ows for comparisons among companies regardless of their size. As a general guideline, a current ratio of a 2.0 or better is a good indicator when measuring the success of a company. In some industries, a current ratio below the 2.0 guideline is appropriate whereas other industries may require a larger ratio. (Gibson 1998) The following figure illustrates the current ratio for the Walgreens, CVS, Rite Aid, and drugstore.com. Figure 2 - Current RatioWhen comparing the retail drugstores, Rite Aid has been able to keep their ratio closer to 2 than any other company. This would indicate that Rite Aid has the best ability to pay short-term liabilities. While the current ratio for Walgreens is less than 2, they have demonstrated a better ability to manage financial assets and would easily meet their short-term debts. This low current ratio validates the point Charles Gibson made. “In general, the shorter the operating cycle, the lower the current ratio. The longer the operating cycle, the higher the current ratio.” (Gibson 1998) From the financial analysis (Appendix A), it is shown that Walgreens had the lowest operating cycle, whereas Rite Aid had the highest. CVS continually has the lowest ratio, ranging from 1.6 to 1.3. The value for drugstore.com is the highest, at 8.5 to 3.5, which reflects the high capitalization of their stock.Long-Term Debt-Paying AbilityThere are two essential ways to determine a company’s long-term debt-paying ability. One is to examine the income statement, and the other is to examine the balance sheet. These two statements hold the key to whether the company has the ability to carry long-term debt. The profitability of the firm as well as the amount of debt in relation to the size of the company is important to consider. A large proportion of debt increases the risk of not being able to meet financial obligations. The following ratios will illustrate the long-term debt-paying abi...
