lity of the companies being analyzed.Debt / Equity RatioThe debt/equity ratio is another ratio that determines the company’s long-term debt-paying ability. This ratio also assists creditors in protecting themselves from insolvency. In terms of numbers, the lower the ratio, the better the company’s debt position. The debt/equity ratio can also be compared with other companies and with industry standards, and can be calculated by dividing the total liabilities by the shareholders’ equity. Debt/Equity Ratio = Total LiabilitiesShareholders’ EquityThe following figure represents the debt/equity ratio for the four companies analyzed. Four consecutive years have been calculated in order to detect a trend within the ratio. Figure 3 - Debt / Equity RatioFor this particular ratio, Walgreens had the best standing, with an average of 0.75. As stated above, the lower the ratio the better the debt position. CVS has been able to improve their position over the last four years while Rite Aid's debt position was the worst performer and showed a dramatic increase in 1999.ProfitabilityProfitability is the company’s ability to generate earnings. Stockholders are very concerned with profitability because they gain their revenues in the form of dividends. Measuring the amount of profit a company makes can also be of use to creditors because it allows them to better judge the ability of the company to repay its debt. Profitability ratios are calculated from values taken from the income statement and the balance sheet. These values should consider all acts of normal operation, excluding discontinued operations, extraordinary items, and cumulative effects of changes in accounting principles. The following ratios will help evaluate the profitability of Walgreens, CVS, Rite Aid, and drugstore.com.Net Profit MarginNet profit margin is a basic measure of return on sales. In other words, this ratio evaluates the m...
