CVS Health

Financial Analysis

By: Lauren Judy &

Vaneris Fuentes
Overview
● CVS Health Financial Analysis 2018-2021
● Also offering
● CVS Health Corporation (CVS Health) is a provider of
○ Pharmacy benefit management
healthcare and retail pharmacy services.
(PBM) services
● The company offers
○ Disease management services
○ prescription medications
○ Administrative services
○ health care products
○ Medicaid health care
○ beauty products
management services
○ personal care products
○ Prescription drug plans.
○ cosmetics.
Background of CVS
● CVS stands for “Consumer Value Stores”. The first CVS store was founded in 1963 in Lowell, Massachusetts by brothers Stanley
and Sidney Goldstein and partner Ralph Hoagland. By 1964, the chain of health and beauty products grew to 17 stores. A few
years later CVS began opening their first stores with pharmacy departments, opening locations in Warwick and Cumberland,
Rhode Island in 1967. In 1969 CVS was sold to Melville Corporation.

● The company continued to grow and develop more stores. By 1994 CVS launched “Pharmacare”, a pharmacy benefit
management company that provides a wide range of services to employers and insurers.

● After By 1996, CVS Corporation became a standalone company.

● During the 2000s CVS/ pharmacy continued to open more stores. While also launching “Be The First” an organization which
supports comprehensive education, advocacy, tobacco control and healthy behavior programming.
CVS Current Standing
● 2018- 2019 were milestone years for CVS Health. CVS successfully completed a transformational merger with Aetna and took important

steps towards building the integrated healthcare model that brought substantial value to the companies various stakeholders.

● Entering 2020- 2022 CVS Health began administration of COVID-19 vaccines. In partnership with the Centers for Disease Control and

Prevention, the company is one of the first to offer on-site COVID-19 vaccination services for residents of nursing homes and assisted living

facilities across the United States (CVSHealth, 2022).

● However, CVS did begin to struggle with a staff shortage which resulted in increasing hourly minimum wage to 15$ an hour for all hourly

employees, and $16.48 for pharmacy technicians.

Profitability Ratios
● In 2018, the company experienced negative net income,
which is why the return on equity for that year is negative.
Return on equity jumped from a negative percentage in
2018, to a positive 10% in 2019 and then maintained a
● CVS Health Corp. net profit margin ratio improved
every year from 2018-2021. During this time, the steady increase through 2020 and 2021.
world was impacted by the COVID-19 pandemic,
which could be a reason as to why the profit
2018 2019 2020 2021
margin of CVS Health Corp. saw a steady increase.
Profitabili
● In 2018 they experienced a significant financial ty
loss which is why their return on assets Ratios
percentage is -0.30%. From 2019-2021 their
Profit 15.92% 17.41% 18.01% 17.48%
return on assets percentage significantly
Margin
increased, ending up with positive (%)
percentages. Positive percentages indicate that
Return on -0.30% 2.98% 3.11% 3.39%
the company is still growing. This growth can
Assets
also be attributed to the Covid-19 pandemic. (%)

Return on -1.02% 10.39% 10.35% 10.54%

Equity
(%)
Asset Utilization Ratios
● Receivables Turnover measures how well a company is managing their credit as well as collecting debts.
○ CVS Health receivable turnover ratio increased in 2019 and 2020 and went down again in 2021.
■ When a company’s turnover is around 10 it means that the company’s accounts receivable are turning over 10
times per year which indicates that the company on average is collecting its receivables in 36 days.
● Average Collection Period calculates how many days, on average, the company collects their accounts receivable.
○ CVS Health average collection period averaged between 28 - 33 days.
● Inventory Turnover is a measure of the number of times inventory is sold or used in a time period such as a year.
○ CVS Health inventory turnover gradually increased throughout the 4 years. A good inventory turnover is between 5-10
which means that that could be an area of improvement for the company.

