CVS CAREMARK 1

CVS Caremark

Case Study

Amanda Strimpel

BAM 479- Strategic Management

Professor Deborah Harvel-Jenkins

November 13, 2017

CVS CAREMARK 2

TABLE OF CONTENTS

INTRODUCTION...........4

CASE STATEMENT...........4

VISION STATEMENT...4

MISSION STATEMENT4

MISSION AND VISION STATEMENT EVALUATION..4-6

MILESTONES.6-7

EXTERNAL ASSESMENT...7-10

INTERNAL ASSESMENT..10-13

SWOT ANALYSIS SUMMARY13-14

INDUSTRY ANALYSIS.14-17

COMPETITIVE STRATEGIES...17-19

FINANCIAL ANALYSIS.19

GROWTH RATES...19-21

PROFITABILITY..21

PRICE RATIOS...21-22

FINANICAL STRENGTHS AND WEAKNESSES...22-25

RECOMMENDATION STRATEGY..25-30

MARKKULA CENTER FOR APPLIED ETHICS.......31

STRATEGRY IMPELMENTATION..31-35

CONCLUSION35-36

REFERENCES.37-38

CONSOLIDATED STATEMENTS OF INCOME...APPENDIX A

CVS CAREMARK 3

CONSOLIDATED STATEMENTS OF CASH FLOW....APPENDIX B

BORROWING AND CREDIT AGREEMENTS..APPENDIX C

FIVE YEAR FINANICAL SUMMARY...................APPENDIX D

RATIOS......APPENDIX E
CVS CAREMARK 4

INTRODUCTION

Founded in 2007 through a merger between CVS Pharmacy and Caremark Rx, CVS Health is

the largest company that has operations solely in the United States, operating about 9,750 stores

throughout the country in 2016 (Statista, 2016). CVS Caremark generated approximately 153.3

million U.S. dollars, when it comes to drug store sales in the United States (Statista, 2016).

CASE STATEMENT

CVS Caremark is a national company that has high competition with other companies in the

industry and has the challenge of keeping up with changing consumer expectations.

VISION STATEMENT

We strive to improve the quality of human life. (David, 2013)

MISSION STATEMENT

We provide expert care and innovative solutions in pharmacy and health care that are effective

and easy for our customers. (David, 2013)

MISSION AND VISION STATEMENT EVALUATION

Customers- Yes

Products/Services- Yes

Markets- No

Technology- No

Concern for Survival, Growth, Profitability- No

CVS CAREMARK 5

Philosophy- Yes

Self-Concept- Yes

Concern for Public Image- Yes

Concern for Employees- Yes

By analyzing CVS Caremarks vision and mission statements, it is clear that the company

does not meet all of the components that make up a solid vision and mission statement. The

mission statement discusses what the company does for its customers, and that the customers

needs will be met. The mission statement also discusses what the companys products and

services are, which is expert care for its customers. The overall philosophy of the company is

mentioned in the vision statement that the company wishes to improve the overall quality of

human life for its customers. Self-concept is mentioned in the statement by stating that the

company provides expert care for its valued customers. The concern for public image is included

in the statement. Lastly, the concern for employees is also included in the mission statement and

it is clear to the customers. The mission statement expresses that its employees are valuable

because it discusses that its employees are experts at their jobs.

The vision and mission statements of CVS Caremark does not include a few of the key

components necessary for a good solid statement. The components that were excluded from the

statement are markets, technology, and the concern for survival, growth, and profitability. These

components are necessary when it comes to any companys vision and mission statement. It is

necessary to include a companys market because this lets any potential customers know what

areas this company is located in or an area where the company provides its services. Technology

is another component that is important because it is constantly changing and customers like to
CVS CAREMARK 6

have a convenient and easy experience with a company, which technology can help provide. It

would be convenient for customers to be able to be able to use technology for an easy and quick

experience with the company. Lastly, it is important for a company to include its concern for

survival, growth, and profitability for its future. Customers like to know that they are getting

involved with a strong company. If a company has goals for its future, it would be important to

express these in a way that is viewable to the customers so they are aware of the changes and

improvements that are being made. Overall, CVS Caremarks vision and mission statements

could use some improvement in order to benefit the company and make all of the information

that a customer might be interested in available to them.

MILESTONES

1963- The first CVS store, selling health and beauty products, is founded in Lowell,

Massachusetts by brothers Stanley and Sidney Goldstein and partner Ralph Hoagland.

1967- CVS begins operation of its first stores with pharmacy departments, opening locations in

Warwick and Cumberland, Rhode Island.

1970- CVS operates 100 stores in New England and the Northeast.

1974- CVS achieves $100 million in annual sales.

1985- CVS reaches $1 billion in annual sales.

1999- Caremark launches online prescription refills.

2001- CVS/pharmacy introduces the ExtraCare Card, becoming the first national pharmacy

retailer to launch a loyalty card program.

2012- CVS Caremark announces that it exceeded $100 billion in revenues in 2011.
CVS CAREMARK 7

2016- CVS announces Be the First, a five year, $50 million initiative to help deliver the nations

first tobacco-free generation.

2017- CVS Pharmacy continues to expand access to the opioid overdose-reversal medication

naloxone in more than 40 states as part of the companys multi-faceted approach to combating

the nations growing prescription drug abuse epidemic. CVS Health offers patients lowest cash

price in the market for generic epinephrine auto-injector to treat allergic reactions.

(CVS Caremark, 2017)

These milestones show that CVS Caremark has expanded greatly over the years. The

company has acquired many new perks that help benefit the convenience of the customers. The

company has continued to make more money than it had previously. CVS still continues to help

advance new issues that have been taking place all over the world, such as abusing heroin and

other drugs. Lastly, the company provides an affordable generic drug for people who suffer from

allergic reactions certain things. This helps people who are not able to afford expensive brands to

still be able to get the medications that they are in need of at a lower cost.

