Strategic Management of CVS Caremark Company and Coinstar - Assignment Example

CVS Caremark Company’s Financial Results: CVS Caremark Company seems to have a strong financialposition based on its public financial results. In the financial year 2011, the company performed better than the preceding years with increase in the revenues, profits and margins. A stable performance was also seen by the company determined by the growth in EPS, dividend growth and increase in stock price. (CVS Caremark. Annual Report 2011) CVS’s recorded revenue in year 2009 was $98,215 million, in year 2010 it reduced to $95,778 million where a reduction of 2% was seen and in year 2011 these results were increased to $107,100 million, with an increase of 11.8%. Similar increases and trends were seen in the net income of the company where a decrees was seen in year 2010 as compared to year 2009 followed by an increase in year 2011 where the reported net income was $3,461 million. The company’s debt to equity ratio in 2011 can be calculated as 24% which is reasonable when compared to industry average of 25% which means company have balanced structure of finance and is doing well. The current ratio of the company for year 2011 is 1.5 as compared to industry ratio of 1.6. The company is doing well when it comes to its liquidity position and seems to have enough cash resources cash dividends were also increased from 35 cents/share in 2010 to 50 cents/share in 2011. Further all the positivity in the financial results were reflected in an increase in the stock price of the company too which increased from $34.77 to $40.78 in year 2011 with an increase of 17.3%. The EPS of the company has also improved from $ 2.49 in 2010 to $ 2.59 in 2011 with an increase of 4%. Overall the company has a strong financial position with growth and stability in the company. (CVS Caremark. Annual Report 2011) Coinstar Inc. Financial Results: Coinstar Inc. seems to have a strong financial position too based on its public financial results. The company is not as large as the CVS but is profitable with increasing revenues, profits and margins. A stable performance was also seen by the company determined by the growth in EPS, dividend growth and increase in stock price. (Coinstar Inc. Annual Report 2011) Coinstar’s recorded revenue in year 2009 was $1,032 million, in year 2010 it increased to $1,436 million where an increase of 39% was seen and in year 2011 these results were increased to $1,845 million, with an increase of 28%. Similar increases and trends were seen in the net income of the company where an increase was seen in year 2010 as compared to year 2009 followed by an increase in year 2011 where the reported net income was $103 million. The company’s debt to equity ratio in 2011 can be calculated as 68% which is almost double when compared to industry average of 38% which means company relies too much on debt as a source of finance and doesn’t have a balanced structure of finance. The current ratio of the company for year 2011 is 1 as compared to industry ratio of 2. The company seems to have major cash flow issues which are evident from the non-payment of dividends and the increased debt to equity ratio which means the company is paying heavy finance costs. Overall the company is profitable but seems to have some concerning areas like cash flow issues due to using debt as source finance. (Coinstar Inc. Annual Report 2011) The CVS Company is a huge company as compared to Coinstar. The CVS has a strong financial status with billions of dollars of sales and large scale of operation while the Coinstar though has a lot of presence in many countries is also a profitable business. The revenues and reporting profits of both the companies are growing and it is always a wise idea to acquire a company with increasing revenues as is seen in Coinstar. The revenues of Coinstar are in much higher increasing trends as compared to CVS Company which shows the company has a lot of potential to grow sales. (Coinstar Inc. Annual Report 2011) Both the companies CVS and Coinstar are sound financially but the only issue Coinstar has is its new financing facility. The company has chosen debt as a source of finance which has increased financing costs to bear and can cause liquidity issues to the company. This is also evident by the current ratio of the company which is 1 as compared to industry average of 2 which shows that in the near future the company can face liquidity problems. CVS on the other hand is a company with good liquidity position and can save Coinstar in this respect. Since Coinstar doesn’t pay out dividends due to its policy, its stock price and EPS isn’t as steady as that of CVS, acquiring a company with such policies can be concerning for the shareholders of CVS Company. (Coinstar Inc. Annual Report 2011) Economic and Strategic Traits of CVS Caremark Company: CVS Caremark Company along with its many subsidiaries is the largest health care pharmacy provider in the USA. CVS faces close competition with one of its competitors Walgreen, other competitors seem not be of very significant