CVS uses the Average Costs inventory method. Note that CVS also has businesses that are not related to retail pharmacy. Using reported data from CVS's financial statements compute Gross profit margin, Return on equity and Inventory turnover if CVS had used the LIFO inventory method. For each ratio, use the methods you deem most appropriate and justify your choice. (To convert Average Costs inventory method to LIFO you need the inflation rate for each year. Assume that the inflation rate of CVS is 7.02%). NOTE: Three ratios need to be computed using the LIFO method in which CVS uses the weighted average cost. The numbers to compute the ratios come from CVS's actual financial statements.
The question is highlighted in bold. Three ratios need to be computed: Gross profit margin. ROE. Inventory turnover. CVS uses the weighted average cost method of inventory. What are the three ratio if CVS had used LIFO inventory method.
2020 2019 2018 2017 Revenue COGS GP 268,706.00 256,776 163,981.00 158,719 104,725.00 98,057.00 7,179 6,634 69,701 64,170 18,496.00 17,516.00 194,579 156,447 38,132.00 (594.00) 196,456.00 16,450.00 NI Stockholder's Equity Inventory 37,695.00 15,296.00 Year's 2020 2019 2018 2017 5 i millions, except per share amounts 6 Revenues: S 190.688 S 185,236 S 183.910 S 180,063 7 Products 8 Premiums 9 Services 10 Net investment income 69,364 7,856 798 63,122 7,407 1,011 8.184 1.825 660 3.558 1.144 21 268,706 256.776 194,579 184,786 163,981 55,679 158,719 52,529 156,447 6,594 6,149 11 Total revenues 12 Operating costs: 13 Cost of products sold 14 Benefit costs 15 Goodwill impairments 16 Operating expenses 17 Total operating costs 18 Operating income 19 Interest expense 20 Loss on early extinguishment of debt 21 Other income 22 Income before income tax provision 23 Income tax provision 24 Income (loss) from continuing operations 25 of tax 26 Net income (loss) 21,368 190.558 4,021 2.619 153.448 2.810 181 18.809 175,248 9,538 1,062 35,135 254,795 13,911 2,907 1,440 -206 9,770 2,569 7.201 33,541 244,789 11,987 3,035 79 -124 8.997 2,366 6,631 -4 1,406 2.002 -596 208 8.268 1,637 6,631 -8 6,623 -9 7,192 6,631 -596 4 December 2020 2019 2018 2017 $ 7,854 S 5,683 S 4,059 $ 1,696 2,373 111 3,000 21,742 18496 13,181 19,617 17516 5,113 2,522 17,631 16,450 4,581 15,296 945 5,277 5 In millions, except per share amounts 6 Assets: 7 Cash and cash equivalents 8 Investments 9 Accounts receivable, net 10 Inventories 11 Other current assets 12 Total current assets 13 Long-term investments 14 Property and equipment, net 15 Operating lease right-of-use assets 6 Goodwill 17 Intangible assets, net 8 Separate accounts assets 19 Other assets 56,369 45,243 31.229 15,732 11,349 10,292 20,812 12,606 20,729 79,552 31,142 4,881 4,624 50,302 17,314 12,044 20.860 79,749 33,121 4,459 4,600 38,451 13,630 78,678 36,524 3,884 5,046 1,529 20 Total assets $ 230,715 $ 222,449 $ 196,456 $ 95,131 B D E G H I J K M N O P Q R S T U V w X $ 11,138 10,492 8,925 $ 8,863 10,355 Liabilities: Accounts payable payable Health care costs payable Policyholders' funds Accrued expenses - Other insurance liabilities liabilities Short-term debt 15,795 7,936 4,270 14,243 $ 13,601 6,879 2,991 12,133 $ 11,365 6,147 2,939 10,711 6,609 1,557 1,937 1,830 1,596 1,638 720 1,276 3,545 5,440 62,017 3,781 53,303 1,265 44,009 30,648 18,926 71,444 Current portion of long-term debt Total current liabilities liabilities Long-term debt Deferred income taxes Separate accounts liabilities liabilities Other long-term liabilities Total liabilities 64,699 7,294 22,181 2,996 18,757 59.207 6,794 4,881 7,007 2,351 161,014 4,459 7,436 2,162 158,279 7,677 3,884 8,119 2,780 137,913 1,611 57,436 3 Shareholders' equity: shares authorized: none issued or 4 outstanding Common stock, par value $0.01: 5 3,200 shares