Avista & Rite Aid Financial Statements Spring 2024 - Pre-work

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Washington University in St Louis *

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Economics

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Feb 20, 2024

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Avista Utilities & Rite Aid Financial Statements – Pre-Work 1. How much net income or net loss did Avista Utilities and Rite Aid each make in the most recent year they reported? HINT: be sure to look at the last line of the heading so you are accurate in the numbers you report. Avista made $1 47,334 in net income. Rite Aid made a net loss of -538,478. 2. Review Avista and Rite Aid’s current and quick ratios. Why are these ratios the same as each other for Avista but different for Rite Aid? Explain why this makes sense given the type of companies Avista Utilities and Rite Aid are. The reason the ratios are different because of the types of buisness each company runs. Avista is a company that specializes in utilities, meaning that the cash flow is consistent, which allows the ratios to stay similar. Rite Aid is a retail pharmaceutical company, where inventory turnover is high due to the perishable nature of pharmaceuticals and consumer goods. This means that most of their current assets are tied up in inventory. 3. a) Provide the formula for the debt to equity ratio for Rite Aid. b) Then provide the actual numbers you would use to calculate the debt to equity ratio for the fiscal year ending February 26, 2022. Calculate the ratio and verify it matches the value provided on the ratios tab. c) Then describe what the ratio means. Debt to Equity Ratio = total liabilities / stockholders equity 8,429,970 / 99033 = 85.12 The ratio means that a higher proportion of rite aid’s financing comes from debt, where they borrow money to finance it’s operations.

4. a) Provide the formula for Return on Equity and Net Profit Margin ratios for Avista Utilities. b) Then provide the actual numbers you would use to calculate these two ratios for 2021. Calculate the ratios and verify they match the values provided on the ratios tab. c) Then describe what the ratios mean. ROE = net income / average stockholder equity ROE = 147334 / 2092235 = 0.07 Net Profit Margin ratio = net income / operating revenues * 100 Net Profit Margin ratio = 147334 / 1438936 * 100 = 10.24% The return on equity number means that for every .07 dollars in equity, they generate .07 dollars in net income, this means that the shareholders are profiting from their investment. The net profit margin ratio means that the company retained 10.24% of all operating revenues after all expenses, it suggests that the company is stable and budgets correctly. 5. Review Avistas’ Net Profit Margin ratio across 2019, 2020, and 2021. Describe the trend in the ratio. Using values from the income statement, explain what is causing the trend. In 2019 the net profit margin was 14.62%, then in 2020 it dropped to 9.8% and in 2021 it rebounded to 10.24%. The trend suggests that 2020 was a comparatively bad financial year, however in 2021 they rebounded a small amount. The possible cause of this trend is the COVID-19 Pandemic, where utilities would have been not purchased because of lockdowns, and as lockdowns ended the net profit margin grew in 2021. 6. On each of the income statement and balance sheet tabs, your are provided with each value as a % of revenue. Analyzing these values allows you to look for trends in expenses and compare financial statements across companies. (This is what we did in class when introducing financial statements where we compared a bank to a pharmaceutical company.) Review the %ages of revenue and identify and describe 2 observations about either a trend in expenses or a difference between Avista Utilities and Rite Aid. One difference between the two companies is that Rite Aid has a significant larger amount of expenses and revenue, this is due to the fact that Rite Aid is a larger sized company and serves more customers, requiring more resources. Another difference is that one of Rite Aid expenses is an investment in another drug store chain, Bartell Drugs.

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