EXTERNAL ASSESSMENT

Key Internal Factors Weight Rating Weighted

Score
Opportunities
1. Demand for Generic Drugs Increase 0.10 4 0.40
2. Mail-Order Pharmacies Increase 0.02 2 0.04
3. 24- Hour Telephone Support 0.02 2 0.04
4. Aging Population 0.05 4 0.20
5. Affordable Care Act 0.02 3 0.06
6. Eliminate the Medicare Gap 0.02 3 0.06
7. Prescription Drug and Modernization Act 0.02 3 0.06
8. Offer Clinical Health Services 0.10 4 0.40
9. Sells other Staple Grocery Items 0.05 2 0.10
10. Reduced Costs within Store Services 0.10 2 0.20
Threats
CVS CAREMARK 8

1. Walgreen Company Expanding 0.05 3 0.15

2. High Unemployment Rates 0.05 4 0.20
3. Economic Distress 0.05 4 0.20
4. Health Care Costs Rising 0.05 3 0.15
5. Ability to Seek Medical Care Decreased 0.05 3 0.15
6. Medicaid Participation Close 0.05 2 0.10
7. Many Rivals 0.10 2 0.20
8. Rite Aids Loyalty Program 0.02 1 0.02
9. Walgreens Largest Drugstore 0.05 2 0.10
10. Other Drug Stores Utilize Social Media Sites 0.03 3 0.09
TOTAL 1.00 2.92

When performing an external assessment for a company there are two factors that need to

be examined. Those factors are the companys opportunities and threats. CVS has many

opportunities that could benefit the company for its future and to continue moving forward.

There are three factors that were rated the highest on the opportunities list for CVS Caremark.

These factors are the demand for generic drugs increased, clinical health services being offered

in stores, and reduced costs within store services. These factors are very important to the

company because they could increase the amount of foot traffic that is going into the CVS stores.

Generic drugs accounted for approximately 75 percent of all prescriptions filled in 2009.

Generic drugs yield a higher gross profit margin for drugstores, while being less expensive for

the consumer to purchase (David, 2013). All three of these factors are very important when it

comes to CVS Caremark and other stores in the industry.

The next highest rated opportunity factors are the aging population and that these

companies are selling other staple grocery items. According to the David textbook, People age

65 and older fill more than 24 percent of all prescriptions annually (David, 2013). This is

important because this shows that these individuals are indeed the age group that this company is

targeting for its products. Having stores like CVS Caremark sell other staple products could
CVS CAREMARK 9

increase the number of people entering the stores. If customers just need to pick up a couple of

items they could easily stop at one of these stores. Individuals who are stopping in to pick up

their medications could potentially spend money on other items while they are in the store as

well. This increases the amount of foot traffic in the stores and the amount of money that is being

spent at the stores.

The next opportunity factors are all rated the lowest out of the list. These factors are that

mail-in order prescriptions increased, it offers 24-hour telephone support, the changes in some of

the laws, and eliminating the Medicare gap. Having the mail-in order options could potentially

cause more people to use this company and its products, but could decrease the amount of in

store traffic and amount of extra money that people might be purchasing. The company offers

24-hour telephone support for its customers for answering questions concerning any medications.

Some of the acts that were put into place that benefited this company are the Affordable Care

Act, Prescription Drug and Modernization Act, and eliminating the Medicare gap. These allow

the stores to gain more customers because it provided healthcare for more people. By 2019,

health insurance benefits are projected to be made available to 95 percent of American (David,

2013). Closing the Medicare gap would make more individuals eligible to obtain the medications

that they are in need of. There are many opportunities that this company could benefit from when

it comes to the overall success of the company.

CVS Caremark also has many threats when it comes to being in the medications and

healthcare business. The threat that I rated the highest for this company is that there are many

rivals in the industry. Some of the rivals include, Walgreens, Rite-Aid, and Walmart. Walgreens

is a major threat to the company because it is growing rapidly and expanding, as well as already

being the largest Drugstore in the industry (David, 2013).

CVS CAREMARK 10

The factors that were rated the next highest are include Walgreens expanding, Walgreens

being the largest in the industry as well as many others. High unemployment rates are a large

threat to the company and the industry as a whole because it means that less people are able to

afford the medications and health care that they may need. Health care is also rising making it

even more difficult for everybody. Economic distress can be a large threat as well because gas

prices rise, which makes it more difficult for people to be able to afford the rising cost of

medications and having to go pick up their medications from the store. For any company these is

always going to be opportunities and threats and it is important that a company is aware of them

and comes up with a plan in order to take advantage of the opportunities that it has as well and

try to minimize the number of threats that it faces as well.

The overall score of the external factors is 2.92. This shows that the company is above

average and is adjusting to the external opportunities and threats that it may face. The highest

possible score that a company could possibly receive is a 4.0, and the lowest is 1.0. This shows

that the company is doing very well when it comes to making the needed adjustments, and taking

advantage of any opportunities that is may come in contact with. The company is also making

the appropriate changes that is needs when it comes to the external threats that it may face.

INTERNAL ASSESSMENT

Key Internal Factors Weight Rating Weighted

Score
Strengths
1. Two Different Operating Segments 0.10 4 0.40
2. Sells Multiple Different Products 0.05 4 0.20
3. Increase in Revenues 0.05 4 0.20
4. Provides Flu Vaccinations 0.05 4 0.20
5. Face-to-Face Patient Counseling 0.05 4 0.20
6. Provides Services for Diabetics 0.05 3 0.15
7. Open 24 Hours Per Day as Drive-Thru Window 0.05 3 0.15
CVS CAREMARK 11

8. Continuing to Open in more Locations 0.04 3 0.12

9. CVS Branded Products 0.04 4 0.16
10. ExtraCare Health Cards 0.02 3 0.06
Weaknesses
1. Weak Vision and Mission Statement 0.05 1 0.05
2. Operates Almost Entirely in the United States 0.05 1 0.05
3. Pharmacists Cannot Prescribe Medicine 0.05 2 0.10
4. Pharmacy Service makes Less than Retail 0.05 2 0.10
5. Gross Profit Decreased 0.05 1 0.05
6. Increased Inventory from Year-to-Year 0.05 1 0.05
7. Decreased Stock Options 0.05 2 0.10
8. Walgreens Taking Market Shares from CVS 0.05 1 0.05
9. Firms Market their Products as Being Cheaper 0.05 1 0.05
10. Net Income Decreased 0.05 1 0.05
TOTAL 1.00 2.49

When performing and internal assessment there are two factors that need to be examined.

