Financial Ratio Analysis and Investment Thesis for CVS Research Paper

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As an investor, discuss which company you would choose to invest in and provide a rationale for your decision. Support your conclusions, why or why not?I would choose to invest in CVS. First, the company is trading a lower multiple to earnings than Walgreen which indicates that the investor is obtaining more value per dollar of earnings relative to Walgreens. This is particularly attractive in a low interest rate environment in which many stocks trade at a historically high P/E multiple. This many also cause some concern for me as even during a bull market, both CVS and Walgreens are trading a relatively low multiples. This could potentially indicate problems with the overall operations for both businesses as the market is may be capitalizing lower future earners for both businesses. CVS has a lower dividend payout ratio relative to Walgreens. This indicates more security for investors as to the ability to pay future dividend. Likewise, the company is able to retain a greater portion of earnings within the business to better position its balance sheet in the form of cash, or to reinvest back into the business. Walgreens however, paid out nearly 3 times its earning in the form of dividends which is unsustainable. It appears the at Walgreens suffered adverse business operations during COVID-19 and thus was reluctant to reduce its dividend as investor could potentially see the decline as a lack of confidence for the future. As such, the company has maintained the dividend, in hopes of a business recovery into the future.

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…(Apple, Costco, Nike, UPS, etc.) can earn high returns as it is very difficult to compete. In the case of Walgreens and CVS, is very difficult, but not impossible to replicate their distribution networks. As a result, both companies can operate at scale with relative low costs. However, they are not a low-cost producer. During COVID-19 we saw consumers shift to Wal-Mart, Costco, and online fulfilment to mitigate the impacts of job loss. As a result, business operations for both Walgreen and CVS suffered. In this instance, I would want to see I the competitive positions of both franchises changed in a material way that would ultimately impact returns and earnings on the business (Bennett, 2006).Appendix – Financial RatiosRatioWalgreensCVSCurrent Ratio0.840.91Return on Assets6.30%4.20%Return on Equity14%14%Debt to Equity Ratio0.600.72Fixed Asset Turnover9.999Dividend Payout….....

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