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Felicia Walton

Accounting 2410

October 15, 2017

Financial Analysis Project Rite Aid Corporation

I have been hired to perform a financial analysis on Rite Aid Corporation to determine if they are
a wise investment. The attached report goes over the following areas, Liquidity, Efficiency, Solvency,
Profitability, and Investment potential. The information included in this report is based on historical
data from previous years financial statements.

Rite Aid Corporation is a publicly traded company in the Drug Store Industry. Companies in the
industry sell prescription drugs, over-the-counter medications, health and beauty products, and general
merchandise from physical retail locations. Rite Aid is the third largest retail drugstore chain in the
United States based on both revenues and number of stores. They have been in business since 1968 and
are incorporated in Delaware. Their major competitors in this industry include Walgreen Co. and CVS
Health. Growth Drivers include the aging population and increased health awareness. The U.S. drug
store industry includes about 43,000 establishments with combined annual revenue of about 265 billion.
Section 1. Liquidity

Liquidity ratios measure a companys ability to meet its maturing short term obligations. In other words,
how quickly can a company quickly convert its assets to cash without a loss if necessary to meet its short
term obligations.

Current Ratio

Current Assets/Current Liabilities

This ratio reflects the number of times short-term assets cover short-term liabilities and is a pretty good
indicator of a companys ability to service its current obligation. A higher number indicates a stronger
ability to service short term obligations.

Rite Aid Corporations Current Ratio is 1.69, while the industry average for a large company is 2.06. This
indicates a higher amount of current debt which could be a cause for concern.

Cash Ratio

Cash + Cash Equivalents/Total Current Liabilites

The cash ratio measures a companys ability to quickly come up with cash in an unforeseen event.

Rite Aid Corporations cash ratio is .08. This ratio is not used often as many companies do not keep large
amounts of cash on hand.

Acid-Test Ratio

Cash + Short-term-investments + Net Current Receivables/Total Current Liabilities

This ratio, also known as the Quick Ratio measures immediate liquidity. This ratio is more reliable
variation of the Current Ratio because inventory, prepaid expenses, and other less liquid current assets
are removed from the calculation.
Rite Aid Corporations Acid-test Ratio is .67, while the Industry average is much higher at 1.12. An Acid-
test Ratio below 1 means the companys current liabilities are higher than the assets that could quickly
be converted to cash. This should be a red flag as they would not be able to pay if all their current
liabilities were called at once.

Section 2 Efficiency

Efficiency refers to a companys efficiency in allocating resources.

Inventory Turnover Ratio

Cost of goods sold/Average merchandise inventory

The inventory turnover ratio calculates the number of times per period a business sells and replaces its
inventory. Rite Aid Corporations Inventory Turnover Ratio is 9.06 which is close to the Industry average
of 8.79.

Days sales in Inventory Ratio

365 days/Inventory Turnover

The days sales in inventory ratio, which is also known as days in inventory. Measures the number of days
it will take a company to sell all its inventory. In other words, it shows how many days a companys
current stock of inventory will last.

Rite Aid Corporations days sales in inventory ratio is 40.29

Gross Profit Percentage Ratio

Gross profit/Net sales revenue


Rite Aid Corporations gross profit percentage ratio is 23.67 which is in line with the industry average of
23.4

Section 3 Solvency

Solvency is the degree to which the current assets exceed the current liabilities exceed the current
liabilities. Solvency can also be described as the ability of a company to meet its long term fixed
expenses and to accomplish long-term expansion and growth.

Debt Ratio

Total liabilities/Total assets

The debt ratio indicates the percentage of a companys assets that are acquired by debt. Rite Aid
Corporations debt ratio is .95 which means their debt is nearly equal to their total assets. This is also a
red flag.

Times-interest-earned ratio

Net Income + Income Tax + Interest Expense

The times-interest earned ratio is an indicator of a companys ability to pay off its interest expense with
available earnings. Rite Aid Corporations Times-Interest Earned Ratio is 1.11 which means they could
have a hard time making their interest payments.

Section 4 Profitability

Profit Margin Ratio

Net Income/Net Sales


The profit margin ratio, also called the return on sales ratio or gross profit ratio, is a profitability ratio
that measures the amount of net income earned with each dollar of sales generated by comparing the
net income and net sales of a company.

Rite Aid Corporations profit margin ratio is .0001 which means nearly all their income went towards
expenses or debt. This is a very bad sign.

Earnings per share

Net Income-Preferred Dividends

Earnings per share is the monetary value of earnings per outstanding share of common stock for a
company. Rite Aid Corporations earnings per share is .004.

Section 5 Investment Potential

Dividend yield

Annual dividend per share/Market price per share

Rite Aid Corporations dividend yield is 0 which does not make this a good investment.
Conclusion

My conclusion is Rite Aid Corporation is not a good company to invest in. It seems to be heavily
burdened with debt and any unexpected occurrence could push it into bankruptcy.
Financial Statement Analysis Assignment Reflection

The purpose of this assignment was to pick a company and perform a financial analysis

on them to see if they would be a good investment. This assignment taught me how to read

financial statements, and analyze and compare the data I had.

This assignment required me to use critical thinking skills and made me understand a lot

more about financial statements. It also taught me how to put them together to present to

potential clients or bosses. This is very relevant to my career as I am already working in the

account field and hope to move my way up.

I really enjoyed this assignment, its a great feeling when all of the stuff I have been

learning finally makes sense when I use it in a real world scenario.