Financial 2018 2019 2020 2021

Ratios

Receivables 11.04x 13.08x 12.36x 11.95x

Turnover

Average 33 days 28 days 30 days 31 days

Col. Period

Inventory 10.3x 12.4x 12.2x 13.2x

Turnover
Asset Utilization Ratios
● The Fixed Asset turnover ratio reveals how efficient a company is at generating sales from its existing fixed assets. A higher
ratio implies that management is using its fixed assets more effectively.
○ CVS had a high fixed asset turnover in 2018 with 17.98 and then went down in 2019 and 2020.
● Total Asset turnover ratio measures the value of a company’s total sales or revenue relative to the value of its assets. The ratio
helps investors understand how effectively companies are using their assets to generate sales.
○ There is a decrease between the years 2018-2020 but a slight increase between 2020-2021. However, there is consistency
over the 4 years

Financial 2018 2019 2020 2021

Ratios

Fixed Assets 17.98x 11.60x 8.11x 8.94x

Turnover

Total Assets 1.33x 1.23x 1.19x 1.26x

Turnover
Liquidity Ratios
● The Current Ratio is a liquidity ratio that measures a company's ability to pay short-term obligations or those due
within one year. This ratio is calculated as current assets divided by current liabilities.
○ CVS had a decent current ratio in 2018 but it kept decreasing throughout the years 2019-2021.
■ A current ratio below 1 means that the company doesn’t have enough liquid assets to cover its
short-term liabilities.
● The Quick Ratio is an indicator of a company’s short-term liquidity. This ratio measures a company’s ability to meet
its short-term obligations with its most liquid assets.
○ CVS Health quick ratios throughout the years are lower than 1 which means that it doesn’t have enough
quick assets to meet all its short-term obligations.

Financial 2018 2019 2020 2021

Ratios

Current Ratio 1.03 0.94 0.91 0.88

Quick Ratio 0.55 0.52 0.53 0.55

Debt Utilization Ratio
● The percentage of debt to total assets shows how a company’s assets are financed by debt.
○ When dividing the total assets by total debt, CVS Health ranges between 32% - 40%.
■ This is a good range because it shows minimal risk, potential longevity and strong financial health for the
company.
● Times interest earned takes the income for taxes and interest and divides it by interest.
○ CVS had a steady increase going from 4.15 to 6.05.
■ When an organization has a times interest earned ratio greater than 2.5 it is considered an acceptable risk for
investors. CVS Health. numbers show that the company can afford to pay its interest payments on time.

Financial 2018 2019 2020 2021

Ratios

Debt to total 37.4% 40.0% 36.9% 32.6%

assets (%)

Times interest 4.15 4.21 4.85 6.05

earned (times)
Retirement/ Benefits
The company offers a 401(k) plan that matches 100% of the first 5% of an employee's
contribution toward their retirement savings as well as a sizeable company contribution at each
pay period to a Health Savings Account to offset out-of-pocket healthcare expenses.

CVS offers paid holidays, vacation, sick time, and four weeks of paid parental leave for parents
after one year of service.

Immediate 30% off CVS Pharmacy store brands; 20% off other non-sale items in store and
online.
Improvements/ Recommendations
● For improvements CVS Health should definitely look into their
liquidity ratios. Liabilities play a big role when it comes to both
liquidity ratios so CVS should focus on lowering and paying off
their debt in order to improve both ratios.
● This graph shows how much debt CVS had throughout the years
and how much it currently has, red being their debt, blue being
equity, and we can see that through the years, starting in 2018
until 2020-2021 CVS had a large amount of debt which can be a
factor as to why the liquidity ratios were that low, but we can
also see an improvement in more recent years which is good not
only for the liquidity ratios but for the company in general.
● CVS should improve their investment turnover ratio since the
industry average is between 5 and 10 and they had a 13.2 in
2021. Simply Wall St. “Does CVS Health (NYSE:CVS) Have A Healthy Balance Sheet?” Simply Wall St
News, Simply Wall St, 14 Nov. 2022,
simplywall.st/stocks/us/healthcare/nyse-cvs/cvs-health/news/does-cvs-health-nysecvs-have-a-healthy-
balance-sheet-2.
 Source Cited
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CVS,-Prices&text=CVS Health free cash flow for the twelve months ending,a 29.23% increase from 2019.

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www.investopedia.com/terms/i/inventoryturnover.asp.

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