The two factors are a companys strengths and weaknesses. The most important strength for

CVS Caremark is that it has two different operating segments. The segments are its pharmacy

services and its retail pharmacy. This is a major strength for the company because it can service a

larger number of people with the products and services that it provides for its customers.

The next highest weighted factors are that it sells multiple different products. This is

important because it can attract more people to come to its stores. The company also has had an

increase in revenues. This is important because it shows that the company is doing better each

year. The retail pharmacy service that CVS Caremark provides has increased from 2008 to 2010.

In 2008, the retail pharmacys net revenues were $48,900 million. In 2009, its bet revenues

increased to $55,355 million. Lastly, in 2010, the companys net revenues increased again to

$57,345 million. This shows that the companys retail pharmacy is doing well according to its

numbers. CVS Caremark also provides many services for its customers. It provides Flu
CVS CAREMARK 12

Vaccinations, face-to-face counseling, and services for diabetics in its many locations. The drive-

thru for CVS Caremark is open 24 hours per day which can be beneficial when it comes to the

convenience of customers choosing to use this company for its pharmacy and other staple needs.

The least weighted factors that were included in the internal assessment of CVS

Caremark are that it is continuing to open more locations, it has its own brand of products, and it

gives its customers ExtraCare Health Care cards. CVS Caremark having its own brand of

products gives its customers a cheaper option when it comes to the products that they are in need

of. The card that it provides offers certain discounts and promotions to its customers that could

draw them to going to the store to purchase their goods.

The other factor that is included in an internal assessment is a companys weaknesses. All

of the weaknesses that were included in the list were all weighted the same. The company has a

weaker vision and mission statement than it should have. It would be beneficial for the company

to try to include all components that make up and strong statement into its statement. This could

be beneficial for the customers and the company as well. This would allow the customers to get

all of the basic information that they need by reading and knowing its vision and mission. This

could be beneficial for the company because the more information that is provided about a

company and its available to its current and potential customers and employees. CVS Caremark

mainly operates in the United States. If it was to expand internationally is could raise its numbers

substantially. A weakness of the company is that its pharmacists cannot prescribe medicine. This

is a downfall for the company because people may come in there with questions about

medications and the pharmacists can only give them the facts about them and not actually

prescribe what they think would be best for each individual person (David, 2013). This means

that its customers have to take time and spend money and go to the doctors in order to get a
CVS CAREMARK 13

prescription, even for less serve situations. CVS Caremarks pharmacy makes less than the

companys retail side. The net revenues between the two are significant. In 2010, the pharmacy

side made $47,780 million and the retail side made $57,345 million. The overall gross profit of

the company has decreased from year-to-year and an increase in inventory from year-to-year as

well. This shows that the company has made less money and has kept more of its inventory in its

stores than years previously. There was also a decrease in stock options, and Walgreens is taking

shares from CVS. This is not good for CVS Caremark when it comes to the stock market and

people purchasing its stocks instead of other companies in the industry such as Walgreens.

In the internal assessment the highest score that a company can receive is 4.0 and the

least is 1.0. This companys weighted score is 2.49. This means that the company is just slightly

below the average number of 2.50. This score of 2.49, shows that the company is internally

weak. The company needs to maximize on its strengths and try to minimize its weaknesses in

order to continue to be successful.

SWOT ANALYSIS CONCLUSION

By performing an external assessment and an internal assessment, a companys keys

strengths, weaknesses, opportunities, and threats are able to be identified. The key strengths of

CVS Caremark are that it has two different operating segments, which makes the company attack

many people who have different needs and wants. The company is also very motivated when it

comes to providing its customers with the things that they need or want. These things include

providing the Flu Shot in the store locations, and also providing face-to-face interactions in order

to provide counseling for its valued customers. With any company there are also many

weaknesses that could affect it as well. Some of the weaknesses that affect CVS Caremark are
CVS CAREMARK 14

that is mostly operating in the United States. This limits the number of customers that it could

have. If it were to expand internationally it would be able to obtain many new store locations and

customers as well. Another key weakness is that the companys pharmacy service make

significantly less than its retail pharmacy. These are the key internal factors that affect the overall

performance of the company.

CVS Caremark has many opportunities that could help it grow and be successful. The

key opportunities that is has are the demand for generic drugs increased. This is beneficial for

CVS Caremark because they have their own brand for some medications and this could increase

the sale of their products. The stores also have other opportunities that could help it grow such as

offering clinical health services and reducing the costs for within store services that it provides.

This could be a rather large opportunity for the company to take advantage of and to help it

grow. The company also faces some threats as well. The key major threat that the company faces

is that it has many rivals. This is not good for the company because there are many other

companies within the industry that offer similar products and services. Walgreens is a major

threat when it comes to the drugstore industry. Walgreens is the largest within the industry and it

continues to expand. Other stores within the industry compare their prices to CVSs and say that

theirs are cheaper. This is a major threat when they advertise this because it makes its loyal

customers to switch to other companies within the same industry. Overall, CVS is adjusting

above average at 2.92, when it comes to its external factors, and it is performing slightly below

average when it comes to adjusting to its internal factors at 2.49, which is slightly below average.

INDUSTRY ANALYSIS
CVS CAREMARK 15

Porters Five Forces Model is used to analyze the industry and a companys competition.

According to the text, The intensity of competition among firms varies widely across

industries (David, 2013). The five factors that are analyzed in Porters Five Forces Model are,

rivalry among competing firms, potential entry of new competitors, potential development of

substitute products, bargaining power of suppliers, and bargaining power of consumers (David,

2013).

CVS Caremark is part of an industry where the rivalry is very strong. This is the most

powerful force out of Porters Five Forces Model (David, 2013). There are many competing

firms in the industry. CVS Caremarks, biggest competitor is Walgreens, some of its other

competition in the industry include Rite-Aid and Walmart. CVS Caremarks market share data

increased from 2013, and continued to rise up through 2015 (CVS Pharmacy, 2017). Then from

2015 to it continued to decrease and has continued to decrease today (CVS Pharmacy, 2017).

