Walgreen's Footnote analysis

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Footnote Analysis Walgreen’s Co. It is crucial when performing an analysis of financial statements to consider the footnotes to recognize the details of a company which are not stated in the basic 10K annual report. These details can be used to re-compute data and reveal information which is not directly stated in the statements. After analyzing the notes for Walgreen’s (WAG) management presents the company in a generally conservative manner allowed by GAAP but has certain aspects which portray some aggressive reporting of information. Walgreen’s operates their inventory on a last- in, first- out method to measure their inventory and costs of goods sold. This is a conservative accounting choice for management during the current period of rising prices. Even though we are not experiencing as drastic of price increases as in the past because of the economic environment, LIFO will portray a more conservative gross income and balance sheet. It is also beneficial for tax purposes because of the increase of cost of goods sold. As a result of the increase of cost of goods sold, income before taxes declines and Walgreen’s pays less income tax than if they were to use the first-in, first-out method. Traditionally, companies using LIFO are valued more highly than those who use FIFO during periods of rising prices. Walgreen’s also offers analysts the LIFO Reserve, which is the difference between what the inventory is using LIFO as opposed to if FIFO was used. As of 2007 and 2008, Walgreen’s inventories would have been greater by $1,067 million $969 million respectively using a FIFO accounting method. Walgreen’s primary competitor, CVS, uses a combination of three inventory methods for each of their different business segments. They implement FIFO for their CVS/Pharmacy locations, average cost for their mail services and specialty pharmacies, and are
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