authorized; 1,733 425 shares at December 31, 3 2020 and 2019 7 December 31, 2017 46,513 45,972 45,440 17 -28,178 -28,235 -28,228 -37,765 -31 32,079 45,108 43,556 40,911 102 1.019 -165 3 Capital surplus 3 Retained earnings 3 income 1 equity Noncontrolling interests 3 Total shareholders' equity Total liabilities and shareholders' 4 equity 5 49,640 1,414 69,389 312 37,691 63,864 306 58,225 318 4 69,701 64,170 58,543 37,695 $ 230,715 $ 222,449 $ 196,456 $ 95,131 2020 2019 2018 2017 Revenue COGS GP 268,706.00 256,776 163,981.00 158,719 104,725.00 98,057.00 7,179 6,634 69,701 64,170 18,496.00 17,516.00 194,579 156,447 38,132.00 (594.00) 196,456.00 16,450.00 NI Stockholder's Equity Inventory 37,695.00 15,296.00 Year's 2020 2019 2018 2017 5 i millions, except per share amounts 6 Revenues: S 190.688 S 185,236 S 183.910 S 180,063 7 Products 8 Premiums 9 Services 10 Net investment income 69,364 7,856 798 63,122 7,407 1,011 8.184 1.825 660 3.558 1.144 21 268,706 256.776 194,579 184,786 163,981 55,679 158,719 52,529 156,447 6,594 6,149 11 Total revenues 12 Operating costs: 13 Cost of products sold 14 Benefit costs 15 Goodwill impairments 16 Operating expenses 17 Total operating costs 18 Operating income 19 Interest expense 20 Loss on early extinguishment of debt 21 Other income 22 Income before income tax provision 23 Income tax provision 24 Income (loss) from continuing operations 25 of tax 26 Net income (loss) 21,368 190.558 4,021 2.619 153.448 2.810 181 18.809 175,248 9,538 1,062 35,135 254,795 13,911 2,907 1,440 -206 9,770 2,569 7.201 33,541 244,789 11,987 3,035 79 -124 8.997 2,366 6,631 -4 1,406 2.002 -596 208 8.268 1,637 6,631 -8 6,623 -9 7,192 6,631 -596 4 December 2020 2019 2018 2017 $ 7,854 S 5,683 S 4,059 $ 1,696 2,373 111 3,000 21,742 18496 13,181 19,617 17516 5,113 2,522 17,631 16,450 4,581 15,296 945 5,277 5 In millions, except per share amounts 6 Assets: 7 Cash and cash equivalents 8 Investments 9 Accounts receivable, net 10 Inventories 11 Other current assets 12 Total current assets 13 Long-term investments 14 Property and equipment, net 15 Operating lease right-of-use assets 6 Goodwill 17 Intangible assets, net 8 Separate accounts assets 19 Other assets 56,369 45,243 31.229 15,732 11,349 10,292 20,812 12,606 20,729 79,552 31,142 4,881 4,624 50,302 17,314 12,044 20.860 79,749 33,121 4,459 4,600 38,451 13,630 78,678 36,524 3,884 5,046 1,529 20 Total assets $ 230,715 $ 222,449 $ 196,456 $ 95,131 B D E G H I J K M N O P Q R S T U V w X $ 11,138 10,492 8,925 $ 8,863 10,355 Liabilities: Accounts payable payable Health care costs payable Policyholders' funds Accrued expenses - Other insurance liabilities liabilities Short-term debt 15,795 7,936 4,270 14,243 $ 13,601 6,879 2,991 12,133 $ 11,365 6,147 2,939 10,711 6,609 1,557 1,937 1,830 1,596 1,638 720 1,276 3,545 5,440 62,017 3,781 53,303 1,265 44,009 30,648 18,926 71,444 Current portion of long-term debt Total current liabilities liabilities Long-term debt Deferred income taxes Separate accounts liabilities liabilities Other long-term liabilities Total liabilities 64,699 7,294 22,181 2,996 18,757 59.207 6,794 4,881 7,007 2,351 161,014 4,459 7,436 2,162 158,279 7,677 3,884 8,119 2,780 137,913 1,611 57,436 3 Shareholders' equity: shares authorized: none issued or 4 outstanding Common stock, par value $0.01: 5 3,200 shares authorized; 1,733 425 shares at December 31, 3 2020 and 2019 7 December 31, 2017 46,513 45,972 45,440 17 -28,178 -28,235 -28,228 -37,765 -31 32,079 45,108 43,556 40,911 102 1.019 -165 3 Capital surplus 3 Retained earnings 3 income 1 equity Noncontrolling interests 3 Total shareholders' equity Total liabilities and shareholders' 4 equity 5 49,640 1,414 69,389 312 37,691 63,864 306 58,225 318 4 69,701 64,170 58,543 37,695 $ 230,715 $ 222,449 $ 196,456 $ 95,131