The current market care price is 70.26, which has increased 0.46 from the previous number (CVS

Pharmacy, 2017). Rite Aid Corporations shares have dropped even more drastically (Rite Aid

Pharmacy, 2017). Walgreens, CVS Caremarks biggest competitor has its stock selling at a

higher price (Walgreens, 2017). Its competitors stocks have dropped a little from 2016 to 2017,

but not by much (Walgreens, 2017). From 2012 to present it has continued to rise, despite the

one current minor drop in price (Walgreens, 2017).

With the companys already strong competition, there could be potential entry of new

competitors as well (David, 2013). CVS has started selling its own brand of products that are

more cost efficient in order to be more affordable. With the company making its own brand of

drugs, it does not include its own brand of prescription medications. This could potentially

happen with other companies that could take some of the customers away from CVS Caremark.
CVS CAREMARK 16

If or when this happens this could boost the amount of competing firms and increase the

competition among the companies within the industry.

There is a potential to develop substitute products in this industry. According to the text,

manufacturers competing with other manufactures of pain and headache remedies (David,

2013). CVS Caremark has developed and started selling a generic brand of medications (David,

2013). Having the companies in the industry develop and start selling its own brand of products

make these products more affordable for its customers (David, 2013). There are several different

brands of medications for the different symptoms that one may require medications for. This

means that there is potential for more substitute products to be developed in the industry.

Having companies supply their own brand of products could hurt their suppliers. There is

a lengthy process when it comes to who CVS Caremark allows to supply the products that they

sell in their locations. CVS Health will pay for the merchandise, services, and other assets

received at the negotiated costs, allowances and agreed upon terms (CVS Health Suppliers,

2017).

According to the CVS Caremarks supplier contract information, All new suppliers will be

immediately placed on hold until Category Management approval of release. All new suppliers

must follow New Item/Supplier Policy as set forth by CVS (CVS Health Suppliers, 2017).

The bargaining power of supplies is high in this industry. This is because there are

several companies that are competing within this industry. These companies started to develop

their own brand of products to sell to its customers and this allows them to gain some power of

the competition (David, 2013). These products do not include prescription drugs. When these

companies produce their own brands of products it could hurt the suppliers who are getting these

companies the products that they need in order to satisfy the needs of its customers.
CVS CAREMARK 17

According to the text, The bargaining power of consumers can be the most important

force affecting competitive advantage (David, 2013). There are five ways that consumers can

gain competitive advantage (David, 2013). These five ways are, if they can inexpensively

switch to competing brands or substitutes, if they are particularly important to the seller, if sellers

are struggling in the face of falling consumer demand, if they are informed about sellers

products, prices, and costs, and if they have discretion in whether and when they purchase the

product (David, 2013). Consumers are able to purchase the stores brand of products at a cheaper

cost (David, 2013). Consumers are not able to buy these products in bulk because they are

regulated. The products that are regulated are drugs and other such items that are monitored. This

is done so people are not abusing or using the medications for things other than what they are

intended for. The demand for the products sold by CVS Caremark and other companies within

the industry will always be there. People are always getting sick or getting hurt making the need

for medications constant.

COMPETITIVE STRATGIES

The competitive strategy matrix that was selected for this company is the Grand Strategy

Matrix. This matrix positions companies into one of the four quadrants that it displays. This

matrix has two dimensions that it evaluates. The two dimensions are competitive advantage and

market or industry growth (David, 2013).

CVS CAREMARK 18

CVS Caremark would be placed in quadrant one of the grand strategy matrix. Companies

in this quadrant are in an excellent strategic position. It is important for these companies to focus

on the competition in the industry and market penetration. For these firms, continued

concentration on current markets (market penetration and market development) and products

(product development) is an appropriate strategy (David, 2013). CVS Caremark has forward,

backward, and horizontal integration. Forward integration is used by CVS Caremark because it

controls its supply and the products that it has in its stores (CVS Health, 2017). It has horizontal

integration because there are several companies that are in competition with CVS Caremark

(CVS Health, 2017). It also has a good market penetration strategy (Vaillancourt, Land, &

Michaud, 2010). The company knows the needs of its customers and has made a way to create its
CVS CAREMARK 19

own brand of generic drugs, not including any prescription medications. This makes some of

these medications more affordable for its customers and keeps more customers able to buy the

products that they need. Companies in this quadrant take advantage of product development and

are able to penetrate the market (Vaillancourt, Land, & Michaud, 2010). This matching tool

applies to CVS Caremark because it shows how the company is able to penetrate the market and

compete with its competition in the industry. Its biggest competition is Walgreens, but CVS

Caremark has continued to try to keep up with the latest trends and needs of its customers in

order to satisfy them and continue to have them visit the stores.

FINANICAL ANALYSIS

CVS Caremark Companys revenue for the year is 177.53B. The net income is 5.32B.

The enterprise value is 94.26B. The net profit margin percentage is 2.93. The overall earnings

before interest, taxes, depreciation, and amortization (EBITDA), is 12.19B. The percent of return

on capital is 5.72. The book value per share is 33.59 and the shares outstanding is 1.02B. The last

split factor was on 6/7/2005, and it was a 2:1 ratio. The last dividend was 0.50 on 10/23/17.

These are good factors for the company CVS Caremark.

GROWTH RATES

Financial Health

In analyzing the financial health ratios of CVS Caremark compared to the entire industry,

it shows the financial standing of the company. The debt to equity ratio of CVS Caremark is

0.75, and the industry is 0.62. This ratio shows that the company is overall not doing as well as

the entire pharmaceutical industry as a whole because their number is much larger. The current
CVS CAREMARK 20

ratio is 1.09 for the company, which is better than the 0.79 ratio for the industry. This must mean

that CVS Caremark is doing better financially than the average pharmaceutical industry. The

quick ratio is better for the company than the average one for the industry as a whole as well.

The company number is 0.54, compared to the 0.62 number for the industry. This means that the

company is able to liquidate its assets in order to pay its short term debts (Kokemuller, 2017).