size. CVS aims to deliver benefits to health plan sponsors in a cost effective and innovative way. CVS offers services that give the customers wider choices and greater access to personalized services leading to a better health care. CVS effectively runs pharmacy benefits management, mail order and speciality pharmacy division with 7,300 CVS pharmacy retail stores. (CVS Caremark. Annual Report 2011) CVS Company’s strategically positioning has been like a fox which is opportunistic and open in making choices. It commercial and financial convictions both seem to be the scale and scope which will be the profitability drivers for the industry. CVS has grown via acquisitions and it seeks its financial conviction through scale and scope via acquisitions only. In the past CVS in between years 1997 to 2009 made six large acquisitions along with many small ones which extended its scope and scale of operations which has influenced its strategic positing too. Because of its different and frequent acquisitions it ahs inherited many different stores at many places all over the country which makes it difficult for the company to run all these on the same level and smoothly for which it has started assessing on the basis of stores profitability and have closed down many stores too. (CVS Caremark. Annual Report 2011) The industry in which CVS operates the potential of growth of sales is increasing that is the pharmacy sales, further these sales are greatly influenced by the benefits managers and other intermediaries. The government also exercises great influences by setting prices or setting limits for the prices of drugs. There is an increasing trend seen in the industry and due to advancement in technology that the customer can now order and receive their prescriptions over internet or mails which has reduced the need to physical retail stores. The key requirements to operate in such an industry are the excellence in operating skills and cost efficiencies are required. (Kontes. 2010) Economic and Strategic Traits of Coinstar: Coinstar deals in two segments basically, one is coin counting Coinstar and the other Redbox which rents DVD and video games. Coinstar is expanding by increasing their presence and installing their kiosks at every place. In 2011 the company installed 5,200 Redbox kiosks and 1,300 coinstar kiosks making it a total of 35,400 Redbox kiosks and 20,200 coinstar kiosks. The company is concentrating on expanding its Redbox segment where it is growing slowly and stably and has become one of the most popular sources of physical movie rentals in the USA. The competition in the segment of coin counting doesn’t seem to be severe; there are few players in the industry in which major competitor are Cummins Allison Corporation. In the other segment of DVD and video games rental business, Redbox, there are many competitors and the industry and market share seems to be parted in many players but Redbox is still the leader. (Coinstar Inc. Annual Report 2011) Strategically, Coinstar has taken few aggressive decisions in the early years of its establishment. Later the company changed its strategic positioning and mostly the company has expanded through joint ventures and partnerships. One of the acquisitions undertaken by the company was that of Redbox in 2008 which fuelled the growth of the company. In 2008 the company also sold its three of four differentiated line of business and decided to operate just coin counting and DVD segments. Initially in the early 2000s the company tried to diversify its revenue earnings for a more stable portfolio which wasn’t very successful and the company had to sell these with a change in the CEO and the senior management. The company recently in 2011 has invested in the segment named as New Ventures which deals in coffee and chirp business and works under the two segments. The company plans to implement many ideas through establishing kiosks like selling small high value electronic gadgets, a photo booth connected to the internet etc. Thus the company in the long run has many plans to establish kiosks integrating their technology with other commodities. (Hitt Ireland & Hoskisson. 2011) SWOT Analysis CVS Caremark Company: Internally the company is strong as it is evident from it financials, with billions of dollars of revenue, increasing profits and surplus cash flow. Further the company’s strength lies in its strong market position. CVS Company is the largest health care pharmacy provider in the USA. Due to its huge scale operations it covers a wide area and have stores dispersed all over USA making its presence dominant through its large network of retail stores. Another strength the company counts on is its strong inventory management system. For the purpose the company has developed a strong integrated supply chain and close coordination with its suppliers which makes it possible for the company to achieve this. One of the major internal weaknesses faced by the company is its low receivable turnover that is very significant amount of turnover is held by the customers which can be a problem for the