvestments in
the business, changes in debt, and returning money to shareholders?
4. Liquidity
• How do the companies compare in terms of the current ratio, and what are their respective 3-
year trends?
• Do their current ratios indicate that either of these companies could go bankrupt soon?
Explain.
Financial Management I
Assignment 1
Submission Requirements
• Your executive memo should be no more than 2 pages, single-spaced, using 10- or 12-point font. You
may also include an appendix with additional references, graphs, charts, and tables for additional
support if needed.
• Your PowerPoint deck must not exceed 5 slides (not including cover page or references, if desired).