The interest coverage is less than the industry at 9.49, compared to 10.60. The leverage ratio is

also less than that of the industry at 2.71, compared to 3.12. These ratios show that the company

is in good financial standing overall, and is growing.

Trading Statistics

The payout ratio for CVS Caremark is 37.00. The split factor for this company is 2:1.

This means that in a 2:1 split, shareholders get two new shares for every share they hold

(Zacks, 2011). This can help a company because its makes stocks cheaper. The idea behind a

stock split is to get the price down to where small investors find the shares a bit more affordable

(Zacks, 2011). According to Zacks Finance Company, Generally, public companies always

want to increase the number of shareholders to get a larger percentage of the public supporting

the companys success (Zacks, 2011).

Management Effectiveness

The companys return on equity percentage is less than the industry as a whole at 15.38,

compared to 17.34. The return on assets percentage is a little more than that of the industry. The

company is at 5.72 percent, and the industry is 5.52 percent. The return on capital percentage is

9.51, compared to 11.41, which is that of the industry. The employee income is much less as
CVS CAREMARK 21

compared to the industry. The company is at 21.19k and the industry is at 35.42k. This is not

good for the employees. The inventory from year to year is less than the industry. CVS

Caremarks turnover is 10.70, versus 12.76, which is that of the industry.

PROFITABILITY

The gross margin for the company is behind that of the industry. CVS Caremarks gross

margin is 15.83, compared to 20.71 of the industry. This means that the company is doing very

well when it comes to its total sales revenue minus the cost of the goods that it is selling. This

shows that the company is still making money, on the goods that it is selling, which is not much

behind the industry as a whole. This company has a lower pre-tax margin compared to the

industry. Its pre-tax margin is at 4.76, compared to 5.86. This ratio shows that the company is

less profitable than other companies that are in the same working industry. The net profit margin

shows that the company is making money because of its 2.93 ratio, but is not keeping up with

other companies in the industry, with a 3.72 ratio. The average gross margin for companies in the

pharmaceutical industry is 19.20, which is more than that of CVS Caremark at 17.80. The

average pre-tax margin is also less for CVS Caremark than the industry at 5.40 versus 5.72.

These two ratios show that the company is in fact making money but not as much as other

companies in the pharmaceutical industry. These ratios are not bad for the company but they are

not as much as the industry as a whole.

PRICE RATIOS

The current P/E ratio is commonly used to measure how expensive a companys stock is.

CVS Caremarks current P/E ratio is less than that of the industry, at 13.70 compared to 20.66.
CVS CAREMARK 22

The P/E ratio 5-year high is significantly less than that of the industry at 22.73, versus 145.38.

This shows that the highest price is much less than the industry as a whole, which is not good for

the company that means that the companys stocks were much lower than the highest of the

industry within the past 5 years. The P/E ratio for the 5-year low is 8.87, compared to 38.64. This

shows the companys lowest trading value compared to the industry within the last 5 year span.

These two ratios show that the company has been doing worse in the past. The current ratio is

better than the industry which might be a good thing for the company and it could be doing better

than it was in the past. The price/sales ratio is 0.40 compared to 0.68, and the price/book value is

2.04, compared to 3.11. The price/book value is similar compared to the industry this means that

the company is comparable when it comes to analyzing its book value to its current market price.

FINANCIAL STRENGTHS AND WEAKNESSES

By analyzing the company financially, its strengths and weaknesses are able to be noted.

The company is financially strong when it comes to its stocks, the company has a 2:1 split ratio.

This means that the stocks are becoming cheaper and that more people will be able to purchase

them and purchase larger quantities of them. This is a strength of the company because it would

mean that more people would want to participate in the stocks and the success of the company.

This is good for the growth of the company. CVS Caremark had a 37.00 payout ratio. This is

good for the people who choose to participate in the stock market and purchase CVS Caremarks

stocks. The company currently has 1.02B share outstanding, which means that the companys

shares are still being purchased and invested in. Another strength of the company is that it has a

higher return on assets ratio than that of the industry. Its rate of return on assets is 5.72,
CVS CAREMARK 23

compared to 5.52 of the industry. This shows that the company is able to use its assets in order to

make a profit.

The weaknesses of the company are that it pays its employees significantly less than that

of the industry, at 21.9k, versus 35.42k. This could cause its employees to want to go work for

the companys competition. Another weakness is that the debt to equity ratio of CVS Caremark

is 0.75, and the industry is 0.62. This ratio shows that the company is overall not doing as well as

the entire pharmaceutical industry as a whole because their number is larger.

Raising Short-Term Capital

CVS Caremark is able to raise its short-term capital. This means that the company is able

to turn assets into liquid funds within a 12 month period (Business Dictionary, 2017). The value

of the short-term debt account is very important when determining a companys performance

(Investopedia, 2017). CVS Caremarks short term debts is less than the cash and cash equivalents

of the company, which means that the company is in good financial standings (Investopedia,

2017).

Raising Long-Term Capital

CVS Caremark can raise its long-term capital by the additional sale of stocks. Company

stock and stock options may be used in an effective incentive program (Investopedia, 2017).

With more cash in the company coffers, additional compensation may be offered to investors,

stakeholders, founder and owners, partners, senior management and employees enrolled in stock

ownership plans (Investopedia, 2017). Appealing to the stakeholders of the company, by using

stock can be a good way for this company to raise its long-term capital.
CVS CAREMARK 24

Sufficient Working Capital

CVS Caremark does have sufficient working capital. This is calculated by subtracting the

current liabilities from the current assets of the company (Investopedia, 2017). This would leave

the company with a sufficient amount of working capital.

Effective Capital Budgeting Procedures

CVS Caremarks budgeting procedures are in fact effective. The company itself has a

higher return on assets than that of the industry. This shows that the managers are more effective

because they have a higher percentage than the average company in the industry. This means that

they also have effective capital budgeting procedures (Investopedia, 2017).

Dividend-Payout Policies

The dividend payout policies of this company are reasonable. They have a 2:1 split

factor, new per old and are paying out 37.00.

Relations with its Investors and Stockholders

CVS Caremark does have good relations with its investors and stockholders. The

company have a 2:1 split factor. This means that the company has made its shares more

affordable so that more people are able to buy shares and support the company. The payout ratio

for the company is 37.00 as well.