company anytime. Further since the company had made many acquisitions, it owns many retail stores by virtue of these acquisitions, many of which are not on favorable positions to the company or are not according to the standards of the company. Many robberies have also been reported in the stores of CVS which shows the weaknesses in security checks too. Externally there are opportunities like the growing population of USA and their increased use of drugs. Another opportunity that can be identified is the increasing trend of organic drugs and anti aging drugs, which all can result in increase in the business. The company also faces tough competition from its competitors like Walgreen and Pfizer. Due to increased technological advancements the company needs to upgrade its online services which can be a challenge, further changes in governmental policies can also be a challenge for the company. (CVS Caremark (SWOT Analysis). Nd) SWOT Analysis Coinstar: Coinstar has profitable financial results too which seems to indicate the strengths of the company. Once of the biggest strengths of the company which ahs given boost to its financials and other areas in the revenue earned from Redbox, which was the first successful DVD rental kiosk category. Further the company has strong marketing plans and is able to create high brand awareness due to its marketing strategies. Further its presence and location of kiosks all over the country also serve as its strengths. The company has internal weaknesses too which include its lack of integration with a new acquisition which was seen in disposing off three of its lines of business. Further the company has just invested in a new line of business where it has obtained a new finance facility too incurring high finance costs. (Faloye et al. 2010) The company has many opportunities for the future too as it is diversifying into many new businesses through New Ventures. This will give the company access to many markets and can be a source of increase in the revenues for the future. There is a growing market of DVD rentals and the company can add alternate means to cater this market. The threats in the external environment can be identified as a society which goes cash less. The business is based on providing cash in kiosks, due to increasing e-commerce solutions plastic currency is now much more used, which can be a great threat to the business. (Faloye et al. 2010) Recommendations: The analysis of both the companies provides many for and against arguments to the acquisition. Both the companies operate in the retail sector but greatly differ in areas of business, strategic positioning, financial positing etc. CVS Caremark has grown and expanded through acquisitions, most of them have been successful. But it should be noted that CVS has mostly acquired and diversified in related businesses while Coinstar is a different business, the acquisition of which could create issues like the management of the company. On the other hand Coinstar has started New Ventures project which is focusing on further diversification of the business in many unrelated activities which can further add to the problem if the company is acquired. The only benefit this acquisition can provide CVS is the integration with the New venture by Coinstar where they can add pharmacy products to the portfolio and provide them through kiosks. Secondly, CVS already faces problems of acquiring many retail stores after the acquisitions made, many of which are now even closed and the company faces great problems in managing such a large retail network. Acquiring Coinstar, with thousands of stores can add to the problem. Thirdly, financially Coinstar just invested in New Ventures and has great cash flow issues with very high debt to equity ratio. One of the important considerations for this acquisition would be the future finance costs and the chances of failure of New Ventures. The chances of failures of new Ventures can also be analysed by previous acquisitions and projects by Coinstar, most of which have not been successful. Therefore acquiring Coinstar will be a highly risky investment and the costs and disadvantages outweigh the benefits. It is recommended that the CVS Carmark shouldn’t acquire Coinstar due to difference in their areas and scale of business, strategic positioning and financial positing. Works Cited Hitt, M. A., Ireland, R. D., & Hoskisson, R. E. (2011). Strategic management: Competitiveness & globalization. Mason, OH: South-Western Cengage Learning. Kontes, P. W. (2010). The CEO, strategy, and shareholder value: Making the choices that maximize company performance. Hoboken, N.J: John Wiley & Sons. Coinstar Inc. Investor Relations. Annual Report 2011. 2011. Web. 19 June. 2012 CVS Caremark. Annual Report 2011. 2011. Web. 19 June. 2012 CVS Caremark (SWOT Analysis). Nd. Web. 19 June. 2012. http://www.yousigma.com/comparativeanalysis/cvscaremark.html Faloye et al. Integrated Company Analysis. Coinstar Inc. December 15. 2010. Web. 19 June. 2012. http://business.library.wisc.edu/resources/kavajecz/10_Fall/Coinstar_Report.pdf Read More