CVS

Posted: August 27th, 2021

CVS

Name

Institutional Affiliation

CVS

Part A

Question 1

1. The three major business forms include sole proprietorship, partnership and corporation. Their differences include;
2. Sole Proprietorship is a kind of business organization owned and run by a single person, where there does not exist any legal distinction between the owner and business. Therefore, the owner is the only decision-maker in a sole proprietorship, implying that the decision-making process is fast.
3. A partnership is a kind of business organization established such that there is a legal arrangement between two or more individuals to manage daily business operations. Therefore, the involved partners share profits and also shoulder liabilities arising from the business on a pro-rata basis.
4. A corporationis a large, legal business entity that is separate from its owners which make profits, get taxed, and can be held legally liable. A corporation might entail a group of companies. Thus, it offers protection against the personal liability of its owners or shareholders.
5. The income statement is closely associated with the goals of profitability because it indicates the earnings from a business. However, the statement of cash flows is readily attached to the objectives of liquidity since it shows how a business generates cash (in-flows) and how it, in turn, spends the cash (out-flows) over a specified time, either quarterly or annually. Thus, the statement of cash flow is important in determining the solvency of a business.
6. The income statement reports the results of operations over some time because it intends to show to the stakeholders how a profitable business has been performing in terms of its revenues and expenses, rather than displaying the net income. On the other hand, a balance sheet is reported at a specific date because it intends to show the financial position of a business’s assets, capital, and liability. Thus, a balance sheet is better is giving a snapshot of a business net worth.

Question 2: Using the Attached Annual Report for CVS for 2019

1. In Part IV of the Exhibits and Financial Schedule, there is Reconciliation on Adjusted Earnings per Share (Unaudited) that discusses the financial condition of CVS concerning the company’s performance and trends from 2015 to 2019. The main discussed items are Income (loss) from continued operations, the Amortization of intangible assets, Income tax benefits, weighted average diluted shares outstanding, and Adjusted EPS.  For example, the income (loss) from continued operations under GAAP measures has fluctuated throughout 2019 with a figure of $5,230 in 2015 and $6,631 in 2019. However, the adjusted EPS has increased from $5.16 in 2015 to $7.08 in 2019. Hence, these items are critical in explaining CVS’s financial conditions.
2. The financial statements of CVS are headed by “Consolidated,” implying that they are aggregate reporting results for CVS separate legal entities. Thus, in the section of the overview of Business, CVS Health Corporation has numerous subsidiaries like 9,900 retail locations and 1,100 walk-in medical clinics.
3. In 2019, the customers owed the company $19,617 with its listing as accounts receivable in the consolidated balance sheet, whereas the company owed suppliers $10,492 as accounts payable in the same consolidated balance sheet as of 31^st December 2019.
4. Current assets are assets that can be converted to cash within a year. Like the amount of $50,302 as of 31^st December 2019. Non-current assets are regarded as long-term as their full value cannot be realized until at least a year elapses. Hence, they include long-term investments at $17,314 and land and property at $12,044 from the consolidated balance sheet.
5. CVS Inc. uses both a classified and comparative form of presenting income statements as an evident listing of subtotals of each item and a clear comparison of the figures obtained from 2017 to 2019.
6. The accounts receivable is reported at a net amount. It thus means that the net amount is the total sum owed to CVS Inc. by its customers minus the sum owed that would likely gounpaid. For example, the net receivables from healthcare insurance are $19,617 out of the total accounts receivable of $21,447, which is inclusive of insurance liabilities worth $1,830. Thus, accounts receivable is an anticipated payment for services or goods offered.
7. Cash equivalent is security meant for short-term investment because it has high credit quality and liquidity. CVS Inc. has bank accounts and marketable securities and that is why it recorded cash receipts of $248,293 and investment income of $955 respectively in the 2019 consolidated statement of cash flows.
8. Accrued expenses are recognized expenses without being paid worth $12,133 for CVS Inc. 2019.
9. CVS Inc. Stockholders’ equity section indicates two types of stock which are common option activity and treasury shares. While common option activity and stock awards are issued, the treasury shares are retained for CVS Inc. as means of raising funds in the future.
10. CVS Inc. uses an indirect method for preparing the consolidated statement of cash flows since it uses net income (loss)and further makes adjustments for all transactions of non-cash items like the case of foreign currency translation adjustment of $162 in 2019.
11. The cash flow statement shows operating activities, implying that CVS Inc. conducts daily business activities such as offering health insurance services. The total cash outflows for 2019 are worth $236,500. They are listed as follows:
12. Cash paid for inventory and prescriptions dispensed by the retail. pharmacy at $149,655
13. Insurance benefits paid at $52,242
14. Cash paid to other suppliers and employees worth $28,932
15. Interest paid at $2,954
16. Income taxes paid at $2,717

Reference

CVS Health. (2019). “Delivering health when, where, and how people need it.” 2019 Annual Report, pp. 1-196.