Financial Managers
CVS CAREMARK 25

Larry J. Merlo is the Chief Executive Officer of CVS Caremark. Under Merlos

leadership, the company is transforming health care by delivering breakthrough products and

services that enable people, businesses and communities to manage health in more affordable,

effective ways (CVS Health, 2017). Merlo has been a part of this growing company since 1990,

and in 2016 he helped the company make $177.5 billion in net revenues (CVS Health, 2017).

The Chief Financial Officer of CVS Caremark is David M. Denton. He joined the company in

1999 (CVS Health, 2017). Denton has more than 15 years of finance experience primarily in the

health care and drug retail industries (CVS Health, 2017). Jonathan C. Roberts is the Chief

Operating Officer, he has more than 30 years of pharmacy health care experience (CVS Health,

2017). He is in charge of the companys assets and making sure that they are operating at full

efficiency, and utilizing all of its key resources (CVS Health, 2017).

All of the firm highest financial managers are well trained and have a large amount of

experience. Merlo has a degree as a pharmacists and has been working in the industry for almost

30 years. He also serves on the Board of National Association of Chain Drug Stores (NACDS)

(CVS Health, 2017). Denton has a MBA and also a BA and has been working in the industry for

over 20 years. Roberts has a degree in pharmacy and has been a part of the industry for more

than 30 years. All of these top individuals have helped shape and help this company continue to

grow.

RECOMMENDATION STRATEGY

Strategic Alternatives
1 2 3
CVS CAREMARK 26

Build New Develop

Stores and Expand Products Additional
Expand Sold in Stores Products for its
Locations Customers

Key Factors Weight AS TAS AS TAS AS TAS

Opportunities
1. Demand for Generic Drugs Increase 0.10 3 0.30 4 0.40 3 0.30
2. Mail-Order Pharmacies Increase 0.02 4 0.08 4 0.08 4 0.08
3. 24-Hour Telephone Support 0.02 0 0 0 0 0 0
4. Aging Population 0.05 4 0.20 0 0 0 0
5. Affordable Care Act 0.02 0 0 0 0 0 0
6. Eliminate the Medicare Gap 0.02 0 0 0 0 0 0
7. Prescription Drug and Modernization
0.02 0 0 0 0 0 0
Act
8. Offer Clinical Health Services 0.10 0 0 3 0.30 2 0.20
9. Sells other Staple Grocery Items 0.05 0 0 4 0.20 4 0.20
10. Reduced Costs within Store
0.10 0 0 3 0.30 3 0.30
Services

Threats
1. Walgreen Company Expanding 0.05 3 0.15 0 0 0 0
2. High Unemployment Rates 0.05 0 0 3 0.15 3 0.15
3. Economic Distress 0.05 3 0.15 3 0.15 3 0.15
4. Health Care Costs Rising 0.05 3 0.15 0 0 0 0
5. Ability to Seek Medical Care
0.05 4 0.20 0 0 0 0
Decreased
6. Medicaid Participation Close 0.05 2 0.10 0 0 0 0
7. Many Rivals 0.10 3 0.30 3 0.30 3 0.30
8. Rite Aids Loyalty Program 0.02 0 0 4 0.08 2 0.04
9. Walgreens Largest Drugstore 0.05 1 0.05 0 0 0 0
10. Other Drug Stores Utilize Social
0.03 0 0 0 0 0 0
Media Sites
1
Strengths
1. Two Different Operating Segments 0.10 3 0.30 3 0.30 2 0.20
CVS CAREMARK 27

2. Sells Multiple Different Products 0.05 0 0 3 0.15 4 0.20

3. Increase in Revenues 0.05 2 0.10 0 0 0 0

4. Provides Flu Vaccinations 0.05 0 0 0 0 0 0

5. Face-to-Face Patient Counseling 0.05 0 0 0 0 0 0
6. Provides Services for Diabetics 0.05 0 0 0 0 0 0
7. Open 24 Hours Per Day as Drive-
0.05 3 0.15 0 0 0 0
Thru Window
8. Continuing to Open in more
0.04 4 0.16 0 0 0 0
Locations
9. CVS Branded Products 0.04 0 0 3 0.12 4 0.16

10. ExtraCare Health Cards 0.02 0 0 0 0 0 0

Weaknesses
1. Weak Vison and Mission Statement 0.05 0 0 0 0 0 0
2. Operates Almost Entirely in the
0.05 2 0.10 0 0 0 0
United States
3. Pharmacists Cannot Prescribe
0.05 0 0 0 0 0 0
Medicine
4. Pharmacy Service makes Less than
0.05 0 0 0 0 0 0
Retail
5. Gross Profit Decreased 0.05 0 0 0 0 0 0
6. Increased Inventory from Year-to-
0.05 0 0 0 0 0 0
Year
7. Decreased Stock Options 0.05 0 0 0 0 0 0
8. Walgreens Taking Market Shares
0.05 0 0 0 0 0 0
from CVS
9. Firms Market their Products as
0.05 0 0 2 0.10 4 0.20
Being Cheaper
10. Net Income Decreased 0.05 0 0 2 0.10 0 0
Total 1 2.49 2.73 2.48

CVS Caremark is in a stable place when it comes to its financial status. It is important for

the company to have long-term objectives in order to move in a positive growing position and
CVS CAREMARK 28

continue to advance and keep up with the growing competitive industry that it is a part of. It is

important for the company to have clear stated objectives so it is able to minimize uncertainty

and conflicts that may arise. Some options that CVS Caremark could do to maximize its

opportunities would be to build new stores and expand to new locations, expand its products sold

in stores, and develop additional and new products for its customers.

Strategy One

The first strategy that this company could use to maximize and expand its opportunities is

to build new stores and expand to different locations. This would help the company expand and

open up for more customers to use. This would increase sales and customers who choose to use

this company for their pharmaceutical needs because it is conveniently located. This could help

by keeping up with Walgreens, its biggest and growing competition. Other companies within the

industry are continuing to expand and this would allow CVS Caremark to keep up with the

trends and continue to penetrate the market in new areas and acquire more of a target market. It

would expand opportunities for this company if it were to add more locations and expand to new

locations or countries other than the United States.

Strategy Two

The second strategy that this company could do it expand the products that are sold in

stores. This could open up to more customers that would stop into the locations and purchase the

quick items that they may need at their convenience. This could also allow customers who are

stopping in to pick up prescriptions to purchase other items that they may need while they are in

the store as well. It is important to listen to the customers and what they want in order for the
CVS CAREMARK 29

company to learn its weaknesses and grow from them. This strategy would allow the company to

expand to new opportunities as well as minimize its weaknesses, pointed out by the consumers.

Strategy Three

The third strategy is to develop additional items to be sold in the store. This could mean

that the store could produce more of its own brand of products. These products could be offered

at a cheaper rate and could appeal to individuals who cannot afford the name brand version of

items that they may need. If the store is open to selling more items this could allow people to

want to use this store for their needs. A weakness of these stores is that they could be limited on

the brands of products that are available for the consumers to purchase. Knowing this could

allow CVS Caremark to produce more items in its own brand and this could allow the company

to grow on the opportunity and this could be considered a strength of the company. It is a

strength of the company to be able to provide its customers with the products that they are in

need of or want. If they are able to do this by producing more of their own brand this could

maximize its opportunities and help consumers out by them wanting to purchase the cheaper

version of the items that they may need.

Best Strategy Conclusion

CVS Caremark could implement all of the three suggested strategies. It may be in the

companys best interest to continue to expand its locations because this could help it be

successful and continue to grow financially. This could allow more customers to want to use the

stores and perks that it has to offer. It could also be beneficial for the company to expand its

products and to continue to make more of its own brand of products as well.
CVS CAREMARK 30

If the company expanded its locations and continued to build new stores it could build

bigger stores that could hold more products and allow for the company to add more products of

its own name brand. Having the opportunity to expand locations, including in other countries,

could maximize the strengths of the companies and allow them to grow and adjust to changing

trends in the industry. A weakness of the company, being in the pharmaceutical industry is that

Walgreens being in that industry as well, is CVS Caremarks biggest competition. Walgreens is

still expanding and is operating the best in the industry at this current time. Companies, like CVS

Caremark need to be able to take advantage of new opportunities and maximize its strengths, but

at the same time limit the number of threats, while minimizing its weaknesses at the same time.

All companies and are going to the strengths, weaknesses, opportunities, and threats, but it is

important that all companies use them as a learning experience and grow from them, minimizing

the negative, and maximizing the positive in any ways that it can.

The pharmaceutical industry is a very competitive industry with stores such as CVS

Caremark, Walgreens, Wal-Mart, and Rite-Aid all competing for the same customers to use their

stores and products. These are all factors that were mentioned in the case statement. Competition

and consumer wants are important for these types of companies. It is important for companies to

be able to focus and address the factors mentioned in their case statements in order to continue to

advance and grow in the completive industry. All three of the proposed strategies would allow

for the company to be able to expand in order to keep up with its competition, which is the other

growing companies in the industry. They would also allow for the company to be able to reach

out to its consumers and meet their needs and wants, by expanding its products as well as

developing more of its own brand of products as well.

CVS CAREMARK 31

MARKKULA CENTER FOR APPLIED ETHICS

The Markkula Center for Applied Ethics app was used in order to decide whether the

proposed strategies for the company were the best and ethical that they can be (Santa Clara

University, 2017). This app keeps the companies stakeholders in mind and would allow for the

best option to be chosen for the company. There are five different ethical perspectives that are

evaluated, and weighted in order to figure out the best ethical option (Santa Clara University,

2017). The five factors that are evaluated in this app are utility, rights, justice, common good,

and virtue (Santa Clara University, 2017). All are rated and weighted in order to doing more

good or more harm for each strategy (Santa Clara University, 2017).

By completing the questions and rating the five factors for each strategy, all three would

do well for the stakeholders of the company. Strategy one, expanding to new locations and

building new stores would be the most beneficial for CVS Caremarks stakeholders.

Stakeholders are people who show interest in the company and its success. This would allow for

more jobs to open up in many different locations. This would be the most ethical option for the

stakeholders.

STRATEGY IMPELMENTATION

There are many factors that CVS Caremark will need to consider in order to implement

the proposed strategy successfully. These steps are going to include aspects from three main

areas within the company, including, marketing, operations, and finance. All of these

departments need to be able to complete the necessary tasks in order to implement the strategy in

a timely manner. These tasks need to be executed by the CVS Caremarks leadership team. The

proposed strategy that this company should use would be to build new stores and expand to new
CVS CAREMARK 32

locations. This will be completed by setting long term goals and objectives in order for the

strategy to be implemented and completed successfully.

In order for the company to be successful in executing the proposed strategy, CVS Caremark

needs to complete all of the following tasks successfully.

MARKETING:

Brainstorm all of the ideas that are going to need to be put into play with the addition of

buildings and expansions of locations.

Come up with some way of advertising the project of building new buildings and

expanding to new locations so that customers are aware of the proposed project.

Come up with tasks that need to be completed and which team is going to complete each

of them.

Set small objectives and goals that are going to be completed and during what time frame

in order to meet the overall objective and goal of adding more building and expanding to

new locations.

RESEARCH AND DEVELOPMENT:

Research areas that are in need of an additional pharmaceutical company. This includes

within the United States and also expanding to new countries.

Research any specific laws and regulations when it comes to expanding to different

countries.
CVS CAREMARK 33

Develop a plan that could be executed when it comes to adding to the current number of

existing buildings as well as expanding to new locations.

HUMAN RESOURCES:

Discuss roles and plans with the Human Resources Managers, especially when it comes

to expanding to other countries. CVS Caremark is mainly located in the United States, so

this transition would allow this company to switch from a national company to an

international pharmaceutical company.

Discuss with the department about who is going to be working for each team, and how

that are the most qualified and best fit for each assignment during the development.

Discuss with the department about the small objectives, and deadlines that are going to be

set in order to reach the goal of the overall long-term objective.

FINANCING:

Make sure that the company has the necessary funding in order to properly execute the

task, or is able to receive the funding that it will need.

Obtain the necessary funding in order to carry out the overall long-term objective.

Obtain the necessary funding in order to hire and pay the people needed for the task to be

completed by the deadline.

The most difficult task that CVS Caremark will face is financing this project because it is

a large one. There is going to be a large amount of funding for this timely project that the

company is either going to have to use or borrow in order to execute the necessary tasks to
CVS CAREMARK 34

complete the long-term goal of expanding. The company has been performing financially well,

considering the several other companies that it has been, and is still competing with in the

industry.

The company must first decide where it wants to add locations to in the United States, if

any, and what other countries it wants to expand to and start to penetrate the market in. All of the

different departments that are listed above need to be considered and have a meeting when it

comes to executing the proposed plan. This could include doing research about the countries and

their health system in order to figure out which countries are in need of pharmaceutical

companies. Also, it could be beneficial to visit the other countries or areas where the company

may want to expand to in order see the area and how well the store would fit into the

environment in the area. This could include doing a survey of the area as well as visiting local

doctors offices and observing what the need is for pharmaceutical drugs in the area. This will be

helpful for the company to determine where the best locations are going to be in order to the

company to be successful in the market in the observed area.

To ensure that all parts of the proposed plan are executed property there will be

leaders who are in charge of leading each team. There will be different teams that will be in

charge of each step during the process so it is important that the leaders be well rounded and

know what the plan, deadlines, and policies are. It will be important that the appropriate

information is given to the companys health construction and property administration team in

order to all operations to be completed in a smooth and effective manner. There are many

departments that are important when it comes to making the plan happen. There is the

architecture and engineering services department. This department is in charge of building &

site design, prototype & specification, brand management & value engineering (CVS
CVS CAREMARK 35

Construction, 2017). The second department involved in the process is the construction project

management which executes the required number of new store and special projects each year

(CVS Construction, 2017). The third department that is involved in the execution of this

development is the retail facility management team. This team maintains over 94 million sq. ft.

of retail space (CVS Construction, 2017). The fourth department is the retail program strategy

and administration department, which develops scope, schedule and budget for existing store

programs (CVS Construction, 2017). The fifth department is the administrative facilities

management department, this department maintains over 1.7 million sq. ft. of corporate office

space (CVS Construction, 2017). The seventh department is the print operations department.

This department produces in store signage for over 7,500 retail locations (CVS Construction,

2017). The eighth department is the capital and energy management team, this team is in charge

of capital planning, energy programs, utilities, and internal service scorecards (CVS

Construction, 2017). The final team is the store set-up team. This teams goal is to complete

your remodel/reset project on time and within budget with as little interruption to your business

and costumers as possible (CVS Construction, 2017).

This plan should cost around $200,000 per store in order to execute this plan and keep up

with the competition within the industry. The company can finance this plan by selling stocks in

order to raise the necessary capital it will need in order for this plan to operate and be completed

successfully.

CONCLUSION

In conclusion, CVS Caremark will be able to effectively execute the proposed strategy.

There will be many teams involved in order for the plan to be implemented successfully. The
CVS CAREMARK 36

company is doing well when it comes to its financial standings, but it needs to continue to use its

strengths and expand to new opportunities in order to keep up and be successful when it comes

to the other companies competing within the industry. The company will have to minimize its

weaknesses in order to continue to grow against its threats.

CVS CAREMARK 37

REFERENCES

Business Dictionary, (2017). Short-term capital. Retrieved from http://www.businessdictionary.c

com/definition/short-term-capital.html

CVS Caremark, (2017). CVS health history. Retrieved from http://cvshealth.com/about/company

-history

CVS Construction, (2017). Welcome to CVs health construction & property administration. Retr

ieved from www.cvsconstructionpropertyadmin.com

CVS Health, (2017). Leadership. Retrieved from https://cvshealth.com/about/leadership

CVS Health Annual Report, (2016). Health is where the heart is. Retrieved from investors.cvshe

alth.com/~/media/Files/C/CVS-IR-v3/reports/annual-report-2016.pdf

CVS Health Suppliers, (2017). CVS health supplier financial relationship policy & guidelines.

CVS Pharmacy, (2017). CVS Caremark investors. Retrieved from https://www.caremark.com/w

ps/portal

David, F. (2013). Strategic management: A competitive advantage approach. Upper Saddle Inc.

Return on assets. Retrieved from http://www.inc.com/encyclopedia/return-on-assets-roa.

htm

Investopedia, (2017). Short-term debt. Retrieved from http://www.investopedia.com/terms/s/shor

ttermdebt.asp

Kokemuller, N. (2017). What does it mean when your quick ratio is below industry? Chron.

River, NJ. Pearson Education.

MarketWatch, (2017). CVS Health Corp. Retrieved from https://www.marketwatch.com/investin

g/stock/cvs/profile

Rite Aid Pharmacy, (2017). Rite Aid Pharmacy investors. Retrieved from https://www.riteaid.co
CVS CAREMARK 38

Santa Clara University, (1851). Markkula center for applied ethics. Retrieved from https://www.

Scu.edu/ethics/ethics-resources/ethics-app//#getTheFacts

Statista, (2016). CVS health, statistics & fact. Retrieved from https://www.statista.com/tropics/15

99/cvs-caremark/

Vaillancourt, C. Land, M., & Michaud, E. (2010). CVS Caremark Corporation. MBA Lectures.

Walgreens, (2017). Walgreens investors. Retrieved from https://www.walgreens.com

Zacks, (2011). What is a 1:50 stock split? Retrieved from https://finance.zacks.com/150-stock-

split-1758.html
CVS CAREMARK 39

APPENDIX A

(CVS Health Annual Report, 2016)

CVS CAREMARK 40

APPENDIX B

(CVS Health Annual Report, 2016)

CVS CAREMARK 41

APPENDIX C

(CVS Health Annual Report, 2016)

CVS CAREMARK 42

APPENDIX D

(CVS Health Annual Report, 2016)

CVS CAREMARK 43

APPENDIX E

RATIOS

(MarketWatch, 2017)